FTSE 100 Index Slides After S&P Downgrades U.K. Credit Outlook

By Alexis Xydias

May 21 (Bloomberg) -- U.K. stocks fell for a second day after Standard & Poor’s Ratings Services downgraded Britain’s credit outlook to “negative” and Alan Greenspan signaled the financial crisis is not over.

HSBC Holdings Plc and Royal Bank of Scotland Group Plc fell more than 2 percent after S&P said Britain’s top-level AAA debt rating is more likely to be cut as the government’s finances deteriorate. Cable & Wireless Plc, the country’s second-biggest fixed-line phone company, dropped the most since October after full-year earnings missed some analysts’ estimates.

The FTSE 100 Index dropped 86.64, or 2 percent, to 4,381.77 at 12:00 p.m. in London, as all but 9 of 102 companies on the gauge declined. The FTSE All-Share Index fell 1.9 percent and Ireland’s ISEQ Index lost 0.4 percent.

The downgrade “is just exactly what U.K. Plc really did not need,” said Manus Cranny, senior market analyst at MF Global Spreads in London. “The market is distraught as this opens the door to unpick the three-month run up of positive sentiment.”

The FTSE 100 has rebounded 25 percent since the low this year on March 3, led by banks and companies most exposed to economic growth, on expectations the worst of the global slowdown is over. The U.K.’s credit outlook was lowered from “stable” because of the nation’s increasing “debt burden,” S&P said in a statement today.

The government today sold all 5 billion-pounds ($1.6 billion) of five-year bonds it offered at an auction even after the credit downgrade.

‘Significant Downside Risks’

HSBC, Europe’s biggest bank, declined 3.9 percent to 539.75 pence. RBS, which is controlled by the British government, lost 2.8 percent to 41.2 pence.

Financials also fell after former Federal Reserve Chairman Greenspan warned U.S. lenders will need to raise “large” amounts of money and the Fed said the U.S. economy faces “significant downside risks.”

Cable & Wireless dropped 8.7 percent to 143.3 pence, poised for the biggest decline Oct. 15.

“Full-year results are lacklustre, with almost all reported geographies coming in below forecast,” for revenue and for earnings before interest, tax, depreciation and amortization, Jonathan Groocock, an analyst at Investec, said in a note to clients today. “This underperformance is continued in the outlook,” he said.

The following stocks also rose or fell in the U.K. and Ireland. Stock symbols are in parentheses:

U.K. Companies:

British Land Co. (BLND LN) slid 27 pence, or 6.5 percent, to 387. The largest office developer in London reported a record annual loss as its properties slumped in value. The net loss of 3.88 billion pounds for the 12 months ended March 31 was bigger than the 2.96 billion-pound estimate from analysts surveyed by Bloomberg.

ICAP Plc (IAP LN), the world’s largest broker of transactions between banks, lost 27.5 pence, or 6.8 percent, to 376.5. Chief Executive Officer Michael Spencer sold 15 million of the company’s shares.

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

Read more...

Stocks in Europe, Asia Retreat; British Land, Vodafone Decline

By Adam Haigh

May 21 (Bloomberg) -- Stocks in Europe and Asia retreated and U.S. index futures dropped as the Federal Reserve projected a deeper recession in the world’s largest economy and Standard & Poor’s Ratings cut the U.K.’s credit outlook.

British Land Co. declined 5.8 percent after the largest office developer in London reported a record annual loss. Mitsubishi UFJ Financial Group Inc. and Deutsche Bank AG fell as Former Fed Chairman Alan Greenspan warned U.S. lenders will need to raise “large” amounts of money. Vodafone Group Plc, the world’s biggest mobile-phone company, decreased 2.6 percent as Nomura Holdings Inc. advised selling the shares.

The MSCI World Index slid for the first time in four days, losing 0.6 percent at 12:27 p.m. in London. The gauge of 23 developed nations has climbed 38 percent since March 9 as U.S. government measures to buy illiquid assets from banks spurred speculation that the worst of the global recession is over.

“There are a lot of constraints on economic recovery.” said Bob Parker, who helps oversees $600 billion as vice chairman of Credit Suisse Asset Management in London. “For the rest of May, June, it’s highly likely that equities will trade sideways and we may even have a 5-percent-plus setback in global equity markets,” he told Bloomberg Television.

S&P lowered its outlook on the U.K.’s top-level AAA rating to “negative” from “stable” for the first time. The pound had its biggest decline in a month versus the dollar and dropped the most in two weeks against the euro.

‘Further Shocks’

Minutes from the Fed released yesterday signaled that the central bank isn’t convinced any improvements in the economy will persist. Policy makers meeting April 28-29 in Washington saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks.”

Futures on the Standard & Poor’s 500 Index slipped 0.7 percent after comments from Greenspan suggested he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview after the close of U.S. markets yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

‘Pause of Breath’

Europe’s Dow Jones Stoxx 600 Index slipped for the first time in six days, losing 1.4 percent. The regional gauge had climbed 5.5 percent in the past week, driving its price-earnings ratio to 24.2, the highest in five years.

“The economic environment remains extremely tough,” said Jeremy Batstone-Carr, an equities analyst at Charles Stanley & Co. in London. “It was inevitable that there was a pause for breath after the rally,” he told Bloomberg Television.

British Land fell 5.8 percent to 390 pence. The company posted an annual loss of 3.88 billion pounds ($6.1 billion) as its properties slumped in value. The office developer was projected to have a loss of 2.96 billion pounds, according to the median estimate of five analysts in a Bloomberg survey.

Mitsubishi UFJ, Japan’s biggest bank, dropped 1.6 percent to 609 yen. The MSCI Asia Pacific Index fell 0.7 percent, trimming the 42 percent rally from a five-year low reached on March 9. Stocks included on the gauge now trade at 43 times earnings, the most expensive since 2003.

