Fed’s Commercial Real Estate Aid May Have Few Deals for Start

By Scott Lanman

June 16 (Bloomberg) -- The Federal Reserve may have few, if any, securities deals for the start of its program to aid the commercial real estate market and head off more losses at U.S. banks.

Today is the first monthly deadline for investors to apply for loans to buy new commercial mortgage-backed securities through the Term Asset-Backed Securities Loan Facility, or TALF. No issuers have publicly announced debt that’s eligible for the program. The Fed has made $25.2 billion in TALF loans for other securities, including those backed by auto and credit-card debt.

“I would be very surprised” if there are any deals this month, said Kevin Petrasic, a former official at the Office of Thrift Supervision who is now an attorney with Paul, Hastings, Janofsky & Walker LLP in Washington. “Unless the market really starts to pick up within the next couple weeks, I think July is going to be a little challenging as well.”

The stakes of TALF aid extend beyond the markets for office and retail space. Worsening problems in the commercial mortgage market may accelerate the drop in property values, increase defaults and weaken banks’ finances, New York Fed President William Dudley said this month.

Dudley set expectations low, saying in the June 4 speech that he didn’t expect any activity today because “the process for CMBS securitization takes quite a while to ramp up.”

“Don’t take that as a mark of the success of the CMBS effort, please,” he said at the time.

When Fed policy makers last met in April, some officials cited “mounting losses in commercial real estate, which could have substantial adverse consequences for regional banks and other financial institutions with significant concentrations of such assets,” according to minutes of the two-day session.

Deadline Today

Today’s application deadline applies to securities issued this year. In late July, the Fed will start accepting investor requests for loans to purchase older CMBS.

“This may be, and likely is, more challenging than dealing with other eligible assets,” said Laurence Meyer, vice-chairman of Macroeconomic Advisers LLC and a former Fed governor.

The Fed, acceding to an industry request in May, authorized TALF loans of as long as five years, up from three years for other parts of the TALF. Real estate groups including the Mortgage Bankers Association had lobbied the Fed for the extended loan terms.

Fed officials hope the TALF -- an emergency program that may make up to $1 trillion in loans -- will help revive the $760 billion market for CMBS. That in turn would lower interest rates and expand the availability of loans for the commercial real estate market.

Stabilize Market

“The revival of the CMBS market is essential to stabilizing the commercial real estate market,” Dudley said in the speech.

A slow start for the TALF’s CMBS support would mirror the first phase for other asset-backed debt, which began in March with $4.7 billion in requests followed by $1.7 billion in April. Loan requests exceeded $10 billion in both May and this month.

Demand was hampered in part by investor opposition to government restrictions on hiring foreign workers for firms that accepted the subsidized loans, and concern that Congress would try to retroactively tax earnings.

Sales of CMBS plummeted to $12.2 billion last year, compared with a record $237 billion in 2007, according to estimates by JPMorgan Chase & Co. There have been no sales of the debt since June 2008.

Deals have been few partly because it can take up to six months from the time a loan is originated to when it’s securitized.

Making Deals

“It takes a little while to put the deals together,” Petrasic said.

In addition, the Fed posted the legal forms for CMBS in the TALF on June 9, leaving little time for participants, said Chip MacDonald, a partner at law firm Jones Day in Atlanta.

“I’m not saying it can’t be done, but it certainly makes it more challenging and reduces the people who will participate in it,” MacDonald said. TALF-related CMBS activity may not increase for one or two months, he said.

Standard & Poor’s said last month it may cut the ratings of top-rated commercial mortgage bonds, rendering the older securities ineligible for the Fed program, which only accepts AAA rated bonds. The yield gap, or spread, relative to benchmark interest rates on the top-rated CMBS has widened about 2 percentage points to 8.39 percentage points since the May 26 announcement.

‘No Final Decisions’

“There have been no final decisions made about our new CMBS criteria,” Ed Sweeney, a spokesman for S&P, said in an e- mailed statement. “Once we have examined all of the feedback, we will issue the new criteria.”

By comparison, the yield premium investors demand to buy investment-grade corporate bonds compared with benchmark Treasury securities has declined to 3.38 percentage points as of June 12 from 6.04 percentage points at year-end, according to Merrill Lynch & Co. data.

Fed Chairman Ben S. Bernanke said in congressional testimony on May 5 that lending conditions in the commercial real estate sector are “still severely strained.”

“The more liquidity you can get in the market, the better off the commercial real estate market is going to be,” MacDonald said.

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

Read more...

German Investor Confidence Rises to Three-Year High

By Simone Meier

June 16 (Bloomberg) -- German investor confidence rose more than economists forecast to a three-year high in June after evidence emerged that the recession in Europe’s largest economy is bottoming out.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 44.8 from 31.1 in May. That’s the highest reading since May 2006. Economists expected a gain to 35, according to the median of 35 forecasts in a Bloomberg News survey.

There are signs Germany’s worst economic slump since World War II is easing. The pace of contraction in the manufacturing industry is slowing and business confidence has started to improve. The benchmark DAX Index has gained 35 percent since touching a five-year low three months ago. Still, the government expects the economy to shrink 6 percent this year.

“Although today’s ZEW index is good news, the growth expectations of most financial analysts seem to be overhasty,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “The recent stock market rally seems to have obscured the weak state of the backbone of the German economy.”

The euro rose a third of a cent to $1.3922 after the report. A gauge measuring investors’ assessment of the current economic situation rose to minus 89.7 from minus 92.8 in May, ZEW said.

‘Improved Mood’

Germany’s Daimler AG, the world’s second-biggest maker of luxury cars, said improving consumer sentiment may boost sales by the end of the year. An “improved mood” may already be developing among high-end auto buyers, Chief Executive Officer Dieter Zetsche said on June 5 in St. Petersburg, Russia.

German Chancellor Angela Merkel’s government has pledged to spend about 85 billion euros ($117 billion) in an effort to rekindle growth, including tax breaks and a 2,500-euro payment for consumers who scrap their old car and buy a new one.

The European Central Bank this month held its key interest rate at a record low of 1 percent. It has announced plans to purchase 60 billion euros of covered bonds and lend banks as much money as they need for up to 12 months to help revive lending.

“I’d warn against a premature exit strategy,” ECB council member Ewald Nowotny, who heads Austria’s central bank, said at a conference in Vienna late yesterday. “We are still in a crisis. The primary goal should be to restore economic growth as fast as possible.”

‘Not Out of The Woods’

Deutsche Bank AG Chief Executive Officer Josef Ackermann said on June 11 he sees encouraging signs of a global economic recovery “at a modest level.” Still, “we’re not out of the woods,” the head of Germany’s largest bank said.

Commercial banks in the 16-nation euro region may lose a further $283 billion by the end of next year as the financial crisis forces them to write off bad loans, the ECB said yesterday.

