U.S. Trade Gap Falls More Than Forecast to Three-Month Low $44.8 Billion

By Alex Kowalski - Sep 8, 2011 7:48 PM GMT+0700
The U.S. trade deficit narrowed more than forecast in July, reaching a three-month low as exports climbed to a record and crude oil imports eased.
The gap shrank 13.1 percent, the most since February 2009, to $44.8 billion from a revised $51.6 billion shortfall in June, Commerce Department figures showed today in Washington. The deficit was less than all projections in a Bloomberg News survey. Exports rose 3.6 percent as companies shipped more capital goods and automobiles to overseas customers.
The global slowdown and Europe’s debt crisis have raised concerns of a diminishing international flow of goods and services the rest of this year. Sustained growth in exports may help U.S. manufacturers weather weaker demand from American consumers and businesses that’s restraining the recovery.
“Trade could add favorably to economic activity during the third quarter,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York. “The slowdown in the global economy may not be as great as we thought a few months ago, which certainly is encouraging.”
First-time applications for unemployment benefits rose last week, a sign the labor market is struggling to gain traction. Jobless claims climbed by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed today in Washington.
Stock-index futures held losses after the reports. The contract on the Standard & Poor’s 500 Index expiring this month fell 1.1 percent to 1,186.3 at 8:48 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 1.99 percent from 2.04 percent late yesterday.

Economists’ Estimates

The trade gap was projected to shrink from an initially reported $53.1 billion in June, according to the median forecast of 74 economists surveyed by Bloomberg. Estimates ranged from deficits of $55 billion to $46 billion.
After eliminating the influence of prices to render the figures used in calculating gross domestic product, the trade deficit narrowed to a three-month low of $45.3 billion from $50.3 billion. The number was less than the $47.3 billion deficit averaged in the second quarter, indicating trade may add to growth this quarter.
Exports increased to $178 billion, boosted by sales of telecommunications equipment, civilian aircraft, autos and industrial engines. U.S. shipments of capital goods and autos and parts to overseas customers were the highest on record.
Imports fell 0.2 percent to $222.8 billion from $223.4 billion in the prior month.

Petroleum Imports

The figures showed a reduction in demand for crude oil as the price per barrel exceeded $100 in July for a fourth month. The average price of imported crude oil was $104.27 compared with $106 in June, today’s report showed. U.S. companies imported 350,657 barrels in July, the fewest since April.
Imports in July reflected $22.3 billion in shipments of auto parts, the most since February 2008. Parts deliveries from Japan have started to recover after the nation’s March earthquake and tsunami. Automobile-related goods have been entering the U.S. at about 50 percent of the rate before the natural disaster, according to Richard Steinke, executive director of the Port of Long Beach.
A labor market that stagnated in August is weighing on the ability of U.S. households to spend on goods made overseas. Payrolls were unchanged last month, and the unemployment rate held at 9.1 percent, Labor Department figures showed Sept. 2.
“While the economies in our primary markets have generally improved since the lows of the economic crisis, many consumers remain cautious,” Denise Morrison, president and chief executive officer at Campbell Soup Co. (CPB), said on a Sept. 2 conference call with analysts. “The recovery has not progressed at the pace or intensity consumers had hoped for. As a result, consumers remain careful about their purchases and feel the need for resourcefulness and vigilance.”

Campbell Profit

Campbell, the world’s biggest soup maker, said fourth- quarter profit declined 12 percent as sales dropped.
Slower growth in developed countries raises the risk manufacturers will temper production going forward. Gross domestic product in the 17-nation euro area rose 0.2 percent in three months ended June from the first quarter, when it increased 0.8 percent. Economic growth in Canada, the U.S.’s largest trading partner, shrank in the second quarter for the first time since the recession two years ago.
The trade gap with China widened to $27 billion, the highest since September, from $26.7 billion as gain in imports outpaced an increase in exports. The deficit with Canada increased to $3.2 billion from $2.8 billion, while it shrank with the European Union. Exports to South and Central America were the highest ever.
To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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U.S. Stocks Retreat on Increase in Jobless Claims, ECB’s Economic Outlook

By Rita Nazareth - Sep 8, 2011 8:52 PM GMT+0700

Traders work at the New York Stock Exchange on Sept. 6, 2011. Photographer: Scott Eells/Bloomberg

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Sept. 8 (Bloomberg) -- Bob Janjuah, the co-head of cross-asset allocation strategy at Nomura International Plc, talks about the global economy and financial markets. Janjuah, speaking in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia," also discusses Federal Reserve monetary policy and the European sovereign-debt crisis. (Source: Bloomberg)

U.S. stocks fell, following the biggest jump in two weeks for the Standard & Poor’s 500 Index, as jobless claims increased and the European Central Bank said risks to the economic recovery have intensified.

Financial and industrial shares fell the most among 10 groups in the S&P 500. General Electric Co. and Bank of America Corp. (BAC) dropped at least 0.6 percent, pacing losses in the Dow Jones Industrial Average. Dollar General Corp. (DG) slumped 4 percent after saying that holders will sell 25 million shares.

The S&P 500 retreated 0.3 percent to 1,194.94 at 9:51 a.m. in New York, paring earlier losses of as much as 0.7 percent. The gauge snapped a three-day decline yesterday. The Dow decreased 8.74 points, or 0.1 percent, to 11,406.12.

“This market is looking for assistance and what it wants is a wheelchair and someone to push it,” Burt White, who helps oversee $330 billion as chief investment officer at LPL Financial Corp. in Boston, said in a telephone interview. “People are hoping that central banks will deliver that. Everyone was expecting the ECB to be on hold and do nothing and yet they were hoping for something. The ECB was really in a tough spot because they made a pretty bad decision in raising rates. It’s a confidence issue in this market.”

The S&P 500 rose 2.9 percent yesterday, the largest gain since Aug. 23, as investors speculated that President Barack Obama’s plan to inject more than $300 billion into the economy will bolster growth. Obama plans to unveil his proposals for promoting job growth in an address to a joint session of Congress today.

’High Uncertainty’

U.S. stock futures extended losses as ECB President Jean- Claude Trichet resisted calls to lower interest rates even after “downside risks” to the euro area intensified. The economy faces “particularly high uncertainty,” Trichet said at a press conference in Frankfurt today. The ECB cut its growth forecasts for this year and next.

“The ECB is marching to its own tune,” Stephen Wood, who helps oversee about $163 billion as the New York-based chief market strategist for Russell Investments, said in a telephone interview. “The real world was expecting more from the ECB given that the ECB is the only entity that could do something. In the U.S., the government can alleviate some symptoms, but it’s going to be difficult in the short-term to address the unemployment issue.”

Stocks maintained losses as jobless claims rose by 2,000 to 414,000 in the week ended Sept. 3, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 405,000, according to the median forecast. The number of people on unemployment benefit rolls and those receiving extended payments fell.

Federal Reserve Chairman Ben S. Bernanke is due to speak in Minnesota today on the economic outlook at 1:30 p.m. New York time.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Bearish Bets May Send Stocks Lower: Bartels

By Nikolaj Gammeltoft and Betty Liu - Sep 8, 2011 12:36 AM GMT+0700

U.S. stocks are likely to extend declines because hedge funds have leeway to boost bets against the world’s largest equity market, according to Bank of America Corp.’s Mary Ann Bartels.

“We still believe that hedge funds have the ability to significantly short the market,” Bartels, head of technical and market analysis in New York at Bank of America said in a Bloomberg Television interview today on “In the Loop” with Betty Liu. “It’s a bearish signal, absolutely.”

The adjusted short interest ratio, a measure of potential buying pressure, is 1.5 for the Standard & Poor’s 1500 Composite, down from 2.4 at the end of July and below its 10- year average of 2.4, Bartels wrote in a report dated Sept 5. While short interest on U.S. equities rose in August, trading volume surged, pushing down the short interest ratio and lowering the number of trading days it would take to cover all short positions in a stock or index.

“Short interest represents a floor,” said Bartels, who ranked third among analysts who study price charts in Institutional Investor’s 2010 survey. “If you have a lot of shorts, you only fall so much, and we don’t have that floor, we don’t have a safety net on the market.”

