German Stocks Fall; Deutsche Bank, Commerzbank and BASF Decline

By Alexis Xydias

Jan. 19 (Bloomberg) -- German stocks fell, erasing earlier gains, as concern deepened that the global recession will result in deteriorating earnings.

BASF AG, the world’s largest chemicals marker, dropped 4.7 percent after saying demand has continued to decline. Deutsche Bank AG and Commerzbank AG followed banks across Europe lower after Royal Bank of Scotland Group Plc said it may post a record loss and the U.K. government may increase its stake to as much as 70 percent.

The benchmark DAX Index lost 0.5 percent to 4,343.9 as of 2:53 p.m. in Frankfurt, after earlier rising as much as 2 percent. The broader HDAX declined 0.6 percent.

The DAX has tumbled 46 percent since the beginning of last year as bank’s credit losses and writedowns topped $1 trillion in the worst financial crisis since the Great Depression and the U.S., Japan and Europe fell into simultaneous recessions.

Deutsche Bank slipped 11 percent to 17.73 euros, the lowest since at least 1992 and taking its loss in 2009 to 36 percent. Commerzbank fell 3.2 percent to 3.07 euros, an eleventh straight day of declines. Banks plummeted in the U.K. today as concern grew that the latest government attempt to shore up the industry may result in nationalization, according to analysts including Keith Bowman at Hargreaves Lansdown Stockbrokers in London.

The U.K. today announced an extension to guarantees on banks’ troubled assets to help clear clogged balance sheets. Denmark will offer loans to banks and mortgage lenders worth 100 billion kroner ($17.8 billion) in the country’s biggest ever bailout. Germany’s 20 biggest banks have accumulated about 300 billion euros ($398 billion) of toxic assets, Spiegel magazine reported on Jan. 17.

BASF fell 4.7 percent to 22.70 euros. The company said its business declined “significantly” in December and that it sees no signs of an improvement as the economy worsens.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.

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U.K. Stocks Decline; Royal Bank, Lloyds, HSBC Lead the Retreat

By Roger Neill

Jan. 19 (Bloomberg) -- U.K. stocks declined, led by Royal Bank of Scotland Group Plc after saying it might post a loss of as much as 28 billion pounds and the government said it may raise its stake in the lender to 70 percent.

The benchmark FTSE 100 Index lost 31.92, or 0.8 percent, to 4,115.14 at 1:18 p.m. in London. The index earlier rose as much as 2.5 percent.

Royal Bank plunged 42 percent to 20 pence. Britain’s biggest government-controlled bank said it may post a full-year loss before exceptional goodwill impairments of as much as 8 billion pounds. In addition, the bank may write down the value of past acquisitions by as much as 20 billion pounds.

Lloyds Banking Group Plc slumped 20 percent to 79.1 pence, while HSBC Holdings Plc, Europe’s biggest bank, lost 6.3 percent

to 502.25 pence.

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European Stocks Decline; Royal Bank of Scotland, BASF Retreat

By Adam Haigh

Jan. 19 (Bloomberg) -- Stocks in Europe fell as investors speculated government efforts to shore up the financial system won’t be enough to prevent the global economy from weakening.

Royal Bank of Scotland Group Plc led declines among banks, slumping 48 percent, after saying it expects to report a loss for 2008. BASF SE dropped 4.4 percent as the world’s largest chemical producer reduced production and said it may cut additional jobs after demand deteriorated “significantly.” Stock markets in the U.S. are closed today for the Martin Luther King Jr. holiday.

The Dow Jones Stoxx 600 Index slid 1.3 percent to 190.47 at 1:18 p.m. in London. The measure has tumbled 11 percent over the past nine days as companies from Deutsche Bank AG to Alcoa Inc. fueled concern earnings will deteriorate further as the global economic slump deepens.

The euro-area economy will shrink 1.9 percent this year, the first time since the currency was introduced a decade ago, the European Commission said today. The European Central Bank, last month predicted a 0.5 percent contraction for 2009.

Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit. Greece’s rating was cut one step to A- on Jan. 14.

Billionaire Warren Buffett, chairman of Berkshire Hathaway Inc. and one of the world’s most successful investors, said the U.S. has been struck by an “economic Pearl Harbor,” according to remarks aired on Dateline NBC yesterday.

Earnings Outlook

President-elect Barack Obama’s advisers signaled they will emphasize getting credit to consumers and businesses rather than helping banks as the new administration deploys the second half of the $700 billion rescue fund.

RBS sank 48 percent to 18.1 pence after saying it expects to post a full-year loss before exceptional goodwill impairments of as much as 8 billion pounds. In addition, the bank may write down the value of past acquisitions by as much as 20 billion pounds.

Analysts forecast earnings at financial companies in the Stoxx 600 will rise 42 percent in 2009 following a 59 percent slide last year, according to Bloomberg data. The benchmark index posted its worst annual slump on record in 2008 as more than $1 trillion in credit losses and writedowns eroded profits.

U.K. Prime Minister Gordon Brown’s government tightened its grip on Britain’s financial system, guaranteeing toxic assets and giving the Bank of England unprecedented power to buy securities. The plan will increase the cost of bailing out the nation’s banks by at least 100 billion pounds ($147 billion), the Treasury said today. This sent the pound lower against the euro and the dollar.

‘Disappointed’

“Many initiatives have been announced for U.K. banks this morning, but we are disappointed not to see the full removal of ‘bad assets’ from balance sheets,” JPMorgan Chase & Co. banking analyst Carla Antunes Da Silva wrote in a note to clients.

Barclays Plc, the U.K. bank that turned down government funding last year, slipped 2.8 percent to 95.3 pence even after saying 2008 earnings will exceed estimates and calling its 25 percent share-price slump on Jan. 16 unjustified.

BASF declined 4.4 percent to 22.72 euros after the company said demand for all chemical products has failed to pick up in the first half of January.

Cie. Financiere Richemont SA slid 4.2 percent to 16.83 francs. The world’s largest jewelry maker said third-quarter sales declined 7 percent as customers in Europe and North America reduced spending on Cartier necklaces and Chloe fashions.

Pearson Plc led a rally among media companies, which posted the steepest gain among all 19 industry groups on the Stoxx 600. The publisher of the Financial Times newspaper added 5.3 percent to 629.5 pence after saying earnings excluding some items rose about 20 percent in 2008, exceeding analysts’ estimates.

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

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Canadian Oil Sands, Enbridge, Husky: Canadian Equity Preview

By John Kipphoff

Jan. 19 (Bloomberg) -- Shares of the following companies may have unusual fluctuations in Canadian trading today. Stock symbols are in parentheses and prices are from the close on Jan. 16.

