E.ON, EDF Cut U.K. Prices to Placate Regulator, Watchdog Says

By Paul Dobson

Feb. 16 (Bloomberg) -- E.ON AG and Electricite de France SA’s U.K. units cut household electricity prices to avoid regulatory intervention and failed to pass on the full decline in wholesale prices, watchdog Consumer Focus said.

“It’s a damage-limitation exercise,” said Robert Hammond, Consumer Focus’ head of regulated industries. “I feel quite cynical about the price chops that we’ve seen” because they don’t reflect greater declines in the wholesale market, he said.

The London-based Office of Gas and Electricity Markets set a Feb. 20 deadline for utilities to respond to proposals on what it calls “unfair” price differentials based on location and payment method. It suggested remedies after a study last year found Britain’s five former regional monopolies charged higher rates for customers in their home areas and “earned significantly higher margins from electricity than gas.”

While U.K. politicians lobby for cheaper rates because of lower wholesale costs, E.ON, Electricite de France SA and competitors are addressing the differences by cutting power rates for customers that are paying a premium for supplies.

E.ON, which said last week it will cut power prices by 9 percent and leave gas prices unchanged, believes its price reduction is “in line with future regulations regarding cost- reflective pricing,” spokeswoman Jag Kahlon said in an e-mail on Feb. 13.

EDF cut prices Feb. 13 and said it now complies with recommendations from the energy regulator, known as Ofgem, that supply companies eliminate charging differentials between regions that aren’t reflective of costs.

Centrica Cuts

Centrica Plc, which wasn’t an incumbent electricity supplier, only cut gas prices in an announcement of lower rates Jan. 22. Scottish & Southern Energy Plc said Feb. 6 it will cut electricity rates 9 percent and gas prices by 4 percent. RWE AG’s U.K. unit and Iberdrola SA’s Scottish Power haven’t yet said they will cut prices.

“It really is about, if anything, trying to mitigate against anything Ofgem might come up with,” Hammond said.

Energy suppliers said costs remain high and volatile.

“Although wholesale prices have fallen recently, the market remains volatile,” EDF said in an e-mailed statement on Feb. 13 “As a result, the outlook for retail prices is still challenging. Forward annual wholesale prices for electricity and gas remain at relatively high levels.”

The energy companies put up prices twice in 2008 after a jump in energy and commodity costs in the first half of the year. They argue they need to increase profits from energy supply so they are able to invest in generation and gas-imports.

“The important issue for investors is that the industry continues to demonstrate considerable pricing discipline despite the political pressure,” Citigroup Inc. analyst Peter Atherton said in an investor note Feb. 13. “It is crucial that supply businesses return to profit in 2009,” after making losses last year.

To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net

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China’s Weekly Benchmark Coal Price Falls 1.3% on Lower Demand

By Winnie Zhu

Feb. 16 (Bloomberg) -- Coal prices at China’s Qinhuangdao port, a benchmark in the world’s biggest producer of the fuel, fell 1.3 percent last week because of lower demand.

The price of coal with an energy value of 5,500 kilocalories a kilogram dropped to between 565 yuan ($83) and 575 yuan as of Feb. 16 compared with 570 yuan to 585 yuan on Feb. 9, according to weekly data published by the China Coal Transport and Distribution Association.

The price of the fuel used in power stations declined for a third week after the end of peak winter consumption, said Wang Shuai, chief coal analyst at Orient Securities Ltd. in Shanghai. The Chinese benchmark coal price has tumbled more than 40 percent from a record 995 yuan a ton reached in July as an economic slowdown curbed demand.

“Chinese coal prices will keep falling and may bottom out in May and June when summer arrives,” Wang said by telephone.

Coal stockpiles at the northern Chinese port of Qinhuangdao have increased 20 percent to 7.38 million tons as of Feb. 14, according to Wang.

The Chinese economy, the world’s third largest, expanded at the slowest pace in seven years in the fourth quarter of 2008. Exports fell by the most in almost 13 years, customs data showed Feb. 11.

To contact the reporter on this story: Winnie Zhu in Shanghai at Wzhu4@bloomberg.net.

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Death of Corporate Bonds Is Worth Investigating: William Pesek

Commentary by William Pesek

Feb. 16 (Bloomberg) -- Henry Paulson’s “bazooka” is looking more like an intercontinental ballistic missile.

That’s the word the former Treasury secretary used in August to explain the firepower of hundreds of billions of dollars of U.S. stimulus. In November, China rolled out its own $586 billion bazooka. India, Indonesia, Japan, Malaysia and Singapore intend to raise spending to boost growth.

Two things are worth noting about this unprecedented deluge. One, it marks the end of the corporate-bond market as we know it. It’s not going too far to declare corporate bonds dead for the foreseeable future. Two, Asia’s efforts to develop deeper debt markets are now on the backburner.

Government debt is already the U.S.’s most precious export. Paulson’s successor, Timothy Geithner, will oversee an even bigger expansion of debt issuance.

Asia, too, will see an unprecedented bond boom. Why? Today’s growth forecasts are just way too optimistic. The International Monetary Fund expects Asia’s developing economies will expand 5.5 percent this year, the slowest pace since 1998. That’s highly optimistic considering the U.S., Japan and Europe are in recession, and China may be heading that way.

How can companies hope to compete? The corporate market already has been hurt in secondary trading and primary-market issuance. Asia is about to see the next wave.

Governments have few options here and stimulus is badly needed. With so many bazookas being deployed, private companies risk being crowded out of debt markets, according to the Manila- based Asian Development Bank. Companies face multiple financing risks as they navigate global turmoil and increased competition.

Crowded Out

“Companies today face higher borrowing costs, and risks of any abrupt withdrawal of funds from emerging markets may prove to be an additional complicating factor for new local-currency denominated corporate bond issuance in emerging East Asia,” says Jong Wha Lee, head of the ADB’s office of regional economic integration. Lee’s concern is that governments will “crowd out new corporate funding or refinancing.”

All these bazookas may morph into something more lethal -- like a financial version of an ICBM.

The U.S. is banking on Asia’s savings to finance its current and future stimulus efforts. There’s virtually zero chance the money approved thus far by Congress is sufficient to revitalize U.S. banks. More than 15 years after Japan’s asset bubble burst, that nation’s banks still aren’t lending money as hoped.

Japan’s Example

The U.S. Treasury’s future borrowing efforts will bump up against those of Japan, China and Europe. This crisis has a drip-drip-drip dynamic that tends to make what seems implausible one day real the next. Expect today’s debt-issuance estimates to appear quaint by comparison a year from now.

Japan is a case in point. Asia’s biggest economy is sure to announce ambitious new issuance plans. Japanese were shocked enough in December when Prime Minister Taro Aso scrapped plans to balance the budget. Just wait until he -- or, given his 14 percent voter support rate, his successor -- unveils plans to open the borrowing floodgates.