Deutsche Bank, Germany’s largest bank, slid 1.7 percent to 46.16 euros. Commerzbank AG, the second-biggest, lost 4 percent to 5.58 euros.

Vodafone Slips

Vodafone slid 2.6 percent to 115.85 pence. The company was cut to “reduce” from “buy” at Nomura, which said “earnings momentum at the core operations remains resoundingly negative.”

U.S. stocks are at the start of a bull market that may spur an 88 percent advance in the S&P 500 in the next two or three years, Laszlo Birinyi told Bloomberg Television. The benchmark index for U.S. equities may jump to a record 1,700 as the economy rebounds from the worst recession since World War II, an increase from yesterday’s close of 903.47, said Birinyi, who spent a decade on the trading desk at Salomon Brothers Inc.

ICAP Plc slumped 7.1 percent to 375.5 pence after Chief Executive Officer Michael Spencer sold 15 million of the company’s shares, including 12.7 million owned by his IPGL Ltd. unit. Spencer sold the shares on May 19 for 390 pence apiece, ICAP said.

Investec Plc slid 5 percent to 314.75 pence in London. The South African private bank posted a 25 percent decline in annual net income and cut its dividend as the value of assets dropped, bad loans increased and customer activity declined.

Earnings Decline

Per-share profits at 316 companies in Europe’s Stoxx 600 that have reported earnings since April 7 have sunk 47 percent, Bloomberg data show. That compares with a 36 percent slide in earnings at 456 companies on the S&P 500. UBS AG estimates that profits in Europe will retreat 25 percent in 2009.

ThyssenKrupp AG, Germany’s largest steelmaker, lost 2.3 percent to 17.37 euros and Salzgitter AG, the second-biggest, fell 3.4 percent to 61.51 euros. Credit Suisse Group AG cut its recommendation on global metals and mining shares to “benchmark” from “overweight,” saying growth momentum in China is “peaking.”

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

Read more...

Goldman Sachs Upgrades Large U.S. Banks on Earnings Prospects

By Sarah Jones

May 21 (Bloomberg) -- Goldman Sachs Group Inc. upgraded large U.S. banks to “neutral,” saying strong mortgage and capital markets earnings will likely continue into the second quarter.

The brokerage also upgraded U.S. trust banks to “attractive,” saying revenue may have bottomed in the first quarter, and raised its recommendation for U.S. credit card companies to “neutral.”

Goldman Sachs reiterated its “cautious” stance on U.S. regional banks, saying the lenders are “not out of the woods yet.”

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

Read more...

U.S. Stock Futures Decline as Greenspan Warns Crisis Yet to End

By Sarah Jones

May 21 (Bloomberg) -- U.S. stock-index futures fell after Alan Greenspan said the financial crisis is not over and the U.K.’s credit outlook was downgraded at Standard & Poor’s Rating Services.

Exxon Mobil Corp., the world’s largest company by market value, and ConocoPhillips may drop as crude retreated after the Federal Reserve said the economic recovery could fail to take root in the U.S. Caterpillar Inc., Wal-Mart Stores Inc. and American Express Co. declined in German trading.

Standard & Poor’s 500 Indexfutures expiring in June lost 0.6 percent to 894.3 at 12:33 p.m. in London. Dow Jones Industrial Average futures dropped 0.5 percent and Nasdaq-100 Index futures declined 0.6 percent.

The Fed has “painted a darker picture of the U.S. outlook than had been suggested and Greenspan also popped up to suggest that banks are in a worse state,” said David Morrison, a London-based market strategist at GFT. “Stock indices are starting to look tired. The markets are struggling to hold onto gains and are failing.”

European shares declined as Standard & Poor’s downgraded its credit outlook for the U.K. to “negative” from “stable,” citing the government’s deteriorating finances brought on by the worst recession since World War II.

U.S. stocks erased gains in the final hour of trading yesterday after minutes from the Federal Reserve’s April meeting predicted a deeper recession and American Express said growth won’t return to levels from before the downturn in the economy.

‘Unfunded Capital Requirement’

Comments from Greenspan after the close of trading yesterday suggested the former Federal Reserve chairman sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests on the 19 biggest U.S. lenders.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in an interview yesterday in Washington. He also said that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”

The benchmark S&P 500 has surged 34 percent since March 9 on speculation the global recession is easing. An index of U.S. leading indicators is expected to rise in April for the first time in 10 months, economist said before the report today. Other data may show manufacturing shrank at a slower pace and jobless claims fell.

U.S. stocks are at the start of a bull market that may spur an 88 percent advance in the S&P 500 in the next two or three years, Laszlo Birinyi, the founder of Westport, Connecticut- based research and money-management firm Birinyi Associates Inc. said in a Bloomberg interview yesterday.

Exxon Retreats

Exxon and ConocoPhillips, the second-largest U.S. refiner, may retreat as crude oil dropped for the first time in four days, trading below $61 a barrel.

Caterpillar, the world’s largest maker of bulldozers and excavators, lost 0.8 percent to $37 in Germany. Wal-Mart, the biggest retailer, dropped 1 percent to $48.47. American Express, the largest U.S. credit-card issuer by purchases, retreated 1.1 percent to $23.72.

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

Read more...

David Rosenberg Says U.S. Stock Market May Retest March 9 Low

By Eric Martin and Erik Schatzker

May 21 (Bloomberg) -- The Standard & Poor’s 500 Index may fall beneath its 12-year low of March 9 because consumer spending isn’t recovering, economist David Rosenberg said.

“We have to get confirmation the March lows are going to hold,” Rosenberg, the chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto and the former chief North American economist at Bank of America Corp., said in an interview with Bloomberg Television. “The conventional view was the November lows were going to hold. As we found out in the opening weeks of March, those lows didn’t hold.”