The proportion of S&P 500 shares outstanding sold short rose to the highest level since the end of November last week, climbing to 3.03 percent on Aug. 29 from 2.37 percent at the beginning of August, according to New York-based Data Explorers, which provides research on short sales and stock lending. Short selling of the gauge reached a three-year high of 5.52 percent in August 2008.

Net Short

Hedge funds and other large speculators were net short 107,913 S&P 500 Index (SPX) futures contracts in the week ended Aug. 30, wagering that the benchmark will decrease in value, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. The position is the highest since September 2007, when bearish bets reached a record 127,474 contracts a month before the benchmark equity gauge peaked at an all-time high, Bloomberg data going back to 1997 show.

“What we’re most concerned about is the banking system in Europe,” Bartels said. “There is no reason to have a very long position with the positioning of the charts,” she said. Still, “the level of shorts is nowhere near where we saw in 2008 and 2009” in terms of potential buying pressure.

Stocks fell yesterday, giving the S&P 500 its longest slump in almost a month, amid concern that Europe’s debt crisis is worsening. The benchmark gauge for U.S. equities lost as much as 13 percent last month before trimming its retreat to 5.7 percent after the Federal Reserve said it will act to spur growth.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Casey’s, Dollar General, Hovnanian, Men’s Wearhouse: U.S. Equity Preview

By Inyoung Hwang - Sep 8, 2011 4:16 AM GMT+0700

Shares of the following companies may have unusual moves in U.S. trading tomorrow. Stock symbols are in parentheses, and prices are as of 5 p.m. in New York.

Standard & Poor’s 500 Index futures expiring in September fell less than 0.1 percent to 1,198.9.

Casey’s General Stores Inc. (CASY) : The Ankeny, Iowa- based operator of convenience stores in the U.S. Midwest reported first-quarter earnings of $1.03 a share, missing the average analyst estimate by 3 cents.

Dollar General Corp. (DG) slid 2.8 percent to $36.09. The biggest dollar store chain in the U.S. said in a regulatory filing holders will sell 25 million shares. The Goodlettsville, Tennessee-based company won’t receive any proceeds from the sale.

Hovnanian Enterprises Inc. (HOV) climbed 4.2 percent to $1.72. The largest homebuilder in New Jersey said its loss in the third-quarter was 47 cents a share, less than the 51-cent loss estimated by analysts on average.

Men’s Wearhouse Inc. (MW) declined 1.1 percent to $29.19. The retailer of men’s suits and attire forecast third- quarter adjusted earnings of as little as 64 cents a share, matching the average analyst estimate.

Smith & Wesson Holding Corp. (SWHC) : The handgun manufacturer forecast sales in the second quarter of no more than $96 million, falling short of the average analyst estimate of $107.5 million.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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Freeport’s Cerro Verde Copper Miners Start 48-Hour Strike to Protest Wages

By Alex Emery - Sep 7, 2011 10:02 PM GMT+0700

Freeport-McMoRan Copper & Gold Inc. (FCX)’s Peruvian copper miners began the first of a series of strikes planned over pay increases, a union official said.

About 1,200 workers at Freeport’s Sociedad Minera Cerro Verde SAA (CVERDEC1) unit, Peru’s third-largest copper producer, began the 48-hour strike at 8:30 a.m. New York time and will hold a second strike from Sept. 14 if no accord is reached, union official William Camacho said by telephone. Workers at Freeport’s Grasberg mine in Indonesia also may strike starting Sept. 15.

“Freeport unions around the world seek to raise their wages to the same level as the rest of the mining industry,” Camacho said today from Lima. “We seek the company’s respect for the workers as they aren’t complying with our labor pact.”

Workers in Peru, Chile and Bolivia have gone on strike at copper, gold and zinc mines this year for better working conditions and a bigger share of record company earnings. Shougang Corp.’s Peru iron-ore miners began a strike Aug. 31.

Phoenix-based Freeport will continue negotiating a new labor contract, spokesman Eric Kinneberg said yesterday in an e- mailed response to questions. Cerro Verde, which is studying a $3.5 billion expansion to boost annual output 45 percent, boosted first-half output by 4 percent to 161,246 metric tons.

Copper futures for December delivery gained 6.1 cents, or 1.5 percent, to $4.117 a pound at 9:50 a.m. on the Comex in New York. A close at that price would mark the biggest gain since Aug. 31.

Copper Output Decline

Peru is the world’s third-largest copper producer behind Chile and China. Chile, which accounts for a third of global supply, may have lost 8 percent of estimated 2011 output because of strikes at mines owned by Codelco and BHP Billiton Ltd. (BHP), Codelco Chief Executive Officer Diego Hernandez said Aug. 12. Chile produced 5.42 million metric tons of copper last year.

Mine production is set to lag behind demand by 256,000 metric tons in 2011, a second year of deficit, according to Citigroup Inc. Prices have more than doubled since the end of 2008 as demand increased in China, the world’s top consumer.

Freeport rose 66 cents, or 1.5 percent, to $45.02 at 10:36 a.m. in New York trading. Cerro Verde fell 83 cents, or 2.1 percent, to $38.12 in Lima.

To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net.

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net.

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Gold May Decline for a Third Day as Stocks Rebound Ahead of Obama Speech

By Glenys Sim - Sep 8, 2011 6:33 AM GMT+0700

Gold may decline for a third day as global equities rallied amid optimism a plan by President Barack Obama will aid growth in the world’s largest economy, eroding demand for haven investments

Gold for immediate delivery was little changed at $1,814.65 an ounce by 6:41 a.m. Singapore time, after earlier falling as much as 0.7 percent. Bullion slumped 4.4 percent in the past two days, dropping from a record $1,921.15 on Sep. 6. Futures in New York were also little changed at $1,819.50.

“The gold price fell as investors embraced risky assets,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, said today in an e-mailed note.

Obama, who is scheduled to address Congress today, plans to propose boosting job growth by injecting more than $300 billion into the economy next year mostly through tax cuts and infrastructure spending, spurring the biggest gain yesterday in the Standard & Poor’s 500 Index in two weeks.

Platinum for immediate delivery rose 0.3 percent to $1,828 an ounce, trading back above gold after the yellow metal’s two- day slump. Cash silver fell 0.2 percent to $41.4863 an ounce while palladium was little changed at $753 an ounce.

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

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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Crude Gains a Second Day on U.S. Stockpile Decline as Storms Threaten Gulf

By Ben Sharples - Sep 8, 2011 6:01 AM GMT+0700

Oil climbed for a second day in New York on speculation a storm building in the Gulf of Mexico poses a threat to supply in the U.S., amid shrinking crude stockpiles in the world’s biggest consumer.

Futures gained as much as 0.9 percent after the industry- funded American Petroleum Institute said inventories fell 2.97 million barrels last week. An Energy Department report today may show supplies slid 2 million barrels as Tropical Storm Lee shut output, according to a Bloomberg News survey of analysts. Another cyclone, Nate, formed off Mexico, becoming the third now churning in the Atlantic basin.

“Output outages in the Gulf of Mexico and a low pressure system over Mexico’s Bay of Campeche were the key drivers,” John Peters, a senior economist at Commonwealth Bank of Australia, said in a note today.

Crude for October delivery advanced as much as 77 cents to $90.11 a barrel in electronic trading on the New York Mercantile Exchange and was at $89.87 at 8:47 a.m. Sydney time. The contract yesterday rose $3.32 to $89.34, the highest close since Aug. 3. Prices are 20 percent higher the past year.

Brent oil for October settlement gained $2.91, or 2.6 percent, to $115.80 on the London-based ICE Futures Europe Exchange yesterday. The European benchmark contract closed at premium of $26.46 to U.S. futures, compared with the record settlement of $26.62 on Sept. 6.

DOE Report

The Energy Department will release its weekly stockpile data at 11 a.m. today in Washington. Both the API and government reports are a day late because of the Labor Day holiday on Sept. 5.

Gasoline supplies dropped 871,000 barrels last week, according to API data. The Energy Department report may show they declined 1.4 million barrels, according to the median of 15 analyst estimates in the Bloomberg News survey.

Oil-supply totals from the API and the department have moved in the same direction 71 percent of the time in the past year. The API collects data on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed for its weekly survey.

Nate, with winds of 45 miles (72 kilometers) per hour about 125 miles west of Campeche, Mexico, joins Hurricane Katia and Tropical Storm Maria. Nate is forecast to be a Category 1 hurricane with winds of 75 mph in two days.

