Dividends to Fall Fastest Since 1999 in Europe, Futures Show

By Gareth Gore and Adam Haigh

June 4 (Bloomberg) -- European companies will reduce dividends over the next 18 months at the fastest rate since at least 1999, even as analysts increase earnings forecasts, trading in futures shows.

Dow Jones Euro Stoxx 50 Index Dividend Futures that allow investors to speculate on payouts show companies will lower their dividends by 28 percent this year compared with 2008. In 2010, cuts will amount to 32 percent, according to data compiled by the Eurex exchange and Bloomberg.

Companies from London-based Anglo American Plc to PSA Peugeot Citroen in Paris reduced payouts to investors this year, conserving cash during the first global recession since World War II. Now, futures prices suggest damage from the slump is so widespread that dividend cuts will deepen even as analysts estimate earnings will rise 10 percent this year and 22 percent in 2010.

“There are still a lot of overstretched companies out there who see cutting the dividend as an easy way to reduce leverage,” said Bob Parker, who helps oversees $600 billion as vice chairman of Credit Suisse Asset Management in London. “Dividends are being cut notably, and we’re going to see more of that as companies do all they can to improve cash flow.”

The 2009 contract for Euro Stoxx 50 Index Dividend Futures closed yesterday at 113 points, 28 percent lower than last year’s 157.7. A declining price means traders anticipate lower dividends.

The Euro Stoxx 50 is up 1.5 percent for the year after rallying 37 percent from a 12-year low on March 9. The index is still down 46 percent from a six-year high in July 2007.

Anglo American, Peugeot

The 2010 dividend contract traded at 77.4, implying a 32 percent slide in payouts next year. Dividends almost doubled from 83.3 to 157.7 from 2004 to 2008, the data show.

Anglo American, the company that controls the world’s largest platinum producer, suspended its dividends in February for the first time since World War II. Peugeot’s proposal for no dividend to be paid on 2008 earnings was approved June 3 by shareholders at the annual shareholder meeting for Europe’s second-largest carmaker in Paris.

In the U.S., stock dividends are shrinking at the fastest rate since at least 1955, according to data compiled by Howard Silverblatt, a New York-based analyst at Standard & Poor’s.

New York Times, GE

New York Times Co. said in February it would stop paying a dividend for the first time in its 40-year history as a public company. Fairfield, Connecticut-based General Electric Co. in the same month cut its dividend for the first time since 1938 to preserve cash.

Profits at companies in the S&P 500 have slipped for seven consecutive quarters. Earnings for companies in Europe’s Dow Jones Stoxx 600 Index slid 47 percent last quarter, data compiled by Bloomberg show.

Kevin Shacknofsky says that so-called income shares that depend on dividend payments of industrial companies instead of growth may suffer. “Two thousand nine will likely be a weak year and that’s going to be reflected in the dividends for 2010,” Shacknofsky said. The $1.5 billion Alpine Total Dynamic Dividend Fund has added 42 percent in 2009, compared with an average 14 advance for its rivals, Bloomberg data show.

Lower dividends may increase investor concern that stocks have gotten too expensive amid signs the worst of the global recession may be over. Europe’s Dow Jones Stoxx 600 Index on June 2 was valued at 25.5 times the earnings of its companies, the highest level since 2004, data compiled by Bloomberg show.

Higher Forecasts

Analysts have boosted their forecasts for European earnings since the start of the year, with Stoxx 600 companies now projected to post a 10 percent increase in profit for 2009, compared with estimates at the end of December for a 0.7 percent drop, data compiled by Bloomberg show. For 2010, forecasts have increased to 22 percent earnings growth from 15 percent at the end of March, when the estimates were first compiled.

“If we went into a long-term low growth scenario I don’t think we could take dividends for granted,” said Nick McLeod- Clarke, who runs the London-based U.K. Income Fund for BlackRock Inc., which oversees $1.28 trillion. “We are seeing some encouraging signs in some leading indicators. The question that we don’t know is whether the growth can be sustained.”