China, too. Never mind the spin in Beijing. Its $3.3 trillion economy is slowing fast and needs far more support than the government’s plans to date. European governments also are sure to increase borrowing programs to stabilize growth.

Increasing Debt

“I’m concerned about the fiscal policy in some countries” of the euro region, European Central Bank Executive Board member Juergen Stark said in Baden Baden, Germany, on Feb. 12. “The fiscal situation in some countries is alarming. Governments urgently have to address the problems. The markets react to increasing debt levels.”

Stark noted that he’s already concerned about a crowding- out phenomenon in Europe. Imagine how he will feel if deepening recessions necessitate even greater government borrowing. This won’t be a good year for fiscal conservatives.

The non-partisan Congressional Budget Office says U.S. stimulus efforts might provide a short-term boost to growth, but the added debt burden and crowding out of private investment will be a net drag on the economy and wages by 2014. A similar experience may befall Asia, too.

“Governments will absolutely overwhelm the market in ways we have not seen before,” says Jeff Brunton, head of credit markets at AMP Capital Investors in Sydney.

Deluge in 2009

The deluge adds another element to Asia’s 2009. The region’s efforts to create deeper debt markets will be undermined. Asia still needs international markets for corporate and asset-backed debt. You can forget that for a while.

The good news is that Asian-currency bonds will dominate this wave as governments turn to local capital markets for funding and as overseas investors favor sovereign issuers or state-owned companies. It was borrowing in foreign currencies that got Asia into trouble a decade ago.

To help alleviate pressure on corporate borrowers, the ADB is in talks with the countries of the Association of South East Asian Nations, plus Japan, China, and South Korea, to set up a fund providing credit guarantees for local-currency debt.

That’s all well and good. With so many government bazookas being aimed at markets, though, private bond issuers are in for a trying few years.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net

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ASX Says Credit Crisis May Boost Demand for Its Coal Futures

By Angela Macdonald-Smith

Feb. 16 (Bloomberg) -- The Australian Securities Exchange said the global credit crisis may boost demand for its Newcastle coal futures contracts, set to start up in April, as market participants seek the security of a trading guarantee.

Trading in the coal futures should overtake volumes in the physical market in Asia of about 380 million metric tons a year within three to five years, Anthony Collins, general manager for emerging markets at ASX Ltd., which owns the exchange, said today. The exchange will act as the clearing house for the futures, allowing participants to avoid any risk of counter-parties defaulting on trades.

The collapse of U.S. mortgage finance last year led to the worst credit crisis in seven decades, triggering a global recession and a slump in global stock markets. Banks, trading houses and coal buyers in Japan and Europe may use the coal futures, which are due to start trading on April 21.

“All of our futures contracts within the last eight or nine years, around electricity for example, have always done better when there is a credit constraint in the over-the-counter market and that’s absolutely what we have out there today,” Collins said by telephone. “In terms of a global benchmark everyone will look to Asia coal, which is Newcastle, as the reference point.”

The coal futures contract will be based on Japanese-quality thermal coal exported from Australia’s Newcastle port, the world’s biggest export harbor for the fuel. The exchange will compete in coal futures trading against ICE Futures in London, which introduced similar contracts in December.

Renewable Delay

Prices for power-station coal exported from Newcastle have dropped about 60 percent from the $194.79 a ton record reached in the week ended July 4 last year, according to the globalCOAL NEWC index, amid declining demand and a slump in crude-oil prices.

The start-up of the contract will be followed by the introduction of New Zealand electricity futures on April 28 and Victoria state wholesale gas futures on May 5 as the exchange broadens the range of products it offers that may help energy producers and users better manage risks posed by changing prices.

Plans to start up futures and options for Renewable Energy Certificates may be delayed until after an earlier April date pending the passage of legislation on the nation’s proposed renewable energy target, Collins said. Likewise, the timing of the introduction of carbon credit futures will depend on when the legislation is passed, he said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net

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China to Offer Oil Loans; May Set Up Acquisition Fund

By Wang Ying

Feb. 16 (Bloomberg) -- China, the world’s second-biggest energy user, will offer preferential lending rates for overseas oil investments and may tap the country’s $1.95 trillion foreign-exchange reserves to help companies buy fields abroad.

The nation may set up an oil fund to boost exploration, China National Petroleum Corp., the country’s biggest oil producer, said in a statement on its Web site today, citing the state’s three-year energy plan. The government will increase capital injections of overseas spending on energy assets, it said.

Chinese companies have resumed their quest for global resources after a two-year hiatus as the economic slowdown and falling commodity prices prompt a sell-off in share markets, making companies cheaper to acquire. Crude oil in New York has fallen more than 70 percent from a record $147.27 a barrel reached in July last year. China’s foreign-exchange reserves are the world’s biggest.

The fund “makes perfect sense because overseas acquisition will instantly boost production and reserves, probably at very attractive long-term prices amidst distressed asset valuations at the bottom of the oil price cycle,” Gordon Kwan, head of China energy research at CLSA Ltd., wrote in an e-mail today.

Oil companies are encouraged to boost development and acquisitions of resources abroad, China National, the parent of Hong Kong-listed PetroChina Co., said in the energy plan. The plan to 2011 covers China’s ambitions to speed up the development of alternative fuels, coal-to-liquids projects, and the setting up of a separate fund for the stockpiling of crude oil.

Crude Reserves

The country aims to find additional recoverable crude oil reserves of 700 million metric tons and discover incremental recoverable natural gas deposits of 1.2 trillion cubic meters within the three years to 2011, it said in the report.

The country plans to have total oil refining capacity of 440 million tons by 2011. China will push forward joint-venture refinery projects with companies from Venezuela, Qatar and Russia, it said, without giving details. China’s oil-processing capacity is about 396 million tons currently, according to Bloomberg calculations.

The government plans to start building four additional liquefied natural gas import terminals in Qingdao, Ningbao, Tangshan and Zhuhai, China National said. China will start building pipelines to import oil and gas from Myanmar before the end of 2011, it said.

Coal-to-Liquids Projects

The construction of coal-to-liquids projects in the northern provinces of Shanxi, Inner Mongolia and Ningxia will be accelerated, it said, without giving further details. It will also set up separate government funds for crude oil stockpiling, energy exploration and coal-bed methane production, it said.

The government will simplify the administrative procedures of energy project approval, it added.

China aims to boost crude-oil production by 1.2 percent to 192 million tons and targets 86 billion cubic meters in natural gas output this year, representing a gain of 13 percent, China National said. Crude output may reach 198 million tons in 2011 and gas production may rise to 120 billion cubic meters by then, it said.

Emergency crude oil reserves may reach 44.6 million cubic meters by 2011, it added. China will take advantage of current lower prices to boost imports of oil and natural gas as it builds reserves, Zhang Guobao, head of the National Energy Administration, said on Dec. 29.