The S&P 500 rallied as much as 24 percent from an 11-year low of 752.44 on Nov. 20 before falling beneath that level to a 12-year low of 676.53 on March 9.

Read more...

The Buckle, Data Domain, PetSmart, Tessera: U.S. Equity Preview

By Matt Townsend

May 21 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses, and prices are as of 7:41 a.m. in New York.

The Buckle Inc. (BKE US): The maker of apparel for young adults posted first-quarter earnings excluding some items of 58 cents a share, surpassing the average analyst estimate of by 16 percent, on an 18 percent jump in same-store sales.

Cephalon Inc. (CEPH US) fell 3.5 percent to $60.85. The biopharmaceutical company said it plans to raise $750 million from concurrent common stock and convertible senior subordinated notes offerings.

Citi Trends Inc. (CTRN US): The clothing retailer boosted its forecast, saying it expects to earn $1.33 a share in fiscal 2009.

Data Domain Inc. (DDUP US) jumped 34 percent to $24. NetApp Inc. (NTAP US), a provider of storage management hardware and software, agreed to acquire all of the outstanding shares of Data Domain for $25 per share in cash and stock, or about $1.5 billion.

Fifth Third Bancorp (FITB US) slid 3 percent to $7.48. The Ohio-based lender filed plans with regulators to offer $750 million of common shares.

Hot Topic Inc. (HOTT US) plummeted 11 percent to $7.76. The teen clothing and music retailer forecast a loss excluding some items of at least 2 cents a share in the second quarter. Analysts, on average, expected the company to earn 1 cent, according to a Bloomberg survey.

PetSmart Inc. (PETM US) fell 4.7 to $21.25. The largest U.S. pet-store chain was downgraded to “neutral” from “buy” by Goldman Sachs Group Inc. because “food inflation has driven” its same-store sales growth and there is now a “limited opportunity” for outperformance.

Tessera Technologies Inc. (TSRA US) jumped 25 percent to $20.75. The designer of packaging for computer chips won a U.S. trade ruling in its efforts to get new licensing revenue from Qualcomm Inc. (QCOM US) and other makers of chips for wireless devices.

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

Read more...

Stocks and Need for Risk

Daily Forex Fundamentals | Written by Black Swan Capital | May 20 09 12:38 GMT |

Currency Currents Key News Enthusiasm about an economic recovery in China may be "premature" as private investment lags behind government spending, the World Bank said. (Bloomberg) Japan's economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending. (Bloomberg) The United Arab Emirates has pulled out of the planned monetary union of five oil-rich Persian Gulf monarchies. (Bloomberg) German producer prices fell at the fastest rate in almost 22 years last month as energy costs declined and demand weakened. Australian consumer confidence dropped in May. (Bloomberg) Gold investment demand in the first quarter more than tripled from a year ago to a record level as investors piled into gold exchange-traded funds to hedge against the global economic downturn, according a report released early Wednesday by an industry group. (MarketWatch) Key Reports Due (WSJ): 7:00 a.m. Mortgage Applications Refinance Index: Previous: -11.2%. 10:30 a.m. May 22 U.S. Energy Dept Oil Inventories 2:00 p.m. Apr Federal Reserve FOMC Minutes Quotable "Doubt is not a pleasant condition, but certainty is absurd." Voltaire FX Trading - Stocks and Need for Risk I commented to a very smart and savvy friend via email yesterday: "Late move against the dollar today." His response: "Investors need/want risk." It is the type of response Luke Skywalker would have likely received from Yoda, in Star Wars. I am still pondering the deeper meaning of "investors need/want risk." But do I really need to ponder? Can't I simply see it? Absolutely! It's called the stock market. Yesterday I penned a piece to our paid up members highlighting the angst among some players in stocks who would like to see greater volume to validate this latest run. But instead of looking at this low volume move negatively, maybe I need to look at it from the need for risk side. If there is big money still on the sidelines, and stocks do break above the recent intermediate-term high, the "need for risk" could likely be palpable as fund managers will not wish to be left behind. A the moment the commodity currencies, the first responders to anything burning hot like risk appetite, have been the big beneficiaries of this risk move in the stock market - the euro - has lagged, and for seemingly good reason as risk in Europe is high. But, returning to my Yoda-like friend's comments, if investors want more risk the euro is something they will likely embrace, for it hasn't seen the love shared with the other pairs. But that love for euro will likely coincide with those still sitting on the sidelines. So, we continue to watch stocks as a clue there may soon be a wholesale move against the dollar. Jack Crooks Black Swan Capital http://www.blackswantrading.com Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

Read more...

FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | May 20 09 11:36 GMT |

USD-CHF @ 1.1064/67...Likely to test 1.0980 R: 1.1102-26 / 1.1156-84 / 1.1220 S: 1.0981 / 1.0923-09 / 1.0800-0750 Dollar-Swiss has dropped recently and looks likely to test the Support at 1.0980 during the US session which is likely to provide a good opportunity to go Long with a strict Stop. But if a comprehensive break below this Support is seen, it would open gates for a fall towards 1.0800-1.0750 over the next few days. We reiterate our medium term view on Dollar-Swiss. Till the Support at 1.0980 holds, and till Gold continues to be ranged between 910-935 with Support near 890-900, we might see some pullback on Dollar-Swiss towards 1.14 over the next few weeks/ months. To see the chart of Gold, click on: http://www.kshitij.com/graphgallery/goldcandle.shtml#candle and Dollar-Swiss, click on: http://www.kshitij.com/graphgallery/chfcandle.shtml#candle Limit Buy Order: Buy USD 10K at 1.1010, SL 1.0960, TP Open Cable GBP-USD @ 1.5480/84...200-DMA Resistance holds R: 1.5554 / 1.5640 / 1.5806 S: 1.5426 / 1.5346 Cable continues to inch closer to the 200-DMA at 1.5554 as the pair has slipped a bit after touching a high of 1.5537. The crude impact on the pair continues to be visible as the relationship gains strength. A rise past the 200-DMA would be seen to coincide with an expected rise past the Resistance on Crude at 61, which is then likely to turn very bullish both for Crude and Cable. A rise past this might make a substantial case for the Cable to rise further towards 1.6050 over the next few weeks/ couple of months. To see the chart of Cable and the trendline Resistance, click on: http://www.kshitij.com/graphgallery/gbpcandle.shtml#candle Aussie AUD-USD @ 0.7719/21...May dip towards 0.7620 R: 0.7735 / 0.7824 / 0.7885 S: 0.7696 / 0.7618 / 0.7567 The pair has not risen beyond the US session high of 0.7788 nor has it dipped towards 0.76 as anticipated. It could possibly slip towards 0.7620-30 during the US session today and find Support of the 100-MA on the hourly chart which has not been breached too often over the last one month. Such a happening would provide a opportunity to go Long on Aussie. Hence we continue with our Limit Buy Order with slight modifications. Limit Buy Order: Buy AUD 10K at 0.7630, SL 0.7600, TP Open Kshitij Consultancy Service http://www.fxthoughts.com Legal disclaimer and risk disclosure 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 responsibly 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.

