Saturday, July 19, 2008

Economic Calendar Summary 7/20 - 7/25

Sunday, Jul 20, 2008

GMT	Ccy	Events	Consensus	Previous
22:45	NZD	Visitor Arrivals (JUN)	--	9.4%
23:01	GBP	Rightmove House Prices (MoM) (JUL)	--	-1.2%
23:01	GBP	Rightmove House Prices (YoY) (JUL)	--	0.1%

Monday, Jul 21, 2008

GMT	Ccy	Events	Consensus	Previous
1:30	AUD	Producer Price Index (QoQ) (2Q)	1.6%	1.9%
1:30	AUD	Producer Price Index (YoY) (2Q)	5.3%	4.8%
1:30	AUD	New Motor Vehicle Sales (MoM) (JUN)	--	-1.6%
1:30	AUD	New Motor Vehicle Sales (YoY) (JUN)	--	2.6%
3:00	NZD	Credit Card Spending (YoY) (JUN)	--	5.9%
7:00	CHF	Money Supply M3 (YoY) (JUN)	--	2.6%
7:00	CHF	Real Estate Index Family Homes (2Q)	--	340.4
7:15	CHF	Producer & Import Prices (MoM) (JUN)	0.5%	1.2%
7:15	CHF	Producer & Import Prices (YoY) (JUN)	4.4%	3.9%
14:00	USD	Leading Indicators (JUN)	-0.1%	0.1%
23:50	JPY	All Industry Activity Index (MoM) (MAY)	0.4%	0.8%

Tuesday, Jul 22, 2008

GMT	Ccy	Events	Consensus	Previous

Wednesday, Jul 23, 2008

GMT	Ccy	Events	Consensus	Previous
1:00	AUD	DEWR Skilled Vacancies (MoM) (JUL)	--	-0.1%
1:30	AUD	Consumer Prices (QoQ) (2Q)	1.3%	1.3%
1:30	AUD	Consumer Prices (YoY) (2Q)	4.3%	4.2%
1:30	AUD	Reserve Bank of Australia Trimmed Mean (QoQ) (2Q)	1.1%	1.2%
1:30	AUD	Reserve Bank of Australia Trimmed Mean (YoY) (2Q)	4.2%	4.1%
1:30	AUD	Reserve Bank of Australia Weighted Median (QoQ) (2Q)	1.1%	1.3%
1:30	AUD	Reserve Bank of Australia Weighted Median (YoY) (2Q)	4.4%	4.4%
6:45	EUR	French Consumer Spending (MoM) (JUN)	-0.6%	2.0%
6:45	EUR	French Consumer Spending (YoY) (JUN)	1.4%	3.1%
8:00	EUR	Italian Retail Sales s.a. (MoM) (MAY)	0.0%	0.0%
8:00	EUR	Italian Retail Sales (YoY) (MAY)	-0.4%	-2.3%
8:30	GBP	Bank of England Minutes	--	--
8:30	GBP	BBA Loans for House Purchase (JUN)	--	27968
9:00	EUR	Euro-Zone Industrial New Orders s.a. (MoM) (MAY)	-1.0%	2.5%
9:00	EUR	Euro-Zone Industrial New Orders (YoY) (MAY)	3.2%	11.7%
10:00	GBP	U.K. CBI Quarterly Industrial Trends (JUL)	--	--
11:00	CAD	Consumer Price Index (MoM) (JUN)	0.5%	1.0%
11:00	CAD	Consumer Price Index (YoY) (JUN)	2.9%	2.2%
11:00	CAD	Bank of Canada Consumer Price Index Core (MoM) (JUN)	0.1%	0.3%
11:00	CAD	Bank of Canada Consumer Price Index Core (YoY) (JUN)	1.6%	1.5%
11:00	USD	MBA Mortgage Applications (JUL 18)	--	1.7%
13:00	USD	Fed's Mishkin Speaks at Bank of Canada Conference	--	--
15:15	USD	Fed's Kohn Speaks on Transparency at Bank of Canada Conference	--	--
18:00	USD	Fed's Beige Book	--	--
21:00	NZD	Reserve Bank of New Zealand Rate Decision	8.25%	8.25%
23:50	JPY	Merchandise Trade Balance Total (yen) (JUN)	506.0B	365.6B
23:50	JPY	Adjusted Merchandise Trade Balance (yen) (JUN)	270.0B	642.3B

Thursday, Jul 24, 2008

GMT	Ccy	Events	Consensus	Previous
01:00	JPY	BOJ Board Member Atsushi Mizuno to Speak in Aomori City	--	--
06:45	EUR	French Business Confidence Indicator (JUL)	100	102
06:45	EUR	French Production Outlook Indicator (JUL)	-17	-15
06:45	EUR	French Own-Company Production Outlook (JUL)	4	7
07:00	EUR	French Purchasing Manager Index Manufacturing (JUL P)	48.8	49.2
07:00	EUR	French Purchasing Manager Index Services (JUL P)	49.5	50.1
07:30	EUR	German Purchasing Manager Index Manufacturing (JUL A)	52	52.6
07:30	EUR	German Purchasing Manager Index Services (JUL A)	51.5	52.1
07:30	EUR	Italian Business Confidence (JUL)	86.5	87.1
08:00	EUR	German IFO - Expectations (JUL)	93.2	94.7
08:00	EUR	German IFO - Business Climate (JUL)	100.2	101.3
08:00	EUR	German IFO - Current Assessment (JUL)	106.5	108.3
08:00	EUR	Euro-Zone Current Account s.a. (euros) (MAY)	--	-0.3B
08:00	EUR	Euro-Zone Current Account n.s.a. (euros) (MAY)	--	-9.2B
08:00	EUR	Euro-Zone Purchasing Manager Index Manufacturing (JUL A)	48.7	49.2
08:00	EUR	Euro-Zone Purchasing Manager Index Services (JUL A)	48.8	49.1
08:00	EUR	Euro-Zone Purchasing Manager Index Composite (JUL A)	49	49.3
08:30	GBP	Retail Sales (MoM) (JUN)	-2.60%	3.50%
08:30	GBP	Retail Sales (YoY) (JUN)	4.40%	8.10%
12:30	USD	Initial Jobless Claims (JUL 19)	380K	366K
12:30	USD	Continuing Claims (JUL 12)	3200K	3122K
14:00	USD	Existing Home Sales (MoM) (JUN)	-1.00%	2.00%
14:00	USD	Existing Home Sales (JUN)	4.94M	4.99M
14:00	USD	NY Fed's Geithner; SEC's Cox to Testify Before House Committee	--	--
23:30	JPY	Tokyo Consumer Price Index (YoY) (JUL)	1.80%	1.50%
23:30	JPY	Tokyo Consumer Price Index Ex-Fresh Food (YoY) (JUL)	1.60%	1.30%
23:30	JPY	Tokyo Consumer Price Index Ex Food; Energy (YoY) (JUL)	0.40%	0.30%
23:30	JPY	National Consumer Price Index (YoY) (JUN)	1.90%	1.30%
23:30	JPY	National Consumer Price Index Ex-Fresh Food (YoY) (JUN)	1.90%	1.50%
23:30	JPY	National Consumer Price Index Ex Food; Energy (YoY) (JUN)	0.00%	-0.10%
23:50	JPY	Foreign Buying Japan Stocks (yen) (JUL 18)	--	-242.4B
23:50	JPY	Foreign Buying Japan Bonds (yen) (JUL 18)	--	528.2B
23:50	JPY	Japan Buying Foreign Stocks (yen) (JUL 18)	--	12.9B
23:50	JPY	Japan Buying Foreign Bonds (yen) (JUL 18)	--	-58.4B
23:50	JPY	Corporate Service Price (YoY) (JUN)	0.60%	0.60%

Friday, Jul 25, 2008

GMT	Ccy	Events	Consensus	Previous
7:30	EUR	Italian Retailers' Confidence General (JUL)	--	107.3
7:30	EUR	Italian Services Survey (JUL)	--	14
8:00	EUR	Euro-Zone M3 s.a. (3M) (JUN)	10.4%	10.4%
8:00	EUR	Euro-Zone M3 s.a. (YoY) (JUN)	10.3%	10.5%
8:30	GBP	Gross Domestic Product (QoQ) (2Q A)	0.2%	0.3%
8:30	GBP	Gross Domestic Product (YoY) (2Q A)	1.6%	2.3%
8:30	GBP	Index of Services (3Mo3M) (MAY)	0.4%	0.3%
12:30	USD	Durable Goods Orders (JUN)	-0.3%	0.0%
12:30	USD	Durables Ex Transportation (JUN)	-0.2%	-0.9%
14:00	USD	U. of Michigan Confidence (JUL F)	56.3	56.6
14:00	USD	New Home Sales (MoM) (JUN)	-1.8%	-2.5%
14:00	USD	New Home Sales (JUN)	503K	512K

Asia Stocks Fall for Fifth Week in Six on Global Growth Concern

By Hanny Wan and Chua Kong Ho

July 19 (Bloomberg) -- Asian stocks declined for the fifth week in six, driving the benchmark index to the lowest level since October 2006, on concern the weakening global economy will erode profits.