The Bundesbank on June 5 predicted German unemployment will rise to 10.5 percent next year from 8.2 percent currently, even after monetary and fiscal stimulus “help the economy to find its feet in the summer months of 2009.”

“Despite a mild recovery in the course of the year, the outlook for 2010 remains for a low level of economic activity,” it said.

Continental AG, Europe’s second-largest car-parts maker, said on June 5 it may eliminate as many as 2,600 of its 27,000 German jobs by the end of 2010 to counter a drop in demand. The Hanover-based company cut 6,000 jobs in the first quarter.

Volkswagen AG, Europe’s largest automaker, said on June 12 that “very weak” global car markets aren’t yet recovering, even as the company’s sales rose in May for the first time in eight months thanks to government incentives.

“The rate of economic contraction across the euro zone is moderating appreciably and business confidence has risen,” said Howard Archer, chief European economist at IHS Global Insight in London. Still, “economic activity will remain too weak to actually generate jobs until well into 2010.”

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

Read more...

U.S. Factory Production Falls; Capacity at Record Low

By Bob Willis

June 16 (Bloomberg) -- Industrial production in the U.S. fell in May for the 16th time in the last 17 months, reflecting declines in consumer goods and business equipment that signals the manufacturing slump remains broad-based.

Output at factories, mines and utilities decreased 1.1 percent last month, in line with forecasts, after falling a revised 0.7 percent in April, Federal Reserve data showed today in Washington. The amount of industrial capacity in use dropped to a record-low 68.3 percent.

The fallout from bankruptcies at Chrysler LLC and General Motors Corp. may ripple beyond auto-related industries in coming months. Without a rebound in manufacturing, any recovery from the worst economic slump in half a century will take longer to emerge.

“Production is still falling and that can only mean that this recession isn’t over yet,” Chris Rupkey, chief economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “The consumer is still on a buying strike so many companies are scaling back their output to adjust for the reduced demand.”

Economists forecast industrial production would fall 1 percent, according to the median of 74 projections in a Bloomberg News survey, after an initially reported 0.5 percent drop in April. Estimates ranged from a decline of 1.7 percent to an increase of 0.3 percent.

Construction Jumps

Another report showed housing starts and building permits soared in May, signaling the almost four-year slump in residential construction is abating. Builders broke ground on 532,000 homes at an annual pace last month, exceeding forecasts and up 17 percent from April, figures from the Commerce Department showed. Building permits, an indicator of future construction, also climbed more than anticipated.

Stock-index futures held gains following the reports. The Standard & Poor’s 500 contract was up 0.3 percent at 9:24 a.m. in New York. Treasury securities fell, pushing the yield on the 10-year note to 3.74 percent from 3.71 percent late yesterday.

Manufacturing, which accounts for about fourth-fifths of total production, dropped 1 percent after a 0.6 percent decrease in April. Factory production was down 15 percent since May 2008, the biggest 12-month drop since 1946.

Car Production

Motor vehicle and parts production slumped 7.9 percent in May after falling 1.2 percent the prior month, today’s report showed. Declines are likely to continue in coming months after Chrysler and General Motors shut plants to reduce inventories as they headed into bankruptcy.

Chrysler shut all its plants on May 1 to clear as many unsold vehicles as possible from dealer lots while it restructures. The sale of most of Chrysler’s assets to a group led by Italian automaker Fiat SpA was completed last week.

GM, the biggest U.S. automaker, said June 1 it is stopping work at 14 plants as it restructures under Chapter 11.

Excluding automobiles, factory output dropped 0.6 percent for a second month, today’s Fed report showed. Utility production decreased 1.4 percent. Mining output, which includes oil drilling, fell 2.1 percent.

Other consumer goods retreating last month included home electronics, clothing and furniture and appliances.

Production of business equipment declined 1.4 percent. Output of computers and electronics fell 1.1 percent, signaling companies continue to cut investments.

Stockpiles Cut

As orders have tumbled amid the worst recession in five decades, companies have slashed production to lower inventories. Companies trimmed stockpiles in the first quarter at a $91.4 billion annual rate, the biggest drop since records began in 1947, according to figures from the Commerce Department last month. At the time, economists said the drop set the stage for an improvement in economic growth toward the end of the year.

General Electric Co. is among companies starting to see some improvement in economic conditions. Chief Executive Officer Jeffrey Immelt said at a conference last week that government efforts to thaw credit are starting to pay off, making it easier for companies to borrow.

“Capital markets have largely healed,” Immelt said. “As a company, you have to invest now. You have to invest when things are darkest.” Immelt predicted the economic recovery will be slower than that following the 1982 recession, the last slump that approached the severity of the current downturn.

One positive aspect of the excess in capacity is that it will help control inflation should raw-material costs keep rising, economists say.

Producer prices rose 0.2 percent in May, less than forecast and reflecting a drop in food costs, the Labor Department said in an earlier report today. Core costs, which exclude food and energy, dropped for the first time in more than two years.

“The slack in resource utilization remains sizable, and, notwithstanding recent increases in the prices of oil and other commodities, cost pressures generally remain subdued,” Fed Chairman Ben S. Bernanke told Congress on June 3. “We anticipate that inflation will remain low.”

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

Read more...

Pound Rises Versus Dollar as Inflation Slows Less Than Forecast

By Matthew Brown

June 16 (Bloomberg) -- The pound rose from a one-week low against the dollar after a report showed U.K. inflation slowed in May less than economists predicted, making it more likely the Bank of England will raise interest rates.

Sterling also advanced versus the Swiss franc after the Office for National Statistics said consumer prices rose an annual 2.2 percent, compared with 2.3 percent in April. The rate was forecast to fall to 2 percent, according to a Bloomberg survey. Policy makers cut the main rate to 0.5 percent in March and began buying bonds to lower borrowing costs.

“The higher-than-expected inflation number is clearly supporting sterling,” said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group AG, Switzerland’s largest bank by market value. “The market is pricing in higher interest rates.”

The pound advanced for the first time in three days, rising 0.9 percent to $1.6461 at 1:52 p.m. in London. It earlier fell to $1.6215, the lowest level since June 9. Sterling climbed 0.1 percent to 84.45 pence per euro and appreciated 0.3 percent to 1.7864 Swiss francs.

Traders increased bets today on a boost in interest rates, with short sterling futures for March delivery rising to 1.86 percent, from 1.83 percent yesterday.

“The currency is increasingly sensitive to signals on inflation and associated interest-rate decisions, however distant they may be,” said Gregory Claeys, an economist in Paris at Calyon, the investment-banking unit of Credit Agricole SA.

Moving Averages

The pound may extend its advance against the dollar after two technical indicators known as moving averages crossed.