Fuel Shortages

China has sought to take advantage of the rout in commodity prices to lock in resources worldwide. China’s oil and gas shortages will continue over the “long term,” PetroChina Chairman Jiang Jiemin said on Jan. 12. The country relies on imports for about half of its crude consumption, which rose by 6.5 percent last year, China National Petroleum said Feb. 10.

The nation’s oil companies including China National Petroleum, China Petrochemical Corp. and China National Offshore Oil Corp. have shown interests in the assets of U.S.-based Kosmos Energy LLC worth at least $3 billion, the South China Morning Post reported today, citing unidentified people.

China Minmetals Corp., the country’s biggest trader of metals, agreed to buy Australia’s debt-laden OZ Minerals Ltd. for A$2.6 billion ($1.7 billion) in cash, gaining copper, zinc and gold projects in Asia, the Melbourne-based company said today. The purchase follows Aluminum Corp. of China’s $19.5 billion agreement to invest in Rio Tinto Group last week.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net.

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Chavez Wins Venezuela Term Limit Vote, Opens Campaign for 2012

By Matthew Walter and Daniel Cancel

Feb. 16 (Bloomberg) -- Venezuelan President Hugo Chavez scored a victory in his drive to stay in power as voters scrapped constitutional term limits that would have forced him from office in 2013.

The amendment carried with 54.4 percent of the vote to 45.6 percent, according to preliminary results, said Tibisay Lucena, president of the National Electoral Council, in comments carried on state television. The referendum marked the second time in 14 months that Chavez sought to remove the constitutional bar that kept him from seeking unlimited re-election.

“I’ve received an injection of patriotic fire,” Chavez, 54, said last night in a victory speech from a balcony at the Miraflores presidential palace, as thousands of supporters waved flags and cheered below. “I’ll dedicate myself for life to the service of the Venezuelan people.”

Chavez now has a chance to extend his drive to turn the oil- exporting country into a socialist state, which he says will take until 2019. Without a constitutional check on his power, the former army lieutenant colonel may stay in office indefinitely, opposition leader Leopoldo Lopez said.

Chavez already controls Venezuela’s energy wealth through the state oil company, and holds sway over congress and the courts through supporters and appointees, Lopez said.

Fireworks

The president, who celebrated 10 years in office on Feb. 2, announced he’ll be a candidate in 2012 as fireworks were launched across Caracas. Chavez has spent billions of dollars in oil revenue to offer free health care, subsidized groceries and reading programs for the poor.

“He’s clearly going to be very emboldened,” said Michael Shifter, vice president of the Washington-based Inter-American Dialogue. “He’s going to move ahead in radical fashion with his revolution.”

Voters narrowly rejected a bid to remove presidential term limits in 2007, his first electoral defeat since winning the presidency in 1998.

Chavez regained some of the support he lost in 2007, when the country suffered widespread food shortages. More than 6 million votes were cast in favor of the amendment yesterday, 1.6 million more than in the last referendum. Still, that’s short of the 7.3 million votes Chavez won in the 2006 presidential elections.

The opposition garnered 5 million votes yesterday, an increase of about 535,000 over 2007.

‘Passed the Barrier’

“We’ve passed the barrier of 5 million,” opposition leader Omar Barboza said last night, in comments broadcast by Globovision. “We’ll continue with our proposal of a different country. Sooner or later we’ll triumph.”

Chavez, known for his confrontational style, adopted a conciliatory tone toward the opposition in a press conference yesterday, and on the day before the vote offered to meet with U.S. President Barack Obama anytime. He regularly accused President George W. Bush of aiding Venezuela’s opposition, and last year expelled the U.S. ambassador in Caracas.

Chavez rushed to hold the referendum ahead of a looming economic recession. He proposed the vote the day after regional elections in November when the opposition won the three biggest states and Caracas, and instructed the National Assembly to act quickly.

Venezuela, the fourth-largest supplier of crude oil to the U.S., depends on oil for 93 percent of export revenue and half the government’s budget. Crude prices have plunged 74 percent since touching a record in July.

Recession, Inflation

Caracas-based Banco Mercantil said in a Feb. 3 report that oil income will fall 66 percent this year, and Morgan Stanley forecasts an economic contraction of 1 percent, even as inflation accelerates. Consumer prices rose 30.7 percent in January from a year ago, the fastest rate in Latin America.

The prospect of re-election may push Chavez to “needed but unpopular” measures to deal with the economy now, Goldman Sachs Group Inc. economist Alberto Ramos wrote in a note to investors yesterday, citing devaluation of the currency, which is pegged to the U.S. dollar, and slower government spending as possibilities.

There are already signs the government is low on cash. Chavez ordered the central bank to transfer $12 billion of reserves into a development fund last month. Finance Minister Ali Rodriguez said yesterday the government may back out of a planned takeover of Banco de Venezuela, the local unit of Spain’s Banco Santander SA.

Unpaid Bills

Service providers to Petroleos de Venezuela SA, the state oil company, have complained of unpaid bills and begun to take drilling rigs out of service.

Still, Chavez may view the victory as a renewed mandate to crack down on the private sector, Ramos said.

After his 2006 re-election, he took advantage of a five-year run-up in oil prices to fund nationalizations. He took over the biggest telecommunications and electricity companies, a steel mill and the cement industry. He also forced foreign oil companies Royal Dutch Shell Plc, Chevron Corp. and Repsol YPF into joint ventures as minority partners.

The collapse of oil prices makes hard choices ahead more likely, said Carlos Luna, a professor of international relations at the Universidad Central de Venezuela.

“He’s going to have a clock running against him,” Luna said. “People are expecting big things from him at the exact moment that the economic crisis is knocking at the door.”

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.

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Ireland Debt-Default Concerns Rise on Bank Troubles, Times Says

By Shamim Adam and Will McSheehy

Feb. 16 (Bloomberg) -- Investors are increasingly concerned that Ireland may default on its national debt as the government pledges more money to help troubled banks, the Sunday Times said.

Credit-default swaps on Ireland’s government bonds reached record levels last week as debt investors rate the nation as Europe’s most-troubled economy, the paper said. Ireland has pledged financial help for lenders that would be more than double its annual economic output and the loans held by its banks are more than 11 times the size of its economy, the report said.

Credit-default swaps on the five-year sovereign debt of Ireland, which is rated AAA by Fitch Ratings, jumped 49 basis points on Feb. 13 to a record 377, according to CMA Datavision prices. That’s 18 basis points more than the cost to protect the debt of Costa Rica, which Fitch rates BB, or 11 grades lower than AAA, from default.

The credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net; Will McSheehy at wmcsheehy@bloomberg.net

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Euro May Be Hurt by Bank ‘Exposure’ to East Europe, Merrill Says

By Justin Carrigan

Feb. 16 (Bloomberg) -- The rising cost of insuring against default by a “peripheral” European government is likely to weigh on the euro, according to Merrill Lynch & Co.