Cnooc Ltd., China's largest offshore oil producer, tumbled after crude headed for its worst week in three years. Wipro Ltd., India's third-largest software-services provider, slumped after saying customers cut spending. Mitsubishi UFJ Financial Group Inc. fell in Tokyo and Cathay Financial Holding Co. dropped in Taipei after they disclosed holdings of debt at embattled U.S. mortgage lenders Fannie Mae and Freddie Mac.

``Growth is slowing and not just in the U.S.,'' said Daphne Roth, Singapore-based vice president of equity research at ABN Amro Private Bank, which oversees about $20 billion in Asian assets. ``A lot of money has been put into the commodities space and with the underlying demand slowing, it makes sense to exit.''

The MSCI Asia-Pacific Index lost 3.3 percent to 129.16 as all 10 of its industry groups declined. The benchmark gauge has retreated 18 percent this year as more than $435 billion in credit-related losses prolong the global economy's slump and rising commodity prices stoke inflation.

Japan's Nikkei 225 Stock Average declined 1.8 percent to 12,803.70, falling for a sixth week. South Korea's Kospi index lost 3.7 percent in its seventh weekly decline. That's the longest losing streak since June 1996. Fifteen days of declines on Pakistan's Karachi Stock Exchange 100 Index led to hundreds of investors stoning the building on July 17 and shouting anti- government slogans.

Oil Producers

Cnooc plunged 9.6 percent to HK$11.88 this week. Inpex Holdings Inc., Japan's biggest oil explorer, slumped 8.9 percent to 1.13 million yen.

Crude oil futures dropped 11.2 percent to $128.88 a barrel in New York in the biggest weekly decline since December 2004, after Federal Reserve Chairman Ben S. Bernanke said risks to growth and inflation have risen in the U.S. and a report showed China's economy grew at the slowest pace since 2005 last quarter.

BHP Billiton Ltd., the world's largest mining company, dropped 9.2 percent to A$36.65 this week. Rio Tinto Group, the third largest, retreated 8.3 percent to A$115.50.

Strategists at Merrill Lynch & Co. and Morgan Stanley said investors should sell commodities stocks because a slowing global economy will cut demand for raw materials such as copper, nickel and corn.

Wipro, Satyam

Wipro tumbled 12 percent to 363 rupees. The company predicted demand in the fiscal first half would remain weak as some telecom customers cut spending. Wipro manages computer networks, offers engineering services and operates call centers for clients including Cisco Systems Inc. and Boeing Co.

Satyam Computer Services Ltd., India's fourth-largest computer-services provider, slumped 14 percent to 383 rupees, after leaving its forecast unchanged for the 12 months to March 31, 2009.

The two companies join Infosys Technologies Ltd. in signaling an uncertain sales outlook for the fiscal year as banks and financial-services companies cope with the collapse of the U.S. subprime mortgage market.

Mitsubishi UFJ, Japan's largest bank by market value, lost 4.1 percent to 951 yen. Sumitomo Mitsui Financial Group Inc. fell 1.4 percent to 824,000 yen.

Agency Debt

Mitsubishi UFJ held 3.3 trillion yen ($31 billion) in bonds issued by U.S. government-backed companies including Fannie Mae and Freddie Mac as of March 31, the company said July 15. Sumitomo Mitsui said it owned 219.8 billion yen in such bonds.

Cathay Financial, Taiwan's biggest publicly traded financial services firm, declined 9.1 percent to NT$60. The Taipei-based company revealed July 15 it has NT$200 billion ($6.6 billion) in debt linked to the U.S. mortgage lenders.

The U.S. Treasury and Federal Reserve were forced to assemble a rescue plan for Fannie and Freddie on July 13 to stem a collapse of confidence in the two companies, which own or guarantee about half of the $12 trillion in U.S. home loans during the country's worst housing recession in 25 years.

``The stocks were beaten down in the week due to worries about the stability of the large U.S. government-sponsored mortgage companies,'' said Brett Hemsley, an analyst at HSBC Holdings Plc in Tokyo.

To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net

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Stern Says Fed Shouldn't Wait for End of Crisis to Raise Rates

By Vivien Lou Chen

July 19 (Bloomberg) -- The Federal Reserve shouldn't wait for housing and financial markets to stabilize before it begins raising interest rates, central bank policy maker Gary Stern said.

``We're pretty well-positioned for the downside risks we might encounter from here,'' Stern, president of the Federal Reserve Bank of Minneapolis, said in an interview yesterday. ``I worry a little bit more about the prospects for inflation.''

The comments by Stern, a voter on the rate-setting Federal Open Market Committee this year, reinforced traders' forecasts for a rate increase by year-end. Stern indicated that Treasury Secretary Henry Paulson's rescue plan for Fannie Mae and Freddie Mac will help prevent a deeper housing and economic slump.

``We can't wait until we clearly observe the financial markets at normal, the economy growing robustly, and so on and so forth, before we reverse course,'' said Stern, 63, the Fed's longest-serving policy maker. ``Our actions will affect the economy in the future, not at the moment.''

The bank president compared the credit crunch to the one in the early 1990s, which restrained economic growth for almost three years. That's a more sanguine assessment than others have. The International Monetary Fund has said it's the worst financial shock since the Great Depression. Former Fed Chairman Alan Greenspan said it's the most intense in more than half a century.

Rate Outlook

Traders' estimates of a rate increase in October rose to 64 percent yesterday after Stern's remarks were published, from 58 percent earlier in the day.

Stern dissented three times in favor of raising rates in 1996. He is the only FOMC member who's served with three chairmen: Paul Volcker, Greenspan and Ben S. Bernanke. He became the Minneapolis Fed president in 1985.

His comments yesterday underscore that ``the Fed has grown more uncomfortable with the inflation situation,'' Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York, wrote in a note to clients.

Stern spoke two days after government figures showed consumer prices surged 5 percent over the past year, the biggest jump since 1991. Excluding food and fuel, so-called core prices rose 2.4 percent, higher than the 2.1 percent average over the last five years.

`Too High'

``Headline inflation is clearly too high,'' Stern said. He added that he's concerned that will feed through to core prices and public expectations for inflation.

As long as energy and food costs level off, core inflation ought to slow over the next year, Stern said.

Crude oil has surged 73 percent in the past 12 months, and rose to a record of $147.27 a barrel on July 11. Worldwide, prices for food commodities such as wheat and rice were 43 percent higher in April than a year earlier, according to the United Nations Food and Agriculture Organization.

Stern declined to say when policy makers may shift toward raising rates.

``We're going to want to, in my opinion, reverse some of those interest-rate reductions,'' he said. ``I don't think there's any question about that. But exactly when depends on how things evolve from here.''

The FOMC halted its series of seven reductions last month, after reducing the benchmark rate to 2 percent, from 5.25 percent last September.

Traders anticipate the Fed will boost its main rate at least a quarter point from 2 percent in October, after keeping borrowing costs unchanged in August and September. There's a 79 percent probability of a move by year-end, futures prices show.

Bernanke's View

Minutes of the Fed's June 24-25 gathering, released July 15, showed that some Fed officials favored an increase in rates ``very soon.'' Bernanke this week said there are risks to both inflation and growth, abandoning the FOMC's June assessment that the threat of a ``substantial'' downturn had receded.

``This is a very challenging policy environment,'' Stern said yesterday. ``I don't think we ought to pretend that'' an end to the credit crisis ``won't take some time,'' he said.

The Fed on July 13 offered Fannie Mae and Freddie Mac access to direct loans from the central bank in case the firms needed the financing before Congress acts on Paulson's rescue plan. The Treasury chief is seeking power to make unlimited loans to and purchase equity in the companies if needed.

Stern said the Treasury proposals are ``clearly designed to bolster Fannie and Freddie, and to address'' risks the firms' troubles pose to the credit crisis and housing slump.

To contact the reporter on this story: Vivien Lou Chen in Minneapolis at vchen1@bloomberg.net

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Friday's News Recap: Canadian Wholesale Trade Up, Consumer Spending Still Strong

News Recap | Written by CEP News | Jul 18 08 20:39 GMT |
(CEP News) - It was a quiet day for releases in North America, with wholesale trade and leading indicators released in Canada. In the U.S, markets received state and regional employment data and heard some comments about inflation from Minneapolis Fed president Gary Stern.

Canada's wholesale sales posted a larger-than-expected 1.6% rise in May, driven predominantly by rising fertilizer sales, Statistics Canada reported Friday. Wholesale sales hit $44.2 billion in the month, up from $43.5 billion in April. This marks the fourth gain in the last five months. Analysts had expected to see a 0.5% increase in the monthly figure. Fertilizer exports soared 57.7% compared with the same month last year.