The U.K. currency’s 50-day moving average, currently at $1.5422, passed yesterday through its 200-day moving average of $1.5361. When a shorter-dated moving average rises through a longer-dated one, further gains in a currency are likely. For the pound, the cross was the first in three years. A moving average is a technical indicator that displays the average value of a security over a period of time.

The last time the pound’s 50-day moving average climbed through the 200-day measure was in May 2006, which marked the beginning of a 12 percent rally to $2.1161 in November 2007, the highest level in 26 years.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

‘Not Over’

“Pound strength is not over,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd. “Overseas investors still find U.K. assets cheap. The risk-aversion bubble from excessive fear in 2009 is bursting. The pound is benefiting as we move away from the fear trade.”

U.K. two-year gilts, which are sensitive to interest-rate expectations, fell, pushing the yield up four basis points to 1.42 percent. The 4.25 percent security due in March 2011 fell 0.08, or 80 pence per 1,000-pound face amount, to 104.81. The 10-year gilt yield rose three basis points, or 0.03 percentage point, to 3.90 percent. Bond yields move inversely to prices.

Britain sold a greater-than-expected 7 billion pounds ($11.5 billion) of 25-year gilts after receiving more than 10 billion pounds in bids, bankers said.

The debt will be priced to yield 11 basis points more than the 4.25 percent gilt maturing in 2032, used as a benchmark for the security, the bankers managing the sale said. The amount exceeded the 3 billion pounds to 5 billion pounds the Debt Management Office estimated yesterday would be raised.

The yield was revised down from the earlier range of 12 basis points to 15 basis points bankers indicated earlier because of the increased demand.

Barclays Plc, Goldman Sachs Group Inc., HSBC Holdings Plc and Royal Bank of Scotland Group Plc arranged the transaction. They will price the bond and allocate it to investors later today, the bankers said.

To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

Read more...

U.S. Housing Starts Soared in May; Permits Also Rose

By Shobhana Chandra

June 16 (Bloomberg) -- U.S. builders broke ground on more houses than forecast in May, offering a sign that the industry’s slump, now in its fourth year, may be approaching an end.

The 17 percent increase in housing starts to an annual rate of 532,000 followed a 454,000 pace the prior month, the Commerce Department said today in Washington. Building permits, an indicator of future construction, also rose more than estimated.

Lower prices and tax incentives are attracting buyers, potentially laying the groundwork for housing to rebound and reduce its drag on the economy. Still, rising unemployment is causing many Americans to hold off on big purchases and foreclosures continue to mount, so a sustained homebuilding recovery may take longer to emerge, analysts say.

“It’s fair to say that we have found a bottom in housing, though the concern is that the bottom is at a very low level,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “We have a long way to go to reach more normal levels of activity.”

A separate report today showed that U.S. wholesale prices rose less than anticipated in May as food costs dropped. The Labor Department reported that its producer price index, on an annual basis, fell 5 percent last month, the biggest slide in half a century.

Stocks, Treasuries

U.S. stock futures extended gains after the housing report, indicating the Standard & Poor’s 500 Index may rebound from its biggest drop in a month. Futures on the Standard & Poor’s 500 Stock Index rose 0.4 percent to 923.10 at 9:08 a.m. in New York. Treasuries fell, with benchmark 10-year note yields rising to 3.74 percent from 3.71 percent late yesterday.

Housing starts were projected to rise to a 485,000 annual pace, after a previously reported 458,000 the prior month, according to the median forecast of 71 economists surveyed by Bloomberg News. Estimates ranged from 450,000 to 600,000.

Permits rose 4 percent to a 518,000 pace from a 498,000 rate the previous month. They were forecast to increase to a 508,000 annual rate.

Construction of single-family homes rose 7.5 percent to a 401,000 rate, the third straight monthly gain. Work on multifamily homes, such as townhouses and apartment buildings, jumped 62 percent to an annual rate of 131,000.

Regional Breakdown

The increase in starts was led by a 29 percent jump in the West and a 17 percent increase in the South. They rose 11 percent in the Midwest and 2 percent in the Northeast.

Home starts have still plunged 45 percent from a year earlier, today’s report showed, and are down from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades.

Other recent reports show combined sales of new and existing homes increased in April, and the number of Americans signing contracts to buy previously owned homes rose for the third straight month.

Falling prices are bringing homes within reach of more consumers, and the Obama administration’s economic stimulus plan included an $8,000 tax credit for first-time buyers for purchases completed before Dec. 1.

Builders continue to face competition from existing properties. Mortgage delinquencies and foreclosures jumped to records in the first quarter, according to the Mortgage Bankers Association. One in eight Americans is now late on a payment or in foreclosure.

Mortgage Rates

Mortgage rates have climbed, even as the Federal Reserve works to trim borrowing costs by purchasing Treasuries and keeping the benchmark interest rate close to zero.

The average rate on a 30-year home loan surged to 5.57 percent in the week ended June 5, the highest since November, according to the mortgage bankers group. That’s up from a record-low level in late March.

Toll Brothers, the largest luxury homebuilder, and Hovnanian, New Jersey’s biggest builder, this month reported quarterly losses as revenue plunged. Still, the companies narrowed their losses from a year earlier.

“Some buyers are beginning to re-enter the new home market,” Robert Toll, chairman and chief executive officer of Toll, said in a June 3 statement. “Cancellations appear to be leveling off” even as “concerns about job security and the economy continue to inhibit traffic,” he said.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net

Read more...

Brazil’s Real Increases as Interest Rates Attract Investment

By Telma Marotto

June 16 (Bloomberg) -- Brazil’s real rose for the first time in three days as interest rates among the highest in the world attract investments to Latin America’s biggest economy and as commodity prices increased.

The currency gained 0.8 percent to 1.9344 per U.S. dollar at 8:24 a.m. New York time, from 1.9502 yesterday. The real is up 20 percent in 2009, the best performer against the dollar among the 16 most-traded currencies tracked by Bloomberg.

Policy makers cut the benchmark interest rate more than economists estimated to a record low of 9.25 percent on June 10. The rate is high enough to keep attracting investments, said Luciano Sobral, an analyst with Sao Paulo-based FRAM Capital Participacoes SA.

“A country with a strong currency, good external accounts and solid growth and yet paying such high interest rates -- it’s rare to find,” Sobral said. “Brazil is in a relatively strong position for having a strong currency and being a commodities exporter.”

The central bank lowered its benchmark rate by 1 percentage point after the market closed on June 10, more than the 0.75- percentage-point reduction forecast in a Bloomberg survey of 48 economists. Policy makers have cut borrowing costs four times this year, reducing the rate from 13.75 percent to shore up the economy amid the global financial crisis.

The UBS Bloomberg Constant Maturity Commodity Index rose 1.7 percent today. Nearly two-thirds of Brazil’s exports are commodities like iron ore, oil and soybeans.