To contact the reporters on this story: Gareth Gore in Madrid ggore1@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net.

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Asian Stocks Decline on U.S. Services, Jobs Reports; BHP Drops

By Shani Raja

June 4 (Bloomberg) -- Asian stocks dropped for the first time in five days, led by consumer and mining companies, after U.S. reports showed the service sector improved less than expected and more workers lost jobs.

Panasonic Corp., which gets 13 percent of its revenue in the Americas, sank 1.8 percent in Tokyo. Canon Inc., the world’s biggest camera maker, lost 0.6 percent. BHP Billiton Ltd., the world’s largest mining company, slumped 4.2 percent after oil fell the most in two weeks.

The MSCI Asia Pacific Index fell 0.7 percent to 104 as of 10:04 a.m. in Tokyo, ending a four-day, 4.6 percent advance. It had rallied 48 percent through yesterday from a five-year low on March 9 on optimism the worst of the financial crisis had passed.

“After the recent rallies, people will see this as a good day to take some profits,” said Ben Potter, a Melbourne-based analyst at IG Markets in Melbourne. “Investors still aren’t completely sure if the worst is over.”

Japan’s Nikkei 225 Stock Average fell 0.3 percent, while Australia’s S&P/ASX 200 Index sank 1.6 percent. New Zealand’s NZX 50 Index lost 0.5 percent.

In New York, the Standard & Poor’s 500 Index fell 1.4 percent, retreating from a seven-month high. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the world’s biggest economy, climbed to 44 from 43.7 in April. Economists predicted the index would rise to 45. A separate report showed U.S. companies cut 532,000 workers from payrolls.

“There’s concern shares have gotten too rich, and the service report gave U.S. investors an excuse to take profit,” said Mitsushige Akino, who oversees about $632 million at Ichiyoshi Investment Management Co. in Tokyo.

The rally since March drove the average valuation of companies on MSCI’s Asian index to 1.4 times the book value of assets on May 29, an increase of 17 percent from the end of 2008.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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Japan Financial Shares Gain on Fitch Comments; Shipper Slump

By Jason Clenfield and Toshiro Hasegawa

June 4 (Bloomberg) -- Japanese financial shares climbed after Fitch Ratings affirmed debt ratings on the U.S. and U.K., easing concern borrowing costs will increase. Electronics makers fell on reports the U.S. service sector and job market worsened.

Nomura Holdings Inc., Japan’s top brokerage, jumped 4.2 percent. T&D Holdings Inc., the nation’s largest listed insurer, surged 6.9 percent after UBS AG rated it a “buy.” Panasonic Corp., the world’s No. 1 maker of plasma televisions, dropped 1.5 percent, while Canon Inc. slipped 1 percent.

The Nikkei 225 Stock Average fell 25.62, or 0.3 percent, to 9,716.05 at the 11 a.m. lunch break in Tokyo, set to break a six-day winning streak. The broader Topix index reversed losses, adding 0.66, or 0.1 percent, to 915.16, with almost two shares rising for every two that declined.

“If you can allay concern that the U.S. debt-rating will be downgraded, that’ll help invite investors back into the market,” said Naoki Fujiwara, who oversees about $6.1 billion at Shinkin Asset Management Co. in Tokyo. “Long-term U.S. interest rates impact the cost of raising money domestically, so there’s some relief about the outlook for borrowing costs for banks and insurance companies.”

The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the U.S. economy, climbed less than forecast to 44 from 43.7 in April. Economists predicted the index would rise to 45. A separate report showed U.S. companies cut 532,000 workers from payrolls.

Fitch Ratings

Japanese corporations cut spending for an eighth-straight quarter as a slump in global demand eroded profits, leaving less money for plant and equipment, the Ministry of Finance said today. Profits tumbled 69 percent.