Read more...

Currency Technical Report

Daily Forex Technicals | Written by FX Greece | May 20 09 11:22 GMT |

EUR/USD Resistance: 1,3590/ 1,3615/ 1,3650-60/ 1,3700/ 1,3720-30 Support :1,3570/ 1,3530-40 /1,3515-20/ 1,3470-80/ 1,3420-30/ 1,3390/ 1,3350/ 1,3320 Comment: Negative news from US are good for the dollar. Yesterday's rise was limited at the second resistance level, we had set, at 1,3660-70. The retracement from these levels is still in tight ranges. Intraday support is found at 1,3580 and 1,3530-40, which is the most important. A move below the second, bring the area of 1,3400-20 back in to focus and negative scenarios towards lower levels. If these support levels are confirmed and we see a move towards yesterdays tops, the area of 1,3800-30 will be a possible target. Resistance at 1,3660-70 and 1,3720-30 should be breached in order to confirm this scenario… STRATEGY Small buy orders could be tried at 1,3530-40, with stops below 1,3500 and target at 1,3600. Alternatively, we could move within the Bollinger Bands in the hourly chart , with stops 40 pips above or below and targets accordingly. A possible upward break of 1,3670 will be followed with buy orders and target at 1,3720-30or even 1,3800-30. The above mentioned strategy refers to orders that we may follow for personal accounts, depending on the market analysis and the potential reach of resistance and support levels. We do not encourage but or sell orders, as its effective use is based on correct risk management and the ability of position readjustment depending on current condition FX Greece DISCLAIMER The details and information included in the above analysis, are part of research based exclusively on currency charts and are of purely instructional and educational nature. None of the information featuring in the analysis can be considered as an invitation for opening positions in FOREX market or in the market of forward contracts or any securities listed on an organized or unorganized market. We assume no responsibility for any kind of losses ,profits or property loss resulting, in whole or in part, from acts that are based either directly or indirectly on the processing or the use of information, details and strategies, the reader may find in the analysis. The readers hold full responsibility for the use and the results of their actions. The recipients of the analysis must acknowledge and accept that investment choices of any kind, especially concerning the FOREX market, contain risks (high, low and occasionally zero) of reduction or even loss of their investment. Therefore, they should always be cautious prior to any kind of action. We reserve the right to change the terms and the characteristics of the analysis. The contents of the analysis are solely intended for personal use. They may not be retransmitted, reproduced, distributed, published, adapted, modified or assigned to third parties in any way whatsoever. Anyone having access to them is required to comply with the law provisions on the protection of third party intellectual property rights.

Read more...

Spain Contracts More Than Estimated, Spending Slumps

By Emma Ross-Thomas

May 20 (Bloomberg) -- Spain’s economy shrank more than initially estimated in the first quarter as consumer spending extended its slump and unemployment soared toward 20 percent.

Gross domestic product contracted 1.9 percent from the previous quarter, when it shrank 1 percent, the National Statistics Institute in Madrid said today. From the previous year, the economy shrank 3 percent, the most since at least 1970. In an initial report on May 14, the institute estimated GDP fell 1.8 percent on the quarter and 2.9 percent on the year.

Spain, whose construction boom made it a motor of job creation in Europe, now has 4 million people out of work, accounting for almost 70 percent of the annual increase in euro- area unemployment over the last year. About a million new homes remain unsold and the European Commission expects Spain to continue to contract next year even after other economies in the region start to recover.

“Three percent is not going to be the floor,” said Jose Luis Martinez, strategist at Citigroup Inc in Madrid. “Unemployment is going to keep rising, we’re looking at a range of 20 to 22 percent in the next 12 months.”

Household spending fell 4.1 percent from a year earlier, almost double the decline in the previous quarter. Investment fell 13.1 percent, with investment in capital goods falling 18.6 percent from a year earlier, the report showed. The decline in capital goods was particularly bad news and it was difficult to say when it will ease, Martinez said.

Second-Quarter Prediction

Deputy Finance Minister Jose Manuel Campa said some indicators suggested the second quarter would not be as weak as the first. He cited unemployment data showing the rate of increase had slowed, as well as interest rates, credit conditions and stock markets. Still, he also told reporters in Madrid today that it was too early to predict when Spain would return to growth rates of 1.5 percent to 2 percent.

Burberry Group Plc, Britain’s largest luxury-goods company, said yesterday it wrote off the value of its business in Spain and cut jobs in the country, where retail sales have been falling for more than a year. Kesa Electricals Plc has said that its Spanish outlets had “extremely weak” results in the four months through April.

Spain’s unemployment rate rose to 17.4 percent in the first quarter, double the European Union average, government data show.