"Since the volume of wholesale trade was only robust in May (in real terms) this report will likely have a sizable impact on May GDP," noted Charmaine Buskas, senior economics strategist from TD Securities. "The next piece of the puzzle is the retail sales numbers which come out next week, but there is already good momentum for May GDP."

Canada's composite leading index was unchanged in June as consumer spending remained strong but housing and manufacturing showed signs of weakness, Statistics Canada reported Friday. The flat reading in the index followed gains of 0.2% in May and 0.1% in April. Analysts had expected to see the composite index rise by another 0.1% in June. New orders from manufacturers plunged 3.5% to $25.4 billion in June from $26.3 billion the month prior.

In the U.S., regional and state unemployment rates were generally little changed in June, as 24 states recorded month-to-month unemployment rate increases, 16 states and the District of Columbia registered decreases and 10 states had no change, according to data released by the Bureau of Labor Statistics.

On a year-to-year basis, the unemployment rate was up in 45 states (and D.C.), down in four states and unchanged in one state. The national unemployment rate was unchanged in June at 5.5%, but was up from 4.6% a year earlier.

Speaking in an interview with Bloomberg on Friday, Minneapolis Federal Reserve President Gary Stern (voter) said that the Federal Reserve can't wait for the end of the crisis to raise rates. "I worry about the prospects for inflation. The headline inflation rate is clearly too high," said Stern. He also noted that the Fed is well-positioned for a downside risk to growth. He commented that the current credit crisis was reminiscent of the early 1990s.

In overnight news, Germany's Federal Statistics Office (Destatis), reported that German producer price inflation accelerated to 6.7% year-over-year in June, up from both the 6.5% growth rate expected and the 6.0% rate recorded in May. June's annualized increase is the largest recorded since March 1982. In monthly terms, the producer price index rose 0.9%. Economists had expected a more severe slowdown to 0.7% after prices increased 1.0% in the previous month.

Eurostat reported that the euro zone trade balance fell to a deficit of €4.6 billion in May. Economists had expected a smaller deficit reading of €1.0 billion following the previous month's €2.5 billion surplus. April's figure was revised up from a surplus of €2.3 billion. Adjusting for calendar effects, the trade deficit was only €1.5 billion, down from a surplus of €1.4 billion recorded in April. Economists had expected a surplus reading of €800 million. Meanwhile, April's figure was revised down from a surplus level of €2.2 billion.

The Bank of Japan released the minutes of its June 12 and 13 monetary policy meeting, where it was unanimously agreed that the current money market operation guidelines would be maintained and that the uncollateralized overnight call rate would remain unchanged at 0.50%.

In a joint interview with the Irish Times, France's Le Figaro, Germany's Frankfurter Allgemeine Zeitung and Portugal's Jornal de Negocios published on Friday, European Central Bank President Jean-Claude Trichet reiterated that the mandate of the ECB was to ensure price stability in the medium term and suggested that would be achieved "in line with our definition" over 18 months.

"We are not pursuing two goals; we are pursuing one goal, which is price stability in the medium term," Trichet said.

Speaking to the Irish Times, Trichet said that policy-makers would not modify monetary policy to help individual euro zone states that are seeing notable economic slowdowns, such as Ireland, Spain or Portugal, and emphasized that the interest of the entire monetary zone was the focus of the ECB. "Our monetary policy must be optimal at the level of the whole euro area," Trichet said.

Speaking at the London Stock Exchange on Friday, Bank of England Deputy Governor John Gieve said he expects inflation to rise to "well over" 4% in 2008 while economic growth should slow sharply. "We are expecting inflation to be well over 4 percent for much of the rest of the year," Gieve said in a prepared statement, adding that "timely sources of data suggest the economy is already slowing fast."

By Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Geoff Matthews, gmatthews@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.
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Closing Market Recap: Fixed Income Tumbles After Financials Rebound

Market Updates | Written by CEP News | Jul 18 08 21:40 GMT |
(CEP News) - Renewed confidence in the U.S. economy and financial sector sparked a modest rally in U.S. stocks and a Treasury selloff on Friday. Meanwhile, Canadian equities closed the week on a positive note and the loonie flirted with parity.

For the most part, markets were relatively unchanged on Friday after a tumultuous week. The exception was in fixed income where prices fell and yields shot higher.

U.S. two-year yields were up 14.7 bps to 2.63%, with five-year yields up 14.1 bps to 3.41%, 10-year yields up 9.2 bps to 4.08% and 30-year yields up 4.0 bps to 4.65%. The Eurodollar September 08 contract was down 4.0 ticks to 97.08. The yield curve was flatter, with the 10/2-year spread down 5.9 bps to 144.49 bps.

William O'Donnell, fixed income strategist at UBS, said better-than-expected earnings from Citigroup and momentum selling were hurting the bond market.

"One of the problems we have is that technical conditions are pretty poor," O'Donnell said. "We had a rally since the middle of June and we're seeing a bit of a giveback after a bounce in some of the financials."

Citigroup reported a second-quarter net loss of $2.5 billion, or 54 cents a share. But analysts had expected a loss of about $3.7 billion.

Shares of Citigroup closed 7.4% higher while the ETF that tracks the U.S. financial sector was up 1.6%. Further support came from the embattled shares of U.S. mortgage guarantors Fannie Mae and Freddie Mac, which gained 22.6% and 10.5% respectively.

The rally in financials offset a technology selloff, pushing stocks into positive territory. Toronto's S&P/TSX composite index closed up 56 points to 13,516, the Dow Jones industrial average up 50 points to 11,497, the S&P 500 unchanged at 1,261 and the Nasdaq down 30 points to 2,283.

European stock markets closed in positive territory with the Eurostoxx up 49 points to 2,836, the UK FTSE 100 up 90 points to 5,376 and the German DAX up 111 points to 6,383.

Crude oil prices were relatively stable on Friday but on the week were down $18 at $128.88 per barrel.

Commodity trader Dennis Gartman pointed to changes in consumer and corporate habits as the reasons for the commodity decline. He said prices could fall to $100 "rather easily."

"What has taken place to send crude so violently lower over the course of the past week: demand destruction plainly and simply," Gartman wrote in his newsletter.

On Friday, WTI crude oil was down $0.41 to $128.88.

The fall in energy prices had little effect on the Canadian dollar. It outperformed every G10 currency except the Australian dollar and pound sterling in the past week.

"The fact that CAD outperformed as crude oil headed to its largest one-week decline in three-and-a-half years would appear to underscore that this correlation remains broken for now," wrote Scotia Capital currency strategists Steve Malyon and Sacha Tihanyi in a note to clients.

On Friday, the Canadian dollar was unchanged 0.9943 against the U.S. dollar (1.0058 USD/CAD) and up 0.70 to 106.35 against the yen.

The U.S. dollar was up 0.69 to 106.96 against the yen and the Dollar Index was down 0.069 to 72.173.

The euro was down 0.0016 to 1.5848 against the U.S. dollar, down 0.0016 to 1.5938 against the Canadian dollar, up 0.0012 to 0.7928 against the pound sterling and was higher by 0.92 to 169.48 against the yen.

The pound sterling was down 0.0050 to 1.9990 against the U.S. dollar and down 0.0052 to 2.0104 against the Canadian dollar.

Elsewhere in fixed income, yields on two-year Canadian government bonds were up 7.0 bps to 3.19%, with five-year yields up 4.5 bps to 3.41%, 10-year yields up 2.8 bps to 3.81% and 30-year yields up 0.6 bps to 4.15%. The Canadian 10-year note was yielding 27.78 bps less than the U.S. 10-year note.

In Germany, returns on two-year German bonds were up 16.0 bps to 4.54%, with five-year yields up 15.8 bps to 4.60%, 10-year yields up 12.8 bps to 4.57% and 30-year yields up 9.6 bps to 4.86%.

Yields on UK two-year bonds were up 13.9 bps to 5.11%, with five-year yields up 14.4 bps to 5.06%, 10-year yields up 14.0 bps to 5.04% and 30-year yields up 9.8 bps to 4.68%.

Looking to the week ahead, the health of the Canadian consumer and rising inflation will be in focus.

On Tuesday, Statistics Canada will release the May retail sales report. Economists believe the domestic economy continues to chug along and spending will rise 0.5% from April.

On Wednesday, inflation will be the focus with the June report on the Consumer Price Index. Over the past year, inflation has become a global problem that Canada has dodged mostly because of the rapid rise of the loonie. Canada has had some of the lowest inflation rates in the world, but that could be changing. In the previous report on CPI, prices rose from 1.7% to 2.2%. Economists expect the trend to continue and the year-over-year CPI to hit 2.9%, marking the highest level since 2005.