Japanese shares pared losses and the yen weakened after David Riley, Fitch’s head of sovereign ratings, said at a conference in Sydney that the ratings agency has confidence in the ability and track record of the U.S. and U.K. “to do the right thing.”

“The fact that they’re committed to the AAA rating will help keep interest rates low,” said Masayoshi Yano, a senior market analyst at Meiwa Securities Co. in Tokyo. “And because that’s a positive for the housing market, it’s helped relieve concern that share prices have risen too high,” Yano said.

Nomura jumped 4.2 percent to 770 yen, reversing a drop of 0.8 percent. Mitsubishi UFJ Financial Group Inc. also bounced back from losses, adding 1.6 percent to 624 yen.

Insurers Jump

T&D surged 6.5 percent to 2,790 yen after UBS initiated coverage of the insurer with a “buy” recommendation and gave the shares a 12-month price estimate of 3,400 yen. Sompo Japan Insurance added 2.8 percent to 71 yen. Brokerages and insurance companies were the biggest gainers among the Topix’s 33 industry groups.

Panasonic dropped 1.5 percent to 1,355 yen, while Canon, the biggest maker of digital cameras globally, lost 1 percent to 3,130 yen. Mazda Motors Corp. retreated 2 percent to 252 yen.

“Shares of electronics and automakers have overheated,” said Mitsushige Akino, who oversees about $632 million at Ichiyoshi Investment Management Co. in Tokyo. “That’s true for shipping and resource-related companies too,”

Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipper, fell 3.5 percent to 440 yen. Shares of the company have risen in seven of the past eight trading days and have gained 12 percent in the past month, as commodities prices and transport fees surged. Rival Nippon Yusen K.K. declined 3.7 percent to 448 yen. Shipping lines had the sharpest loss among Topix groups.

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

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Greenback Rallies Sharply

by Korman Tam

The greenback reversed previous session’s losses, rallying sharply against the euro by over two big figures to 1.4111 and the sterling by nearly four big figures at 1.6244. US equities bourses pulled back further with the Dow Jones and Nasdaq sliding by over 1.2%, while the S&P 500 lost over 1.8%.

With markets eagerly anticipating the May US labor report due out on Friday, the May ADP private-sector payrolls were worst-than-expected, posting a loss of 532k jobs and exceeding expectations for a loss of 520k jobs from 491 private sector jobs lost previously. April durable goods orders increased by 1.7%, albeit less than the 1.9% increase from March, while factory orders improved by 0.7% from 0.9%. The May non-manufacturing ISM report improved to 44 versus 43.7 a month earlier, remaining beneath the key 50-level though.

Data slated for release on Thursday include weekly jobless claims, Q1 labor costs and non-farm productivity. The key reports will be released on Friday, consisting of the May unemployment rate, which is seen creeping up to 9.2% and the non-farm payrolls reading, expected reveal a 520k job loss from 539k loss of jobs a month earlier.
Euro Tumbles toward 1.41

The euro relinquished all of Tuesday’s gains versus the dollar, plunging to 1.4111 in the New York session. The economic reports released from the Eurozone overnight were mixed. Germany’s May services PMI improved by less than expected, increasing to 45.2 from 43.8, albeit less than estimates for an increase to 46.0. The Eurozone May services PMI edged higher to 44.8 from 43.8 in April, while the composite PMI improved to 44.0 from 41.1 a month earlier.

Meanwhile, the revised Q1 Eurozone GDP figure was on par with expectations, revealing a contraction of 2.5% from 1.6% on a quarterly basis. The annualized GDP declined by 4.6%, worst than expectations for a decline of 4.4% from a 3.1% in the previous year.

In the coming session, traders will scrutinize April retail sales data, which are seen reversing the March decline of 0.6%, increasing by 0.2% from the previous month while improving to -3.2% compared with -4.2% a year earlier. The key highlight will be the ECB monetary policy announcement at 7:45 AM. The Bank is not expected to change policy, holding rates steady at 1.0%. The subsequent press conference by ECB President Trichet will be interpreted for clues on whether additional policy easing can be expected over the coming months.