To contact the reporters on this story: Telma Marotto in Sao Paulo at tmarotto1@bloomberg.net

Read more...

Canada’s Dollar Appreciates From 3-Week Low as Crude Oil Rises

By Chris Fournier

June 16 (Bloomberg) -- Canada’s currency rose from the lowest in three weeks as crude oil gained and the U.S. dollar weakened amid consideration by Brazil, Russia, India and China, the so-called BRIC countries, of steps that may lessen dependence on the greenback.

“Crude and commodities in general have been helping the Canadian dollar,” said Steve Butler, director of foreign- exchange trading in Toronto at Scotia Capital Inc., a unit of Canada’s third-largest bank. “Today there are some worries about the BRIC conference again discussing the U.S. dollar as the world’s reserve currency.”

The Canadian currency strengthened 0.8 percent to C$1.1239 per U.S. dollar at 8:22 a.m. in Toronto, from C$1.1334 yesterday, when it touched C$1.1377, the weakest since May 22. One Canadian dollar buys 88.98 U.S. cents.

Crude for July delivery advanced 2.5 percent to $72.36 a barrel on the New York Mercantile Exchange. Crude is Canada’s largest export.

The leaders of the BRIC countries, meeting today in the Ural Mountains city of Yekaterinburg, Russia, are considering buying each other’s bonds and swapping currencies to lessen dependence on the U.S. dollar, Russian President Dmitry Medvedev’s top economic adviser Arkady Dvorkovich told reporters before the group’s first summit.

To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

Read more...

Euro Rises From Three-Week Low as German Sentiment Advances

By Oliver Biggadike and Bo Nielsen

June 16 (Bloomberg) -- The euro rose from a three-week low versus the dollar after German investor confidence increased in June more than economists forecast.

The 16-nation currency also pared a drop against the yen as the ZEW index advanced to the highest level in three years. The dollar dropped against most of its major counterparts as leaders of the BRIC nations, Brazil, Russia, India and China, considered buying each other’s bonds and swapping currencies to reduce dependence on the greenback.

“There’s no denying it was a strong ZEW,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. Combined with the BRIC nations’ discussion of the dollar, “it was a pretty potent driver for a short squeeze in euro-dollar,” he added.

The euro climbed 0.6 percent to $1.3882 at 9:19 a.m. in New York, from $1.3803 yesterday. It earlier fell to $1.3749, the lowest level since May 21. The euro traded at 134.73 yen, compared with 134.99, after earlier dropping 1.7 percent to 132.74, the lowest level since May 28. The yen advanced as much as 1.8 percent to 96.08 per dollar, the biggest intraday gain since May 29, from 97.84, before trading at 97.12.

The ZEW Center for European Economic Research in Mannheim, Germany, said its index of investor and analyst expectations, designed to predict developments six months ahead, increased this month to 44.8, the highest level since May 2006. Economists expected a reading of 35, according to the median of 35 forecasts in a Bloomberg News survey.

‘Scraping Along’

“The panic situation is behind us, but the economy is still only scraping along the bottom,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London. “The reflation trade may have one more leg up left in it before it loses steam.”

Europe’s currency may rise to as high as $1.50 per dollar in the next three months before retreating to about $1.35 by the end of the year, Hardman said.

The Dollar Index, used by the ICE to track the greenback against six major currencies including the euro, pound and Swiss franc, fell 0.8 percent.

The yen posted its biggest intraday gain versus the dollar in two weeks after the Bank of Japan raised its view of the nation’s economy for a second month and left the target overnight lending rate at 0.1 percent.

The dollar remained lower versus the euro on reduced demand for the greenback’s safety as a Commerce Department report showed U.S. builders broke ground in May on more houses than economists forecast.

‘Risk Appetite’

“We still need evidence that these improvements are feeding through to the economy for risk appetite to continue,” said Henrik Gullberg, a London-based currency strategist at Deutsche Bank AG, the biggest foreign-exchange trader.

Output at U.S. factories, mines and utilities decreased 1.1 percent last month after dropping 0.7 percent in April, Federal Reserve figures showed today. The median forecast of 74 economists surveyed by Bloomberg News was for a 1 percent drop.

The dollar declined versus the euro on speculation leaders from the BRIC nations will discuss the greenback’s role as an international reserve currency at their meeting today in the Ural Mountains city of Yekaterinburg, Russia.

“If we get a change in attitude from Russia, maybe we will get some softening of the U.S. dollar in the short term, but I don’t think it’s a medium-term trend,” said Sebastien Barbe, a Hong-Kong based currency strategist at Calyon, the investment banking unit of France’s Credit Agricole SA.

Medvedev on Currency

Russia’s President Dmitry Medvedev said in Yekaterinburg that the world economy can’t rely on one reserve currency.

“The strengthening of the international currency system” requires first creating regional reserve currencies and then a “supranational currency,” Medvedev told leaders of the member states of the Shanghai Cooperation Organization. “Reinforcing the international currency system should not be done through reinforcing only the dollar,” he added.

The BRIC countries have combined reserves of $2.8 trillion and are among the biggest holders of U.S. Treasuries. The first BRIC summit comes after Brazil, China and Russia announced plans to shift some foreign reserves into International Monetary Fund bonds, driving Treasuries and the dollar lower.

Russia is hosting back-to-back summits of the Shanghai Cooperation Organization, which is a regional security group, and the BRIC nations.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net

Read more...

Crude Oil Rises for First Time in Three Days on Weaker Dollar

By Grant Smith

June 16 (Bloomberg) -- Crude oil rose for the first time in three days as the dollar weakened against the euro and before a report on stockpiles in the U.S.

The U.S. Energy Department will probably say tomorrow that crude stockpiles dropped 2 million barrels last week, according to a Bloomberg survey. Oil lost 2 percent yesterday, extending its decline from last week’s seven-month high of $73.23 a barrel as a stronger dollar made commodities less appealing as a currency hedge.

“The pullback in the dollar is supporting all commodities,” said Andrey Kryuchenkov, an analyst with VTB Capital in London. “Sentiment remains positive, but it’s likely the market will consolidate ahead of the U.S. inventory data tomorrow.”

Crude oil for July delivery rose as much as $1.50, or 2.1 percent, to $72.12 a barrel in electronic trading on the New York Mercantile Exchange. It traded for $71.70 as of 12:52 p.m. London time.

U.S. crude oil supplies probably dropped as refiners ramped up production and boosted stockpiles of gasoline and heating oil, a Bloomberg News survey showed. Inventories are 11 percent above the five-year average for this time of year.

Gasoline supplies probably rose 550,000 barrels in the week ended June 12 from 201.6 million the previous week. All of those surveyed said supplies climbed. Stockpiles during the same week last year fell 1.2 million barrels amid the peak motor fuel demand season in the U.S.