Still, Canada remains a relatively low inflation country. Euro zone inflation is at 4.0% while U.S. consumer prices have increased 5% in the past year.

All data taken at 4:58 p.m. EDT.

By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.

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Friday, July 18, 2008

USD Affected by Negative Sentiment

Daily Forex Fundamentals | Written by Crown Forex | Jul 18 08 11:03 GMT |

After the greenback was starting to gain strength once again in the markets during the morning session, now it is back to falling as a result of the negative sentiment that is still in the markets due to the financial market crisis ongoing. Today the U.S economy is fundamental free as we wait for next week in order to see if there is fundamentals that will help support the weak dollar.

The Euro Zone today released its trade balance seasonally adjusted for the month of May showing that the deficit had widened to 1.5 billion from the prior surplus of 2.2 billion while expectations were 0.8 billion keeping the euro from reaching the strong resistance level of 1.5900 although it is currently appreciating in the market. The EUR/USD is currently trading at 1.5866 while recording a high of 1.5886 and a low of 1.5821.

As the UK government said this morning that the report by the Treasury official regarding borrowing in the UK was "pure speculation" scared investors away from the pound causing it to show weakness in the market. The affect of this news did not stay long as the sterling is now back to being firm in the market working its way back to the psychological barrier of 2.0000 due to the data released by the UK economy showing that the M4 money supply came in better than expected limiting losses. The GBP/USD is currently trading at 1.9972 while recording a high of 1.9995 and a low of 1.9905.

The yen is trading in a sideways pattern while it is moving on technical movements. The USD/JPY is currently trading at 106.28 while recording a high of 106.46 and a low of 105.96.

Crown Forex

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U.K. June Public Sector Finances: Summary (Table)

By Mark Evans

July 18 (Bloomberg) -- Following is a summary of UK public sector finances for June from the Office for National Statistics in London:

=============================================================================
                           June      May    April    March     Feb.     June
                           2008     2008     2008     2008     2008     2007
=============================================================================
                         ------------------ Public Sector ------------------
PSNCR                     15,459   10,973     -979   12,174    3,014   10,070
PSNCR FYTD*                 25.5     10.0     -1.0     27.4     15.2     12.7
Current budget            -7,624  -11,071   -1,657   -3,752    4,147   -5,328
Net investment             1,540    1,445    1,031    6,638    4,359      969
PSNB                       9,164   12,516    2,688   10,390      212    6,297
PSNB FYTD*                  24.4     15.2      2.7     34.2     23.9     14.7
Net debt*                  555.3    539.1    527.6    528.5    516.9    514.6
Net debt % GDP             38.3%    37.3%    36.7%    36.9%    36.2%    37.3%
=============================================================================
Note: All figures are in GBP million except where specified.
     Net investment minus surplus on current budget = net borrowing
     * = GBP Billions
 
SOURCE: The Office for National Statistics

To contact the reporter on this story: Mark Evans in London at mevans8@bloomberg.net

Freddie Gets Asia, Europe Buyers for $3 Billion Bonds

By Jody Shenn

July 18 (Bloomberg) -- Investors in Asia and Europe snapped up a $3 billion sale of Freddie Mac bonds at near record yields, a sign that the beleaguered mortgage finance company has the support of foreign central banks.

Investors outside North America including central banks bought 61 percent of the two-year notes yesterday, McLean, Virginia-based Freddie Mac said. That compares with 55 percent in its last sale of securities with the same maturity in May.

Freddie Mac fell 64 percent in New York Stock Exchange trading during the past month and Fannie Mae lost 56 percent of its market value on concern they may not have enough capital to survive the housing slump. Treasury Secretary Henry Paulson announced a rescue plan for the nation's biggest mortgage companies on July 13 and the Wall Street Journal reported today that Freddie Mac may sell $10 billion of new shares, citing people it didn't identify.

``We're operating as business as usual this week,'' Treasurer Timothy Bitsberger, who was assistant secretary for financial markets at the Treasury before joining the government- chartered company in 2006, said in a telephone interview. ``The dramatic change is that we're just under a very large, powerful microscope.''

Wider Spreads

Freddie Mac and Fannie Mae rely on foreign institutions to finance their business. The Federal Reserve held $983.9 billion of so-called agency debt on behalf of international investors as of July 16, up from $950.9 billion on June 4 and $1.83 billion in 2003.

While some investors may have lost confidence in the companies, ``all I know is that we've been able to sell paper this week,'' Bitsberger said.

Freddie Mac fell 64 cents, or 7.7 percent, to $7.69 at 11 a.m. in Frankfurt, where 38,000 shares traded. Shares in Fannie Mae dropped 47 cents, or 4 percent, to $10.45 with about 16,000 shares changing hands.

Yields on the companies' debt rose relative to Treasuries this week as Paulson's plan to seek authority from Congress to pump equity into Fannie Mae and Freddie Mac and to increase their lines of credit met resistance from lawmakers. Freddie Mac and Fannie Mae weren't the only ones facing wider spreads, Bitsberger said. Corporate and mortgage debt spreads also increased.

`Decent Incentive'

The gap, or spread, on Freddie Mac's benchmark debt widened to 83 basis points, from 50 basis points on Dec. 31, according to Merrill Lynch & Co.'s U.S. Agencies, Freddie Mac Reference Notes Index. The premium rose as high as 101 basis points in March, compared with 34 basis points a year ago. A basis point is 0.01 percentage point.

Freddie Mac's reference notes yesterday sold at the widest spread to Treasuries in at least five years. The debt was priced to yield 3.358 percent, or 88 basis points more than U.S. government debt of similar maturity.

``You have better liquidity in Treasuries, but 88 basis points is a fairly decent incentive,'' said Daniel Fuss, vice chairman of Loomis Sayles & Co. in Boston and co-manager of the $18 billion Loomis Sayles Bond Fund. The companies' notes are ``selling where they ought to sell,'' he said.

Freddie Mac received higher-than-average demand earlier this week for $3 billion of three- and six-month bills. The bid-to- cover ratio, which compares total bids with the amount sold, was more than 50 percent above the average of the past three months, according to Stone & McCarthy Research Associates. The ratio for the three-month auction was 4.16, compared with an average of 2.83.

Foreigners Move In

Asian investors bought at least 34 percent of the Freddie Mac debt sold yesterday, while European buyers purchased 27 percent, the most for two-year notes in more than a year, according to Nancy Vanden Houten, an analyst at Stone & McCarthy in Skillman, New Jersey.

Net foreign purchases of Fannie Mae, Freddie Mac, and other so-called agency debt and agency mortgage-backed securities, rose to $24.2 billion in May from $15.3 billion in April, Treasury said this week.

The senior debt of Fannie Mae and Freddie Mac is rated AAA because of its implied guarantee by the U.S. government, making it attractive to central banks, pension funds and insurance companies seeking low-risk investments.

Asian banks and insurance companies own about $800 billion of the companies' debt, including $200 billion held by Japan and $376 billion by China, Moody's Investors Service said in a report yesterday, citing the U.S. Treasury.

`Miniscule' Default Risk

Moody's said Fannie Mae and Freddie Mac pose ``little risk'' to Asian banks and insurance companies that hold the securities because any loss in value would be ``limited and temporary.'' The ``risk of default is miniscule, in line with the Aaa ratings,'' Deborah Schuler, a Moody's senior vice president, wrote in a report released yesterday.

While the company paid its highest yields compared with Treasuries to sell the notes and bills, the spreads reflect increases across the market, rather than investors avoiding the company, Bitsberger said.

The average spread on corporate bonds climbed to 297 basis points yesterday, compared with 203 basis points on Dec. 31, according to Merrill's U.S. Corporate Master index. Spreads on mortgage-backed securities guaranteed by U.S. agency Ginnie Mae have risen to 134 basis points from 79 basis points, according to Merrill's GNMA Master index.

``When you say we're wider, I can say we've far outperformed any other type of bond asset classes,'' Bitsberger said. ``I think the past year, where we've been in a flight to quality environment, I'd be surprised if we weren't wider to Treasuries.''

To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net.

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Cypriots Skip Showers as Drought Threatens Golf Courses, Hotels

By Maher Chmaytelli

July 18 (Bloomberg) -- Cypriots prayed for rain to end the worst drought in 50 years. They got tankers carrying enough water from Greece to fill 3,200 Olympic swimming pools.

A fleet of ships started offloading its cargo this week at the port of Limassol, on the Mediterranean island's south coast, after engineers fixed a pipeline carrying the water inland. Six tankers plan 160 trips over the next six months after rainfall on Cyprus dropped to a fifth of average levels.

The biggest water transport operation in history may help revive the parched villages, yellowing golf courses and desiccated farms that dot Cyprus. It won't damp the debate raging between people who want to limit construction of resorts that suck up the island's water and those who want President Demetris Christofias to chase economic growth by attracting more tourists.