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Currency Technical Report

Daily Forex Technicals | Written by FX Greece | Jun 03 09 12:06 GMT |

EUR/USD Resistance: 1,4340/ 4365-70/ 1.4400/ 1.4430-35/ 1.4470/ 1.4500-10/ 1.4570/ 1.4630/ 1.4700-20 Support : 1,4270/ 1.4240/ 1.4200/ 1.4180-85/ 1.4150/ 1.4090-00 Comment: According to the basic scenario that we have developed in the last months, the area of 1,4350-00 was a possible target (the higher) in terms of the wider sideways formation since the decline last Fall. Euro has reached these levels and oscillators in all charts are in an overbought area, with divergence signs and economic data are likely to limit the rise. A move to the wider area of 1,4400 (+- 40) and a clear reversal sign in the daily or weekly chart and a reversal formation in the short term charts, would confirm our sideways formation scenario. Anything different, would change our longer term scenario and we will start looking for new targets in higher levels or clear reversal signs. A move above 1,4400-30, could lead to 1,4700-20 (December 2008 tops) and next possible target would be at 1,4950-00 area. Regarding the short term, resistance emerges at 1,4340-00, as shown in the following charts, and it could limit the rise. Retracements towards 1,4250 are possible, but a break of yesterday’s base at 1,4090-00, would change the uptrend. A move below these levels will bring the area of 1,4000-30 into focus and lower levels would prove the complete reversal. Above 1,4400, the area of 1,4430-40 is an important resistance area. A break could lead to 1,4560-70, or even 1,4700-20 area. *STRATEGY : Small sell orders could be tried at 1,3440-60, adding more at 1,4400-20 with stops above 1,4470. Our target will be at 1,4300 or 1,4250 area. A clear break of these resistance levels could be used for buy orders at the retracements, while sell orders could be tried again with more clear reversal signs… 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.

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Jun 03 09 12:11 GMT |

USD-CHF @ 1.0683/86...Ranged during the day R: 1.0700 / 1.0736 / 1.0761-93 S: 1.0643 / 1.0568-66 / 1.0385 Dollar-Swiss has been ranged between 1.06-1.07 during the day. For the US session, the range is likely to be 1.0505-1.0700 as was mentioned in the morning as well. The bearish view on the pair continues till it is not able to rise past 1.08. And the bearishness could take it towards 1.0500 in the near term. To see the chart of Swiss, click on: http://www.kshitij.com/graphgallery/chfma.shtml#ma We have been stopped out of the Short in Swiss entered at 1.0680 recording a 10 pips loss. Cable GBP-USD @ 1.6503/08...Immediate Support at 1.6484 R: 1.6714 / 1.6960 / 1.7149 S: 1.6498-84 / 1.6462 / 1.6382 Cable has fallen sharply after recording a high of 1.6665. Earlier we were stopped out of the Long entered at 1.6643. An immediate Support is available at 1.6484, below which it could dip further towards 1.6382. Below that next Support is available at 1.6187. A break of this is likely to raise questions over the authenticity of rise seen over the last few days amd could be very bearish. To see the chart of Cable, click on: http://www.kshitij.com/graphgallery/gbpcandle.shtml#candle Aussie AUD-USD @ 0.8151/53...Support at 0.8100 crucial R: 0.8303 / 0.8400 / 0.8451 S: 0.8155 / 0.8124-03 / 0.7972-54 Aussie, too, has fallen closer to the Projected Max Low for the day at 0.8124. Though there's Support available next at 0.8100, a break below is likely to target 0.7950 over the course of the week. This is likely to provide ample Support going forward. One might want to look at buying opportunities if this level is seen. But unless it breaks past 0.81, we would assume the near term uptrend to continue and which could take the pair towards 0.8400 over the next few days. 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.