“This remains an important background negative for the euro,” Steven Pearson, a strategist in London at Merrill Lynch, wrote in a note today. “European banking-sector exposure to Eastern Europe, often via foreign currency lending, is an additional euro negative story that is gaining air-time.”

To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net

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Fan Says Dollar to Continue to Dominate Global Financial System

By Yanping Li

Feb. 16 (Bloomberg) -- The U.S. dollar will continue to dominate the global financial system, as shown by demand for the currency during the current crisis, Fan Gang, an adviser to China’s central bank, said in Beijing today.

To contact the reporter on this story: Yanping Li in Beijing at yli16@bloomberg.net

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Pound Falls as CBI Says Economy Set for Worst Slump Since 1980

By Lukanyo Mnyanda

Feb. 16 (Bloomberg) -- The pound fell against the dollar after the U.K.’s biggest business lobby said the economy will contract this year at almost twice the pace previously forecast, making it more likely interest rates will fall to near zero.

The U.K. currency also declined after Group of Seven finance chiefs avoided any reference to the pound in statements following their weekend meeting in Rome, indicating government action to limit its losses is unlikely. Gross domestic product will shrink 3.3 percent, the most in almost 30 years, instead of the 1.7 percent predicted in November, the Confederation of British Industry said today. Stocks dropped, boosting demand for the safest assets.

“There’s still a strong bearish element to the pound and people believe it needs to be sold,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank. “With the gradual decline in rates, we’ve seen an exodus from sterling.”

The pound slipped 0.6 percent to $1.4262 as of 9:25 a.m. in London, from $1.4355 on Feb. 13. It traded at 89.66 against the euro, from 89.63 last week. It fell 0.6 percent to 130.10 yen, from 130.71.

The pound may decline to $1.30 and reach parity with the euro during the second quarter, Jones said.

The average house price advertised by sellers in February recorded the biggest annual decline since at least 2002, Rightmove Plc said today, indicating the housing slump sparked by the collapse in credit markets is deepening.

‘No Mention’

The Bank of England reduced the bank rate to 1 percent on Feb. 5, the lowest level since the central bank was founded in 1694. It will cut the main rate another 50 basis points at a policy meeting on March 5, according to the median forecast of 26 economists surveyed by Bloomberg.

The pound fell 17 percent versus the euro in the past 12 months and 27 percent against the dollar.

There was “no mention, discussion of the pound” at the G-7 meeting, Callum Henderson, head of global currency strategy, and Thomas Harr, senior currency strategist, at Standard Chartered Plc in Singapore, wrote in a research note today. “This may prove negative for sterling. Euro-pound in particular is likely to bounce on the back of this omission.”

U.K. stocks fell for a third day, with the FTSE 100 Index declining 0.3 percent amid speculation Lloyds Banking Group Plc may require further capital. The bank’s shares dropped as much as 22 percent.

U.K. bonds rose, with the 10-year gilt dropping one basis point to 3.54 percent. The 4.25 percent security due March 2019 rose 0.9, or 90 pence per 1,000 ($1,423) face amount, to 108.10. Yields move inversely to bond prices.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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Rio Says Heavy Rain Disrupts Pilbara Port Operations

By Jason Scott

Feb. 16 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, said heavy rain is disrupting iron ore ship loading at Dampier and Cape Lambert ports in the Pilbara region of Western Australia.

“There’s been some interruptions to dumping and ship loading at our ports, and berthing in particular has been affected,” Rio’s Perth-based spokesman Gervase Greene said today by phone. Road conditions are “not good,” he said. Operations at Rio’s 11 mines are continuing as normal, he said.

Australia’s northwest, the site of most of the nation’s oil, gas and iron ore production, may experience flooding today due to severe storms, according to the state’s Fire & Emergency Services. The nation provides about a third of the world’s traded iron ore.

A low-pressure weather system north of the town of Exmouth may cause flash flooding and damage homes and property, the services department said in an e-mailed statement, citing the Bureau of Meteorology. People in the towns of Karratha, Onslow and Exmouth are at risk, it said.

The area has received about 200 millimeters of water since 9 a.m. Feb. 14, Rio Tinto’s Greene said.

Operations at Port Hedland, which is used by BHP Billiton Ltd. and Fortescue Metals Group Ltd., haven’t been affected with little rain recorded, the port authority’s Chief Executive Officer Andrew Bush, said in a phone interview.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net

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Japan Aluminum Stockpiles Jump to Highest in Decade

By Jae Hur

Feb. 16 (Bloomberg) -- Aluminum stockpiles in Japan, Asia’s largest importer, climbed to the highest in more than a decade in January as a deepening recession slashed demand for the metal used in homes and cars.

Inventories in Yokohama, Nagoya and Osaka ports jumped 64 percent from a year earlier to 363,200 metric tons as of Jan. 31, Tokyo-based Marubeni Corp. said today. Stockpiles rose 15 percent from Dec. 31, reaching the highest since September 1998, when they totaled 401,000 tons, Japan’s largest importer of the light metal said.

Stockpiles increased after Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, amid an unprecedented collapse in exports and production. Toyota Motor Corp., the world’s biggest carmaker, will slash domestic production 54 percent in the current quarter as demand plunges in the U.S. and Japan.

“We may see a steeper decline in aluminum shipments for January than we saw in December,” said Koji Iida, a spokesman for the Japan Aluminium Association. “It’s worse not only for domestic demand but for exports because of the surging yen.”

Japan’s shipments of rolled aluminum products tumbled 22 percent in December, the biggest drop since April 1981, as demand slumped because of accelerated production cuts by carmakers and machinery companies. Shipments fell to 142,976 tons from 182,566 tons a year earlier, the Japan Aluminium Association said Jan. 28. It was the third straight monthly decline.

Economy Shrinks

The yen advanced 18 percent against the U.S. currency in the past year and traded at 91.59 to the dollar at 1:17 p.m. in Tokyo. Japan has been in a recession since November 2007, according to a government panel that dates the economic cycle.

The country’s gross domestic product fell for a third straight quarter in the three months ended Dec. 31, the Cabinet Office said today in Tokyo. The median estimate of 26 economists surveyed by Bloomberg News was for an 11.6 percent contraction.

Exports plunged a record 13.9 percent from the third quarter as global demand for Corolla cars and Bravia televisions slumped. Toyota, Sony Corp. and Hitachi Ltd. -- all of which are forecasting losses -- are firing thousands of workers, heightening the risk a slump in household spending will prolong the recession.

“The economy is in terrible shape and the scary part is that we’re likely to see a similar drop this quarter,” said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “All we can do is wait for overseas demand to pick up.”

Toyota Cuts

Toyota’s output, excluding its Daihatsu Motor Co. and Hino Motors Ltd. units, will drop to about 519,000 vehicles in the three months ending in March, compared with 1.13 million units a year ago, according to figures derived from Toyota’s latest full- year forecast. Toyota spokesman Paul Nolasco declined to confirm the figures.