``The import operation is just an injection,'' says Costas Papastavros, an adviser to the Environment Ministry. ``It won't correct the imbalance between resources and consumption. We should rethink the whole picture.''

That attitude has angered developers and hoteliers, who say it threatens the engine of the economy: tourism. They want the government to speed up plans to build desalination plants that remove salt from seawater.

``The development of major projects should be accelerated,'' says Haris Loizides, chairman of the Cyprus Hotelier Association. ``The government should view issues such as more marinas and golf courses with a better eye.''

On July 16, Cypriot authorities decided the first water shipment was unsafe for human consumption, underscoring the vulnerability of the shipments. The consignment had been sitting on the ship for more than a week as engineers struggled to lengthen a pipeline ferrying the water onshore.

Dropping Reservoirs

After four years of drought, Cyprus's 17 largest reservoirs are less than 7 percent full, a record low, as temperatures soar to 104 degrees.

The government introduced rationing in April, sparing only the hotels and tourists that account for a quarter of the economy. Cypriot homes get running water three days a week.

``In this sweltering heat we should be taking two showers a day,'' said Iliada Spyrou, 22, a university student in Nicosia. ``Sometimes we make do with one bucket.''

Authorities are offering water saving advice, such as telling residents to turn off showers while applying soap.

With the use of outdoor hoses banned, Anna Solomonides, a 45-year-old mother of two, says she collects water used to rinse fruits and vegetables, or drained from the fish tank, to keep her garden growing.

At the Aphrodite Hills golf resort, close to Limassol, reservations have dropped by almost a third from last year, said Andrew Darker, the operations manager.

Golf Discounts

Built amidst olive and carob trees on a hill overlooking a bay where legend says the Greek goddess of love was born, parts of the course are dry and yellowed as daily watering is restricted to 25 percent of the 1,000 sprinklers.

``We have to reduce our price or take the risk of losing golfers to other destinations,'' Darker said, declining to give details about the discounts. A round normally costs as much 143 euros ($226).

Average annual rainfall on Cyprus has dropped by 15 percent in the last 100 years to 470 millimeters (18.5 inches), said Papastavros, the Environment Ministry adviser. Inflow to the island's reservoirs fell to 18 million cubic meters (4.8 billion gallons) this year compared with an average of 78 million cubic meters over the last 30 years.

Some argue that Cyprus has exacerbated the shortage, with development stoking demand for limited resources. The number of tourist beds has risen to about 100,000 from 10,000 in 1980.

Golf Course Freeze

Amid mounting concern that water is running out, the government, which took power in February, froze permits for 14 new golf courses as ponds across the country ran dry and the Greek Orthodox Church led prayers for rain.

Christofias also set up a commission to review the tourism development plan proposed by his predecessor, Tassos Papadopoulos, which targeted a 45 percent increase in tourist numbers to 3.5 million by 2010.

``Water has become a rare and expensive commodity with repercussions throughout the economy,'' Christofias said in May. ``The need for major projects such as marinas, ports, airports and conference centers is a given fact, but these should not be developed to the detriment of the environment.''

For now, a plan to double Cyprus's desalination capacity to 60 million cubic meters has been delayed, partly by residents and environmentalists concerned about noise and air pollution.

``With wells drying up, little rain and desalination insufficient, what can we do but pray,'' said Yiangos Ioannidou, a 40-year-old engineer, lounging under a Heineken umbrella on a palm planted beach in Limassol. ``We pray for rain in Cyprus and in Greece.''

To contact the reporter on this story: Maher Chmaytelli in Nicosia at mchmaytelli@bloomberg.net.

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Yield Plays Undermine Yen

Daily Forex Fundamentals | Written by Investica | Jul 18 08 10:17 GMT |

Yen moves will continue to be influenced by global risk conditions with carry trades fuelling selling pressure on any significant advance.

The dollar strengthened sharply to highs around 107.10 in US trading on Thursday as Wall Street attempted to rally again on an improvement in risk appetite while the yen also depreciated sharply against the Euro. Weaker than expected US earnings data pushed the dollar weaker late in US trading and volatility is likely to be a key short-term feature.

Bank of Japan Governor Shirakawa stated on Friday that the central bank was treating the upside inflation risks and downside growth risks equally, but minutes from the latest policy meeting indicated that most members were more concerned over downside growth risks and this will reinforce market expectations that the bank will not increase interest rates.

The yen will remain vulnerable on yield grounds and, although Japan is a big net oil importer, the impact of lower oil prices is liable to be a slight negative factor the currency as risk appetite would improve with the dollar near 106.20 on Friday

Investica
http://www.investica.co.uk

Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.

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Shirakawa Says Weighs Growth, Inflation Risks Equally

By Mayumi Otsuma

July 18 (Bloomberg) -- The Bank of Japan weighs the risks that the economy may slow with the risk that inflation will accelerate equally when formulating policy, Governor Masaaki Shirakawa said.

``We don't have any pre-set direction for policy and must carefully examine both upside and downside risks,'' Shirakawa said at a business meeting in Tokyo today. ``If asked about a numerical-weight allocation, I would say that it is fifty-fifty'' growth to inflation, he said.

Shirakawa's comments contrast with some board members, according to minutes for the June 12-13 meeting published today. At last month's meeting, some members said the bank should focus more on the risk that economic growth will slow rather than the risk that inflation will accelerate.

``Shirakawa wants to emphasize the Bank of Japan's stance that policy is neutral,'' said Hiroshi Shiraishi, an economist at Lehman Brothers Holdings Inc. in Tokyo. ``The central bank will stay on hold with little risk of secondary inflation and with the outlook for growth returning to a moderate path.''

The central bank this week lowered its economic growth forecast, raised its inflation estimate and said the economy is slowing further as higher commodity prices hurt the expansion.

The governor today said rapid gains in fuel and commodity prices are crimping capital investment, eroding household incomes and hurting consumption. Still, the central bank expects that Japan's economy will return to a recovery path and can avoid ``a deep adjustment,'' Shirakawa said.

Second-Round Inflation

Central banks of major economies share the view that rates need to be raised should they observe rising risks of ``second- round inflation,'' where gains of fuel and commodity prices spread to other goods and services, Shirakawa said.

The Bank of Japan hasn't observed such effects in Japan so far, though the risk that people's inflationary expectations will change shouldn't be ruled out, the governor said.

``When the economy and prices moves in opposite directions, we need some kind of standard to judge monetary policy,'' he said. ``For this, the Bank of Japan and many other central banks focus on whether inflationary expectations are maintained as stable.''

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

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Europe's Energy Trade Deficit Soars as Oil Costs Jump

By Fergal O'Brien

July 18 (Bloomberg) -- Europe's energy trade deficit soared 42 percent in the four months through April as crude-oil prices jumped to a record.

The euro region's deficit on energy products widened to 99.7 billion euros ($158 billion) from 70.4 billion euros a year earlier, the European Union statistics office in Luxembourg said today. Energy-product imports increased 41 percent.

Surging prices for oil and other commodities are boosting the amount Europe spends on imports and widening the trade deficit of the 15 nations that use the euro. At the same time, cooling global growth is undermining the region's exports, threatening to slow the euro-area economy.

``I'm quite sure we haven't seen the last of the impact of imported raw material prices on the data,'' said Dominique Barbet, an economist at BNP Paribas SA in Paris. ``Although there has be en some improvement in oil in the last few days, we're still looking at another three or four months of an adverse impact on the trade figures.''

The cost of a barrel of oil has jumped almost 75 percent in the past year and reached a record $147.27 on July 11.

Gaining Weight

While long-term contracts mean current crude-oil prices may not directly translate into what companies are paying, the costs are rising. Over the last 12 months, energy products' share of total euro-area imports has risen to around 15 percent from 10 percent due to the increase in price, according to Barbet.

Producer price inflation in Germany, Europe's largest economy, hit a 26-year high of 6.7 percent in June on energy, the country's Federal Statistics Office in Wiesbaden said today.

Today's euro area report also showed the region recorded a seasonally adjusted trade deficit of 1.5 billion euros in May, compared with a 1.4 billion-euro surplus in April. The statistics office publishes data for individual products and countries with a one-month lag.

Economists forecast an 800 million-euro surplus for May, compared with an initially reported April surplus of 2.2 billion euros, according to the median of five estimates in a Bloomberg survey.

Growth to Trough

Overall exports fell 3.4 percent in May from the previous month, the data showed. The outlook for sales abroad is worsening as global economic growth cools and the euro's advance against the dollar makes the region's goods less competitive. Euro-area exports to the U.S., the world's largest economy, fell 3 percent in the four months through April from a year earlier.

The euro has gained 15 percent against the dollar in the last 12 months and was at $1.5869 today.