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USD Rebounds as Global Equity Markets Slide

Daily Forex Fundamentals | Written by Easy Forex | Jun 03 09 12:36 GMT |

FX Highlights USD rebounds as equity markets decline pressured by profit-taking, investors are reluctant to push risk sentiment higher waiting for more signs that the global recession is ending, USD was also supported by report that Asian central banks will continue to buy US treasuries, China, India and South Korea are expected to continue to buy US treasuries because there are no legitimate alternatives, Reuters reports that Asian countries will continue buying US treasuries even if US credit rating is downgraded Russia's president calls for alternatives to the USD as the world's reserve currency, Japan is expected to upgrade its economic outlook EU services PMI rises to a seven-month high, UK consumer confidence rises in Australia's GDP rises more than expected, the trade awaits today's release of ADP employment and factory orders and Bernanke's testimony before Congress Russian President says that the world needs more reserve currencies, may seek the establishment of world currency as alternatives to the USD Japan is expected to remove worsening from its June economics assessment, JPY lower Australia's Q1 GDP rises to 0.4%, a 0.2% rise was expected, May new vehicle sales rise 4.5%, AUD lower UK May Nationwide consumer confidence index rises to 53 from 51 April, this is the highest level since last November, GBP lower EU April producer prices fall 1%, Q1 GDP confirmed at -2.5%, inventory and investment plunge in the EU, April services PMI rises to 44.8 from 43.8 last month, EUR lower Feds Fischer says US economy getting less worse, recent rise in long-term yields not based on inflation fears Treasury Secretary Geithner repeats support for strong dollar and says China's US assets are safe US equity markets set to open lower, European equities fall 2%, Nikkei closed 128 points higher Upcoming Events US-Wednesday, May ADP employment will be released expected at -525K, along with April factory orders expected to rise to -0.5% compared to -0.9% last month, and May non manufacturing ISM expected to rise to 45.3 from 43.7 last month, EIA petroleum inventories are also scheduled for release, chairman Bernanke to testify before the House Budget Committee By Michael J. Malpede Easy Forex Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst. Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

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USD Continues To Buckle

Daily Forex Fundamentals | Written by Easy Forex | Jun 03 09 03:59 GMT |

U.S. Dollar Trading (USD) felt more pressure as investors continued to pressure the Dollar on the back of more rumblings from Asian disquiet with US debt. Pending Home sales kept the mood in the market positive with April up 6.7% vs. 0.5% forecast. US stocks manages a third day of gains. Crude Oil finished down $0.03 to finish the day at $68.47 a barrel. In US share markets, the Nasdaq was up 8 points or 0.44% and the Dow Jones was up 19 points or 0.22%. Looking ahead, ISM Non Manufacturing is forecast at 46.5 vs. 45.2 previously. April Factory Orders are forecast at 0.9% vs. -0.9%. The Euro (EUR) another day, another fresh high as the rally continued above 1.4300. The April Unemployment rate ticked higher to 9.2% vs. 8.9% previously. The market is now looking to the ECB meeting on Thursday and whether they expand the Quantitative Easing program. Overall the EUR/USD traded with a low of 1.4100 and a high of 1.4333 before closing at 1.4300. Looking ahead, May PMI Services are forecast at 44.7 vs. 43.8 previously. Also released April PPI is forecast at -0.8% vs. -0.7% m/m previously. The Japanese Yen (JPY) couldn’t hold on to the 96 yen level on the USD/JPY as USD weakness intensified in the European session. Crosses remained buoyant but experienced waves of profit taking as the market becomes use to the new levels. Overall the USDJPY traded with a low of 95.32 and a high of 96.65 before closing the day around 95.60 in the New York session. The Sterling (GBP) dipped into the start of the European session as UK credit Growth was weak at 300m Pounds in April, up on March but still well down on historical averages. EUR/GBP gave up some of the recent gains as the Euro continued its rally unaffected. Overall the GBP/USD traded with a low of 1.6323 and a high of 1.6599 before closing the day at 1.6545 in the New York session. Looking ahead, PMI services are forecast at 49.2 vs. 48.7 previously. The Australian Dollar (AUD) strong economic data helped the recent rally to continue with expectations of Australia missing a technical recession. The RBA held at 3.0% but the RBA statement was somewhat more dovish than expected with the central bank leaving the door open for future rate cuts. Overall the AUD/USD traded with a low of 0.8050 and a high of 0.8233 before closing the US session at 0.8200. UPDATE Australian GDP +0.4% vs. +0.2%. Gold (XAU) rallied back above $980 on fresh USD weakness with precious metal sitting just below the key $1000 level. Overall trading with a low of USD$973 and high of USD$989 before ending the New York session at USD$978 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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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Jun 03 09 04:11 GMT |