Computer models suggest Nate will either go ashore in Mexico south of the oil- and gas-producing region or near Brownsville, Texas, said Travis Hartman , a meteorologist at commercial forecaster MDA EarthSat Weather in Gaithersburg, Maryland.

About 36.9 percent of U.S. oil production and 18.1 percent of natural gas output from the Gulf of Mexico has been halted after Tropical Storm Lee passed through the region, the Bureau of Ocean Energy Management, Regulation and Enforcement said yesterday. The Gulf is home to 27 percent of U.S. oil output and 6.5 percent of the country’s natural gas production.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

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Gold Prices Rally After Bernanke Hints at Stimulus

By Alix Steel

NEW YORK (TheStreet ) -- Gold prices were staging a rally, shrugging off an almost three-day selloff, after Ben Bernanke left the door open for more monetary easing..

Gold for December delivery was adding $20.70 to $1,783.90 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,800 and as low as $1,759.50 while the spot gold price was adding $4.50, according to Kitco's gold index.

Silver prices were down 35 cents at $40.39 an ounce. The U.S. dollar index was up 0.10% at $74.31 while the euro was flat vs. the dollar.

Federal Reserve Chairman, Ben Bernanke, offered no surprises in his speech at Jackson Hole Friday, but he did leave the possibility for further intervention open. Bernanke said the Fed is willing to step in if needed to trigger a stronger recovery, but barely discussed any monetary policy. The Fed's policy meeting in September is now two days instead of one, which indicates stimulus is on the table but whether or not there will be an agreement or policy shift is a different story.

Vote: Where will gold prices finish in 2011?

Gold prices were still rallying somewhat, something many experts said were expecting if Bernanke announced more monetary easing. Equity markets appear just as confused vacillating between negative and positive territory.

"It's become an annual ritual to expect Jackson Hole to be a momentous occasion in all of these markets," says Jon Nadler, senior analyst at Kitco.com, when the annual meeting had been nothing short of a boondoggle until last year when Bernanke hinted at quantitative easing round two.

Nadler thinks that Bernanke isn't in a position to pump more money into the system just because some macro data is disappointing and the stock market is suffering. There were also three dissenters at the last Fed meeting in early August who disagreed with keeping interest rates low until mid-2013 because of rising inflation, so printing more money seems like an even farther reach.

Nadler says that any disappointment would lead investors out of stocks and into gold, a trend they are dabbling with this morning, but "if it's an across the board selloff in all types of assets that were predicating their further advances on easy money, if we have a wipeout of that nature, it could be a short term across the board sell signal."

Gold prices have corrected 11% in two-and-a-half days, giving up half of its gains from its two month rally which pushed the metal to an intraday high of $1,917 an ounce. The massive selloff could also be igniting bargain hunters wanting to take advantage of "lower" gold prices.

Nadler, who warned of a 35% correction two weeks ago, still stands by that prediction which would take gold prices to $1,247 an ounce.

Many experts, however, think that gold will trend higher as the macro backdrop has not changed. European governments are still struggling with ballooning debt and trying to save Greece from imploding. Germany is now making headlines with rumors swirling about a possible short selling ban and rating downgrade, both of which were denied. With investors so headline skittish, gold is fulfilling that safe haven role.

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Bernanke Doesn’t Signal More Stimulus

By Jeannine Aversa and Scott Lanman - Aug 26, 2011 10:13 PM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said the central bank still has tools to stimulate the economy without providing details or signaling when or whether policy makers might deploy them.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said in a speech today to central bankers and economists gathered at an annual forum in Jackson Hole, Wyoming. He said a second day has been added to the next policy meeting in September to “allow a fuller discussion” of the economy and the Fed’s possible response.

While Bernanke sought to reassure investors and the public that U.S. growth is safe in the long run and that the Fed still has tools to aid the recovery if needed, he stopped short of indicating that the central bank will move ahead with a third round of government bond-buying.

“Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said in prepared comments at the mountainside symposium hosted by the Kansas City Fed. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

Initial Losses

The Standard & Poor’s 500 Index initially extended losses, then erased them, rising 0.3 percent to 1,162.78 at 11:06 a.m. in New York. Stocks rallied earlier this week on speculation that Bernanke would telegraph more monetary stimulus. Yields on 10-year Treasuries fell to 2.2 percent today from 2.23 percent yesterday.

“Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” said Keith Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management, which oversees about $212 billion.

Still, while Bernanke said the Fed has stimulus tools left, “the threshold to utilizing them is going to require fairly different conditions than what we have today,” such as lower inflation or a resurgence in financial instability, Hembre said.

Rate Commitment

The Federal Open Market Committee after its Aug. 9 meeting pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to energize a recovery that’s “considerably slower” than anticipated. The FOMC said that it was “prepared to employ” additional tools “as appropriate” to aid the economy.

In today’s speech, Bernanke, 57, repeated that line from the statement without elaborating on the options, in contrast to last year’s talk at the Jackson Hole event, when he discussed several tools, including asset purchases. “We discussed the relative merits and costs of such tools at our August meeting,” Bernanke said today.

“The Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability,” he said in the last line of the speech.

The next FOMC meeting, originally scheduled to begin and end Sept. 20, will now conclude Sept. 21, Bernanke said.

“The lack of a QE3 outline today, to the extent that is disappointing to some, does not mean that outline is not coming in the future,” Dan Greenhaus, chief global strategist at BTIG LLC in New York, said in a research note, referring to a third round of so-called quantitative easing.

‘Credible Plan’

Bernanke, a former Princeton University economist, repeated his call for Congress to adopt a “credible plan for reducing future deficits over the longer term” without harming U.S. growth in the near term.

He also said that the “extraordinarily high level of long- term unemployment” adds urgency to the need to boost job growth. At the same time, the Fed can’t do it alone: “Most of the economic policies that support robust economic growth in the long run are outside the province of the central bank,” Bernanke said.

Last year, the Fed chief used his Jackson Hole speech to lay the groundwork for a second round of bond purchases. The central bank decided in November to buy $600 billion of Treasuries through June 2011.

Even with joblessness at 9.1 percent, any push to buy more bonds risks a backlash from critics inside the Fed and in Congress who say the Fed’s policies have done little to spur the economy and may fuel inflation.

‘Stage Is Set’

“The stage is set for a resurgence of inflation if the Fed is not careful,” Senator Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, said last month.

Less than two hours before Bernanke’s speech, the government reported that the economy expanded at a 1 percent annual rate in the second quarter, compared with an initial estimate of 1.3 percent growth. The reduction reflected a smaller increase in inventories and fewer exports.

“Although we expect a moderate recovery to continue and indeed to strengthen over time, the Committee has marked down its outlook for the likely pace of growth over coming quarters,” Bernanke said today without specifying the forecast.

The housing market, which has been a “significant driver” of U.S. post-recession growth rebounds since World War II, is slowing the “natural recovery process” now, Bernanke said.

Also, “financial stress has been and continues to be a significant drag” on growth, Bernanke said, acknowledging that “bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation.”

Inflation Outlook

The Fed’s Aug. 9 decision means that in what Fed officials judge to be the “most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years,” Bernanke said today.

Bernanke pushed through the decision over opposition from three regional Fed presidents who preferred that the Fed stick with its previous commitment to hold rates for an unspecified “extended period.”

The dissents from the presidents of the Federal Reserve banks of Philadelphia, Dallas and Minneapolis marked the most opposition Bernanke has encountered since he took the Fed’s helm in February 2006.

The FOMC at its August meeting offered a dimmer view of the economy, noting a “deterioration in overall labor-market conditions in recent months” and that household spending had “flattened out.”

Hiring Slows

Hiring has slowed as employers lost confidence in the recovery and governments reduced positions. Average monthly payroll gains dropped to 72,000 in the three months through July, from 215,000 in the prior three months. The jobless rate fell to 9.1 percent in July from 9.2 percent in June as Americans gave up looking for work.

Besides buying government bonds, the Fed could cut the 0.25 percent interest rate it pays bank on the $1.6 trillion in excess reserves parked at the Fed. It also could replace shorter-term securities with longer maturities, which may help lower interest rates on mortgages and other long-term debt. The Fed also could pledge to keep its balance sheet near a record high of $2.86 trillion for an “extended period” or for a specific time period.