European Central Bank President Jean-Claude Trichet said in an interview published today that there will be a ``trough in the profile of growth in the euro area in the second and third quarters.'' He expects a ``a progressive return to ongoing moderate growth'' after that.

Exports from Germany dropped the most in almost four years in May, according to national data published July 9. French shipments abroad also dropped in May.

``The double whammy of a strong euro and the sharp slowdown in the U.K. and the U.S., two of the region's key export markets, is making life increasingly difficult,'' said Martin van Vliet, an economist at ING Group in Amsterdam. ``And with high oil prices continuing to boost the oil import bill, the trade balance is likely to remain in deficit over the coming months.''

The detailed data on trading partners also showed that exports to the U.K. rose 3 percent in the January-April period, while those to China increased 19 percent and shipments to Russia rose 24 percent. The deficit with China, which last year overtook the U.K. to become the euro area's biggest supplier, fell 3.7 percent.

To contact the reporter on this story: Fergal O'Brien in Dublin at fobrien@bloomberg.net.

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Dollar Damaged By Poor Equity Results -Will Citi Compound The Problem?

Daily Forex Fundamentals | Written by DailyFX | Jul 18 08 10:06 GMT |

Talking Points

Japanese Yen: Back down towards 106.00 as US earning results not friendly
Euro: Mildly bullish on anti-dollar bid
British Pound: Borrowing rises to record pace since 1992
US Dollar: No data on tap all eyes on Citi

A relatively quiet and data free night in the currency market as FX trading continues to be influenced by macro rather than micro factors. After the US equity close yesterday Microsoft, Google and most importantly Merrill Lynch reported disappointing results stoking fears that US economy may be on the verge of a recession while the financial sector troubles show no signs of improvement.

The misses in MSFT and GOOG had an instant impact on USDJPY which dropped below the 106.00 level in early European trade before bouncing slightly. Yesterday the pair hit a high of 107.17- its best showing in a week - as risk appetite appeared to have returned to the market. But those flows may be quickly reversed if US equities close negative today and could pull the pair back towards 105.00 figure if investor sentiment sours once again.

On the economic front, German Producer Prices rose the most in 26 years as price pressures continue to plague the 15 member union. The news kept the EURUSD bid on further speculation of more rate hikes. On the other hand EZ Trade Balance deteriorated far worse than expected printing at -4.6 Billion euros versus forecast of -1.5 Billion as higher euro and weaker global demand clearly hit exports hard. The market had absolutely no reaction to the report, preferring to focus on the weakness in US equity results. However, today's EZ trade data shows a troubling trend of increasing trade deficits over the past several months. If that trend intensifies it may damage the euro as time goes on. One of euro's strongest advantages over the greenback has been the much better balance sheet position of EZ vis a vis the US. While US Current Account deficit continues to be massive, the fact that the EZ to is also slipping into a negative trade position weakens the euro bulls argument of euro's financial superiority and could spur some speculative outflow from the currency if the situation worsens as we approach the end of 2008.

Finally, with no economic data on the calendar all eyes will be on Citibank which reports earnings before the US open. If the financial behemoth disappoints it could drag stocks lower and push EURUSD above 1.5900 before the weekend. If on the other hand it surprises to the upside, the buck could close out the week on an uptick as investor sentiment improves.

DailyFX

Europe's Energy Trade Deficit Soars as Oil Costs Jump

Dollar Gains Momentum As Bank Withstand Credit Crunch

Daily Forex Fundamentals | Written by Finotec Group | Jul 18 08 09:10 GMT |

The greenback headed for a weekly advance against the euro, rebounding from a record low on indications that U.S. investment banks will withstand the credit market losses arising from the nation's subprime mortgage collapse. 'The dollar is getting a boost as the markets correct excessive pessimism about the U.S. financial sector,' said Joseph Kraft, head of capital markets in Tokyo at Dresdner Kleinwort, an investment bank owned by Germany's Allianz SE. 'The financial turmoil, shown by a sharp decline in stocks, was given a reprieve at least. Major Wall Street investment banks can survive.' The EUR/USD currently trading at $1.5841 as of 8:16 am, GMT.

The Dollar also rose against the British pound on speculation the U.K. government will boost borrowing as Chancellor of the Exchequer Alistair Darling introduces new spending guidelines. The pound dropped to $1.9987 from $2.0038. The Financial Times reported, without citing sources, that the U.K. government's new spending rules would allow it to break limits on public sector debt. A Treasury spokesman said the report was pure speculation. 'There's sterling selling on the back of this report and it looks like it will continue,' said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney, referring to another term for the pound. 'The fact that the Treasury would go this far shows that times are desperate and the economy must be in a pretty poor state.' GBP/USD currently trading at $1.9922 as of 8:19 am, GMT.

The U.S currency's advance against the yen may stall at 107.17, said Tomoko Fujii at Bank of America Corp. in Tokyo, citing technical charts that traders watch to predict price movements. The so-called resistance level for the dollar, where sellers may outweigh buyers, is its 200-day moving average, she said. The U.S. currency last closed above the 200-day moving average on Aug. 8. 'That level is becoming an important key resistance,' said Fujii, head of economics and strategy for Japan at the second-largest U.S. bank. 'It should be hard to break through it.' USD/JPY currently trading at 106.37 as of 8:25 am, GMT.

Economic Calendar

Time	Country	Event	Period	Previous	Forecast	Significance
12:30	Wholesale Sales m/m	CAD	May	1.4%	0.5%	***
12:30	Leading Indicators m/m	CAD	Jun	0.2%	0.1%	**
09:00	Trade Balance	EUR	Jun	2.2B	0.9B	**
06:00	PPI m/m	EUR	Jun	1.0%	0.7%	**

Finotec Group Inc.
http://www.finotec.com/

Gieve Sees U.K. Inflation Accelerating `Well Over' 4%

By Svenja O'Donnell and Jennifer Ryan

July 18 (Bloomberg) -- Bank of England Deputy Governor John Gieve said policy makers are balancing the risks of inflation, which will accelerate ``well over'' 4 percent, against the threat from economic growth, which is ``slowing fast.''

``We are expecting inflation to be well over 4 percent for much of the rest of the year,'' Gieve said in a speech in London today. ``Timely sources of data suggest the economy is already slowing fast.''

Policy Maker Andrew Sentance said in an interview yesterday he was ``particularly struck'' by the increase in inflation, which reached 3.8 percent in June, the fastest pace in at least 11 years. The Bank of England is trying to curb consumer-price gains while attempting to steer the economy away from a recession.

``With inflation rising well above target we need a period of slower growth to create a margin of spare capacity,'' Gieve said. ``We will do whatever it takes to bring inflation back to target in the medium term.''

Gieve said in response to questions that inflation expectations have risen, an increase which is ``worrying,'' and the central bank ``can't afford for it to get stuck higher.''

Rate Decision

Policy makers kept the U.K. benchmark interest rate unchanged at 5 percent for a third month on July 10. Gieve was among four committee members who told lawmakers in June they had considered raising interest rates, while Sentance said yesterday he also looked at the case for raising rates last month. Minutes showing how they all voted this month will be released on July 23.

Economic growth will slow to a 1 percent annual pace in the first quarter of 2009, the weakest since 1992, the Bank of England predicted on May 14. Governor Mervyn King said then that there may be ``an odd quarter or two of negative growth.''

Gieve said that he ``can't rule out'' the U.K. economy will go into a recession, adding that the economy is ``quite a long way'' from the end of the slowdown.

Faster consumer price gains and the worst housing-market slump since 1992 have eroded consumers' living standards and helped push the support for Prime Minister Gordon Brown's ruling Labour Party close to the lowest since World War II.

``House prices and transaction numbers are falling rapidly with direct effect on house builders and related services,'' Gieve said in the speech. ``There are signs the housing market is affecting consumer confidence.''

Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $423 billion in losses and writedowns.

While Gieve said the first phase of the credit crunch seems to have stabilized, he said the squeeze in lending ``may intensify in coming months.''

Gieve spoke at an event organized by Dow Jones Newswires at the London Stock Exchange.

To contact the reporters on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net; Jennifer Ryan in London at Jryan13@bloomberg.net.

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Lawmakers Want Fannie-Freddie Aid Tied to Debt Limit

By Brian Faler and Alison Vekshin

July 18 (Bloomberg) -- Democratic lawmakers sought to put a constraint on the Treasury's request for unlimited power to buy and lend to Fannie Mae and Freddie Mac, a step that didn't temper Secretary Henry Paulson's optimism about a deal.

``Any expenditure under this bill would be subject to the debt limit,'' House Financial Services Committee Chairman Barney Frank told reporters in Washington yesterday, referring to the ceiling on federal government borrowing. That ``is a cap in effect on the amount'' of taxpayer funds officials can use to help finance the mortgage firms, he said.