EUR/USD closed higher on Tuesday as it extended last Monday's rally above the 75% retracement level of the December- March decline crossing. Profit taking tempered early gains and the mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are overbought but are turning neutral again signalling that sideways to higher prices is possible near-term. If it extends this spring's rally, the 87% retracement level of the December-March decline crossing is the next upside target. USD/JPY closed higher on Tuesday as it reversed Monday's loss. Profit taking tempered early gains and the mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are overbought but are turning neutral again signalling that sideways to higher prices is possible near-term. If it extends this spring's rally, the 87% retracement level of the December-March decline crossing is the next upside target. GBP/USD closed sharply higher on Tuesday as it extends this spring's rally. The high-range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are overbought but remain neutral to bullish signalling that sideways to higher prices are possible near-term. If it extends the rally off April's low, the 50% retracement level of the 2008-2009 decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted. USD/CHF closed higher on Tuesday as it reversed Monday's loss. Profit taking tempered early gains and the mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are overbought but are turning neutral again signalling that sideways to higher prices is possible near-term. If it extends this spring's rally, the 87% retracement level of the December-March decline crossing is the next upside target. HY Markets http://www.hymarkets.com

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Jun 03 09 04:04 GMT |

EUR/USD Today's support: - 1.4262 and 1.4221(main), where correction is possible. Break would give 1.4196, where correction also may be. Then follows 1.4148. Break of the latter would result in 1.4124. If a strong impulse, we would see 1.4108. Continuation will give 1.4096. Today's resistance: - 1.4332, 1.4344 and 1.4375(main). Break would give 1.4400, where a correction is possible. Then goes 1.4426. Break of the latter would result in 1.4455. If a strong impulse, we'd see 1.4478. Continuation will give 1.4504 and 1.4526. USD/JPY Today's support: - 95.40 and 95.25(main). Break would bring 95.11, where correction is possible. Then 94.86, where a correction may also happen. Break of the latter will give 94.50. If a strong impulse, we would see 94.35. Continuation would give 94.02. Today's resistance: - 96.18, 96.55, 96.98 and 97.34(main), where a correction may happen. Break would bring 97.71, where also a correction may be. Then 97.98. If a strong impulse, we would see 98.10. Continuation will give 98.27. DOW JONES INDEX Today's support: - 8634.17 and 8561.40(main), where a delay and correction may happen. Break of the latter will give 8495.80, where correction also can be. Then follows 8463.00. Be there a strong impulse, we would see 8426.22. Continuation will bring 8392.44. Today's resistance: - 8808.80 and 8834.25(main), where a delay and correction may happen. Break would bring 8858.37, where a correction may happen. Then follows 8887.46, where a delay and correction could also be. Be there a strong impulse, we'd see 8910.00. Continuation would bring 8927.28. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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FX Technical Commentary