Bleak Picture

“The economic picture still looks very bleak,” said Andy Sommer, analyst at Elektrizitaets-Ges Laufenburg AG in Dietikon, Switzerland. “Most global economies are still in recession inventories are extraordinarily high, so we expect prices to correct down to the mid-to-low $60s.”

Brent crude for August delivery rose as much as $1.58, or 2.3 percent, to $71.82 a barrel on London’s ICE Futures Europe exchange. Yesterday the contract lost $1.56, or 2.2 percent, to $70.24 a barrel.

Iranian opposition supporters plan a fourth day of protests in Tehran against President Mahmoud Ahmadinejad’s re-election, after seven people were killed in violence at a rally in the capital yesterday. Iran is the world’s fourth-largest crude oil producer.

“For the time being, the Iranian situation seems to be neutral,” said Edward Meir, analyst with MF Global Ltd. in Connecticut. “Although the oil markets were unimpressed by the frenzied weekend developments,” events seem “to have picked up a gear over the past 24 hours, in that the size of the opposition protests have become significantly larger.”

The U.S. dollar dropped for the first day in three against the single European currency, losing 0.9 percent to $1.3911 as of 12:50 p.m. London time. Declines in the U.S. currency heighten the appeal of dollar-priced assets that can be used to hedge against inflation, such as crude.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

Read more...

Australia’s Newcastle Coal Exports Decline 17 Percent

By Jesse Riseborough

June 16 (Bloomberg) -- Coal exports from Australia’s Newcastle, the world’s biggest export harbor for the fuel, dropped 17 percent last week and the number of ships waiting outside the port fell.

The volume shipped in the week ended 7 a.m. local time yesterday fell to 1.8 million metric tons from 2.17 million tons a week earlier, Newcastle Port Corp. said today on its Web site. A total of 33 ships, waiting to load 3.2 million tons of coal, were lined up outside the port, down from 37 last week.

Coal ships waited 11.1 days to load coal, up from 10.7 days a week earlier, Newcastle Port said. The waiting time compared with 1.2 days for general cargo vessels last week, it said.

The weekly price index for power-station coal shipped from Newcastle advanced 3.3 percent last week to $76.75 a ton, the highest in almost four months, according to the globalCOAL NEWC index. Rio Tinto Group, Xstrata Plc and BHP Billiton Ltd. are among mining companies that ship coal through Newcastle.

A total of 22 vessels carrying coal left Newcastle in the week ended June 13, Newcastle Port said today in an e-mailed report. Seven ships were bound for Japan, six for South Korea, five for China and one each for New Caledonia, Vietnam, Mexico and Malaysia.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net

Read more...

Wheat Output in Australia May Reach 4-Year High, Bureau Says

By Madelene Pearson

June 16 (Bloomberg) -- Wheat production in Australia, the world’s fourth-largest exporter, may reach the highest in four years, according to data from the nation’s commodity forecaster.

Output may be about 22 million metric tons in 2009-2010, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with its March forecast of 22.1 million tons and last year’s crop of 21.4 million tons.

Wheat in Chicago has dropped 9.7 percent this month as favorable weather helped improve prospects for the winter crop in the U.S., the world’s biggest exporter. Recent rainfall across growing regions in Australia has provided optimism for planting, the bureau said.

“Rainfall in late May and early June was timely for those winter crops that had already been sown and provided an opportunity for remaining planting intentions to be realized,” Phillip Glyde, the bureau’s executive director, said in the statement. “The amount and timing of rainfall during the rest of the season will critically affect the extent to which these production outcomes are achieved.”

Wheat futures for July delivery rose 0.6 percent to $5.7850 a bushel on the Chicago Board of Trade in after-hours electronic trading at 9:37 a.m. Sydney time.

Australian grain growers sow crops including wheat, barley and canola from about April to June for harvest starting from November.

The area sown to wheat is forecast at 13.5 million hectares, the second year more than 13 million hectares have been sown, the bureau said. Wheat output of 22 million tons would be the highest since the 25.2 million ton harvest in 2005-2006, according to bureau data.

Barley production may rise 13 percent to 7.7 million tons, while canola output is forecast to drop 9 percent to 1.7 million tons, the bureau said.

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

Read more...

Soybean Futures Rebound on Slow U.S. Planting; Wheat Advances

By Luzi Ann Javier

June 16 (Bloomberg) -- Soybean futures rallied and wheat futures rose for the first time in five sessions as investors judged yesterday’s plunge as excessive and the U.S. said planting of the oilseed remained behind the five-year average.

Soybeans yesterday posted the biggest closing-price drop since Feb. 17 and wheat fell to the lowest in almost a month as the dollar gained. Some 87 percent of soybean crops were sown, down from the five-year average of 92 percent, the U.S. Department of Agriculture said yesterday in a report released after the close of trading in Chicago.

“There continue to be problems as far as planting” in the U.S. is concerned, Peter McGuire, managing director at Commodity Warrants Australia Pty in Sydney, said by phone today.

July-delivery soybeans gained as much as 1.7 percent to $12.17 a bushel, after closing down 3.9 percent yesterday. The futures traded at $12.13 a bushel at midday in London. The November-delivery contract gained 1.6 percent to $10.4125 a bushel. The U.S. begins harvesting the next soybean crop in September.

Wheat for July delivery rose as much as 1.1 percent to $5.815 a bushel in Chicago, after dropping to $5.68 yesterday, the lowest since May 18.

Euronext milling wheat for November delivery rose 1.50 euros, or 1 percent, to 147.50 euros a metric ton in Paris.

About 9 percent of U.S. winter-wheat was harvested as of June 14, compared with 5 percent a week earlier, 16 percent a year earlier and the previous five-year average of 19 percent, the USDA said.

Export Inspections

The U.S. inspected 12.5 million bushels of soybeans for export in the week ended June 11, 36 percent higher than the 9.2 million bushels inspected a week earlier, the USDA said yesterday in separate report. Corn export inspections totaled 31 million bushels, 17 percent higher than 26.5 million bushels a week earlier, the report said. The U.S. is the world’s biggest grower and exporter of soybeans and corn, according to USDA data.

“There could be a shortfall, which in turn will probably force prices up,” McGuire said. “We might be seeing a continuous strengthening of the corn, soy and wheat prices over the coming months.”

South Korea has bought up to 825,000 tons of corn, 220,000 tons of soybean meal and 110,000 tons of feed wheat from overseas since June 11, said two industry executives who are familiar with the purchases. The executives asked not to be identified as the trades were confidential.

Corn for July delivery gained as much 1.2 percent to $4.11 a bushel in Chicago. The most-active contract yesterday lost as much as 4.7 percent to $4.055 a bushel, the biggest drop since Jan. 13.

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

Read more...