Industrywide vehicle sales in Japan fell the most in 35 years last month. The country is headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December and unemployment surged.

Aluminum for delivery in three months on the London Metal Exchange fell 0.2 percent to $1,375 a ton at 12:33 p.m. in Tokyo. The metal has plunged by more than a half in the past year as the global recession cut demand and inventories more than tripled to a record. Aluminum stockpiles in warehouses approved by the LME reached 2.93 million tons on Feb. 13.

A breakdown of the Japanese stockpiles data follows:

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

Yokohama Nagoya Osaka Total =============================================================== Jan. 31, 2009 171,500 177,700 14,000 363,200 Dec. 31, 2008 145,800 157,500 13,000 316,300 Jan. 31, 2008 118,300 91,200 12,000 221,500 (Figures are in metric tons.) ===============================================================

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net

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Copper Leads Industrial Metals Lower in Asia on Demand Outlook

By Glenys Sim

Feb. 16 (Bloomberg) -- Copper led industrial metals lower in Asia on concerns a contracting Japanese economy and continued weak signs from U.S. manufacturers will further damp demand for raw materials.

The metal, used in electrical wiring and pipes, dropped as stockpiles tallied by the London Metal Exchange gained to the highest since October 2003. Inventories in Shanghai also rose last week to the most since October 2008.

“The optimism we saw last week is fading as news flow continues to be bad,” Zeng Chao, an analyst at Everbright Futures Co., said in an e-mail today. “The large build up of stockpiles is also hanging over investors’ heads.”

London Metal Exchange copper fell as much as 2.8 percent to $3,335 a metric ton and traded at $3,355 as of 3:20 p.m. in Singapore, extending last week’s 3.1 percent decline. Copper for May delivery on the Shanghai Futures Exchange slid as much as 4.7 percent to 27,110 yuan ($3,967) a ton, before ending at 27,390 yuan.

Declining equities also weighed on investor sentiment, said Zeng. Asian stocks fell as Japan’s economy shrank the most since 1974 and Group of Seven finance chiefs said the economic slowdown will persist through most of 2009.

Seventeen of 26 analysts, investors and traders, or 65 percent, surveyed by Bloomberg News said copper would drop this week, as reduced industrial production in the U.S. signals lower demand from automakers and other manufacturers.

Among other LME-traded metals, aluminum slid 0.5 percent to $1,370.50 a ton, zinc fell 0.9 percent to $1,143, lead lost 1.7 percent to $1,150, nickel dropped 0.7 percent to $10,250, and tin declined 2.2 percent to $11,125 as of 3:21 p.m. in Singapore.

-- Editors: Richard Dobson, Indranil Ghosh

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net

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Palm Oil Declines as Demand Wanes After Rally to Two-Week High

By Claire Leow

Feb. 16 (Bloomberg) -- Palm oil futures dropped in Malaysia as demand diminished after the vegetable oil’s rally last week to a two-week high.

April-delivery futures dropped 1.6 percent to 1,963 ringgit ($425) a ton at 5:11 p.m. on the Malaysia Derivatives Exchange. Earlier, the contract rose above 2,000 ringgit for the first time since Jan. 7. Prices have risen 12 percent in the past two weeks.

“I don’t understand why palm oil should rise above 2,000 ringgit” a ton, said Ben Santoso, an analyst with DBS Vickers Securities Singapore. “The risk is planters cutting back on re- planting if palm oil prices stay high, which will bring on a more-than-expected supply,” capping price gains.

Drought has damaged soybean crops in Brazil and Argentina, the biggest exporters of the oil crushed from the oilseed, at a time when oil palms in Malaysia and Indonesia, the top producers of the tropical oil, are stressed from last year’s record output. That helped push up palm oil prices in the past two weeks. Palm and soybean oils are substitutes.

A smaller soybean crop in South America may prompt farmers in the U.S. to shift from corn to soybeans, likely lowering the price of the oilseed, Santoso said.

“The highest risk now is from the U.S. and whether they will make the shift,” he said. “If there is some shift, then there will be some correction to soybean prices in the second quarter. It’s still too early to say.”

The U.S. will announce soybean crop estimate next month.

Soybean oil for March delivery dropped 0.3 percent last week to 33.3 cents a pound in Chicago. That left it 32 more expensive than palm oil, compared with a six-month average of 58 percent, according to Bloomberg data.

The U.S. markets are closed today for a public holiday.

To contact the reporter for this story: Claire Leow in Singapore at cleow@bloomberg.net;

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Gold, Little Changed in London Trade, May Rise on Haven Demand

By Nicholas Larkin

Feb. 16 (Bloomberg) -- Gold, little changed in London, may rise as investors buy the metal as a store of value on concern the global economy will worsen.

The Group of Seven’s finance ministers said after talks in Rome yesterday that a “severe” economic downturn will persist for most of 2009, while Japan’s economy shrank at an annual 12.7 percent pace last quarter, the most since 1974. Lloyds Banking Group Plc fell in London, taking its decline over two days to 37 percent, on speculation the bank may need further capital to shore up its balance sheet.

“Gold’s ability to close last week above $930 was encouraging, and given the renewed banking and economic jitters this morning we expect gold to see further inflows,” James Moore, an analyst at TheBullionDesk.com in London, wrote today in a note.

Bullion for immediate delivery lost 48 cents to $941.22 an ounce at 9:11 a.m. local time. April futures declined 20 cents to $942 in electronic trading on the Comex division of the New York Mercantile Exchange. The U.S. market is closed today for a holiday.

Gold may gain for a second straight week as the banking crisis and recession deepen, according to twenty-six of 32 traders, investors and analysts surveyed from Tokyo to Chicago last week. Five survey respondents said to sell, and one was neutral.

Safe-haven investment has pushed assets in exchange-traded funds to all-time highs.

ETF, SPDR

Holdings in ETF Securities Ltd.’s Physical Gold fund rose to a record 2.299 million ounces on Feb. 13, according to the company’s Web site today. Assets in the SPDR Gold Trust, the biggest ETF backed by the metal, grew to a record 985.86 metric tons as of Feb. 13. Gold reached a six-month high of $952.92 an ounce in London the previous day.

Hedge-fund managers and other large speculators increased their net-long position by 5 percent in New York gold futures in the week ended Feb. 10, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 163,622 contracts on the Comex division of the New York Mercantile Exchange.

Among other metals for immediate delivery in London, silver fell 0.4 percent to $13.64 an ounce. Platinum slipped $1.75, or 0.2 percent, to $1,062.50 an ounce, and palladium was 0.7 percent lower at $215 an ounce.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

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Crude Oil Rises on Speculation OPEC Will Make Further Output Cut

By Will Kennedy

Feb. 16 (Bloomberg) -- Crude oil gained for a second day on speculation OPEC ministers will cut production further when they meet next month.

Iran’s Organization of Petroleum Exporting Countries governor, Mohammad Ali Khatibi, said yesterday the group may reduce output if prices remain below $40 a barrel.