The Standard & Poor’s/TSX Composite Index gained 0.5 percent to 8,920.40. U.S. equity markets are closed today for the Martin Luther King Jr. holiday

Canadian Oil Sands Trust (COS-U CN): The largest oilsands producer was downgraded to “market perform” from “outperform” by BMO Capital Markets analyst Randy Ollenberger in Calgary. The shares fell 2.2 percent to C$20.05.

Enbridge Inc. (ENB CN): Canada’s biggest pipeline company shelved plans for a C$346-million ($278.4 million) expansion that would have sent crude from western Canada through Quebec and Ontario to the U.S., the Globe and Mail reported Jan. 17, citing company spokeswoman Jennifer Varey. The shares rose 0.9 percent to C$40.39.

Husky Energy Inc. (HSE CN) The energy producer’s light-oil refinery in British Columbia returned to almost full operation yesterday after a power outage knocked it off line. The Prince George refinery has the capacity to process 12,000 barrels of crude a day. The shares added 1.2 percent to C$32.83.

Nortel Networks Corp. (NT CN): The phone equipment maker’s British pension fund will seek a bailout from the U.K.’s Pension Protection Fund to help meet its commitments after Toronto-based Nortel filed for bankruptcy, the Sunday Times reported, citing a person familiar with the situation that it didn’t identify. Nortel shares fell 13 percent to 10 cents.

West Energy Ltd. (WTL CN): The oil and gas exploration company and other firms that will own about C$32 billion ($25.7 billion) in new notes following a swap in Canada say they’ll hold on to the debt for as long as eight years rather than sell it at “fire sale” prices to hedge funds.

West Energy is among more than 100 companies that expect to receive the notes in the next week in exchange for insolvent 30- to 90-day commercial paper that hasn’t traded since 2007. West Energy rose 1.1 percent to C$1.85. Transat A.T. Inc. (TRZ/B CN), another company that will hold the new notes, fell 2.8 percent to C$10.12