Rising Joblessness

Joblessness will reach 20.5 percent in 2010 after the economy contracts 3.2 percent this year, the commission has forecast. More than a million Spanish households have no one in work, and a million unemployed people no longer receive government benefits, according to government data.

As the economy slumps, bad loans have more than tripled, according to the central bank. The collapse of the debt-fueled building boom and the squeeze on credit pushed 475 construction and real-estate companies into bankruptcy proceedings in the first quarter.

The crisis is taking a political toll on Prime Minister Jose Luis Rodriguez Zapatero, who was re-elected last year after pledges of full employment. A poll of 2,500 people by the state- run Sociological Research Center in April showed the prime minister’s Socialist Party would have won 40.8 percent of the vote if elections were held then, against 40 percent for the opposition People’s Party. In last year’s election, the Socialists won 43.9 percent of the vote, against the People’s Party’s 39.9 percent.

Zapatero proposed new incentives last week to encourage people to buy homes and cars, on top of measures already announced that the government says amount to 2.3 percent of GDP, more than any other country in Europe. Extra spending and rising unemployment will swell the budget deficit to 8.3 percent of output this year, according to the Bank of Spain, almost three times the EU limit.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Read more...

Canada’s Deepest Recession Since 1930s May Also Be Shortest

By Theophilos Argitis and Alexandre Tanzi

May 20 (Bloomberg) -- Canada’s recession, likely its deepest since the Great Depression, may also be its shortest.

Rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end. Eight of 11 economists surveyed by Bloomberg this month predict the economy will return to growth next quarter.

“It doesn’t feel quite like it’s over yet, but people are breathing a little bit better,” said Russ Girling, president of pipelines at TransCanada Corp., the country’s biggest pipeline company, which recorded a 12 percent rise in revenue in the first quarter.

All but one of the country’s five post-World War II major recessions have lasted at least one year, with the shortest in 1957 at nine months, according to Philip Cross, who tracks the country’s business cycles for Statistics Canada.

Canada’s economy contracted at a 3.4 percent pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3 percent rate, the Bank of Canada estimates.

The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. Statistics Canada, which defines a major recession as a slump where both employment and output post annual declines, has yet to date the start of Canada’s recession, Cross said. The Bank of Canada has said the country entered into a recession in the fourth quarter of last year.

No Bailouts

While Canada has suffered from falling U.S. demand for exports, the country’s banks have largely avoided credit losses. No government money has been given to any of Canada’s 21 banks since global credit seized up in August 2007. The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program.

Canada’s housing market has also held up better than in the U.S., where prices declined 18.6 percent in February from a year earlier, according to the S&P/Case-Shiller index of 20 major cities. Average resale home prices in Canada dropped at less than half that pace during the same period, according to the Canadian Real Estate Association.

“We may not be in a recovery, but I think we might be in a position where it’s not getting worse, where it’s truly plateauing,” Prime Minister Stephen Harper said in a May 8 interview, adding he’d like another “month or two” of data before coming to that conclusion.

Canada’s benchmark Standard & Poor’s/TSX Composite Index has posted a 50 percent gain in U.S. dollars since its low on March 9, compared with the 34 percent gain for the Standard & Poor’s 500 Index over the same period.

Recession

Economists surveyed by Bloomberg earlier this month said they expect Canadian growth to rebound at an annual pace of 0.5 percent in the third quarter and by 2 percent in the fourth quarter.

“In February, the rapid decline in demand had come to an end and by April, the rapid declines in employment had come to an end,” Cross said. “Was that a temporary end or not? We don’t know.”

While Canada’s jobless rate is at a seven-year high of 8 percent, the economy in April created new jobs for the first time in six months and sales of existing homes rose the most in more than five years. Credit markets are also improving. The Bank of Canada’s composite index of financial market conditions is at its strongest since September.

Improved credit markets have allowed companies like Enbridge Inc., the biggest transporter of oil to the U.S. from Canada’s oil sands, to move ahead with the new debt sales to finance operations. Enbridge sold C$400 million of bonds last week.

‘Cross Our Fingers’

“Our approach is to watch for windows when we think there are opportunities to raise capital funds,” said Richard Bird, Enbridge’s chief financial officer. “This is a window and let’s cross our fingers and hope that it’s a trend.”

A quick end to the recession would raise pressure on the Bank of Canada, led by Governor Mark Carney, to say it no longer plans to keep its benchmark lending rate near zero through June 2010. The country’s central bank projected last month the economy will contract four consecutive quarters, bringing it closer to the average length of the last five major recessions.

“The Bank of Canada will have to revisit their own view of what they will do with interest rates,” said Paul-Andre Pinsonnault, an economist at National Bank Financial. “GDP will be stronger than what they are looking for.”

A quick end to the recession doesn’t guarantee a strong rebound. DBRS Ltd., a rating company, predicts an L-shaped recovery for Canada, which it defines as “a prolonged period of flat or slowly improving performance.”

“The earliest I can see an improvement is in October or November,” said Jacques Plante, chief financial officer of Hart Stores Inc., a discount retailer. “I can’t imagine we’ll have anything positive this summer.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

Read more...

Canada’s Deepest Recession Since 1930s May Also Be Shortest

By Theophilos Argitis and Alexandre Tanzi

May 20 (Bloomberg) -- Canada’s recession, likely its deepest since the Great Depression, may also be its shortest.

Rising home and car sales, unexpected gains in building permits and employment, easing credit conditions and higher commodity prices signal Canada’s slump may be nearing an end. Eight of 11 economists surveyed by Bloomberg this month predict the economy will return to growth next quarter.

“It doesn’t feel quite like it’s over yet, but people are breathing a little bit better,” said Russ Girling, president of pipelines at TransCanada Corp., the country’s biggest pipeline company, which recorded a 12 percent rise in revenue in the first quarter.