Crude oil for March delivery gained as much as 52 cents, or 1.4 percent, to $38.03 a barrel on the New York Mercantile Exchange. It traded at $37.85 at 9:27 a.m. London time.

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Europe Rights Issues Lift Stock Supply for First Time Since '05

By Alexis Xydias and Sarah Jones

Feb. 16 (Bloomberg) -- The amount of stocks in Europe is increasing for the first time since 2005 as the financial crisis forces companies to raise new money from shareholders. If history is a guide, higher prices for equities will follow.

Xstrata Plc, the region’s biggest zinc producer, Cookson Group Plc, the world’s largest maker of ceramic linings for metal smelters, and Swedish bank SEB AB rose more than 20 percent after tapping shareholders this year. Prices for 72 percent of 391 European companies with so-called rights issues in the past decade advanced in the next six months, according to data compiled by Royal Bank of Scotland Group Plc.

Companies in the region may raise 300 billion euros ($386 billion) this year, excluding financial institutions, according to New York-based Goldman Sachs Group Inc. The increase would end three years in which buybacks and mergers and acquisitions outpaced equity sales. Investors say the ability to raise money is a bullish sign, showing corporations have the backing of their biggest shareholders.

“Equity rights issues contain the seeds of their own success,” said Adam McConkey, who helps oversee $1.2 billion as senior investment manager at Gartmore Investment Management in London. “Where fear takes over the business, the stock starts to show elements of distress. So improvement of the prospects will see a significant improvement in the share price.”

Net Debt

A total of 283 companies of the 391 tracked by Edinburgh- based RBS since January 1999 rose in the six months after they announced plans to seek capital from current shareholders by offering them the rights to buy a proportionate number of shares in a new issue at a discount.

Of those, 112 added between 10 percent and 50 percent, and 87 had bigger gains. The Dow Jones Stoxx 600 Index, a benchmark gauge in Europe, fell 32 percent in the period covered by the RBS study, or about 1.8 percent on a six-month basis, data compiled by Bloomberg show. About half of the companies in the Stoxx 600 with share-price data spanning the entire period dropped, Bloomberg data show.

Companies in the Stoxx 600 ended last year’s first half with total net debt of 9.83 trillion euros, according to data compiled by Bloomberg. Compared with annual year-end figures, that would be the widest gap between debt and stock market capitalization since at least 2001, the data show.

New capital is needed after the Stoxx 600 slumped 46 percent in 2008, the worst drop in its two-decade history. Stocks fell worldwide as financial companies racked up $1 trillion in credit-related losses and Europe, the U.S. and Japan entered the first simultaneous recessions since World War II.

HBOS Tumbles

Sales that investors deem badly timed accelerated stock losses.

HBOS Plc held the European rights offer with the largest value of unsold stock this decade. Shareholders claimed only 8 percent of its 4 billion-pound ($5.74 billion) sale in July after the credit market freeze helped push the shares below the price of the offering. Edinburgh-based HBOS, the U.K.’s biggest mortgage lender, came close to collapse and was taken over by London-based Lloyds TSB Group Plc last month.

“The market has to digest these rights issues, but I would not rate this as a negative development,” said Norbert Janisch, a Vienna-based manager at Raiffeisen Capital, which participated in last year’s 1.8 billion-pound sale by London-based Standard Chartered Plc and the 1.2 billion-euro offering by Finmeccanica SpA in Rome. “If a company gets into a position where they need a rights issue, if they act swiftly the outcome can be a positive one.” Raiffeisen oversees $62 billion.

2009 Rights Offerings

So far in 2009, the 10 companies in the Stoxx 600 that said they would hold rights offerings have risen 3.8 percent on average since their announcements, data compiled by Bloomberg show. The stocks had slumped an average of 17 percent from the start of 2009 until the offerings were announced, the data show.

Xstrata jumped 23 percent to 765 pence since announcing a 4.1-billion pound rights issue on Jan. 29 to pay debt and buy coal assets from Baar, Switzerland-based Glencore International AG, its largest shareholder. Zug, Switzerland-based Xstrata had tumbled 86 percent from a record 4,420 pence reached last May.

Cookson said on Jan. 29 that it aimed to raise 240 million pounds to reduce debt as steel demand slumps. The shares soared 56 percent. Stockholm-based SEB, the second-biggest bank in the Baltic states, said on Feb. 5 it planned to raise 15 billion kronor ($1.8 billion) as Estonia, Latvia and Lithuania enter their worst recession since gaining independence in 1991. The shares have since jumped 32 percent.

Gartmore’s McConkey said investors should avoid companies whose finances are unlikely to improve even though they are offering discounted shares. Most of this year’s offerings have met his criteria.

“The indications are that the market is being prepared and is happy to write checks further down the risk profile than I or other investors had imagined a month ago,” he said.

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Sarah Jones in London at ahaigh1@bloomberg.net.

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French Stocks: Air Liquide, BNP, Latecoere, Rexel, SocGen

By Gareth Gore

Feb. 16 (Bloomberg) -- France’s CAC 40 Index lost 27.15, or 0.9 percent, to 2,970.71 as of 9:33 a.m. in Paris, the second drop in three days. The SBF 120 Index retreated 0.9 percent.

The following shares rose or fell in Paris. Stock symbols are in parentheses.

Air Liquide SA (AI FP) rallied 1.46 euros, or 2.4 percent, to 61.65 euros, the highest in a month. The world’s biggest maker of industrial gases forecast sales and profit growth in 2009, buoyed by demand for gases used in healthcare and refining.

BNP Paribas SA (BNP FP) dropped 52 cents, or 2 percent, to 25.92 euros, the lowest in almost three weeks. JPMorgan Chase & Co. cut its price estimate on France’s biggest bank by market value by 53 percent to 28.00 euros in a note to clients today.

Latecoere SA (LAT FP) surged 8 cents, or 1.7 percent, to 4.90 euros, the most in two weeks. The French maker of doors and cabling for Airbus SAS and Boeing Co. planes predicted 2009 revenue will increase to about 530 million euros ($675 million) after 2008 sales advanced 16 percent.

Rexel SA (RXL FP) slid 12 cents, or 2.7 percent, to 4.35 euros, the lowest since it sold shares to the public in April 2007. The world’s largest distributor of electrical equipment plans to reduce staff numbers by 5 percent to 6 percent this year, Le Journal des Finances reported, citing an interview with Chairman Jean-Charles Pauze.

Societe Generale SA (GLE FP) tumbled for a third day, retreating 84 cents, or 3.2 percent, to 25.71 euros. JPMorgan cut its price estimate on the French lender by 32 percent to 38.00 euros in a note to clients today.

To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net

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U.K. Stocks Fall, Led by Lloyds; Legal & General, Mondi Drop

By Adam Haigh

Feb. 16 (Bloomberg) -- U.K. stocks fell for a third day as concern deepened Lloyds Banking Group Plc may need further capital and a leading industry body forecast the economy will shrink twice as fast as previously thought.