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

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Euro Enters Calmer Waters

Daily Forex Fundamentals | Written by KBC Bank | Jan 19 09 08:24 GMT |

Sunrise Market Commentary US Treasury market closed in observance of M-L King Day On Friday, the belly of the curve lost moderate ground, as equities cannot really convince, disappointing investors. Bund corrects only very moderately On Friday, following a lower opening, the Bund traded sideways in a wide range. However, at the end of the session, European bonds were still very close to the record highs. Today, trading will be sideways as the US market is closed and the EMU calendar is very thin. FX: euro enters calmer waters After the ECB interest rate decision, EUR/USD managed to recoup some of the recent losses on Friday. A less negative global investor sentiment gave the single currency some downside protection, too. The Sunrise Headlines US Equities ignored bad news from financials and ended Friday's session with modest gains. Financials were again under pressure dropping 2.39%. Asian stocks start the week mixed. The UK Treasury announced a new plan to guarantee and purchase banking assets and will also offer capital and asset-protection for banks in conjunction with other nations. Royal Bank of Scotland announced it expects to post a full-year loss before exceptional goodwill impairments of as much as £8 billion. The bank plans to raise £5 billion from investors to replace the UK Treasury's preference shares. President-elect Obama will demand that banks who received public support step up lending as they promised to restore the flow of credit, according to top advisers of Obama. Crude oil ($36.22) rose slightly on Friday after speculation that OPEC may cut output further to boost prices. Today, the calendar is thin as US Markets are closed in observance of Martin Luther King Day. Currencies: Euro Enters Calmer Waters EUR/USD On Friday, the euro experienced a more constructive trading session. The short-term uncertainty on the prospects of the ECB monetary policy was out of the way after Thursday's rate decision and press conference. Global market sentiment turned less negative compared to the previous sessions and this also helped the single currency to regain some of the losses from earlier last week. While still an item, markets also were less focused on the credit quality of European governments. The US eco date were far from convincing from a dollar point of view but had no lasting impact on trading. So, the euro entered calmer waters and closed the even managed to record a decent gain in a daily perspective. EUR/USD closed the session at 1.3267 compared to 1.3115 on Tuesday. EUR/USD: entering calmer waters? Support comes in at 1.3302 (Gap hourly), at 1.3241/31 (ST breakup/ Broken STMA), at 1.3208 (Reaction low hourly), at 1.3163 (Daily envelope) and at 1.3025 (Reaction low). Resistance is seen at 1.3372/85 (Daily Channel top/daily envelope + ST high), at 1.3424/51 (23% retracement/ MT break-uàp hourly). 1.3485 (MTMA), at 1.35 (Broken LTMA) The pair is neutral territory. USD/JPY Today, the eco data calendar in Europe is almost empty, but the European commission publishes its economic growth forecasts. US markets are closed for Martin Luther King Day. In this context one might expect EUR/USD traders to take a wait-andsee approach. In the (Financial) press there will be a flood of articles on the policy intentions from the new US President Obama. At the start of the new year, EUR/USD showed an indecisive trading pattern However, the market gradually inclined to give more weight to the negative news coming from the euro zone. The deterioration of the European government finances became an ever more important factor for EUR/USD trading. The eco news headlines from the US were far from convincing either, but at least for now they were given less weight and were seen less negative for the dollar. The dollar had the advantage of the doubt over the euro. The flip-side of this market assessment is that the euro might gain some support in case overall (stock) sentiment to turns less negative and this was the case on Friday. However, it's much too early to draw firm conclusions from one day of relative calm. More negative news headlines on the credit quality of the European member states remain a potential negative factor for the euro. Longerterm we continue to have doubts on the chances for a protracted dollar rebound as the budgetary and monetary environment (quantitative easing) in the US is not really USD supportive either. In this respect we keep a close eye on the market reaction in case US authorities were to unveil new measures to support the US banking system (Bad bank?). After all, the currency market still lacks a clear trading theme and in this context, we keep a close look at the technical charts. From a technical point of view, EUR/USD in December broke above the previous sideways trading pattern and an important downtrend line (cf. graph). This made the MT picture for EUR/USD positive. However, the rebound lost momentum in the second half of December and in a forceful correction, EUR/USD dropped below the top of the previous sideways range (1.3300 area). This removed the MT Euro positive bias and makes the picture neutral to negative short-term. Last Friday we indicated turning slightly less negative on the euro in a day-to-day perspective and that we were looking out whether some consolidation/technical rebound might be at hand. We hold on to this assessment. A sustained rebound above the ST downtrend line/channel bottom (1.3372, cf graph) could support the day-to-day momentum in this pair On Friday, USD/JPY extended the rebound that started on Thursday. A less negative investor sentiment caused some additional scaling back of yen long positions. Over the previous days USD/JPY became already better protected (even in days of a yen favouable context) and on Friday this closed some additional yen profit taking as global risk aversion declined. USD/JPY closed the session at 90.72, compared to 89.84 on Thursday. This morning, Japanese eco data (Industrial production/department store sales) only confirmed the sharp setback in economic activity, but this had again very limited impact on USD/JPY trading. Most Asian/Japanese stock markets trade slightly higher but the gains are far from impressive. Looking at the charts, global market stress and overall dollar weakness in the wake of the US Fed's announcement on quantitative monetary easing hammered USD/JPY and the pair set a reaction low in the 87.15 area on December 17. Since then, the pair entered calmer waters. The pair tested a first resistance area around 94 but the test was rejected. The long-term trend in the pair remains negative. In a day-to day perspective, we recently warned that the downtrend might slow below 0.9000 (among others as Japanese officials will voice concerns on the ascent of the yen if USD/JPY comes closer to the 0.8715 reaction low). Last week, we advocated partial profit taking in case of return action towards the 2008 lows. In a day-to-day perspective we hold on to our view that there is some more room for a ST correction/ rebound in USD/JPY. USD/JPY: yen runs into resistance Support stands at 90.05 (Daily envelope), at 89.89/80 (STMA/Weekly envelope), at 89.46 (Break-up), at 88.48/44 (Last week low + Boll bottom)/ LT reaction low hourly) and at 87.13 (Reaction low 2008). Resistance comes in at 91.34/44 (Daily envelope/Target hourly double bottom) and at 91.66 (Reaction high), at 92.31 (Breakdown daily) and at 92.98 (Weekly envelope). The pair is in neutral territory EUR/GBP On Friday, sterling started the day on a strong footing and EUR/GBP dropped the 0.8845 area, coming close to previous reaction lows. However, this first important support level held and EUR/GBP throughout the session recouped the earlier losses; supported by a better euro sentiment overall. The pair even closed the session at 0.9003, compared to 0.89601 on Thursday. There were no important UK eco data published on Friday. Already on Friday, there was a lot of debate on the expected UK measures to support the banking sector. Today, the new plan to support the financial sector will continue to dominate the UK financial headlines. Through a series measures, the UK government will try to induce the resumption of lending to all crucial sectors of the UK economy. We don't have a strong view on the potential impact of the banking plans for sterling ST run. Big UK budgetary commitments together with the prospects for additional UK rate cuts are no by definition a support for sterling. Regarding the eco data, the Rightmove house prices (published overnight) declined 1.9% M/M and 7.3% Y/Y. At the start of 2009, pressure on sterling eased and this trading pattern was even extended after the BoE interest rate decision. On top of that, Euro skepticism also weighed on EUR/GBP. Nevertheless, the sterling rebound against the euro ran into resistance early last week. On the technical charts, the break above a series of high profile resistance levels in November/December has made the long term technical picture outright positive for EUR/GBP. Since the start of 2009, EUR/GBP showed quite a forceful correction but in our view this move still didn't change the long-term sterling negative picture yet and we consider the recent EUR/GBP decline as corrective in nature. Since Monday last week there are some tentative signs that the sterling rebound might be losing momentum and mid last week we reinstalled a cautious buy-on-dips approach. We hold on to that bias even if we have to admit that the EUR/GBP performance at the end of last week was not really convincing. A drop below the 0.8841 ST reaction low would be a first warning. A sustained return below the previous high (0.8663) would question our long-standing sterling negative attitude. EUR/GBP: consolidation Support stands at 0.8950/36 (Break-up/Daily envelope), 0.8900 Daily uptrend line), at 0.8844 (Last Week low), at 0.8939/31 (Reaction low/62 % retracement). Resistance is seen at 90.04/21 (ST high/STMA), at 0.9044/58 (Reaction highs), at 0.9093 (Daily envelope), at 0.9106/34 (MTMA/reaction high). The pair is in neutral territory. News US: Weak industrail production due to plant shutdowns In December, industrial production surprised on the downside, falling twice as much as expected. Industrial production plunged 2.0% M/M and the November outcome was downwardly revised from -0.6% M/M to 1.3% M/M. The manufacturing sector was hardest hit (-2.3% M/M), due to a 7.2% M/M drop in motor vehicle, parts, but also mining (-1.6% M/M) and utilities (-0.1% M/M) declined. Looking ahead, industrial production is forecasted to remain weak in January due to plant shutdowns in the auto sector. In December, CPI dropped by 0.7% M/M, while a decline of 0.9% M/M was expected. Consumer prices rose 0.1% Y/Y compared to December 2007, the slowest pace since August 1955. Core CPI, which excludes food and energy, rose 1.8% Y/Y (from 2.0% Y/Y). Again, most of the decline was due to energy related products, but also other commodities dropped. In the coming months, inflation is expected to decline further which will stoke fears of deflation. In January, University of Michigan consumer confidence showed an unexpected improvement. The headline index rose from 60.1 to 59. against the expectation of 59.0. Economic conditions deteriorated marginally (69.2 from 69.5), while the economic outlook improved (57.2 from 54.0). Although the index showed a slight improvement, it is too early to conclude that consumers are becoming more optimistic. EMU: Trade deficit widens as exports weaken The euro zone trade deficit widened from a downwardly revised -2.1B to -4.9B in November, in line with the consensus estimate (-4.8B). The widening deficit was due to 4.7% M/M decline in exports, while imports fell 2.5% M/M. Exports declined at the fastest pace in more than eight years. The deficit may continue to widen in the coming months as demand is expected to remain weak in the coming months. Download entire Sunrise Market Commentary Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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Wakeup Call: UK Bank Package The News Of The Day. US Closed