Preferred Gauge

The Fed’s preferred inflation gauge, which excludes food and energy prices, rose 1.3 percent for the 12 months ending in June. That’s up from a record low increase of 0.9 percent for the 12 months ending in December.

Bernanke said in June that one difference between this year and last August was that in 2010, “inflation was very low and falling” and deflation was a “nontrivial risk.” The Fed’s asset purchases “have been very successful in eliminating deflation risk,” he said at a press conference.

To contact the reporter on this story: Jeannine Aversa in Washington at javersa@bloomberg.net; Scott Lanman in Jackson Hole, Wyoming, at slanman@bloomberg.net.

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Oil Rigs Revisit Lehman Crisis as Credit Squeezed for Orders, Acquisitions

By Marianne Stigset - Aug 24, 2011 6:01 AM GMT+0700

The biggest market rout in two years is squeezing credit for oil rig owners in a replay of the crunch that followed Lehman Brothers Holdings Inc.’s collapse, said the operator of the second-largest fleet of deepwater platforms.

“It’s exactly the same as what happened during the financial crisis after Lehman Brothers’ bankruptcy,” Seadrill Ltd. (SDRL) Chief Executive Officer Alf Thorkildsen said. “The financial uncertainty has resulted in fewer new build orders. The eye of the needle has narrowed” for acquisitions, he said.

A four-week slump in global equities wiped out more than $8 trillion in stock values amid renewed signs of weakness in the world economy, Europe’s inability to stem its sovereign debt crisis and a downgrade of U.S. debt. Crude oil prices dropped about 14 percent in the period, while banks have curbed lending, adding to concern producers may cut exploration budgets.

“Seadrill can look at the best opportunities in the market,” Thorkildsen said in a phone interview from Stavanger yesterday. “If there is a good deal to be made, it’s always possible to get financing, but there is a tighter market for financing overall and that affects us all.”

Seadrill purchased 33.75 percent of Asia Offshore Drilling Ltd. last month after billionaire Chairman John Fredriksen said in May he would buy rig companies. The acquisition followed the takeover of Scorpion Offshore Ltd. in 2010, while Seadrill lost a bid against Ensco Plc (ESV) for Pride International Inc. this year.

“Consolidation will come especially with regards to smaller companies that start experiencing financing pressures,” Thorkildsen said. “The underlying market fundamentals for drilling with regards to supply and demand look good.”

Deep, Harsh

Exploration in deep water and harsh environments off the shores of Brazil, West Africa and the Arctic has buoyed demand for rigs able to handle such conditions. Stricter rules after the Deepwater Horizon explosion in the Gulf of Mexico have also spurred interest in newer platforms, boosting prices.

Transocean Ltd. (RIG) last week agreed to buy Aker Drilling ASA for $1.46 billion, almost twice its market value, to expand its so-called ultra-deepwater rig fleet. Ensco’s bid in February for Pride was valued at $8.47 billion including debt, a 24 percent premium. Hamilton, Bermuda-based Seadrill sought to buy both.

“Share prices today are depressed globally, so that is a factor in why we’re seeing higher prices than what’s reflected in the market,” Thorkildsen said. “These were shares that perhaps were somewhat undervalued by the market.”

The MSCI World (MXWO) Index of stocks fell 19 percent from May 2 to Aug. 10, the biggest such decline in more than two years.

Costs Rising

Oil and gas discoveries in offshore Brazil, West Africa and Norway are raising rig demand, supporting the day rates Seadrill gets for leasing drilling platforms, Thorkildsen said. Ultra- deepwater rates were “not too far” from $500,000 a day.

Fees for such operations are averaging $450,000 a day and likely to stabilize around $450,000 to $550,000 going forward, Maersk Drilling CEO Claus Hemmingsen said last week.

The cost of construction has grown 10 percent to 12 percent in the past six months, according to Maersk, which has halted orders while it awaits delivery of six of the facilities. Rates are firm for jack-up rigs, with extending legs, Hemmingsen said.

“The Norway jack-up market has remained fairly high, solidly above $300,000 a day for the big jack-ups,” he said. “Expectations for the new rigs coming in are a lot higher.”

Seadrill will take delivery of 17 rigs, Thorkildsen said.

Second-quarter net income will rise to $329 million, from $316 million a year earlier, when the company reports tomorrow, according to the average estimate of 16 analysts surveyed by Bloomberg. Sales will climb to $1 billion, from $933 million.

Extra Dividend

The company announced in May it would seek to raise long- term dividends to 70 cents a share and pay out an additional 5 cents for the following four quarters.

“Seadrill will look to avoid cutting dividends as the drilling market outlook is solid and Seadrill likely is eager to continue to grow their fleet through acquisitions,” Kjetil Garstad, an Arctic Securities ASA analyst, wrote in a note yesterday in which he upgraded the share to a “buy.”

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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Japanese Stocks Decline Amid Weaker U.S. Data Before Jackson Hole Meet

By Yoshiaki Nohara and Satoshi Kawano - Aug 24, 2011 1:20 PM GMT+0700

Japanese stocks fell as weaker-than- estimated U.S. economic data eroded investor confidence ahead of a meeting this week where Federal Reserve Chairman Ben S. Bernanke may signal new stimulus.

Toyota Motor Corp. (7203), the world’s biggest carmaker, dropped 1.6 percent. Mitsubishi UFJ Financial Group Inc. (8306) fell after Moody’s Investors Service downgraded Japan’s biggest banks. Gamemaker Nintendo Co. dropped after yesterday gaining the most in a week.

The Nikkei 225 Stock Average dropped 1.1 percent to 8,639.61 at the 3 p.m. close of trading in Tokyo, extending earlier declines after measures announced by Finance Minister Yoshihiko Noda to protect Japanese exporters failed to weaken the yen. The Topix index dropped 1.1 percent to 742.24.

“Stocks have risen on expectations of Fed action, but it’s not as though there’s been an improvement in the fundamentals,” said Toshiaki Iwasaki, an analyst at Mito Securities Co. “People are covering shorts but beyond that there’s not much buying because there’s so much uncertainty about the global economic outlook.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Central Banks Seen Retaining Gold to Help Manage Debt as Bullion Advances

By Glenys Sim - Aug 24, 2011 1:23 PM GMT+0700

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Photographer: Guenter Schiffmann/Bloomberg

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

“Once they’ve sold, that’s it, and buying back would be extremely expensive,” said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who’s studied metals markets for 20 years. “They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt.”

Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico and Russia have added to reserves this year. The precious metal is the “currency of the world” amid the debt crisis, economist Dennis Gartman wrote Aug. 19.

“Under conditions of austerity we’re going to see a further deterioration of debt,” Richardson said in an interview yesterday. “Rising risk argues in favor of holding on to their gold reserves rather than selling them because they’ve only got one shot at selling.”

Immediate-delivery gold, which has rallied 29.5 percent this year, touched an all-time high of $1,913.50 per ounce yesterday and was at $1,840.05 at 2:15 p.m. in Singapore. The metal may reach $2,000 by the yearend, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20.

Currency Credibility

“The European central banks won’t sell their gold because while it may be a means to raise cash, it definitely won’t be enough to settle their debts,” said Duan Shihua, head of corporate services at Haitong Futures Co., China’s largest brokerage by registered capital. “Besides, none of the central banks believe in the currencies of other countries.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in purchases by countries including Bolivia and Mauritius, according to World Gold Council data. In the second quarter of 2011, central-bank and government-institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, the council said last week. Central banks will remain net buyers this year, it said.

Central banks have been “active buyers” of gold in recent months, Edel Tully, an analyst at UBS AG, wrote in a note to clients on Aug. 8. Central banks should also buy platinum as they boost gold holdings amid concern about the global economy, Citigroup Inc. said in a report the same day.

Credit-Rating Downgrades

The debt crisis in Europe that started in Greece has hobbled economic growth and prompted downgrades of the credit ratings of Greece, Portugal and Ireland. Still, the euro has strengthened against the currencies of 14 of 16 trading partners this year as the European Central Bank bought government bonds.

German Chancellor Angela Merkel yesterday rejected a call by Labor Minister Ursula von der Leyen for states to put up gold as collateral for emergency loans. That disagreement may underscore risks over a second Greek aid package.