Asian Stocks Drop Most in a Month on Resources, Growth Concerns

By Shani Raja and Masaki Kondo

June 16 (Bloomberg) -- Asian stocks dropped, sending the MSCI Asia Pacific Index down the most in a month, as commodities fell and investors questioned the pace of the economic recovery.

PetroChina Co., China’s biggest oil producer, sank 2.6 percent in Hong Kong and Rio Tinto Group, the world’s third- largest mining company, lost 3 percent in Sydney as oil and copper fell. Toyota Motor Corp., the No. 1 automaker worldwide, declined 3.4 percent after the yen strengthened and a New York manufacturing report missed estimates. Asia stocks extended a global slump that dragged the MSCI World Index down by the most in two months yesterday.

“Some may have believed that the deterioration of the global economy had ended, but that’s not the case,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $52 billion in Tokyo. “Those who bought stocks on a perception the economy would improve are now selling on reality.”

MSCI’s Asia index retreated 1.6 percent to 101.92 as of 7:14 p.m. in Tokyo, the biggest drop since May 14. The gauge has surged 44 percent from a more than five-year low on March 9 amid speculation the global economy is recovering. The index trades at 23.4 times estimated earnings, compared with 14.5 for the Standard & Poor’s 500 Index in the U.S.

Japan’s Nikkei 225 Stock Average fell 2.9 percent to 9,752.88 even as the central bank raised its assessment of the economy for a second month. The Bank of Japan left its benchmark overnight lending rate unchanged at 0.1 percent. Hong Kong’s Hang Seng Index declined 1.8 percent.

Emerging Market

The Kospi Index dropped 0.9 percent in Seoul as MSCI Inc., whose stock indexes are tracked by investors with about $3 trillion in assets, left South Korea unchanged as an emerging market. The country, home to Asia Pacific’s sixth-largest stock market, had been under review for an upgrade to developed status.

Konica Minolta Holdings Inc. slumped 6.6 percent in Tokyo after Credit Suisse Group AG downgraded the printer maker. Australia’s Nufarm Ltd., which supplies farm chemicals, sank 12 percent after cutting its profit target. Among stocks that rose today, Macquarie Communications Infrastructure Group surged 26 percent after receiving an increased takeover bid.

Futures on the S&P 500 dropped 0.2 percent. The gauge slid 2.4 percent yesterday, the most since May 13, as the Federal Reserve Bank of New York’s general economic index fell to minus 9.4 in June from minus 4.6 the previous month. Economists in a Bloomberg survey had expected the gauge to stay unchanged. Readings below zero for the index signal manufacturing is shrinking.

‘Moderate’ Recovery

The New York data were the latest in a string of figures that have made some investors more cautious about economic growth prospects. Japan’s government reported on June 8 that the country’s current-account surplus narrowed in April as exports slumped. Overseas shipments declined 26.4 percent last month from a year earlier, China’s customs bureau said on June 11.

“Investors expected the global economy will recover at a fairly fast pace, but this view is changing to one that a recovery will remain moderate,” said Fumiyuki Nakanishi, a strategist at SMBC Friend Securities Co.

Crude oil declined 2 percent yesterday, falling for a second session. September-delivery copper on the Shanghai Futures Exchange slid as much as 2.2 percent to the lowest for a most-active contract since June 1. Oil recovered from losses in New York electronic trading today, while copper rebounded in London.

PetroChina slumped 2.6 percent to HK$8.76. Cnooc Ltd., China’s largest offshore oil producer, dropped 5.5 percent to HK$9.90. Rio Tinto slumped 3 percent to A$73.23. BHP Billiton Ltd., the world’s biggest mining company, fell 1.5 percent to A$36.46.

Green Shoots

Materials and energy stocks are among the three best performing of the MSCI Asia Pacific Index’s 10 industries in the past month as investors bet demand for raw materials will pick up as the global economy recovers. The International Monetary Fund raised its growth forecast for the U.S. economy yesterday.

“The green shoots of an economic turnaround continue to appear, but the question is whether markets have priced in a bumper harvest,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “People are now turning their attention to the appropriateness of stock prices.”

Yen Advances

Japanese exporters declined as the New York manufacturing report damped optimism their biggest market is recovering and the yen climbed, cutting the value of sales from abroad. The yen rose to as high as 132.74 against the euro, the strongest level since May 28. The Japanese currency advanced 1.5 percent to 96.35 per dollar, the biggest gain since May 29.

Toyota, which gets 31 percent of its revenue from North America, sank 3.4 percent to 3,700 yen. Sony Corp., the maker of the PlayStation 3, lost 3 percent to 2,550 yen.

The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. The rally since March has driven the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since September, according to Bloomberg data.

Konica Minolta fell 6.6 percent to 976 yen, paring its climb this year to 43 percent. Credit Suisse lowered its recommendation to “underperform” from “neutral” saying the shares may have “overheated.”

Raised Offer

Nufarm tumbled 12 percent to A$10.63 after it cut its earnings forecast on lower-than-expected weed-killer sales.

Macquarie Communications, which invests in television and radio-transmission towers, surged 26 percent to A$2.93. Canada Pension Plan Investment Board raised its offer for the company by 20 percent after shareholders threatened to block the purchase.

Berjaya Sports Toto Bhd., Malaysia’s biggest number-betting operator, rose 5.9 percent to 5.25 ringgit after fourth-quarter net income jumped 67 percent and the company announced a special dividend.

To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Read more...

U.K. Stocks Advance, Led by Tesco; BT Gains on Broker Upgrade

By Adam Haigh

June 16 (Bloomberg) -- U.K. stocks advanced for the first time in three days, led by Tesco Plc after the world’s third- biggest retailer said sales growth accelerated and as analysts recommended Royal Bank of Scotland Group Plc and BT Group Plc.

Tesco climbed 1.9 percent after reporting U.K. same-store sales rose in the first quarter. Royal Bank, Britain’s biggest government controlled-bank, and Lloyds Banking Group Plc rallied after Redburn Partners upgraded the stocks. BT, the U.K.’s largest phone company, added 4.7 percent as Morgan Stanley advised buying the shares.

“Tesco is going well,” said Anthony Grech, a market strategist at IG Index in London. “Banks too are rallying with RBS and Lloyds leading the way.”

The benchmark FTSE 100 Index climbed 32.46, or 0.8 percent, to 4,358.47 as of 12:28 p.m. in London. The FTSE All-Share Index added 0.7 percent and Ireland’s ISEQ Index advanced 0.9 percent.

The FTSE 100 has rebounded 24 percent from this year’s low on March 3 as banks and raw-material producers rallied on speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the deepest economic contraction since the Great Depression.

U.K. inflation slowed less than economists forecast in May after higher taxes and the weakness of the pound sustained price pressures in the economy. Consumer prices rose 2.2 percent from a year earlier, compared with 2.3 percent in April, the Office for National Statistics said today in London.