Daily Forex Fundamentals | Written by Saxo Bank | Jan 19 09 08:02 GMT |

UK shares could see some support from the larger large package, since it adds at least £100B on top of the already planned £250B Calendar Economic Data Releases Country Name Time (GMT) Expectation Prior Comment EC Construction Output YoY (Nov) 10:00 - -4.0% CA Int’l Security Transactions (Nov) 13:30 1.250B 2.850B NZ Consumer Prices YoY (4Q) 21:45 3.5% 5.1% What's going on? Obama administration is to prioritize credit flow which could be catalyst for 'Obama rally'…which should be faded as synthetic rally's cannot last. UK new bail-out plan for banks….in the making (solution will be priced in before release). UK shares could see some support from this, but trading will likely be thin due to Martin Luther King day in the US (closed). Earnings releases this week includes major US corps (Johnson&Johnson, IBM, MSFT, GE, Google) and is likely to disappoint. FX FX Daily stance Comment EURUSD 0/- 1.3385 overnight high first resistance. Eventually headed lower. First support 1.3240 EURJPY - Rally was a short squeeze, looking for weakness in days ahead. Sell for 119.60 target. USDJPY 0/- Sell for 90.00 test again with stops above 91.00. Will follow equity direction GBPUSD 0 Technicals muddled. Key resistance at 1.5000, Could rally if breaks. Support 1.4780. USDCAD + Looking for renewed rally with tomorrow’s BoC on tap. Buy dips for new 1.3000 attempt. Equities Equities Daily stance Comment DAX 0 Key support at 4300. Sell the break and target 4150. Otherwise stay neutral. FTSE 0/+ Could see support from bank package. Buy and keep a stop below 4090. S&P500 0 Closed. Nasdaq100 0 Closed. Nikkei225 - Target a test of trendline support around 8058. Futures Commodities Daily Stance Comment Gold (XAUUSD) 0/+ Uncertain after Friday’s move. Buy into upside momentum. Silver (XAGUSD) 0/+ Sell ahead of trendline resistance at 11.47 and revert position if break. Oil (CLG9) - Sell at the break of 35.13 and target 33.50. Stop at 36.00 Analysis Disclosure & Disclaimer Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated. Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained. Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment. If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations. The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time. In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis. Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.

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Forex Technical Update

Daily Forex Technicals | Written by India Forex | Jan 19 09 08:30 GMT |

Euro: Euro was pushed upto 1.3343 levels on Friday before it closed a little lower at 1.3266. The daily charts continue to show an upmove with immediate resistance coming in at 1.3460 (55 & 21 daily EMA) Initiating shorts at those levels can be consisdered for intraday 80-100 pips. Overall outlook remains weak. (Eur/Usd: 1.3345). Pound: Cable surged upto 1.4979 (100 4-hourly EMA) levels in the UK session on Friday, however, plunged to test the bids at 1.4655 in the US session after better than expected U.S Michigan data. Cable is currently around 1.4860 levels. The hourly and daily charts are signalling slight upside first upto 1.4970 & then upto 1.5260 (55 Daily EMA) where shorts can be initiated for 80-100 pips. (Gbp/Usd: 1.4860) Yen: The Usd/Jpy pair traded strong on Friday touching the high of 90.89 (21 daily EMA). Today morning it touched the 91 levels and the next resistance comes in 91.81 levels (200 4-hourly EMA). The daily charts are moving upward thus going short at those levels can be considered for intraday 90 pips. Downside can be curbed around 90.10 levels. (Usd/Jpy: 90.82) Rupee: The local unit was in line with the rising stocks on Friday as it appreciated to close at 48.78/$ as against its Thursday's close of 49.03 levels. The less dollar demand across the globe also helped the rupee's rise. Although the NDF continued giving negative cues for the rupee, some short term appreciation in the currency can be seen as the rate-cuts can be expected on the back of falling inflation numbers. (USD/INR:48.58) Swiss Franc: Usd/Chf pair traded within the band of 200 and 100 4-hourly EMA on Friday beginning the session at the highs of 1.1237. Currently the pair is trading within this band with the charts indicating a downside. A decisive break of 100 4-hourly EMA can push the pair down to 1.0960 levels (50% retracement of the rise in weekly charts). Selling can be considered below the 100 4-hourly EMA (1.1115) at a breakout. (Usd/Chf:1.1160). Australian Dollar: Aussie gained 150 pips on Friday making a high of 0.6795. The daily and 4-hourly charts are moving upward while the hourly charts are indicating a downside. Resistance comes in at 0.6890 levels (55 daily EMA), thus initiating shorts at those levels for intraday 80-90 pips can be considered. On the downside immediate support comes at 50% retracement of the rise in the daily charts comes in at 0.6640 levels. (Aud/Usd-0.6800) Gold: Gold rebounded sharply against the USD on Friday rising from the lows of $815 to $842 levels. The daily charts continue to show an upmove whereas the 4-hourly and weekly are overbought. The rise may may be restricted around $855 -$857 levels (61.8% of the recent fally). Shorts can be initiated there for $10-$12. (Gold:$838.30) Dollar index: DI has weakened and is trading around 84.23 levels with the stochastic moving downwards from 76.85%. India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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Today's Market Outlook

Daily Forex Technicals | Written by Windsor Brokers Ltd | Jan 19 09 08:16 GMT |

EURUSD Lower rejection off 1.3117/1.3081, 05/25 Nov former congestive tops, seen on 15 Jan, firms the tone towards 100-day MA near 1.3488 and 1.3536, 38.2% retracement of 1.4363/1.3025 fall. Downside 1.3236/1.3180 offers initial support. Res: 1.3415, 1.3488, 1.3534, 1.3630 Sup: 1.3236, 1.3180, 1.3110, 1.3093 GBPUSD Remains within 1.5720/1.4350 range, with the latest rally from 1.4468, 13 Jan higher low, now seeks for 1.5372 retest, break of which is required to resume recovery towards 1.5720. Loss of 1.4468 would delay, while below 1.4350 main support brings medium-term bears back to play. Res: 1.4915, 1.4960, 1.4982, 1.4502 Sup: 1.4800, 1.4750, 1.4700, 1.4650 USDJPY Last Friday's break higher signals fresh gains towards 91.66, 50% retracement of 94.65/88.48 fall, ahead of 92.29, 61.8% retracement. 90.08/89.74 area underpins the advance. Res: 91.66, 82.04, 92.33, 92.92 Sup: 90.74, 89.90, 89.72, 89.54 USDCHF Upside rejection at 1.1290 high on 15 Jan, risks bull easing to retrace the latest upleg from 1.0865 08 Jan higher low, targeting 1.1075/1.1025, 50/61.8% retracement of 1.0865/1.1290 ascend. Only clearance of 1.1290 will improve the short-term outlook. Res: 1.1280, 1.1310, 1.1378, 1.1447 Sup: 1.1135, 1.1120, 1.1098, 1.1069 Windsor Brokers Ltd http://www.windsorbrokers.biz The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Jan 19 09 08:34 GMT |