In August 2009, central banks in Europe agreed to a third five-year cap on gold sales. The European Central Bank and 18 others agreed to sell no more than a combined 400 tons a year through September 2014. Germany, Italy, France, the Netherlands, the European Central Bank, Portugal, Spain and Austria are among the top 20 holders, according to council data.

IMF Sales

“Notwithstanding the worst sovereign-debt crisis, particularly in Europe, where there are very large, concentrated holdings of gold, the central-bank agreement has been striking by the fact the only people who have been selling has been the IMF,” said Richardson, referring to the Washington-based International Monetary Fund.

The IMF sold 403.3 tons between October 2009 and December 2010 as part of a plan to shore up its finances and lend at reduced rates to low-income countries. More than half of that was acquired by central banks, according to the fund.

The Bank of Korea, which purchased 25 tons over a one-month period from June to July, said “holding gold helps reduce investment risks in terms of reserve management,” according to a statement earlier this month after the move was disclosed.

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

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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PRECIOUS-Gold rebounds after worst day in 18 months

Wed Aug 24, 2011 12:44am GMT

SINGAPORE, Aug 24 (Reuters) - Spot gold rebounded on Wednesday from its worst day in 18 months, while bullion's safe-haven appeal seemed to be waning for now with investors returning to riskier assets on hopes of more stimulus for the U.S. economy. FUNDAMENTALS * Spot gold gained 0.7 percent to $1,842.45 an ounce by 0011 GMT, rebounding from a 3.6-percent tumble in the previous session, its sharpest one-day drop since February 2010. * U.S. gold GCcv1 dropped 0.8 percent to $1,845.90. * The speculation that the U.S. Federal Reserve may signal more stimulus at Friday's Jackson Hole meeting boosted risk appetite, sending Wall Street up 3 percent and snapping a six-session winning streak in gold. * Some gold bulls said it is time to take money off the table after the safe-haven rally extended too far too fast in recent weeks. Ifo business climate Aug 2011 0800 Germany Ifo current conditions Aug 2011 0800 Germany Ifo expectations Aug 2011 1230 U.S. Durable Goods orders Jul 2011 India M3 Money Supply 40762 PRICES Precious metals prices 0011 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1842.45 12.80 +0.70 29.80 Spot Silver 42.19 0.37 +0.88 36.71 Spot Platinum 1869.24 12.44 +0.67 5.76 Spot Palladium 757.50 0.55 +0.07 -5.25 TOCOM Gold 4552.00 -142.00 -3.03 22.07 69016 TOCOM Platinum 4652.00 -92.00 -1.94 -0.94 4256 TOCOM Silver 103.70 -3.10 -2.90 28.02 365 TOCOM Palladium 1884.00 -2.00 -0.11 -10.16 100 COMEX GOLD DEC1 1845.90 -15.40 -0.83 29.86 6968 COMEX SILVER SEP1 42.26 -0.03 -0.07 36.59 846 Euro/Dollar 1.4432 Dollar/Yen 76.69 TOCOM prices in yen per gram. Spot prices in $ per ounce. COMEX gold and silver contracts show the most active months (Reporting by Rujun Shen; Editing by Himani Sarkar)* Holdings in the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , dropped nearly 2 percent on the day to 1,259.569 tonnes. While iShares Silver Trust reported a 1.4-percent jump in its holdings. * The sharp drop from a record above $1,911 could trigger buying interest in Asian investors, who have been avid buyers along the rapid rally which pushed gold prices up about $400 since the beginning of July. * Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3 on Wednesday, blaming large budget deficits and a buildup of debt since the 2009 global recession. * For the top stories on metals and other news, click , or MARKET NEWS * U.S. stocks shot 3 percent higher on Tuesday on speculation Federal Reserve Chairman Ben Bernanke this week would signal new help for the economy, giving investors hope a four-week rout was nearing an end. * The yen came under a bit of pressure on Wednesday after Moody's cut its rating for Japan's government debt, but commodity currencies held firm having gained after manufacturing data in China and Europe were less grim than feared.

 DATA/EVENTS	

0400  U.S.      Build permits R chg mm    Jul    

0800  Germany   Ifo business climate      Aug 2011

0800  Germany   Ifo current conditions    Aug 2011 

0800  Germany   Ifo expectations          Aug 2011 

1230  U.S.      Durable Goods orders      Jul 2011     

     India     M3 Money Supply           40762    

	

  PRICES	

 	

Precious metals prices 0011 GMT

Metal             Last    Change  Pct chg  YTD pct chg    Volume

Spot Gold        1842.45   12.80   +0.70     29.80

Spot Silver        42.19    0.37   +0.88     36.71

Spot Platinum    1869.24   12.44   +0.67      5.76

Spot Palladium    757.50    0.55   +0.07     -5.25

TOCOM Gold       4552.00 -142.00   -3.03     22.07        69016

TOCOM Platinum   4652.00  -92.00   -1.94     -0.94         4256

TOCOM Silver      103.70   -3.10   -2.90     28.02          365

TOCOM Palladium  1884.00   -2.00   -0.11    -10.16          100

COMEX GOLD DEC1  1845.90  -15.40   -0.83     29.86         6968

COMEX SILVER SEP1  42.26   -0.03   -0.07     36.59          846

Euro/Dollar       1.4432

Dollar/Yen         76.69

TOCOM prices in yen per gram. Spot prices in $ per ounce.

COMEX gold and silver contracts show the most active months

	

(Reporting by Rujun Shen; Editing by Himani Sarkar)

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Europe Failure With Bank Crisis Returns to Haunt Markets

By Simon Kennedy and Gavin Finch - Aug 23, 2011 6:01 AM GMT+0700

A euro sign sculpture stands in front of the European Central Bank's (ECB) headquarters in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Four years to the month since the global credit crisis began, European lenders remain dependent on central bank aid, plaguing markets and economies worldwide.

Emergency steps such as unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent and greasing the lending of others, while low interest rates and debt-buying are containing borrowing costs. Such aid is needed as concerns about slowing economic growth and sovereign debt prompt banks to curb lending, stockpile dollars and hoard cash in safe havens.

“I’m not sleeping at night,” said Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. “We have moved into a new phase of crisis.”

Central bankers rescued financial firms after the collapse of Lehman Brothers Holdings Inc. in 2008 by providing limitless funding of as long as a year. While they treated the symptom --a lack of ready cash -- politicians, regulators and bankers in Europe have proved unable to cure the root cause: some European lenders are at growing risk of insolvency.

The tremors, the biggest since Lehman’s collapse, were triggered by European governments’ continuing inability to stop the sovereign debt crisis from spreading beyond Greece, Portugal and Ireland to question the Italy and Spain. Renewed signs of economic weakness globally and the downgrading of U.S. debt by Standard & Poor’s rekindled concern about the quality of all government debt.

Bank Stocks Tumble

The signs of distress are widespread and mounting: Banks deposited 105.9 billion euros ($152 billion) with the ECB overnight on Aug. 19, almost three times this year’s average, rather than lending the money to other lenders. The premium European banks pay to borrow in dollars through the swaps market increased yesterday for a fourth straight day.

European bank stocks have sunk 22 percent this month, led by Royal Bank of Scotland Group Plc (RBS) and Societe Generale (GLE) SA. Edinburgh-based RBS, Britain’s biggest government-controlled lender, has tumbled 45 percent, and Paris-based Societe Generale, France’s second-largest bank, dropped 39 percent.

The extra yield investors demand to buy bank bonds instead of benchmark government debt surged to 298 basis points on Aug. 19, or 2.98 percentage points, the highest since July 2009, data compiled by Bank of America Merrill Lynch show. The cost of insuring that debt against default surged to a record yesterday. The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers rose to 250 basis points, compared with 149 when Lehman collapsed.

Greek Default Concern

It was the specter of government debt turning toxic that has revived the liquidity crisis policy makers had tried to stop in 2008. As speculation grew that European banks would have to write down their holdings of more governments’ debt after a Greek default, lenders pulled funding to those banks that held the most peripheral debt. It also raised concern European governments would struggle to afford a further bail out of their banks, because both the state and the lenders had failed to reduce their borrowings since the onset of the crisis.