Tesco Gains

Tesco increased 1.9 percent to 362.9 pence. U.K. same-store sales rose 4.3 percent in the 13 weeks to May 30 excluding fuel and value-added tax. The pace compared with a 2.7 percent increase in the previous quarter. International sales rose 20.1 percent, helped by a weaker pound.

Royal Bank advanced 4.8 percent to 39.7 pence. Lloyds, the government-controlled bank that bought HBOS Plc, increased 5.1 percent to 70.2 pence.

Redburn Partners upgraded the stocks to “buy” and said “even the more dangerous deflationary scenario is priced in.”

BT added 4.7 percent to 99.4 pence. Morgan Stanley upgraded the stock to “overweight” from “equal-weight,” saying “cash flows could rebound strongly.”

“We see a 3-4 year target for the shares of around 190 pence, but the market could get there far sooner if it sees evidence of execution,” analysts including Nick Delfas wrote in the report.

British Land Co. added 2 percent to 400 pence. JPMorgan Chase & Co. raised the largest office developer in London to “overweight,” saying “revaluations of portfolios with long leases will surprise to the upside.”

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

Read more...

European Stocks Gain for First Time in Three Days; Tesco Rises

By Adria Cimino

June 16 (Bloomberg) -- European stocks advanced after German investor confidence rose to the highest in three years, adding to evidence that the worst of the recession is over.

Tesco Plc led retailers higher after reporting first- quarter sales growth that matched analyst estimates. BT Group Plc climbed 4.6 percent after Morgan Stanley recommended the U.K.’s largest phone company. National Bank of Greece SA sank the most in seven months after announcing plans for a 1.25 billion-euro ($1.7 billion) rights offer.

Europe’s Dow Jones Stoxx 600 Index added 0.5 percent to 210 at 12:11 p.m. in London. The gauge has surged 33 percent since March 9 on speculation the $12.8 trillion pledged by the U.S. government and Federal Reserve will end the deepest global economic contraction since the Great Depression.

“The confidence indicators have been positive,” said Gregoire Scheiff, a fund manager at DNCA Finance in Paris, which oversees $5.3 billion. “The market can continue to gain. Now we need to see more data on investment.”

The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations, which aims to predict economic developments six months ahead, increased to 44.8 this month from 31.1 in May, the highest since May 2006. Economists had expected a reading of 35, according to the median of 35 forecasts in a Bloomberg News survey.

Expensive Level

The rally has left the Stoxx 600 trading at 25.4 times earnings, the most expensive level since March 2004, weekly data compiled by Bloomberg show.

“Investors expected some sort of consolidation,” Philipp Baertschi, global chief strategist at Bank Sarasin & Cie. in Zurich, said in Bloomberg Television interview. “The improvement in sentiment has been so dramatic.”

Standard & Poor’s 500 Index futures added 0.3 percent before a Federal Reserve report at 9:15 a.m. Washington time that may show industrial production in the U.S. fell 1 percent in May. Other reports may show builders began work on more houses in May and wholesale prices rose.

The MSCI Asia Pacific Index sank 1.6 percent as lower commodity prices dragged down raw-material and oil producers.

Tesco added 2 percent to 363.2 pence after reporting first- quarter sales growth that matched analyst estimates as its U.K. supermarkets retained shoppers in the recession and international expansion boosted revenue. The world’s third- biggest retailer led a gauge of retail shares 1.3 percent higher, for the biggest gain among 19 industry groups in the Stoxx 600.

Carrefour, Delhaize

Carrefour SA, the second-largest retailer, added 2.2 percent to 29.37 euros. Delhaize Group, the Belgian owner of the Food Lion supermarket chain in the U.S., increased 2.9 percent to 48.57 euros.

BT advanced 4.6 percent to 99.3 pence. Morgan Stanley lifted its recommendation on the shares to “overweight” from “equal weight.”

National Bank of Greece slumped 10 percent to 18.41 euros, the biggest intraday decline since Nov. 11. The country’s biggest bank plans to offer shareholders two new shares for each nine held at 11.30 euros apiece. EFG Eurobank Ergasias SA, Greece’s second-largest lender, dropped 8.1 percent to 8 euros.

TUI AG plummeted 12 percent to 5.38 euros. The German owner of Europe’s largest travel company was rated “sell” in resumed coverage at Deutsche Bank AG, which cited the company’s exposure to container shipping trends.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

Read more...

Citigroup to Expand Reach Abroad as U.S. Faces Slower Growth

By Josh Fineman and Michael J. Moore

June 16 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank will look abroad for growth as the U.S. economy goes through an “adjustment period” marked by greater savings and less credit.

“There is a clear trade-off between stimulating the economy on a short-term basis and saving more,” Pandit, 52, said in the keynote address yesterday at the Detroit Economic Club’s National Summit. “Businesses are going to have to search for new growth drivers away from the U.S. consumption and credit creation.”

Citigroup is focusing on overseas markets after the bank’s overdependence on U.S. consumers stoked its financial woes, Pandit said. The company racked up more than $100 billion of credit losses and writedowns during a credit contraction that began in 2007. The U.S. government has pumped $45 billion into the bank and will become the largest shareholder when as much as $25 billion of the Treasury’s preferred shares are converted into common stock.

“Citi had a business model that was predicated on ever- rising U.S. consumer spending and credit creation,” Pandit said in prepared remarks. “We too were very credit-dependent and relied too greatly on non-core, or wholesale funding sources, including securitization and other aspects of the shadow banking system.”

The deleveraging of the U.S. financial system means reduced credit creation, and less available financing and working capital, Pandit said. This will also lead to lower gross domestic product growth.

New Technology

Pandit said he was “optimistic” and said the country will benefit from new technology developed during the crisis.

“We’ve all heard the phrase, ‘A crisis is a terrible thing to waste,’” Pandit said. “I’m confident that this crisis will re-ignite the creativity and entrepreneurship that has been the hallmark of the U.S. economy for over 200 years.”

Pandit said companies and consumers have borrowed too heavily and the country is paying the price.

“We have too much leverage as consumers and as a financial system,” he said. “This leverage funded consumption and created the illusion of enhanced financial returns.”

The GDP growth rate may decline 1 percent to 1.5 percent unless the “shadow banking system” of non-bank lenders returns, Pandit said. “It is not hard to envision a significant gap in the availability of credit,” he said.

Regulators should focus on uniform regulation to restore trust in the financial markets that has been “shaken” during the financial crisis, Pandit said.

Changes Coming

President Barack Obama’s regulatory proposal, to be announced June 17, would put the Federal Reserve in charge of monitoring firms for systemic risk and create a resolution mechanism to unwind non-bank financial institutions, Treasury Secretary Timothy Geithner wrote in a Washington Post commentary yesterday with Lawrence Summers, director of the White House National Economic Council.