CHF The pre-planned buying positions from key supports were realized with overlap of minimal assumed target. OsMA trend indicator, having marked activity fall of both parties does not provide choice for planning priorities for today. Hence and considering the chosen strategy as well as indicator chart direction we assume the possibility of another test of the tops of the current year at 1.1240/60 range, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 1.1180/1.1200, 1.1110/30, 1.1050/70 and/or further breakout variant up to 1.0980/1.1000, 1.0900/20, 1.0840/60. An alternative for buyers will be above 1.1320 with targets 1.1380/1.1400, 1.1460/80, 1.1580/1.1600. GBP The pre-planned breakout variant for sells was realized but with damage in attainment of assumed targets. OsMA trend indicator, having marked break of key supports by advantage in bearish development gives reasons for priority of the corresponding direction of planning for today. Hence we assume the possibility of close resistance range test at 1.4920/60, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term sells on condition of formation of topping signals the targets will be 1.4820/40, 1.4740/60, 1.4600/40 and/or further breakout variant up to 1.4520/40, 1.4460/80, 1.4350/70. JPY The assumed test of key supports for the realization of the pre-planned buying positions was not confirmed but the result of the previous trading day did not give definiteness in the choice of trading operations planning for today. Hence and considering relative strengthening of bearish party and signs of pair overbought we have reasons for the preservation of the earlier drawn up trading planes practically unchanged. We assume the possibility of rate return to 89.70/90 levels, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term buying positions on condition of formation of topping signals the targets will be 90.40/60, 90.90/91.00 and/or further breakout variant up to 91.40 with targets up to 91.80/92.00, 92.60/80, 93.40/60. An alternative for sells will be below 89.20 with targets 88.60/80, 88.00/20, 87.40/60. EUR The pre-planned positions for sell from key support range were realized with attainment of minimal assumed target. OsMA trend indicator, having marked activity fall of both parties gives reasons for assumptions about possible range rate movement within Ichimoku cloud without definiteness in the choice of planning priorities for today. Hence and considering the descending direction of indicator chart we assume the possibility of pair return to the bottom of the cloud at 1.3240/60, where it is recommended to evaluate the activity development of both parties according to the charts of shorter time interval. For short-term buying positions on condition of formation of topping signals the targets will be 1.3300/20, 1.3360/80, 1.3420/40 and/or further breakout variant up to 1.3500/20, 1.3580/1.3600, 1.3700/20. An alternative for sells will be below 1.3140 with targets 1.3080/1.3100, 1.3020/40, 1.2960/80. FOREX Ltd www.forexltd.co.uk

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South Korea's Lee Nominates Yoon as Finance Minister

By William Sim and Seyoon Kim

Jan. 19 (Bloomberg) -- South Korean President Lee Myung Bak nominated Yoon Jeung Hyun as finance minister, replacing Kang Man Soo after less than a year as the government tackles the nation's biggest economic crisis in a decade.

Yoon, 62, was head of the nation's financial services regulator from 2004 to 2007, according to a statement by the president's office in Seoul today that outlined three other changes to the economic team. Kang was voted the worst minister in the team in a December poll of 82 economic professionals by Citizens' Coalition for Economic Justice, a civic group.

“The nominees are market-friendly, which sends out positive signals to the markets,” said Chang In Whan, chief executive officer at KTB Asset Management Co. “Yoon, especially, is known for his style of reaching decisions quickly.”

Yoon will have to grapple with an economy facing its first recession since 1998, falling exports and the weakest consumer confidence since the Asian financial crisis a decade ago. President Lee, who this month created an economic war room in an underground bunker, is seeking to restore voter support, which has fallen by more than half in the past year.

Some investors expressed concern that Yoon, who joined the finance ministry in 1971, may not be equipped to handle changes to industry dynamics expected to occur as policy makers fight the worst recession since the 1980s.

Financial Leadership

Yoon is a ``guy from the past,'' said Kim Yong Tae, head of overseas investment at Yurie Asset Management Inc. in Seoul, which oversees the equivalent of $2.2 billion in assets. ``What we urgently need at this point is a strong financial leadership that can swiftly grasp the changing global economic environment and take prompt action.''

South Korea has allocated about 140 trillion won ($103 billion), or 15 percent of gross domestic product, in extra liquidity, tax cuts and stimulus spending to support the economy.

The Bank of Korea cut its benchmark interest rate to a record low of 2.5 percent this month, extending the most aggressive round of easing since it began setting a policy rate in 1999.

Kang, 63, has been criticized since the beginning of last year when he pursued a weaker currency, saying Korea's won had previously risen more than other Asian currencies and that a drop would help exporters. The won lost 26 percent against the dollar last year and 40 percent versus Japan's yen. It fell 0.3 percent to 1,362.5 versus the dollar in Seoul today.

Kang ``seems to lack an understanding of how the world and the Korean financial market and economies changed over the past decade,” said Kim Sang Jo, professor of international trade at Hansung University in Seoul.

Won's Slump

The currency's slump drove inflation to the highest in a decade in July and increased costs of overseas borrowing, prompting speculation of a repeat of 1997 when South Korea was forced to turn to the International Monetary Fund for a $57 billion bailout.

“The weaker won policy was Minister Kang's biggest mistake as that propelled inflation,” said Kim Mi Young, manager of policy research at the Citizens' Coalition.

The government changed its stance on the won in June and in July President Lee dismissed Vice Finance Minister Choi Joong Kyung, who was in charge of the government's foreign-exchange policy.

In other changes today, Lee named Hur Kyung Wook as vice finance minister to replace Kim Dong Soo; Chin Dong Soo, chief executive officer of Export-Import Bank of Korea, to replace the current Financial Services Commission Chairman Jun Kwang Woo; and Yoon Jin Sik, former commerce minister and current chairman of Korea Investment Holdings Co., to replace Bahk Byong Won as chief aide on economic affairs.

Hyun In Taek, a political science professor at Korea University in Seoul, was nominated to replace Kim Ha Joong as unification minister. Most of the posts are subject to parliamentary approval.

To contact the reporters on this story: William Sim in Seoul at wsim2@bloomberg.net; Seyoon Kim in Seoul at Skim7@bloomberg.net

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Obama Advisers Say They Will Aim TARP Funds at Widening Credit

By Matthew Benjamin

Jan. 19 (Bloomberg) -- Top advisers to President-elect Barack Obama signaled they will emphasize getting credit to consumers and businesses rather than helping banks as the new administration deploys the second half of the $700 billion rescue fund.