“The debt has been transferred from the banks to the sovereign, but it hasn’t actually been eradicated,” said Gary Greenwood, a banking analyst at Shore Capital in Liverpool. “Until the sovereigns get their balance sheets in order, then these concerns are going to remain.”

Funding markets have seized up as investors speculate that sovereign debt writedowns are inevitable. Banks in the region hold 98.2 billion euros of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data.

Euribor-OIS

The difference between the three-month euro interbank offered rate, or Euribor, and the overnight indexed swap rate, a measure of banks’ reluctance to lend to each other, was at 0.67 percentage point on Aug. 22, within 3 basis points of the widest spread since May 2009.

“The central bank is the only clearer left to settle funds between banks,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG (CBK) in Frankfurt. “There is a mistrust between banks in general, between regions and with dollar providers overall.”

Overseas banks operating in the U.S. may have cut dollar holdings by as much as $300 billion in the past four weeks as European banks faced a squeeze on funding and sought dollars, Jens Nordvig, a managing director of currency research at Nomura Holdings Inc. in New York said Aug. 18. Dollar assets declined by about 38 percent to $550 billion in the period, he said.

‘More Nervous’

“Banks are becoming more nervous about being exposed to other banks as they hoard liquidity and become more suspicious of other banks’ balance sheets,” Guillaume Tiberghien, analyst at Exane BNP Paribas (BNP), wrote in a note to clients on Aug. 19.

By contrast, banks in the U.S. are “flush” with liquidity, loan loss reserves and capital, Goldman Sachs Group Inc. analyst Richard Ramsden wrote in an Aug. 6 report. Large commercial banks combined holdings of cash and securities at large have climbed to 30 percent of managed assets, up from 22 percent at the start of the U.S. financial crisis in October 2007, Ramsden wrote, citing Federal Reserve data.

The Federal Reserve, which provided as much as $1.2 trillion of loans to banks in December 2008, wound down most of its emergency programs by early 2010. One of the few exceptions was the central-bank liquidity swap lines that provide dollars to the ECB and other central banks so they can in turn auction off the dollars to banks in their own jurisdictions.

Trichet, Bernanke

Banks’ woes are again thrusting central bankers to the fore as ECB President Jean-Claude Trichet joins Fed Chairman Ben S. Bernanke and their counterparts from around the world in traveling this week to Jackson Hole, Wyoming for the Kansas City Fed’s annual policy symposium.

After increasing its benchmark rate twice this year to counter inflation, the ECB this month provided relief for banks by buying Italian and Spanish bonds for the first time, lending unlimited funds for six months, and providing one unnamed bank with dollars to satisfy the first such request since February. In doing so, it’s maintaining a role it began in August 2007 when it injected cash into markets after they began to freeze.

Coming to the rescue isn’t easy for the ECB. Its balance sheet is now 73 percent bigger than in August 2007 and its latest bond-buying opened it to accusations that by rescuing profligate nations it’s breaking a rule of the euro’s founding treaty and undermining its credibility. Policy makers are also divided over the best course of action, with Bundesbank President Jens Weidmann among those opposing the bond program.

Economic Threat

The central bank is acting in part because governments have yet to ratify a plan to extend the scope of a 440-billion euro rescue facility to allow it to buy bonds and inject capital into banks. Markets tumbled last week on concern policy makers aren’t acting fast enough.

The funding difficulties of banks was one reason cited by Morgan Stanley economists Aug. 17 for cutting their forecast for euro-area economic growth this year to 0.5 percent next year, less than half the 1.2 percent previously anticipated. They now expect the ECB to reverse this year’s rate increases, returning its benchmark to 1 percent by the end of next year.

The economic threat is greater in Europe because consumers and companies are more reliant on banks for funding than their U.S. counterparts, said Tobias Blattner, a former ECB economist now at Daiwa Capital Markets Europe in London. He says the ECB should eventually try to hand over fire-fighting duties either to governments, who would then inject capital into financial firms, or national central banks, who could provide short-term loans to lenders.

Longer-term solutions may involve the restructuring the debt of cash-strapped nations in a way that doesn’t roil bank balance sheets, potentially in lockstep with a European version of the U.S.’s Troubled Asset Relief Program.

Lena Komileva, Group-of-10 strategy head at Brown Brothers Harriman & Co. in London, said the central bank may have no option but to extend the backstop role it is playing for periphery banks to lenders elsewhere. Refusal to do so would risk a European bank default by the end of the year, she said.

“Markets are back in uncharted territory,” said Komileva. “The crisis is a whole new story now.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net Craig Stirling at cstirling1@bloomberg.net

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U.S Stock Futures Rise on Fed Stimulus Speculation, China Manufacturing

By Nick Gentle - Aug 23, 2011 1:57 PM GMT+0700

Futures on the Standard & Poor’s 500 Index rose, signaling the U.S. equity gauge will open higher, on speculation the Federal Reserve will act to prop up the faltering economic recovery and as a contraction in Chinese manufacturing activity eased.

Futures on the S&P 500 expiring in September climbed 1.4 percent to 1,138.6 at 2:52 p.m. in Hong Kong. The contract swung between gains and losses before the release of a preliminary China purchasing-managers index compiled by HSBC Holdings Plc and Markit Economics. The S&P 500 closed little changed at 1,123.82 yesterday. Futures on the Dow Jones Industrial Average increased 1.2 percent to 10,977.

Most U.S. stocks fell yesterday as declines by Goldman Sachs Group Inc. during the last 15 minutes of trade erased an intraday advance on hopes Fed Chairman Ben S. Bernanke will unveil new stimulus measures as soon as this weekend. The S&P 500 fell 16 percent from July 22 through the end of last week and its members trade at an average 11.3 times estimated earnings, near the lowest level since March 2009.

“Investors are hoping the Fed will show its commitment to supporting growth,” said Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd., which manages almost $100 billion. “There’s a real risk of disappointment if some sort of strong commitment doesn’t appear. Still, corporate health looks good, sentiment has moved to pessimistic extremes, and valuations are very attractive, so we could be in for a strong, tradable short-term rally.”

Jackson Hole

A four-week global equity rout has wiped about $8 trillion from companies’ market value as Europe’s sovereign debt-crisis and worsening economic reports in the U.S. raised concern the global economic recovery is faltering. Central bankers from around the world converge on Jackson Hole, Wyoming, this week for a conference that last year resulted in Bernanke signaling a second round of Fed asset purchases that buoyed asset markets.

Investor sentiment was also bolstered today after HSBC and Markit Economics reported a preliminary reading of 49.8 for its Chinese purchasing-managers index in August, compared with last month’s final reading of 49.3. The final August number is due Sept. 1. A reading below 50 indicates a contraction.

The data suggests that growth in China is moderating rather than collapsing and the slide in the index in July may have been a one-off “blip,” HSBC said.

To contact the reporter on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Oil Rises a Second Day on U.S. Fuel Demand, Libya Crude Production Outlook

By Ben Sharples - Aug 23, 2011 1:35 PM GMT+0700

Oil advanced for a second day in New York as investors bet U.S. fuel demand may rebound and a recovery in Libyan crude output will take longer than expected.

Futures climbed as much as 1.2 percent before a government report tomorrow that may show U.S. gasoline inventories shrank last week while crude stockpiles rose. Prices also gained after a manufacturing gauge improved in China, the world’s biggest energy user. London-traded Brent rebounded, after dropping as much as 3.2 percent yesterday as Libyan rebels entered Tripoli.

“The market got a little ahead of itself in terms of thinking that the Libyan conflict might be all over in a week,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who predicts New York crude will average $115 a barrel this year. For West Texas Intermediate, the main grade traded in New York, “it still obviously has a focus on what’s happening in the U.S. in terms of petroleum demand.”

Crude for October delivery climbed as much as 99 cents to $85.41 a barrel in electronic trading on the New York Mercantile Exchange, and was at $85.32 at 2:32 p.m. Singapore time. The contract earlier fell as much as 0.4 percent. It gained 2.4 percent yesterday.

Brent oil for October settlement was at $109 a barrel, up 64 cents, on the London-based ICE Futures Europe exchange, after closing 0.2 percent lower yesterday. The European benchmark contract was at a premium of $23.63 to U.S. West Texas Intermediate crude futures compared with a record of $26.21 on Aug. 19.