All but one of the country’s five post-World War II major recessions have lasted at least one year, with the shortest in 1957 at nine months, according to Philip Cross, who tracks the country’s business cycles for Statistics Canada.

Canada’s economy contracted at a 3.4 percent pace in the last quarter of 2008 and growth in the first quarter may shrink at a 7.3 percent rate, the Bank of Canada estimates.

The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. Statistics Canada, which defines a major recession as a slump where both employment and output post annual declines, has yet to date the start of Canada’s recession, Cross said. The Bank of Canada has said the country entered into a recession in the fourth quarter of last year.

No Bailouts

While Canada has suffered from falling U.S. demand for exports, the country’s banks have largely avoided credit losses. No government money has been given to any of Canada’s 21 banks since global credit seized up in August 2007. The U.S. government oversees about $200 billion in investments in banks through the taxpayer-funded Troubled Asset Relief Program.

Canada’s housing market has also held up better than in the U.S., where prices declined 18.6 percent in February from a year earlier, according to the S&P/Case-Shiller index of 20 major cities. Average resale home prices in Canada dropped at less than half that pace during the same period, according to the Canadian Real Estate Association.

“We may not be in a recovery, but I think we might be in a position where it’s not getting worse, where it’s truly plateauing,” Prime Minister Stephen Harper said in a May 8 interview, adding he’d like another “month or two” of data before coming to that conclusion.

Canada’s benchmark Standard & Poor’s/TSX Composite Index has posted a 50 percent gain in U.S. dollars since its low on March 9, compared with the 34 percent gain for the Standard & Poor’s 500 Index over the same period.

Recession

Economists surveyed by Bloomberg earlier this month said they expect Canadian growth to rebound at an annual pace of 0.5 percent in the third quarter and by 2 percent in the fourth quarter.

“In February, the rapid decline in demand had come to an end and by April, the rapid declines in employment had come to an end,” Cross said. “Was that a temporary end or not? We don’t know.”

While Canada’s jobless rate is at a seven-year high of 8 percent, the economy in April created new jobs for the first time in six months and sales of existing homes rose the most in more than five years. Credit markets are also improving. The Bank of Canada’s composite index of financial market conditions is at its strongest since September.

Improved credit markets have allowed companies like Enbridge Inc., the biggest transporter of oil to the U.S. from Canada’s oil sands, to move ahead with the new debt sales to finance operations. Enbridge sold C$400 million of bonds last week.

‘Cross Our Fingers’

“Our approach is to watch for windows when we think there are opportunities to raise capital funds,” said Richard Bird, Enbridge’s chief financial officer. “This is a window and let’s cross our fingers and hope that it’s a trend.”

A quick end to the recession would raise pressure on the Bank of Canada, led by Governor Mark Carney, to say it no longer plans to keep its benchmark lending rate near zero through June 2010. The country’s central bank projected last month the economy will contract four consecutive quarters, bringing it closer to the average length of the last five major recessions.

“The Bank of Canada will have to revisit their own view of what they will do with interest rates,” said Paul-Andre Pinsonnault, an economist at National Bank Financial. “GDP will be stronger than what they are looking for.”

A quick end to the recession doesn’t guarantee a strong rebound. DBRS Ltd., a rating company, predicts an L-shaped recovery for Canada, which it defines as “a prolonged period of flat or slowly improving performance.”

“The earliest I can see an improvement is in October or November,” said Jacques Plante, chief financial officer of Hart Stores Inc., a discount retailer. “I can’t imagine we’ll have anything positive this summer.”

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net; Alex Tanzi in Washington at atanzi@bloomberg.net

Read more...

BOE Votes 9-0 to Boost Bond Plan, Keep Rate at 0.5%

By Jennifer Ryan

May 20 (Bloomberg) -- Bank of England policy makers voted unanimously this month to extend their money-printing plan by 50 billion pounds ($78 billion) after initially debating whether to increase the program by more to fight the recession.

“For some members, a case could be made for a larger stimulus,” according to minutes of the bank’s May 7 decision published today in London. “But as the precise amount that would ultimately be required was so uncertain, there was no pressing need for the larger extension at this meeting.”

Governor Mervyn King said last week that the British economy may face a “slow and protracted recovery” from the nation’s worst recession in a generation. Inflation slowed more than economists forecast in April to the weakest level in 15 months, raising the prospect that deflation may take hold.

“There was a persistent degree of slack forecast for the economy, and a high probability that inflation, in the absence of a further monetary stimulus, could significantly undershoot the 2 percent target in the medium term,” the Monetary Policy Committee’s minutes said.

The pound was little changed after the decision, trading at $1.5517 at 10:05 a.m. in London today.

The nine-member panel has now committed to spending 125 billion pounds of newly-printed money on government bonds and corporate debt. Prime Minister Gordon Brown’s government has authorized the bank to spend a maximum of 150 billion pounds, and policy makers said they would ask King to seek permission for an extension “should economic conditions require it.”

Heart of the Matter

“They are almost certainly going to use up the final 25 billion pounds and they’ve opened up the possibility of moving even higher,” said Nick Kounis, an economist at Fortis in Amsterdam and a former U.K. Treasury official. “A recovery doesn’t necessarily mean that inflation will be where you want it. That’s the heart of the matter when they consider how aggressively they should step up quantitative easing.”

The panel discussed an extension of either 50 billion pounds or 75 billion pounds this month, the minutes showed. They agreed that the risks of giving the economy too little stimulus “seemed greater than the risks of stimulating it too much.”

If inflation accelerates faster than policy makers expect, they could remove stimulus by raising interest rates or selling assets, the minutes said.

“The committee was alert to such risks and would take effective action should they crystallize,” the minutes said.

The central banks’ new quarterly economic forecasts show growth resuming next year while inflation slows as low as 0.4 percent this year. The central bank predicted that inflation won’t reach the 2 percent goal by 2012, though the bank raised its forecast to 1.5 percent by the end of 2010, up from a February projection of 0.6 percent.