“The focus isn’t going to be on the needs of banks; it’s going to be on the needs of the economy for credit,” Lawrence Summers, the president-elect’s top economic adviser, said on CBS’s “Face the Nation” program yesterday. Obama’s team will manage the Troubled Asset Relief Program “in a much different way,” David Axelrod, Obama’s chief political adviser, said on ABC’s “This Week” program.

Obama’s advisers are considering options for dealing with troubled assets still clogging banks’ balance sheets, according to people familiar with the matter. Among alternatives: Setting up a government-backed “bad” or “aggregator” bank to hold the securities, or leaving the assets on banks’ books and providing a government guarantee.

While Summers and Axelrod didn’t discuss specific proposals, they emphasized they don’t agree with Treasury Secretary Henry Paulson’s decision to commit most of the initial $350 billion of the TARP funds to capital injections in exchange for warrants and preferred equity.

“The point is to get credit flowing again to businesses and families across the country -- that hasn’t happened with the expenditure of the first $350 billion,” Axelrod said.

Swearing-In

Last week’s sell-off in financial stocks and the deepening recession put pressure on Summers and Treasury Secretary- designate Timothy Geithner to unveil a comprehensive program soon after Obama is sworn in tomorrow. Without a radical new effort, soaring credit losses could prolong and deepen a recession that is now more than a year old.

The TARP may be redirected to help prevent foreclosures as well as free up credit for “automobile loans, consumer credits, small business, municipalities,” Summers said. He added banks will be subject to more oversight in their use of the funds.

“There’s going to be a very different level of rigor in the evaluation of institutions, the plans that are designed, and the expectations for institutions,” Summers said. “Institutions that are healthy, that don’t need it just to survive, are going to be expected to lend above their baseline levels as part of this program.”

Geithner and his advisers will be “carefully” monitoring Wall Street bonuses of banks that have participated in the TARP, Summers said.

Bank Mergers

“What’s not going to happen is the funds that could be supporting increased lending are going to be used to finance acquisitions that may serve a bank but don’t serve the country,” Summers said. The new administration will also prevent banks that accept government funds from pursuing acquisitions to the detriment of increased lending, he said.

Summers said he is confident Congress will pass a spending plan, coupled with tax cuts, similar to the $825 billion package that Obama has offered. Such a stimulus has been forecast to create 3 million to 4 million jobs, he said.

“I expect the program will pass within in a month,” Summers said. “He is going to do what is necessary to get us out of this economic hole.”

The U.S. economy showed further signs of buckling, according to reports last week. Consumer prices fell 0.7 percent in December, capping the smallest annual increase since 1954, the Labor Department said. Industrial output shrank 2 percent, and the capacity-utilization rate slid to 73.6 percent, according to the Fed. A private survey showed consumer sentiment was little changed in January.

“There’s almost no question that the economy is going to decline for some time to come,” said Summers, who served as Bill Clinton’s last Treasury secretary. “Our errors are not going to be of standing back.”

To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net

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Bank of England Gains Power to Buy Assets as New Policy Tool

By Brian Swint and Svenja O’Donnell

Jan. 19 (Bloomberg) -- The Bank of England won authorization from the government to buy assets and expand its policy toolkit to fight the risk of deflation as interest rates approach zero.

The central bank can make initial asset purchases of up to 50 billion pounds ($74 billion), the U.K. Treasury said in a statement today. The government will indemnify the purchases against any losses in the facility, which will start on Feb. 2.

The asset program “provides a framework for the Monetary Policy Committee of the Bank of England to use asset purchases for monetary policy purposes should the MPC conclude that this would be a useful additional tool for meeting the inflation target,” the Treasury statement said.

The Bank of England this month lowered the benchmark interest rate to 1.5 percent, the lowest since the bank’s creation in 1694, as Britain faces its first recession since 1991. Today’s announcement means that the central bank may engage in so-called quantitative easing if lower interest rates fail to stimulate the economy.

“This obviously marks a radical change in the U.K.’s monetary policy framework,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “With bank rate approaching the zero bound, but the wider economy suffering a more severe deterioration, the MPC is being forced into unorthodox policy territory.”

Financial Crisis

Prime Minister Gordon Brown has given authority to the bank to start purchasing assets as part of a broader plan to revive lending as banks recoil in the global financial crisis. The government will also guarantee bank loans and offer capital and asset protection.

“The asset purchase facility will provide an important additional tool to improve financing conditions in the economy,” Bank of England Governor Mervyn King said in an e- mailed statement.

The central bank’s Special Liquidity Scheme will expire at the end of the month as previously planned, the Treasury said.

The bank will also extend the maturity of its discount window to one year from 30 days to help banks access liquidity. The fee for using the lending facility beyond the usual 30 days will be an additional quarter-point, the central bank said in a separate statement.

The central bank said it will publish another announcement with details on the discount facility before it starts.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Svenja O’Donnell in London at o sodonnell@bloomberg.net.

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Saudi Arabia’s Central Bank Cuts Key Interest Rates

By Arif Sharif

Jan. 19 (Bloomberg) -- Saudi Arabia’s central bank cut its repurchase rate to 2 percent from 2.5 percent and the reverse repurchase rate to 0.75 percent from 1.5 percent to help boost economic growth in the biggest Arab economy.

The cuts, even though expected, are “aggressive” and will help reduce borrowing costs “substantially” for companies, John Sfakianakis, chief economist at Saudi British Bank, said in a phone interview from Riyadh today. Interbank interest rates should begin to come down by midday, he added.

“These measures should help to ensure that credit is available to genuine corporate demand at lower rates,” state-run Saudi Press Agency reported today, citing a statement from the Saudi Arabian Monetary Agency. “SAMA has been closely monitoring money market developments following its monetary measures taken since October 2008. Domestic money market rates have positively responded to monetary stimulus and the recent global easing in interbank rates.”

Economic growth in Saudi Arabia, the world’s biggest oil exporter, is expected to slow to 1.6 percent this year from 4.8 percent in 2008, according to the median estimate of eight economists polled by Bloomberg News. Inflation is expected to decline to 7.5 percent from 9.9 percent in 2008.

Saudi Arabia’s annual inflation eased to 9 percent in December from 9.5 percent in November as increases in rents and food prices slowed, the Saudi Press Agency reported today.

Housing rose 17.7 percent, down from 18.1 percent in November, while food and beverages prices increased 11.3 percent, less than the 13.5 percent in the previous month, the Riyadh-based news agency reported, citing the Central Department of Statistics and Information.

Saudi British Bank is 40 percent owned by HSBC Holdings Plc and the country’s third-biggest lender by market value.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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CPC Will Seek Spot LPG Cargoes as Saudi Aramco Reduces Supplies

By Yu-huay Sun

Jan. 19 (Bloomberg) -- CPC Corp., Taiwan’s state-owned oil company, will seek liquefied petroleum gas cargoes in the spot market after Saudi Aramco said it will reduce supplies in February and March.