Lloyds dropped 4.1 percent after analysts speculated the lender may require more capital to shore up its balance sheet. Legal & General Group Plc slumped 9.5 percent as the Financial Times reported the insurer is in talks with the Financial Services Authority about the amount it should set aside for defaults in its bond portfolio.

“Lloyds is absolutely at the head of affairs,” said David Buik, a London-based markets analyst at inter-dealer broker BGC Investors. “Investors are incandescent with rage at the lack of transparency,” he said in a Bloomberg Television.

The benchmark FTSE 100 Index fell 11.47 points, or 0.3 percent, to 4,178.127 at 9:29 a.m. in London as two stocks retreated for every one that advanced. The FTSE All-Share Index dropped 0.3 percent and Ireland’s ISEQ Index lost 1.5 percent.

The Confederation of British Industry today said the economy in the U.K. will shrink at almost twice the pace previously forecast this year as the region heads into the worst recession in 30 years.

Gross domestic product will contract 3.3 percent, instead of the 1.7 percent predicted in November, the biggest U.K. business lobby said today. By the end of 2009, the economy will have contracted for six consecutive quarters, it said.

Lloyds slumped 4.1 percent to 58.9 pence. The shares fell 33 percent on Feb. 13 after the lender said it expected HBOS Plc to report a 10 billion-pound ($14.5 billion) pretax loss.

‘Further Capital’

“We cannot discount the prospect of Lloyds requiring further capital if HBOS turns even worse,” Collins Stewart analyst Alex Potter wrote in a report to clients today.

Lloyds agreed to buy HBOS, formerly the U.K.’s biggest mortgage lender, in a government-brokered takeover in September when it came close to collapse as credit markets froze.

Legal & General declined 9.5 percent to 44.8 pence. L&G may increase the reserve funds when it reports preliminary results next month, the FT said. A report by Cazalet Consulting for one of its clients raised questions about L&G’s “level of reserving,” the newspaper said.

“We’ve had no more conversations with the FSA than we usually have before the end of year results,” said spokesman Richard King.

Mondi Group slid 7.5 percent to 150.75 pence as it reported a slump in profits for 2008. Africa’s biggest papermaker said it’s full-year “underlying” profit fell about 12.5 percent in the year ended Dec. 31.

Clinton Cards Plc, the U.K.’s biggest greeting-cards retailers, lost 9.5 percent to 9.5 pence. Chief Financial Officer Barry Hartog said it is in talks with lenders about replacing a 60 million-pound ($86 million) bank facility with a new three year arrangement.

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

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Stocks in Europe, Asia Retreat; Lloyds Banking, Takefuji Drop

By Sarah Jones

Feb. 16 (Bloomberg) -- Stocks in Europe and Asia fell as the Group of Seven failed to spell out steps to fix a “severe” recession, Japan’s economy contracted the most since 1974 and a business lobby warned the U.K. will shrink the most in almost three decades.

Lloyds Banking Group Plc tumbled 12 percent as speculation mounted the British lender may need further capital to shore up its balance sheet. Takefuji Corp. slid 9.5 percent after Japan’s third-biggest consumer lender forecast a full-year loss and the country’s gross domestic product contracted at an annual 12.7 percent pace.

“It is all just illustrating that we are really in a deep recession,” said Mike Lenhoff, who helps oversee about $36.4 billion as chief strategist at Brewin Dolphin Securities Ltd. in London. “Markets aren’t getting any relief from any good news at the moment. It is going to remain under pressure for a while.”

The MSCI World Index slid 0.6 percent at 9:47 a.m. in London, extending its 2009 retreat to 9.6 percent. The gauge of 23 developed markets has dropped for five days as companies from Electricite de France SA to Diageo Plc posted disappointing results and U.S. Treasury Secretary Timothy Geithner failed to convince investors his bank rescue will work.

Futures on the Standard & Poor’s 500 Index declined 0.4 percent. U.S. markets will be closed today for Presidents’ Day.

Legal & General

Europe’s Dow Jones Stoxx 600 Index fell for the fourth time in five days, losing 0.7 percent. Legal & General Group Plc slid after the Financial Times reported the insurer is in talks with the U.K. Financial Services Authority over the amount of money it should set aside for defaults in its bond portfolio.

The MSCI Asia-Pacific Index decreased 0.6 percent as washing-machine maker Fisher & Paykel Appliances Holdings Ltd. said it doesn’t expect a profit this fiscal year.

The G-7’s finance ministers and central bankers said in a statement released after talks in Rome yesterday that they were working to restore confidence in markets and revive the world economy. They predicted the full effect of individual rescue packages will “build over time” and a “severe” economic downturn will persist for most of 2009.

The Japanese economy contracted the most since the 1974 oil shock, according to figures from the Cabinet Office, with gross domestic product falling for a third straight quarter.

The U.K.’s GDP will contract 3.3 percent this year, instead of the 1.7 percent predicted in November, the Confederation of British Industry said. By the end of 2009, the economy will have contracted for six consecutive quarters, it said.

Lloyds Retreats

Lloyds slumped 12 percent to 53.9 pence. The shares fell 33 percent on Feb. 13 after the lender said it expected HBOS Plc, the U.K. lender it took over last month, to report a 10 billion- pound ($14.5 billion) pretax loss.

“We cannot discount the prospect of Lloyds requiring further capital if HBOS turns even worse,” Collins Stewart analyst Alex Potter wrote in a report to clients today.

Takefuji tumbled 9.5 percent to 572 yen. The lender forecast a full-year loss of 264.1 billion yen ($2.9 billion) on rising claims to return overpaid interest and lower income from lending. The company had estimated in November a profit of 3 billion yen.

Legal & General lost 9.1 percent to 45 pence. The company may increase the reserve funds when it reports preliminary results next month, the FT said. Spokesman Richard King the company “had no more conversations with the FSA than we usually have before the end of year results.”

Fisher & Paykel

Fisher & Paykel plummeted 35 percent to 65 New Zealand cents. The company, which makes about 80 percent of its sales outside the country, said it may break even in the 12 months ending March 31, after reporting a profit of NZ$54.2 million ($28 million) a year earlier.

Premiere AG slid 7.6 percent to 2.56 euros. Germany’s biggest pay-television company reported its fifth straight quarterly loss after refinancing debt and said subscriber growth will be “broadly flat” in the first half of 2009. The net loss widened to 114.3 million euros ($146 million) from 23.5 million euros a year earlier.

Profits have declined 65 percent for 613 companies in western Europe that have released earnings since Jan. 12, data compiled by Bloomberg show.

TNT Earnings

TNT NV slipped 1.2 percent to 14.43 euros. Europe’s second- biggest express-delivery company said fourth-quarter net income fell 60 percent to 59 million euros. The underlying figure, excluding currency changes and restructuring charges, declined 17 percent to 207 million euros, the Dutch company said.