Frank's comments reflect lawmakers' concern that the Paulson proposal may expose the taxpayer to unlimited risk and confer unprecedented authority. The Treasury chief reiterated his optimism about a deal by the end of next week, indicating he may be open to compromise on a measure he said will restore investor confidence in the beleaguered companies.

Paulson spent a second straight day lobbying on Capitol Hill after legislators balked at a July 15 hearing at his initial request, which Treasury officials anticipated would be enacted this week. Paulson is trying to provide a backstop to Fannie Mae and Freddie Mac after their shares fell to the lowest level in more than 17 years this month, threatening to limit their ability to alleviate the mortgage-market collapse.

``I feel even better than I did yesterday in my confidence level that we will come to a very acceptable result, and come to it next week,'' Paulson told reporters yesterday.

Shares Gain

Fannie Mae shares rose for second day, the first back-to- back gain in a month, to $10.93 in New York Stock Exchange composite trading. Freddie Mac advanced to $8.33, also the second consecutive increase.

Freddie Mac may raise as much as $10 billion by selling new shares, a move that might help avoid a government rescue for it and Fannie Mae, the Wall Street Journal reported today, citing people it didn't identify.

Paulson, since announcing his plan Sunday, July 13, has repeatedly called for power to make ``unspecified'' equity purchases in the two companies, which account for about half of the $12 trillion U.S. mortgage market. He wants a similar right to extend the credit lines the firms have with the Treasury.

Paulson has said limits to his power would impede the measure's ability to buttress investor confidence. The Treasury had sought for it to be outside the borrowing ceiling.

``People talk about trillions of dollars,'' said Frank, of Massachusetts. This ``makes it clear that nothing remotely like that order of magnitude is contemplated even in the worst case.''

No Cost Seen

Frank added that he doesn't expect the plan to incur significant costs because it will spur confidence in the lenders, limiting the need for public money. Paulson has said he doesn't anticipate exercising the proposed authority, noting regulators' comments that the firms are already adequately capitalized.

The debt limit is $9.815 trillion and the current outstanding public debt subject to that limit is about $9.4 trillion, according to the Treasury.

``Today the Treasury has enough unused borrowing authority to give Fannie and Freddie all the support they might need,'' said Louis Crandall, chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm.

Paulson will work with House Ways and Means Committee Chairman Charles Rangel, of New York, and Budget Committee chief John Spratt, of South Carolina, on the debt limit issue, Frank said. Paulson declined to respond to a reporter's question on the matter yesterday.

Other Limits

Frank, whose committee oversees housing, said earlier this week that he intended to place other restrictions in the legislation, including limits on dividend payments by the firms and a requirement for regulators to approve top officers' compensation.

House lawmakers are working on adding the measure in an existing housing bill that aims to stem the record surge in mortgage foreclosures and set up a new, stronger regulator for Fannie Mae and Freddie Mac. The legislation would then go to the Senate.

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said lawmakers are considering other ways of trying to assure taxpayers that ``this thing isn't a runaway horse,'' while declining to discuss specifics.

``We're getting close to some ideas that can work that will have negligible, if any, market implications, which is critical,'' Dodd said.

$4 Billion

House Democrats plan to include in their bill a measure that President George W. Bush has threatened to veto, signaling they're prepared to push the administration on the issue.

The proposal would send almost $4 billion to communities to buy up foreclosed properties. The White House has said it would benefit lenders who own the vacated properties, not homeowners.

House Speaker Nancy Pelosi, a California Democrat, said she doubted Bush would make good on the veto threat.

``I don't think the president is going to veto this bill,'' Pelosi said. Foreclosed properties ``are now abandoned properties, taking down communities,'' she said.

Frank said the House will probably vote on the combined measure July 23 before sending it on to the Senate.

House Minority Leader John Boehner, an Ohio Republican who proposed delaying consideration of the plan so that lawmakers could have more time to study it, said two days ago there's no question ``that this will become law and become law very soon.''

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

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ECB's Trichet Says Economy May Improve After `Trough' This Year

By Simone Meier

July 18 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said the bank expects the euro-region economy to gather strength towards the end of the year after a ``trough'' in the previous six months.

``We will have a trough in the profile of growth in the euro area in the second and third quarters'' before ``a progressive return to ongoing moderate growth,'' Trichet told four newspapers in an interview published on the ECB's Web site today. Trichet said he has ``nothing to add or withdraw from'' the July 3 statement when the bank raised its key rate to 4.25 percent.

The 15-member euro region is losing momentum as record oil prices sap the spending power of companies and consumers just as a stronger euro makes exports less competitive. European economic confidence fell to the lowest in more than three years in June. Still, the ECB is concerned about companies raising prices and wages after inflation surged to a 16-year high in June.

Crude oil prices have increased 70 percent in the past year, reaching an all-time high of $147.27 a barrel on July 11.

Still, some labor unions are already pushing for more pay to compensate workers for faster inflation. Deutsche Lufthansa AG, Europe's second-largest airline, earlier this month offered German baggage handlers and cabin crews a 6.7 percent pay increase after employees staged strikes. The Frankfurt-based carrier previously offered 5.5 percent more pay.

In Germany, Europe's largest economy, producer-price inflation accelerated to the fastest pace in 26 years in June, the Federal Statistics Office in Wiesbaden said today.

`Relatively Hawkish'

Trichet in the interview reiterated that the 21-member governing council is ``never pre-committed'' to a definite rate plan and ``will do in the future what is appropriate to deliver price stability.'' The ECB aims to keep inflation just below 2 percent.

``The overall message in my view is still relatively hawkish,'' said James Nixon, an economist at Societe Generale SA in London. ``The ECB could well hike rates again even as the economy skirts falling into an outright recession.''

Investors have nevertheless scaled back bets on the ECB raising interest rates further this year, Eonia swap contracts show. The December contract is at 4.36 percent today, down from 4.55 percent on June 16. The April contract is at 4.40 percent.

``Today price setters and social partners must take into account that we will be back to price stability -- in line with our definition -- say over 18 months,'' Trichet said. The ECB has ``no further indication'' for ``future interest rates.''

The interview was published in France's Le Figaro, Ireland's Irish Times, Germany's Frankfurter Allgemeine Zeitung and Portugal's Jornal de Negocios.

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

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U.K. Budget Deficit Widens as Slowing Economy Saps Tax Receipts

By Mark Deen

July 18 (Bloomberg) -- The U.K. budget deficit widened to 9.2 billion pounds ($18.4 billion) in June, more than economists expected, as the economic slowdown sapped tax receipts.

The shortfall, the most for the month since records began in 1993, was up from 6.3 billion pounds a year earlier, the Office for National Statistics said today in London. Economists predicted a deficit of 7.4 billion pounds, the median of 17 forecasts in a Bloomberg survey showed.

Chancellor of the Exchequer Alistair Darling may find it hard to meet his March forecast of a 43 billion-pound deficit this year as the economic slowdown cuts tax receipts. In emergency moves since then, Darling has given away 3.25 billion pounds to spur growth and revive support for his ruling Labour Party. Darling may change Britain's decade-old rules for government spending later this year, the Treasury said yesterday.

``What we've witnessed so far this year is a deterioration of the public finances, and it's likely to get worse going forward,'' said Philip Shaw, chief economist at Investec Securities in London.

In the first three months of the fiscal year, the budget deficit was 24.4 billion pounds, the highest quarterly deficit since records began 1946. A year earlier, the deficit was 14.7 billion pounds. Taxes rose 2.5 percent and spending grew 6.9 percent.

A cash-based measure showed the deficit was 15.5 billion pounds in June, the highest for the month since records started in 1984, compared with 10 billion pounds a year earlier. Economists forecast a shortfall of 12.6 billion pounds.

Fiscal Rules

Economists say Prime Minister Gordon Brown is at risk of breaching the fiscal rules he created as finance minister in 1997, when he promised to borrow only for investment over the economic cycle and keep debt below 40 percent of economic output.

Treasury officials will decide whether to change the rules when the ONS publishes annual revisions to economic growth in September, which may show when the current economic cycle ends.

Forecasting growth of more than 2 percent this year and next, Darling is more optimistic than economists. Bank of England Governor Mervyn King says Britain may slip into a recession as the worst housing slump since the early 1990s deepens.

The slowdown threatens to cut revenue from consumer spending, housing transactions and company profits. An increase in receipts from North Sea companies, which are profiting from oil prices that reached a record above $147 a barrel last week, may not be enough to make up the loss, according to the London- based Institute for Fiscal Studies.

Slowing Tax Receipts

In June alone, taxes increased just 2.5 percent, with receipts of value-added tax falling 4.6 percent. Corporation tax rose just 0.3 percent and income tax gained 1.7 percent. Spending rose 6.9 percent.