Aramco will cut LPG shipments by 35 percent from levels agreed in a contract with CPC, said Lin Maw-wen, the Taiwanese oil company’s vice president. The Taipei-based refiner has an agreement to buy 20,000 metric tons of the fuel a month from the Dhahran, Saudi Arabia-based producer.

“We’re going to look for spot cargoes so that there won’t be problems supplying the domestic market,” Lin said by telephone from CPC’s Taipei headquarters today.

Saudi Aramco is producing less LPG as crude oil output is curtailed to meet reduced Organization of Petroleum Exporting Countries quotas. LPG, a by-product of oil refining and crude oil and natural gas output, is used for cooking, heating and as a motor fuel in Asia. Demand may rise as temperatures drop during the Northern Hemisphere winter.

CPC sells 960,000 tons of LPG to domestic customers a year, accounting for 65 percent to 70 percent of the Taiwan market, Chen Jei Yuan, executive manager of the company’s LPG division, told reporters Jan. 17.

CPC produces about 500,000 tons of the fuel a year and buys the remainder from abroad, according to Chen. Saudi Aramco, the world’s largest state oil company, is the refiner’s biggest overseas LPG supplier.

The Organization of Petroleum Exporting Countries agreed on Dec. 17 to new production targets starting Jan. 1 which are 9 percent lower than its November quotas. The group is trying to stem a more than 70 percent plunge in New York crude oil futures’ from the record $147.27 a barrel reached July 11.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net

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Korea East-West Power Buys 72,000 Tons of Fuel Oil for February

By Yuji Okada

Jan. 19 (Bloomberg) -- Korea East-West Power Co., one of the six generating units of Korea Electric Power Corp., bought 72,000 metric tons of medium-sulfur fuel oil for delivery in February, said a company official who asked not to be identified because of company policy.

The table below gives details of the purchase.

-----------------------------------------------------------
Products:     540-centistoke fuel oil
Sulfur:       Maximum 2.5 percent
Quantity:     72,000 tons
Delivery:     February 13-17
Seller:       SK Energy Co.
Price:        **MOPS 180-centistoke fuel oil plus $30 a ton
             (Cost-and-Freight)
Port:         Ulsan thermal power plant
-----------------------------------------------------------

**MOPS = Mean of Platts Singapore. Platts is an oil-pricing service.

The oil’s centistoke rating is a measure of its viscosity, or flow rate, when heated. Fuel oil with a higher centistoke rating has a slower flow rate.

To contact the reporter on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net

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Crude Oil Falls on Forecast Global Recession to Cut Fuel Demand

By Gavin Evans and Christian Schmollinger

Jan. 19 (Bloomberg) -- Crude oil fell in New York on forecasts faltering global economic growth will drive down fuel demand for a second year.

Global oil demand will shrink 0.6 percent to 85.3 million barrels a day this year, the first two-year decline since 1983, the International Energy Agency said Jan. 16. A report this week in the U.S., the world’s largest oil consumer, will probably show housing starts last month fell to the lowest annual rate since at least 1959, according to a Bloomberg News survey of economists.

“The near-term economic news and data are going to remain extremely weak and that’s just going to continue to test sentiment in energy and metals markets,” David Moore, commodity strategist at Commonwealth Bank of Australia Ltd., said by phone from Sydney today.

Crude oil for February delivery fell as much as 60 cents, or 1.6 percent, to $35.91 a barrel in after-hours electronic trading on the New York Mercantile Exchange, and traded at $35.99 at 3:49 p.m. in Singapore. There will be no floor trading in New York today because of the Martin Luther King Day holiday.

The contract, which expires tomorrow, rose 3.1 percent to $36.51 on Jan. 16 as investors who had expected further declines in February crude bought oil back to limit losses ahead of today’s holiday. Oil fell 11 percent last week as U.S. stockpiles rose and OPEC forecast a decline in demand.

The more-actively traded March contract dropped 44 cents to $42.13 at 3:55 p.m. Singapore time. It fell 2.2 percent to $42.57 on Jan. 16.

Crude futures have declined 19 percent this year, after tumbling 54 percent in 2008.

‘Out of Sync’

Brent crude oil for March settlement fell as much as 74 cents, or 1.6 percent, to $45.83 a barrel. The contract dropped 2.3 percent on London’s ICE Futures Europe exchange on Jan. 16.

The Nymex February contract “is out of sync with the rest of the world, not just Brent,” Commonwealth’s Moore said.

The margin between the Nymex February and March contracts was at $5.95, having reached $8.14 at the Jan. 15 settlement. The spread between the January and February contracts reached a record $8.49 on Dec. 19. Oil for June delivery settled at $51.35 last week.

The steep rise in near-term prices is encouraging investors to buy and store oil, boosting inventories. That, coupled with weak economic data and the lag before production cuts by the Organization of Petroleum Exporting Countries are felt, may put March prices under the same selling pressure, Moore said.

Crude oil in New York for February traded at a discount of $9.29 a barrel on to Brent on Jan. 15, the day the contract expired. The difference between the two exchanges’ March futures was at $4 a barrel today.

OPEC Cuts

OPEC produces about 40 percent of the world’s oil. The group agreed to cut output by 9 percent starting this month to prevent a glut and stem a six-month decline in prices.

Saudi Arabia, the group’s biggest producer, last week said it will reduce output further in February. Ministers should agree fresh cuts at the group’s March 15 meeting if prices continue to slide, Algerian Oil Minister Chakib Khelil said on Jan. 17.

The IEA’s latest forecast assumes global economic growth of 1.2 percent in 2009, half its previous estimate. It lowered projected daily demand in industrial nations by 530,000 barrels and consumption in developing nations by 480,000, including a 300,000 barrel-a-day reduction in China.

A report last week showed industrial production in Europe in November was down 7.7 percent from a year earlier with new orders also “incredibly low,” Commonwealth’s Moore said. Data due from China, the world’s second-largest oil user, will likely be the most significant news for the market this week, he said.

“If there’s evidence the Chinese economy is continuing to weaken, that would be extremely negative news for commodity markets,” he said.

To contact the reporters on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net; Christian Schmollinger at christian.s@bloomberg.net

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Asian Dollar Debt Still Attractive, Lion Global Says

By Patricia Lui

Jan. 19 (Bloomberg) -- Asia’s dollar bonds are still attractive after a three-month rally because regional economies are stronger than those of the U.S. and Europe, said Lion Global Investors Ltd.