Daily Forex Technicals | Written by Easy Forex | Jun 03 09 04:00 GMT |

Euro 1.4285 Initial support at 1.4100 (Jun 1 low) followed by 1.3926 (May 29 low). Initial resistance is now located at 1.4364 (Dec 29 high) followed by 1.4621 (61.8% retrace 1.6038-1.2330) Yen 95.45 Initial support is located at 94.43 (Mar 25 low) followed by 93.52 (Mar 19 low). Initial resistance is now at 97.24 (May 28 high) followed by 98.82 (May 11 high). Pound 1.6555 Initial support at 1.6163 (Jun 1 low) followed by 1.6085 (May 27 low). Initial resistance is now at 1.6672 (Oct 30 high) followed by 1.6739 (61.8% retrace 1.8669- 1.3503). Australian Dollar 0.8185 Initial support at 0.7991 (Jun 1 low) followed by the 0.7803 (May 29 low). Initial resistance is now at 0.8378 (Sep 26 high) followed by 0.8519 (Sep 22 high). Gold 983 Initial support at 959 (May 29 low) followed by 941 (May 26 low). Initial resistance is now at 1006 (Feb 20 high) followed by 1032 (Mar 17 high). Currency Sup 2 Sup 1 Spot Res 1 Res 2 EUR/USD 1.3926 1.4100 1.4285 1.4364 1.4621 USD/JPY 93.54 94.43 95.45 97.24 98.82 GBP/USD 1.6085 1.6163 1.6555 1.6672 1.6739 AUD/USD 0.7803 0.7991 0.8185 0.8378 0.8519 XAU/USD 941.00 959.00 983.00 1006.00 1032.00 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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ECB Can Expand Asset Purchases, Nowotny Writes in May 29 Letter

By Matthias Wabl

June 3 (Bloomberg) -- European Central Bank council member Ewald Nowotny wrote last week that the bank can expand its asset-purchase program to buy commercial paper or bonds, a letter obtained by Bloomberg News shows.

While interest rates are now at a historic low, “in the future monetary policy also has the ability to provide support through unconventional methods,” Nowotny, who heads Austria’s central bank, wrote to the Austrian Hotel Association on May 29. “Through the purchase of bonds or other commercial papers, the yield curve can be flattened, thereby lowering long-term interest rates, which are decisive for investment.”

The Austrian central bank confirmed Nowotny sent the letter and said the comments “should be understood in an academic context.” They nevertheless suggest the ECB has not closed the door on expanding its asset purchases beyond the 60 billion euros ($86 billion) of covered bonds it has already announced.

The 22-member Governing Council, which meets tomorrow, is split on the issue. Germany’s Axel Weber, who opposed asset purchases in the first place, is seeking to limit the plan, while policy makers such as Slovenia’s Marko Kranjec have said the bank may spend more and widen the scope of the program. In the letter, Nowotny said the covered-bond purchases are among the bank’s “concrete” measures.

The ECB initially debated a package of asset purchases worth about 125 billion euros that included commercial paper and corporate bonds, people briefed on the talks have said.

‘Policy of Reason’

The Federal Reserve and Bank of England are buying corporate and government bonds, effectively pumping new money into their economies in an attempt to revive growth.

ECB officials have publicly clashed over the best way to tackle Europe’s worst recession since World War II, making it harder for President Jean-Claude Trichet to present a united front. He will tomorrow unveil details of the plan to buy covered bonds, low-risk securities backed by mortgages and public-sector loans.

German Chancellor Angela Merkel said yesterday the ECB has “bowed somewhat to international pressure” in agreeing to buy covered bonds, indicating she shares Weber’s unease about the policy. She said she views “with great skepticism what authority the Fed has and the leeway the Bank of England has created for itself,” and urged central banks to return to a “policy of reason.”

Nowotny said in Vienna on May 26 that the ECB’s announced measures need to be given time to work and are “adequate in the medium term.”

‘Positive Effects’

In addition to the covered-bond plan, the ECB has cut its benchmark rate to 1 percent and said it will loan banks as much cash as they need for up to 12 months.