The U.K. economy contracted 1.9 percent in the first quarter, the most since 1979. Annual consumer price growth slowed to 2.3 percent in April as households’ energy bill fell and food costs dropped, the Office for National Statistics said yesterday in London.

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



Read more...

U.S. May Strip SEC of Powers in Regulatory Overhaul

By Robert Schmidt and Jesse Westbrook

May 20 (Bloomberg) -- The Obama administration may call for stripping the Securities and Exchange Commission of some of its powers under a regulatory reorganization that could be unveiled as soon as next week, people familiar with the matter said.

The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said.

The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders.

“It would be a terrible mistake,” said Stanley Sporkin, a former federal judge and enforcement chief at the SEC. “Whatever the SEC has done or didn’t do, it is still the premier investor protection agency around.”

Schapiro Determination

SEC Chairman Mary Schapiro’s agency has been mostly absent from negotiations within the administration on the regulatory overhaul, and she has expressed frustration about not being consulted, according to people who have spoken with her. She has pledged to fight any attempt to diminish the SEC, they said.

Treasury Secretary Timothy Geithner was set to discuss proposals to change financial regulations at a dinner last night with National Economic Council Director Lawrence Summers, former Fed Chairman Paul Volcker, ex-SEC Chairman Arthur Levitt and Elizabeth Warren, the Harvard University law professor who heads the congressional watchdog group for the $700 billion Troubled Asset Relief Program.

Levitt, in an interview today with Bloomberg Television, said it’s unlikely the SEC will ultimately be stripped of its responsibilities.

“I don’t think it’s a great idea nor do I necessarily think it’s going to happen,” Levitt said. The SEC “is a pretty powerful unit and to substitute that for a new bureaucracy is a mistake. I don’t think policy makers are likely to go down that path.”

More Resources

Levitt added that the SEC needs stronger resources to make up for “nearly 15 years of deregulatory efforts.”

Geithner and Summers are leading the administration’s effort to redraw the lines of authority for policing the financial system.

“We’re going to have to bring about a lot of changes to the basic framework of oversight, so there’s better enforcement,” Geithner, said May 18 at the National Press Club in Washington. “That’s going to require simplifying, consolidating this enormously complicated, segmented structure.”

Geithner may be asked about his plans for a regulatory revamp at a Senate Banking Committee hearing on financial-rescue efforts in Washington today.

“The Administration has been holding series of meetings with various parts of the government -- including regulators -- as it crafts its proposal for regulatory reform,” Treasury spokesman Andrew Williams said. “No decisions have been made but” the administration “is seeking views as it puts together its framework.”

The SEC didn’t immediately respond to a request for comment.

Frank Hearings

President Barack Obama has said he wants to sign legislation on regulatory changes by year-end. House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is planning hearings with the aim of drafting a bill by the end of June.

The SEC’s job is to regulate stock markets, police securities sales and make sure public companies make adequate disclosures to investors about their finances. The commission has five members, with the chairman and two commissioners typically from the president’s political party and the other two from the party not in the White House.

Schapiro was appointed by Obama to replace Christopher Cox, who was named by President George W. Bush.

Cox Legacy

Under Cox, the SEC ceded some of its authority to the Fed after the central bank responded to Bear Stearns Cos.’ near collapse last year by inserting its own examiners into Wall Street securities firms.

Former Treasury Secretary Henry Paulson, Geithner’s predecessor, urged Congress in a March 2008 “blueprint” for overhauling financial rules to give the Fed broader powers to oversee risk in the system.

Opponents of giving the Fed more authority, such as former SEC chief Levitt, have said the central bank’s focus on keeping the financial system solvent may trump efforts to punish companies for violating securities laws. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.

The SEC’s reputation took a hit last week when U.S. Senator Charles Grassley, an Iowa Republican, released a report saying two of its enforcement attorneys face an insider-trading investigation by the Federal Bureau of Investigation.

Trades Questioned

The report, written by the SEC inspector general’s office, faulted the SEC for inadequately monitoring trades by the employees and said one of them sold shares in companies after co-workers opened probes into the firms. Both employees, who are enforcement attorneys in the SEC division that investigates securities fraud, denied any wrongdoing.

While the agency has been battered recently, it still has powerful supporters, including a number of Democrats on the Senate Banking Committee who aren’t likely to support having an agency they oversee cut back.

In addition, public pension funds that hold $872 billion of assets urged lawmakers this month to protect the SEC’s turf in any legislation overhauling financial regulation.

The California Public Employees’ Retirement System, the New York retirement fund and 12 other pension funds wrote letters to Frank and Senate Banking Committee Chairman Christopher Dodd, arguing that the SEC “must maintain robust regulatory and enforcement authority” over securities trading, brokers, money managers, corporate disclosures and accounting rules.

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.



Read more...

Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

Read more...

Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

By Jason Clenfield

May 20 (Bloomberg) -- Japan’s economy shrank by a record last quarter as exports collapsed and consumers and businesses slashed spending, a decline that probably marked the low point in the country’s worst recession since World War II.

Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955.

Exports plunged an unprecedented 26 percent last quarter, forcing companies from Toyota Motor Corp. to Hitachi Ltd. to cut production, workers and wages. Stocks have gained 32 percent since reaching a 26-year low in March on speculation worldwide interest-rate reductions and spending by governments will halt the slide in the world’s second-largest economy.

“There was a collapse across the board,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Still, he added, there’s “light at the end of the tunnel” and the economy will resume growing this quarter as companies replenish inventories and stimulus plans at home and abroad take effect.

The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16 before the report was published. The Nikkei 225 Stock Average rose 0.3 percent. Economists surveyed predicted the economy would shrink 16.1 percent.

Worse Than U.S.