The extra yield investors demand to own emerging-market debt instead of U.S. Treasuries was 6.79 percentage points on Jan. 16, down from October’s six-year high of 8.65 percentage points, according to JPMorgan Chase & Co.’s EMBI+ Index. The spread averaged 3 percentage points in the five years prior to the collapse of Lehman Brothers Holdings Inc. in September.

“Asian credit spreads have come off a bit but there is still some value out there,” said Daniel Chan, chief executive officer of the Singapore-based fund management company that oversees the equivalent of $18 billion in assets. He said in an interview he favors government and corporate dollar-denominated debt in South Korea, Malaysia and the Philippines.

Lehman’s bankruptcy prompted U.S. and European investors to raise cash by selling emerging-market assets, causing the MSCI Asia Pacific Index excluding Japan to drop 53 percent last year, compared with the 34 percent decline in the Dow Jones Industrial Average. Asian banks avoided the worst of the credit losses after regulators tightened lending rules following the regional currency collapse in 1997.

“Asian markets have been sold off far more than the U.S. and Europe even though the fundamentals here are better,” said Chan. “Banks and corporations in Asia are far healthier after the 1997 crisis.”

Currency Outlook

Lion Global is a unit of Oversea-Chinese Banking Corp., Singapore’s oldest bank. It was formed in September 2005 in the merger of OCBC Asset Management Ltd. and Straits Lion Management Ltd. Chan, one of the founders of Lion Global, was formerly the chief executive officer of Straits Lion and prior to that was chief investment officer of UOB Asset Management.

Financial companies in Asia have reported $31 billion in credit-market losses since the start of 2007, compared with $1.04 trillion worldwide, according to data compiled by Bloomberg. The World Bank predicted on Dec. 9 growth in developing economies will slow to 4.5 percent in 2009 from 6.3 percent last year, faster than global expansion of 0.9 percent.

Asian currencies have extended last year’s losses with nine out of the 10 most active currencies excluding the yen down against the dollar since the start of the year. The Korean won fell 7.7 percent this month after dropping 26 percent last year.

“Asian currencies won’t weaken much from current levels as Asia’s economic fundamentals are relatively strong,” Chan said. “Currently, the weakness is from repatriation to the U.S. which I see as temporary. They should bottom out soon, maybe by the middle of the year.”

South Korea

South Korean bonds are attractive as falling oil prices and support to exporters from a weaker won improve the nation’s trade balance, Chan said. The benchmark bond due December 2016 yielded 5.27 percent as of the close on Jan. 16, according to data compiled by Bloomberg, down from a record high of 8.25 percent reached on Nov. 10.

South Korea posted a $2.06 billion current account surplus in November, the second consecutive month in the black, the Bank of Korea said on Dec. 10. The figure was in deficit in every month but three last year.

Chan also favors bonds linked to Malaysian state-owned investment arm Khazanah Nasional Bhd., Russian oil-company debt and securities from Middle-Eastern countries like Abu Dhabi. Lion Global on Jan. 7 started marketing its LionGlobal Opportunities Fund, aimed at global equities and fixed income.

The investment climate will be “challenging” as risk aversion is still the dominant theme this year, Chan said. “Most of the pension funds and institutional investors are still not clear on what they want to do,” he said.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net

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Yuan Advance to Slow on Cooling Growth, BlackRock’s Urwin Says

By Patricia Lui and Lilian Karunungan

Jan. 19 (Bloomberg) -- China will slow or stop gains in the yuan to support exports as economic growth cools to the slowest pace in seven years, BlackRock Inc. said.

The central bank, which has stalled yuan gains since mid- 2008, may prevent a further advance after exports last month slumped the most in almost a decade, Richard Urwin, BlackRock’s London-based head of allocation, said in an interview. The largest publicly traded U.S. asset manager, which has $1.26 trillion in funds, may add to its local equity holdings as China’s fiscal and monetary policies put the economy on a recovery path.

“Given the authorities’ increasing desire to stimulate economic growth, we’re likely to see a slower appreciation or maybe no appreciation against the dollar for a period,” Urwin said in Singapore on Jan. 16. “At current levels, it still gives Chinese producers competitive advantage globally.”

The currency traded at 6.8367 per dollar as of 11:41 a.m. in Shanghai, compared with 6.8374 on Jan. 16, according to the China Foreign Exchange Trade System. The yuan strengthened 6.6 percent in the first half of last year, extending its gains to 21 percent since a dollar-peg ended in July 2005.

Gross domestic product grew 6.8 percent last quarter from a year earlier, compared with 9 percent in the previous three months, a Bloomberg News survey showed. The government may report the data this week.

Waning export demand has led to protests by fired factory employees, an exodus of 600,000 migrant workers from the manufacturing hub of Guangdong, and an estimated urban unemployment rate of more than 9 percent.

Stimulus Spending

Premier Wen Jiabao pledged Jan. 11 to add to the nation’s 4 trillion yuan ($585 billion) stimulus package to create jobs and avoid social instability. Exports grew 17.2 percent for all of 2008, down from 25.7 percent in 2007.

“At the moment, we’re positive on China, we have money in China and that is the reason we are positive on Asia ex-Japan,” he said. “China is a big chunk of Asia ex-Japan, so in terms of broad regional themes, this is an area we like.”

The benchmark CSI 300 Index of stocks has climbed 12 percent this year, after slumping 66 percent in 2008 as investors fled emerging-market assets amid the credit-market squeeze and the threat of a global recession.

The Asian region will likely benefit from China’s stimulus measures, Urwin said, adding that their economies and banking sectors are also relatively stronger than their U.S, U.K and Europe counterparts. “The Asian decoupling theme may return sometime later in the year,” he said.

Global Recession

The International Monetary Fund said on Nov. 6 that emerging and developing countries will expand 5.1 percent in 2009, surpassing global economic growth of 2.2 percent. The IMF has said growth of 3 percent or less is “equivalent to a global recession.”

Even so, Asian currencies may have little room for appreciation this year as risk aversion continues amid the global recession, Urwin said.

“In general, emerging-market currencies are very much reflecting shifting global risk appetite,” he said. “Until we see global risk appetite resume strongly, it will be a challenging environment.”

Seven of Asia’s 10 most-active currencies outside Japan fell against the dollar last year. South Korea’s won was the biggest loser, followed by India’s rupee and the Indonesian rupiah. They slumped 26 percent, 19 percent and 15.5 percent respectively.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net; Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.

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