Air Liquide SA added 4.7 percent to 63 euros. The world’s biggest maker of industrial gases, forecast sales and profit growth in 2009, buoyed by demand for gases used in healthcare and refining. The company also said it will propose a 2008 dividend of 2.25 euros a share.

Aareal Bank AG climbed 5.5 percent to 4 euros after the bank applied for state aid and guarantees even as the German commercial-property lender posted a profit in the fourth quarter and for all of 2008.

Aareal Bank will receive 525 million euros in fresh funds from the German Financial Markets Stabilization Fund, SoFFin, as well as a debt guarantee of 4 billion euros with a maximum maturity of 36 months.

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

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US House Passes 2nd Stimulus bill

Daily Forex Fundamentals | Written by Easy Forex | Feb 16 09 01:22 GMT |

U.S. Dollar Trading (USD) had a mixed day with the market initially selling the dollar in Asia before weak European Data and sluggish US stocks let the reserve currency pare back losses ahead of the G7 meeting over the weekend. Stocks welcomed the House passing the 2nd stimulus bill but weak Consumer sentiment weighed. UoM Sentiment fell to 56.2 vs. 60.6 expected. Crude Oil closed up $3.53 ending the New York session at $37.51 per barrel. In US share markets, the Dow Jones fell 82 points or -1.04% and the NASDAQ fell 7 points or -0.48%. Looking ahead, Presidents day in America The Euro (EUR) weakened after GDP data revealed the economy's slowdown was accelerating. Q4 German GDP fell -2.1% vs. -1.8% forecast and the Eurozone GDP dropped -1.5% vs. -1.3%. Weakness in stocks capped any recovery seen in the EUR/JPY. Overall the EUR/USD traded with a low of 1.2822 and a high of 1.2941 before closing the day at 1.2890. The Japanese Yen (JPY) positive momentum in Asia sent the crosses to day highs in early Europe but the lack of follow through in US stocks pare gains going into the weekend. USD/JPY was especially well supported as technically this pair pointed to a break higher and the market is cautious of any intervention talk out of the G7 meeting. Overall the USDJPY traded with a low of 90.55 and a high of 92.05 before closing the day around 91.83 in the New York session. Looking ahead, Japan GDP Q4 forecast to fall -3.1% Q/Q. The Sterling (GBP) rebounded during the day briefly touching 1.46 before settling back into the US close. Market views are mixed with some participants covering shorts ahead of the G7 on concerns the Pounds weakness may be mentioned. Overall the GBP/USD traded with a low of 1.4279 and a high of 1.4605 before closing the day at 1.4392 in the New York session. The Australian Dollar (AUD) was well supported during Asia as news broke that the Australian Government had passed its own stimulus package. Again in the US session the Aussie rallied as the US stimulus package moved through the House of Reps. Helping to keep the pair buoyant was the 7% rally in Oil. Overall the AUD/USD traded with a low of 0.6533and a high of 0.6642 before closing the US session at 0.6592. Gold (XAU) consolidated gains after failing to break cleanly above $950 during the US session. Overall trading with a low of USD$936 and high of USD$952 before ending the New York session at USD$932 an ounce. Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Feb 16 09 01:18 GMT |

News And Views Concerns over banking industry health drove US equities lower, even after the House of Representatives passed the $787 billion stimulus plan. The worse-than-expected US consumer sentiment report was a minor factor on the day. The S&P500 fell 1%, banks down 7%, as Well Fargo revised its Q4 losses higher and contagion set in. Lloyd's did similarly in the UK, blaming the revision on a new valuation of subsidiary HBOS's assets. This pressure to sell risk was countered in FX markets by pre-G7 positioning, some speculating on a Mondayboost to the most battered currencies. The G7 meeting did release comments on the need to limit currency volatility, but none were singled out by name. Oil closed a notable 10% higher, as traders closed large short positions ahead of the three-day US weekend, but other major commodities were subdued. US treasuries were sold heavily, the 10year yield up 11bp on digestion of last week's record issuance. NZD/USD replicated its trans-Tasman counterpart, almost reaching 0.53 in Europe, and falling back to 0.5230. Friday's retail sales report confirmed our suspicions that the uncertain outlook is motivating consumers to save. The housing report showed volumes stabilising, but prices continuing to fall. AUD/USD continued its stimulus-led domestic bounce until early Europe to 0.6645, when it followed EUR's lead lower, and ended the US session slightly above its 0.6550 low. AUD/NZD did little, well contained by 1.2500 to 1.2580. EUR had several gyrations within a 1.2820 to 1.2945 range, as Q4 GDP printed weaker. GBP suffered the Lloyd's result, plunging from 1.46 1.4350. Speculators were likely long GBP, pre-G7, exaggerating the fall. USD/JPY was one-way from 91 to 92, again on expectations of a specific G7 comment. US UoM consumer sentiment falls from 61.2 to 56.2 in early Feb. Consumer sentiment weakened significantly this month. Current conditions edged up a little, but the higher weighted expectations component fell back sharply. Inflation expectations fell in the shorter term, but increased slightly on a five year view - quite prescient on the part of US consumers, given that inflation is about to turn negative because of falling energy costs but may return as a problem in several years time due to the policy measures now being put into place to support the banking sector and prevent a deeper recession. Canadian auto sales dropped 14.8% in December, their third monthly decline. The latest fall was the steepest since January 1998 when sales were hit hard by an ice storm; there were no such weather factors at play this time around. StatCan guidance for January was that sales recovered by 'about 6%'. Euroland GDP contracts 1.5% in Q4, confirming that the Euroland economic recession deepened alarmingly late last year, with all major member countries recording a sharp contraction in output. Little detail is available with this advance report, but partial data make it clear that the slump in global trade has had a significant impact on industrial production and exports across much of the continent. For Euroland as a whole, the 1.2% yr annual pace of output decline is the weakest since aggregate data began in the mid 1990s. Outlook The bounce to 0.53 was unsurprising, given last week's larger sell-off, from 0.5450 to 0.5150. That bounce appears to have run its course (the risk is it has a bit of energy left, and reaches 0.5350), and this week should be business as usual – a resumption of the downward trend towards a 0.50 re-test. Q4 PPI today should be weaker, but this information lags the already released CPI figures, so reaction should be minimal. Date Country Release Last Forecast 16-Feb NZ Q4 Producer Output Prices 2.80% 0.40% Q4 Producer Input Prices 3.70% 0.40% Aus RBA Head of International Dept US President’s Day Jpn Q4 GDP %qtr –0.5% –3.0% UK House Prices %yr –7.3% – Can Dec Manufacturing Shipments –6.4% –4.5% 17-Feb Aus RBA Board Feb Minutes, 11:30am US Feb NY Fed Index –22.2 –25.0 Feb NAHB Housing Market Index 8 7 Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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