GDP fell 4 percent on a non-annualized basis, more than double the U.S.’s 1.6 percent slide. It’s also worse than Europe’s record 2.5 percent contraction. Without adjusting for price changes, Japan shrank 2.9 percent last quarter.

Weaker domestic demand was the biggest contributor to the decline, shaving 2.6 percentage points off GDP, the most since 1974. Net exports -- the difference between exports and imports -- was responsible for 1.4 percentage points of the drop.

Consumer spending slid 1.1 percent and business investment plunged a record 10.4 percent. Economists say companies will keep cutting spending because the decline in demand has left factories and workers underused.

“There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.”

Hitachi, a maker of nuclear reactors, home appliances and hard-disk drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal year to minimize losses after a record 787.3 billion yen deficit last year. The Tokyo-based company said in January it plans to cut 7,000 jobs.

May Grow

Still, reports in the past month suggest the world’s second-largest economy may grow for the first time in a year this quarter, albeit from a low point, as exports stabilize and Prime Minister Taro Aso’s 15.4 trillion yen stimulus plan, announced in April, takes effect.

Consumer confidence climbed to a 10-month high in April. Exports increased in March from a month earlier, and factory output rose for the first time since September.

“Japan, first of all, will get a big boost from fiscal stimulus,” Thomas Byrne, senior vice president of Moody’s Investors Service, said in an interview in Tokyo. “Second, if the global economy picks up a little bit, that will help tremendously in Japan because of its dependence on exports.”

Byrne said Moody’s is unlikely to cut Japan’s debt rating over the next year because investors are willing to buy bonds that will fund the stimulus plans. Moody’s unified Japan’s ratings at Aa2 this week, raising the local-currency assessment from Aa3 and lowering the foreign-currency view from Aaa.

Replenishing Inventories

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after today’s report.

Falling inventories accounted for 0.3 percentage point, or about a tenth, of last quarter’s contraction. Companies including Honda Motor Corp. have cut stockpiles at a quicker rate than sales have declined, giving them room to boost output.

Honda plans to increase production in Japan this quarter as dealerships clear inventories, the Wall Street Journal reported last week. Auto sales in Japan and the U.S. may have “bottomed,” Fuji Heavy Industries Ltd. President Ikuo Mori said in Tokyo today. Fuji Heavy makes Subaru-brand cars.

Still, the failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery. Toyota, Hitachi, and Panasonic Corp. all forecast continued losses in the current business year. Panasonic said last week it plans to close about 20 factories this year and proceed with the 15,000 job cuts announced in February.

“We basically bottomed out,” said Jesper Koll, chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. Even so, “on the consumer spending side you’ve got a very clear negative from the severe labor market adjustment.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

Read more...

Euro May Fall to 3-Month Low Against Pound: Technical Analysis

By Ron Harui

May 20 (Bloomberg) -- The euro may fall to three-month low against the British pound should the currency drop below so- called support between 87.65 pence and 87.85 pence, Citigroup Inc. said, citing trading patterns.

Support at 87.85 pence represents an ascending trend line that connects the lows of Feb. 10 and May 7, while the 87.65 pence level is the May 7 low, based on Citigroup’s chart. Support is where buy orders may be clustered.

The euro-pound is “now testing a strong support between 87.65 and 87.85, which has been sticky in the past,” New York- based Tom Fitzpatrick and London-based Shyam Devani, wrote in a research note yesterday. “A break below here would open up for a test of the much more significant support in the 86.35-86.75 area.”

Europe’s single currency dropped to 87.84 pence as of 7:35 a.m. in London from 88.08 pence in New York yesterday when it reached 87.65 pence, the lowest level since May 7. The 86.75 pence level was last traded on Feb. 10.

Support at 86.75 pence is a horizontal trend line that connects the Nov. 13 high and the Feb. 6 low, while the 86.35 pence level is the Feb. 10 low, based on Citigroup’s chart. The Nov. 13 high is a previous level of resistance. When so-called resistance is breached, that level becomes support. Resistance is where sell orders may be clustered.

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

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.

Read more...

Pound Holds Near Highest Level This Year as Stocks, Oil Advance

By Gavin Finch

May 20 (Bloomberg) -- The pound traded near the highest level this year against the dollar as oil traded above $60 a barrel and U.S. stock-index futures gained on speculation the worst of the global recession is over.

The pound advanced earlier after an industry report showed U.K. manufacturers were the least pessimistic on the outlook for production in eight months in May. The MSCI World Index of stocks climbed for a third day after Bank of America Corp. raised about $13.5 billion in a stock sale, indicating the U.S. financial industry may be stabilizing.

“Sterling is benefiting from the return of risk appetite which has seen stocks outperform,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “A lot of bad news has already been priced into the pound, making it one of the most undervalued currencies.”

The pound advanced as much as 0.4 percent to $1.5536, the strongest since Dec. 18, and was at $1.5490 by 12:22 p.m. in London. It declined 0.1 percent to 88.15 pence per euro.

The pound pared gains and two-year gilts reversed declines after the minutes of the Bank of England’s last rate-setting meeting showed policy makers voted unanimously to extend their money-printing plan to 125 billion pounds ($193 billion). They discussed increasing the program to 150 billion pounds.

An index of expectations for U.K. output in the next quarter rose to minus 17 in May, the highest since September, from minus 32 in April, the Confederation of British Industry said today. An index of factories’ order books was at minus 56 after minus 57 in April.

Record Sale

The yield on the two-year gilt fell two basis points to 0.99 percent. Five-year gilt yields rose four basis points to 2.50 percent before a record 5 billion pound sale of the securities tomorrow. Bond yields move inversely to prices.

Tomorrow’s debt sale is part of a plan to auction 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The Debt Management Office didn’t find enough buyers at a sale of gilts on March 25, the first so-called failed auction since 2002.

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

Read more...