Opposition parties say Prime Minister Gordon Brown has left little room to help the economy with tax cuts after almost a decade of rapid public spending growth left Britain with one of the highest budget deficit in Europe. The Organization for Economic Cooperation and Development predicts a shortfall of 3.5 percent of gross domestic product in the fiscal year from next April.

``Things aren't looking good in the short term,'' George Osborne, Treasury spokesman for the Conservative Party, said in a Bloomberg Television interview yesterday. ``We are going to face some very difficult choices around the budget deficit. We've got to make sure the government lives within its means.''

In May, Darling announced a 2.7 billion-pound emergency tax for 22 million people, and this week he postponed for six months an increase in fuel duty to cushion motorists from the surge in oil prices. The delay will cost the Treasury 550 million pounds this year.

Poll Ratings

The prospect of a recession is eroding support for Brown, who has until June 2010 to hold the next general election. The Conservatives, led by David Cameron, had a 22 percent point lead over Labour in a YouGov Plc survey published on July 13.

Net debt stood at 38.3 percent of GDP in June, the highest since July 1999, the statistics office said. Including the liabilities of Northern Rock Plc, the mortgage lender taken into temporary state ownership in February after its funding dried up, debt was 44.2 percent of GDP.

The current budget, which excludes investment, showed a deficit of 7.6 billion pounds in June and 20.4 billion pounds for the first three months of the fiscal year, up from 12.5 billion pounds a year earlier and the highest quarterly shortfall since 1946.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

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German June Producer Prices Increase Most in 26 Years

By Bernd Bergmann

July 18 (Bloomberg) -- German producer prices rose at the fastest pace in 26 years in June, adding to pressure on the European Central Bank to keep interest rates high even as economic growth slows.

Prices for goods from newsprint to plastics increased 6.7 percent from a year earlier, the most since March 1982, after rising an annual 6 percent in May, the Federal Statistics Office in Wiesbaden said today. Economists expected a 6.5 percent gain, the median of 25 estimates in a Bloomberg News survey shows.

As record oil makes production more expensive, companies are under pressure to pass on higher costs to consumers. The European Central Bank this month raised its benchmark interest rate by a quarter point to 4.25 percent to try to prevent faster inflation from becoming entrenched in the 15-nation euro region.

``This rise in producer prices is not surprising,'' said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. ``Inflation will remain very high until the end of the year. It may even increase, which is why we expect another interest rate rise by the ECB, possibly in September.''

Oil has risen more than 70 percent over the past year and reached a record of $147.27 a barrel on July 11. Inflation in Germany accelerated to 3.4 percent in June, the fastest pace in 12 years, and consumer prices in Europe gained an annual 4 percent, the most since 1992.

Energy Jump

German energy prices rose 17.9 percent from a year earlier and prices for mineral oil products were 28 percent higher, the statistics office said. Excluding energy, producer prices rose 3 percent. From May, including energy, prices rose 0.9 percent.

BASF SE, the German chemicals maker, last month raised prices for paper and cardboard chemicals by as much as 20 percent because of higher raw-material, energy and freight costs.

``Our message is that we should avoid second-round effects,'' ECB President Jean-Claude Trichet said in an interview with four European newspapers published on the ECB's Web site today. ``Price setters and social partners must take into account that we will be back to price stability -- in line with our definition -- say over 18 months,''

Rising prices are boosting wage demands and pushing up expectations for inflation in the future. Expectations, as measured by the so-called breakeven on five-year French inflation- indexed bonds, were at 2.4 percent yesterday, up from 2.1 percent in March. They fell from a record 2.83 percent after the ECB raised rates on July 3.

Whatever's Necessary

The ECB ``will continue to take any action necessary to ensure the firm anchoring of inflation expectations,'' Greece's ECB council member, George Provopoulos, said this week.

The ECB, which aims to keep inflation just below 2 percent, predicts it will average about 3.4 percent this year and 2.4 percent in 2009.

Higher prices are eroding purchasing power and curbing growth in an economy already burdened by a stronger euro and the U.S. slowdown. German investor confidence plunged to a record low this month, the ZEW Center for European Economic Research said July 15.

Germany's Finance Ministry predicts economic growth will slow to 1.7 percent this year and 1.2 percent next. Germany accounts for about a third of the euro-region economy.

``Facing record oil prices, higher borrowing costs and a grossly overvalued currency, the euro-zone economy has exhausted its resilience'' said Holger Schmieding, chief European economist at Bank of America in London. ``Although oil-driven headline inflation is still heading up,'' the ``no longer negligible risk of a recession will probably prevent any further ECB rate hike.''

To contact the reporter on this story: Bernd Bergmann in Frankfurt at bbergmann1@bloomberg.net

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Oil prices plunge $5. Financial market turmoil has weighed on Dollar.

Daily Forex Fundamentals | Written by AC-Markets | Jul 18 08 08:13 GMT |

Forex Market Issues and Risks

Oil prices plunge $5. Financial market turmoil has weighed on Dollar.

News and Events:

The Dollar surged against the Yen on Thursday and erased earlier losses versus the Euro as Oil prices plunged and investors worried that high energy costs and financial market turmoil were slowing global growth. US stocks also rallied as Oil fell for a third straight day. That helped the Dollar post its biggest daily gain against the yen in more than three months. As well, better-than-expected Q2 results from JPMorgan Chase & Co helped eased concern about the stability of the US financial sector that has weighed on the Dollar. The Euro, which set a record above 1.6000 on Tuesday, at one point fell below 1.5800 for the first time this week as investors began focusing on the headwinds facing the euro zone economy.

Oil has gained 35% this year alone, at one point hitting a record high 147.27. It fell more than $5 on Thursday to 129.29, its lowest level in six weeks. UsdJpy last traded at 106.24, up 1.08%, its best daily performance since early June. It touched a session high of 107.09 earlier in the session. EurUsd rose only 0.18% at 1.5853 after falling to a session low of 1.5783. UsdChf rose 0.23% to 1.0200. GbpUsd went 0.11% lower at 1.9974.

Analysts said the Dollar's gains remained tentative, particularly given the state of uncertainty surrounding US financial markets and the slumping housing market. The US currency wobbled on Thursday when Kuwait's finance minister said it had no plans to buy more Fannie or Freddie debt and was looking to invest in Japan, China and India instead.

European Central Bank governing council member Nout Wellink also provided a Euro boost when he said slower Euro-zone growth would not necessarily reduce high inflation. Record high euro zone consumer price inflation prompted the ECB to hike rates to 4.25% this month.

Advanced Currency Markets - Forex Issues and Risks

Today Key Issues:

08:05 GBP BoE’s Gieve speaks on the financial system, London
08:30 GBP June PSNB £7.4B vs £11B
08:30 GBP June PSNCR £12.6B vs £10.99B
09:00 EUR May Eurostat trade €-1B vs €2.3B
12:30 CAD June Lead indicators 0.1% vs 0.2%
12:30 CAD May Wholesale trade 0.5% vs 1.4%

The Risk Today:

EurUsd Market hit 1.6039 high on Tuesday. This marks initial resistance over 1.6000 Pivot point resistance. A break there would open the way to key resistance 1.6200. On the downtrend, return below 1.5800 will undermine the recent uptrend. Any weakness may bring back 1.5400 - 1.5800 consolidation range. Below, strong support holds 1.5304 13th June low.

GbpUsd Cable is again in 1.9400 - 2.0000 trading range. It hit 2.0158 high on Tuesday. Key level holds again 2.0100. On the downside, only a return below 1.9649 might bring again focus on 1.9337 January low and 1.9105 (50% retracement of 1.7049 - 2.1162 advance). Initial support holds 1.9649 July 7th low. Strong support holds 1.9363 20th February and 14th May low.

UsdJpy Last 3-month up-trend has been ended as market broke down 105 level. Further profit taking would push the market into 100 - 104 consolidation trading range and toward 100 level. Yesterday, return over 105 would put mid-June 108.59 resistance and 110.10 strong resistance (Trendline) into focus ahead of 111.92 early January high.

UsdChf Market hit 1.0013 low on Tuesday. Further weakness below 1.0000 may open the way toward 0.9637 17th March low. Renewed strength over 1.0200 would reopen the 1.0200 - 1.0600 consolidation range. Initial resistance holds 1.0353 9th July high.

EURUSD		GBPUSD		USDJPY		USDCHF
1.6200	T	2.1162	S	111.92	K	1.1191	K
1.6039	M	2.0158	M	110.10	T	1.0625	T
1.6000	K	2.0100	K	105.66	M	1.0353	S
1.5875		1.9985		106.05		1.0185
1.5800	M	2.0000	S	103.92	M	1.0013	M
1.5304	S	1.9649	S	102.73	S	1.0000	P
1.5000	K	1.9337	T	100.00	P	0.9637	K
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

ACM FOREX

Disclaimer: This report has been prepared by AC Markets (thereof ACM) and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Salesperson or Traders of ACM at any given time. ACM is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.