“For money to come back into the markets, individuals need to believe their capital is safe and they can rely on regulators and entities like rating agencies,” Pandit said. “Policy makers are focused on uniform regulation. The key goals surround regulation of all systemically important institutions.”

Citigroup is making efforts to fix the financial system. It has extended more than $200 billion in credit commitments to U.S. consumers, businesses and communities since October, Pandit said. The company has helped more than 525,000 homeowners stay in their homes and aided 1.4 million credit-card customers with their debt through forbearance programs, he said.

To contact the reporter on this story: Josh Fineman in New York at jfineman@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.

Read more...

S&P 500 Index Year-End Target Raised to 900 at Morgan Stanley

By Roger Neill

June 16 (Bloomberg) -- Morgan Stanley raised its end-of- year target for the Standard & Poor’s 500 Index to 900 from 825, but said the rally in U.S. stocks “may now be over.”

The firm also lifted its 2009 and 2010 earnings estimates for the S&P 500 to $51 and $62 respectively, and brought forward “the trough in the earnings cycle, ex-financials,” to the third quarter of 2009.

“Having breached the 950 level, the rally may now be over,” strategists including Jason Todd wrote in a report.

Read more...

AT&T, Cummins, Research In Motion, Tyco: U.S. Equity Preview

By Matt Townsend

June 16 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:45 a.m. in New York.

Amgen Inc. (AMGN US) added 2.3 percent to $50.58. The world’s largest biotechnology company was boosted to “outperform” from “market perform” by Sanford C. Bernstein & Co., which said the stock “should benefit from a significant re-acceleration in revenue and earnings growth” over the next year.

AT&T Inc. (T US) lost 1.3 percent to $24.30. The largest U.S. phone company was cut to “equal weight” from “overweight” at Barclays Plc, as the brokerage also downgraded U.S. telecom services shares to “neutral.”

Bruker Corp. (BRKR US): The maker of scientific instruments and its shareholders plan to sell as many as 70 million shares in total, according to a regulatory filing.

Cummins Inc. (CMI US) added 0.7 percent to $34.27. The largest North American maker of diesel trucks was rated “buy” in new coverage by Goldman Sachs Group Inc., which said the company is “uniquely positioned” to benefit from increasing industrialization in Asia. Goldman’s 12-month share price estimate is $42.

Harman International Industries Inc. (HAR US): The audio- equipment maker plans to sell 9 million shares of common stock and use some of the proceeds to pay down debt, according to a regulatory filing.

La-Z-Boy Inc. (LZB US): The maker of living-room recliners posted earnings excluding some items of 7 cents a share in the fourth quarter. Raymond James Financial Inc. expected the company to report a loss.

Methanex Corp. (MEOH US): The world’s largest methanol supplier was reduced to “neutral” from “buy” at UBS AG, which cited the stock’s surge in past three months.

Research In Motion Ltd. (RIMM US) advanced 1.4 percent to $81.50. The maker of the BlackBerry smart phone unveiled a new model that operates globally, vying with Apple Inc.’s latest iPhone. The Tour 9630, which uses so-called 3G technology, will be sold in the U.S. through Verizon Wireless and Sprint Nextel Corp., the company said.

Tenneco Inc. (TEN US): The world’s largest maker of vehicle-exhaust systems was raised to “overweight” from “neutral” at JPMorgan Chase & Co., which said “global auto production has sequentially bottomed.”

Tyco Electronics Ltd. (TEL US) jumped 7.1 percent to $20.63. The world’s largest maker of electronic connectors boosted its third-quarter earnings forecast, saying it now expects profit excluding some items of at least 10 cents a share. That exceeded the average analyst estimate of 3 cents in a Bloomberg survey.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

Read more...

U.S. Stock Futures Gain; Exxon, Newmont, Barrick Gold Advance

By Sarah Jones

June 16 (Bloomberg) -- U.S. stock futures rose, indicating the Standard & Poor’s 500 Index may rebound from its biggest drop in a month, as oil’s climb above $72 a barrel lifted the earnings outlook for energy producers.

Exxon Mobil Corp. gained in German trading. Newmont Mining Corp. and Barrick Gold Corp. advanced as gold rose for first time in five days.

Futures on the Standard & Poor’s 500 Index expiring in September gained 0.3 percent to 921.7 at 12:25 p.m. in London. The gauge slid 2.4 percent yesterday, the biggest slump since May 13. Dow Jones Industrial Average futures and Nasdaq-100 Index futures added 0.3 percent before reports on housing and manufacturing that may show the recession is within months of a bottom.

“We have got some important data points today,” said Felix Wintle, head of U.S. equities at Neptune Asset Management in London, where he helps oversee the equivalent of $4.1 billion. “Investors are still looking for signs that the green shoots we have already seen continue to show the slowdown is decelerating.”

Europe’s Dow Jones Stoxx 600 Index rose 0.6 percent today, as a surge in German investor confidence to the highest in three years overshadowed a slump in banks.

U.S. stocks extended a global slide yesterday as falling oil and metal prices weighed on commodity producers and after a weaker-than-expected report on New York manufacturing. The S&P 500’s 40 percent rebound from a 12-year low on March 9 through last week had left the index valued at 14.9 times its companies’ earnings, near the highest level since October.

Breached 950

Morgan Stanley today said the rally in U.S. stocks “may now be over” after the brokerage raised its end-of-year target for the S&P 500 to 900 from 825, still 2.6 percent below yesterday’s closing price.

“Having breached the 950 level, the rally may now be over,” Morgan Stanley strategists including New York-based Jason Todd wrote in a note to clients.

Data from the Federal Reserve today may show industrial production last month dropped 1 percent, mainly due to auto- industry shutdowns that swamped gains elsewhere, according to a Bloomberg survey of analysts. Other reports may show builders began work on more houses in May and wholesale prices rose.

Exxon, the U.S. oil company, gained 0.3 percent to $73.02 in Germany trading as oil climbed as much as 2.1 percent to $72.12 in New York. The contract last week climbed to a seven- month high as a stronger dollar made commodities less appealing as a currency hedge.

Newmont, the largest U.S. gold producer, added 0.7 percent to $41.89 in Germany as gold climbed in London as the dollar weakened, increasing demand for the precious metal as an alternative investment. Barrick Gold advanced 1.6 percent to $32.90 in German trading.

Amgen Inc. increased 1.3 percent to $50.08 after Sanford C. Bernstein & Co. upgraded the world’s largest biotechnology company to “outperform” from “market perform,” saying the stock “should benefit from a significant re-acceleration in revenue and earnings growth” over the next year.

To contact the reporters on this story: Sarah Jones in London at sjones35@bloomberg.net.

Read more...