Fuel Supplies

An Energy Department report tomorrow may show gasoline stockpiles declined 1 million barrels from 210 million barrels in the seven days ended Aug. 19, according to a Bloomberg News survey of analysts. Crude inventories probably increased a second week by 1.5 million barrels, the survey shows. The industry-funded American Petroleum Institute will report its own data today.

“Energy prices are expected to hold in a mixed direction today before tomorrow’s data potentially offer some support,” Tom Pawlicki, a Chicago-based analyst at MF Global Holdings Ltd., said in a note. “The question for Brent crude, as well as the Brent-WTI spread, will be exactly when Libyan oil output is restored and to what capacity.”

Libya Revolt

Brent dropped yesterday, narrowing its record premium above U.S. futures by the most in five weeks amid speculation that an end to Muammar Qaddafi’s rule will lead to a recovery in the nation’s crude production. Rebel fighters hunted for the leader and declared his regime over as the dictator’s forces kept up their fight in parts of Tripoli, the capital now mostly in rebel hands.

The Libyan revolt, which began in February, has reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 100,000 barrels a day last month, a Bloomberg News survey showed. That’s less than 10 percent of the 1.6 million barrels the nation pumped in January, before the uprising.

Repairing damaged infrastructure and well heads at oil fields will take “several months and perhaps longer than a year,” Barclays Plc’s analysts, Helima Croft and Amrita Sen, said in a report e-mailed today. “Indeed, while the advancement of the rebels into Tripoli may have raised the specter of a speedy reincorporation of Libyan oil into the world market, we remain doubtful whether this will occur.”

It may take until 2012 before oil exports resume if the government falls, Emmanuel Fages, an energy analyst with Societe Generale SA in Paris, said yesterday. Goldman Sachs Group Inc. said resuming shut production will be “challenging,” according to an Aug. 22 report.

Front-month U.S. crude futures are 16 percent higher the past year. Prices also gained today amid speculation oil demand growth in China, the world’s second-biggest consumer, may accelerate. A preliminary reading of 49.8 for a manufacturing index released by HSBC Holdings Plc and Markit Economics today compares with a final reading of 49.3 for July.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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Australian, New Zealand Currencies Gain After China Manufacturing Report

By Masaki Kondo and Mariko Ishikawa - Aug 23, 2011 2:26 PM GMT+0700

The Australian and New Zealand dollars appreciated versus most of their major peers after a private report showed China’s manufacturing shrank at a slower pace this month, easing concern that the global economy is losing momentum.

The so-called Aussie gained for a third day against the U.S. currency as Asian stocks climbed, supporting demand for higher-yielding assets. The New Zealand dollar rose after a central bank report showed corporate executives’ outlook for economic growth even as their expectations for inflation have fallen.

“The data flow across the globe has been quite weak recently, so even a secondary indicator like this that comes out stronger than expected can have some impact” on the Australian and New Zealand dollars, Todd Elmer, head of Group-of-10 currency strategy for Asia ex-Japan at Citigroup Inc. in Singapore, said of the China manufacturing report.

Australia’s dollar advanced to $1.0486 as of 5:23 p.m. in Sydney from $1.0409 in New York yesterday, after falling as low as $1.0387. It bought 80.45 yen from 79.93 yen. New Zealand’s currency traded at 83.20 U.S. cents from 82.42 and rose to 63.83 yen from 63.29 yen.

The MSCI Asia Pacific Index of regional shares jumped 1.9 percent, set for its first advance in four days.

China Manufacturing

A preliminary gauge of China manufacturing in August was 49.8, according to a reading of the Purchasing Managers’ Index reported by HSBC Holdings Plc and Markit Economics today. That compares with a final reading for July of 49.3. A number below 50 indicates contraction.

“By the June meeting, signs were emerging that economic growth in many developed economies had lost some momentum,” Ric Battellino, Reserve Bank of Australia’s deputy governor, said today according to the text of a speech. “Growth in China and most other parts of Asia, however, remained a bright spot.”

New Zealand company executives see inflation averaging 2.9 percent in a year’s time, compared with a prior estimate of 3.1 percent, a quarterly report from the Reserve Bank of New Zealand showed today. Gross domestic product is projected to grow 2.9 percent in one year, up from 2.1 percent in the previous survey.

“Though inflation expectations are weaker, GDP outlook actually rises, so this isn’t a selling catalyst for the kiwi,” said Takuya Kawabata, a researcher in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest foreign- exchange margin company. “The bias for the Reserve Bank’s move is an increase rather than a cut in interest rates.”

The one-year overnight-index swap rate, an indication of what traders expect the central bank’s key interest rate will average during the period, was at 2.8 percent today, compared with the official cash rate of 2.5 percent.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Douglas Peterson to Become President of S&P

Standard & Poor’s future president Douglas Peterson. Photographer: Haruyoshi Yamaguchi/ Bloomberg

By Katrina Nicholas and John Detrixhe
Aug 23, 2011 12:07 PM GMT+0700

Standard & Poor’s, the ratings company that downgraded the U.S. AAA credit ranking for the first time, will replace President Deven Sharma with Citibank NA Chief Operating Officer Douglas Peterson.

Sharma, 55, will leave at the end of the year to “pursue other opportunities,” S&P’s parent McGraw-Hill Cos. said in an e-mailed statement. Peterson, 53, will take over Sept. 12 and Sharma will work on the company’s strategic review.

S&P’s Aug. 5 decision to reduce the U.S. credit rating to AA+ roiled global markets and boosted demand for Treasuries, sending the yield on the 10-year note, the benchmark for home mortgages and car loans, to a record low 2.03 percent. The New York-based company, which was blamed in an April Senate report for helping fuel the credit crisis, was criticized by the world’s most successful investor, Warren Buffett, who said the U.S. should be “quadruple-A.” The cut conflicted with Moody’s Investors Service and Fitch Ratings, which kept AAA grades.

“It looks like he’s being helped out the door,” Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York, said in a phone interview. “If it was a planned retirement, it should have been handled in a different way.”

Peterson, Sharma

Peterson was approached by McGraw-Hill in March, a person with direct knowledge of the talks said. He was chief executive officer of Citigroup Japan from 2004 to 2010 and was hired by the New York-based investment bank out of business school 26 years ago, according to an internal memo outlining his departure, whose contents were confirmed by Shannon Bell, a Citigroup spokeswoman in New York.

Peterson, who has an undergraduate degree in mathematics and history from Claremont McKenna College and a MBA from the Wharton School at the University of Pennsylvania, began his career in Argentina as a corporate banker and became Citigroup’s country manager in Costa Rica and then Uruguay, according to the memo.

Sharma, who joined S&P in 2007 as the global credit crisis was unfolding, will exit as McGraw-Hill faces mounting pressure from some of its shareholders to separate into four units. Jana Partners LLC and Ontario Teachers’ Pension Plan, which together own a 5.2 percent stake, presented a plan Aug. 22 to split the group, saying it has “consistently underperformed its potential” and is trading at “a sizable discount.”

Company Split

Since Aug. 5, the day of the downgrade, McGraw-Hill’s shares have lost 11 percent compared with a decrease of 6.3 percent for the S&P 500 Index (SPX), according to data compiled by Bloomberg. McGraw-Hill’s stock rose 0.1 percent to $37.04 yesterday.

Chief Executive Officer Terry McGraw said last month the company is conducting a strategic portfolio review after announcing in June plans to sell its broadcasting group. Sharma will work on the review until December.

In November, S&P was divided between McGraw-Hill Financial and the credit rating service. After the split, Sharma is “ready for new challenges,” according to the statement.

Sharma holds a bachelor’s degree from the Birla Institute of Technology in India, a master’s degree from the University of Wisconsin and a doctoral degree in business management from Ohio State University. He joined McGraw-Hill in January 2002 from consultants Booz Allen Hamilton, where he was a partner.

He was appointed president in August 2007, one month after S&P started lowering its ratings for hundreds of mortgage-backed securities, acknowledging that notes it originally deemed safe were now worth little.

S&P’s revenue grew 10.4 percent to $1.7 billion in 2010, from $1.54 billion a year earlier, Bloomberg data show.

“Since Sharma came in, he has done little to enhance the credibility or reputation of the ratings agency,” Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., said by phone. “Given the recent downgrades, it appears their operational management and ratings modeling have not been meaningfully strengthened.”

To contact the reporters on this story: Katrina Nicholas in Singapore on knicholas2@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net

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Gold climbs to record above $1,910 on growth fears

By Rujun Shen

SINGAPORE | Tue Aug 23, 2011 3:03am EDT

(Reuters) - Spot gold soared to an all-time high above $1,910 on Tuesday, scoring a record top for a fourth consecutive session, as persistent worries about global economic growth burnished bullion's safe-haven appeal.

The precious metal was headed for a seventh straight session of rise and a monthly gain of more than 16 percent, highest since September 1999.

Spot gold gained 0.8 percent to strike an unprecedented $1,911.46 an ounce, before easing to trade flat at $1,897.05 by 2:26 a.m. EDT.

U.S. gold rose 1.4 percent to a record high of $1,917.90, and retraced to $1,900.80.

Investors are waiting for flash purchasing managers' index (PMI) data for Germany, France and the euro zone later in the day, with a weak number likely to exacerbate fears about bailing out the bloc's indebted peripheral states.

"We are not hearing much good news out of Europe or the United States," said Darren Heathcote, head of trading at Investec Australia.

"The picture looks pretty bleak in the short term... For the time being investors are happy looking at gold as safe haven in these troubled times, and will continue to do so until we see something positive and sustainable."

On the chart, gold has been in the overbought territory since early August, with the Relative Strength Index hovering about 83.

Technical analysis suggested gold could pull back to $1,860 during the day, said Reuters market analyst Wang Tao.

SGE RAISES MARGINS, TRADING LIMITS; EYES ON COMEX

The Shanghai Gold Exchanges said it will raise trading margins on three of its gold spot deferred contracts to 12 percent from 11 percent starting August 26, and widen the daily trading limits to 9 percent from 7 percent.

Shanghai gold T+D contract fell less than 2 yuan from a high of 391.85 yuan per gram at the news, but has since stabilized around 391 yuan, or $1,900.02 an ounce.

Traders are eyeing potential hikes in U.S. gold futures margins. They were last raised on August 11 by 22 percent, triggering a correction in gold prices.

But concerns about the world's economic growth soon offset the impact of the margin hike, and gold embarked on another leg of record-setting rally just a week later.

"Everyone says that gold has been rising too fast, beware, beware, beware!" said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong. "But there is no sign of gold prices turning to point south."

Leung said scrap selling was minimal and sellers are waiting for higher prices, while investors continued to show buying interest.

Market participants are eyeing an annual central bank conference in Jackson Hole, Wyoming, where the U.S. Federal Reserve Chairman Ben Bernanke is scheduled to speak on Friday.

Spot silver rose to $44.14, its strongest since early May, tracking gold's strength. It was later trading at $43.44, down 0.7 percent from the previous close.

Spot platinum hit a three-year high at $1,912 an ounce, before easing to $1,904.24.

In other news, China's flash Purchasing Managers' Index, designed to preview the country's factory output before official data, edged up to 49.8 in August, from July's final reading of 49.3.

That leaves the index a touch under the 50-point mark that demarcates expansion from contraction in activity. HSBC publishes its final China PMI index for August on Sept 1.

(Editing by Himani Sarkar)

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Markets Look Ahead To Fed's Jackson Hole Meeting

22 August 2011, 3:45 p.m.

By Debbie Carlson
Of Kitco News
http://www.kitco.com/

(Kitco News) -The Federal Reserve will hold its annual symposium in Jackson Hole, Wyo., at the end of this week and all eyes will be on Federal Reserve Chairman Ben Bernanke when he addresses the group on Friday.

It was at last year’s meeting that Bernanke hinted the Fed would start another round of asset purchases to stimulate the economy. In November the Fed said it would buy $600 billion in bonds in a program that ended in June, dubbed a second quantitative easing.

Now with concerns that economic growth is slowing in the U.S. market watchers are

debating whether or not the Fed will try another method to stimulate the economy. This comes on the heels of a downgrade of the U.S. debt outlook by Standard & Poor’s which caused an already weak stock market to accelerate losses and sent gold to record levels.

“It’s definitely caught everyone’s attention. The feeling is that they (policy makers) know they have to do something,” said Mike Daly, gold and silver specialist at PFGBest.

According to a Bloomberg News story, the bond market is already pricing in that the Fed will announce new bond purchases of $500 billion to $600 billion.

A new stimulus program would give gold prices more room to rise, Daly said. “Printing money is always supportive for gold,” he said.

The markets will turn to Bernanke for guidance, said Ross Norman, chief executive officer at London-based gold dealer Sharps Pixley.

“In Jackson Hole, the market seems to be reaching for some sort of long-term plan, something that will alleviate the situation, but stir growth. Right now there have just been palliatives, such banning short-selling in Europe, the CME raising margins on gold,” he said.

What’s needed are jobs. “Not just any jobs, but economically useful jobs that will help North America get back on its feet,” Norman said.

Market participants wonder what the Fed could do to stimulate the economy further since they seem to have run out of options. Interest rates are already at rock-bottom and on Aug. 9 at the latest Federal Open Market Committee meeting, the Fed said it would leave interest rates low until mid-2013. Further, two rounds of stimulus have not had the desired effect of stabilizing the economy and producing jobs.

Shawn Hackett, president, Hackett Financial Advisors, said there are still some avenues left open. The Fed hinted that there are other instruments in their “tool box” to use, although they have stayed quiet on those devices.

Hackett said one of those methods would be for the Fed to do a reverse repurchase agreement, often called a “reverse repo.” A reverse repo is a purchase of securities with an agreement to resell them at a higher price at a specific time in the future.

The idea behind the reverse repo would be to get banks to lend, something the two quantitative easing programs did not do, he said. Banks have $1.8 trillion deposited with the Federal Reserve in its non-borrowed reserves. Non-borrowed reserves can be leveraged 10:1 which would allow the extension of bank credit by up to $18 trillion without printing any more money, Hackett said.

“(This) would launch an even greater asset inflationary boom to hard assets than we have already seen and provide huge opportunities to reenter the long side of commodity markets and commodity related equities. It would appear that the parabolic moves in precious metals this year as well as the huge out performance of overall commodities in relation to stocks is already suggesting that the big money may already be preparing for this massive reverse repo bank credit expansion policy,” Hackett said.

Some market watchers said it’s possible that Bernanke might only reiterate what was said recently.

Carlos Sanchez, associate director of research with CPM Group, noted that the Fed’s decision Aug. 9 to put a timestamp on how long they will hold rates at near-zero was a change from previous comments. “That in itself was a very strong signal. I don’t know if the Fed will be so quick to act with another policy tool to help stimulate economic activity – it takes time to trickle through the larger economy,” he said.

CPM Group’s Sanchez and Brown Brothers Harriman analysts both said the U.S. economy is in a different spot than it was last year. In 2010, deflation was a significant concern and that is not as much of an issue now, especially after last week’s consumer price index showed a rise to 0.5% in July.

Sanchez said that unemployment last year was rising and now it is stable. “While the economy isn’t great, is hasn’t worsened,” he said.

BBH analysts said even if there is no stimulus planned, that doesn’t mean the current risk-off trading atmosphere is over.

“All told, with the Fed unlikely to announce a dramatic policy shift this week we suspect that market sentiment is likely to remain negative and thus expect safe havens to remain in demand,” they said.

Gold has been a favorite safe haven for nervous investors.

Sanchez said some precious metals traders could wait to see how this week plays out before coming back into the market. Gold’s recent move to near $1,900 an ounce is more technical-chart driven than based on fundamentals.

That could leave it vulnerable to a break – PFGBest’s Daly called buying gold up here “scary.”

If gold can rally above $1,900 it could quickly move to $2,000, Sanchez said, but a move under $1,860 could led to a break of$50 to $100.

Norman, of Sharps Pixley, agreed that gold is overpriced at current levels based on fundamental factors. He said a break could come - and the Jackson Hole symposium might be the peg, depending on what is said.

If gold breaks, he said a move of $50-$60 is feasible, but he didn’t think it would fall much further because of strong demand.

“It’s clearly underpinned – there’s buying at each dip. We don’t know who, some of it comes out of Asia, it might be central banks, but we don’t know. Look at how gold behaves during adverse conditions,” he said, adding that the quick rebounds are the sign of a strong market.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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