“The positive effects that these measures bring will certainly come in time,” Nowotny wrote in the letter. Still, he cautioned that while there are “first signs of stabilization” in the economy, “we have to face the fact that we’ll only see growth at a very low level in the next few years.”

Nowotny was responding to an April 20 letter from Austrian hoteliers, who are facing tighter financing conditions.

“The comments about the unconventional measures should be understood in an academic context and are to say that the ECB has not used all potential measures while they do in no way prejudice what the Governing Council will do,” said Oliver Huber, a spokesman for the Austrian central bank. The bank gets “numerous request from groups and people” and replies by “explaining what monetary policy can or cannot achieve in the current situation,” he said. “The letter to the hotel owners is one example.”

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Brown May Enter Thatcher’s Trap With Darling Shift

By Gonzalo Vina and Robert Hutton

June 3 (Bloomberg) -- Gordon Brown risks a rift in his government like the one that brought down Margaret Thatcher 19 years ago as he considers replacing Alistair Darling as Britain’s chancellor of the exchequer.

With Home Secretary Jacqui Smith indicating yesterday she’ll quit the Cabinet and calls from the opposition for Darling to go, the reorganization Brown is considering may further rock a government roiled by plunging approval ratings and a scandal over about lawmakers’ personal spending.

Removing Darling, who manages the Treasury and is the second-most powerful Cabinet member, would mirror the shake-up that preceded Thatcher’s downfall. When Thatcher sidelined her then-deputy, Geoffrey Howe, he quit, triggering a rebellion that forced her out within a month.

“Darling’s got to be handled with real care,” said Philip Cowley, professor of politics at Nottingham University. “If it’s a messy divorce, it could be very messy indeed.”

Darling, 55, has served as a Cabinet troubleshooter since the Labour Party took office in 1997, defusing controversies over nuclear power, pensions and welfare benefits. He and Brown have held parliamentary seats near each other in Scotland since the 1980s. Darling is one of two people to have been in the Cabinet as long as Brown.

A reorganization would be a chance for Brown to revitalize his Labour government, which is trailing in the polls with less than a year to go to an election. An ICM Ltd. survey published May 31 showed Labour lagging behind both the Conservatives and Liberal Democrats for the first time in 22 years.

Blows to Brown

Brown has been hit by a series of blows over the past two months. In April, he fired his media adviser, Damian McBride, over a planned campaign to publicize the personal lives of opposition leaders. In the past three weeks, the Daily Telegraph has published details of expense claims showing lawmakers taking taxpayer cash for swimming-pool cleaning, a massage chair, and, in the case of Jacqui Smith, her husband’s adult films.

Smith asked months ago to leave the Cabinet, a person familiar with the situation said yesterday.

Darling this week apologized for expense claims and said he’d repay about 600 pounds ($1,000) he claimed in expenses relating to an apartment he had in London.

Children’s Secretary Ed Balls, an economic adviser to Brown between 1994 and 2005, is the bookmakers’ favorite to replace Darling. He’s so close to Brown that other ministers may bristle at the promotion, said Bill Jones, a professor of politics at Liverpool Hope University.

‘Very Unpopular’

“Replacing the loyalist Alistair Darling with the loyalist Ed Balls is not going to improve his standing,” Jones said.

Appointing Balls also would signal a shift away from Darling’s effort to put a lid on the deficit. While Darling set out plans in his annual budget to curtail spending growth, Balls on May 28 said he was “confident we will continue to see real increases in spending for health and education.”

Balls, 42, wants higher spending to underpin an economic recovery and draw a dividing line with the Conservatives, who say the Treasury can’t afford it. Brown adopted that line in this week’s election campaign.

A spending spree would counter calls by Standard & Poor’s and the International Monetary Fund, which have advised the U.K. to curb the deficit. S&P last month lowered its outlook for the U.K.’s top credit rating, saying a deficit above 12 percent of gross domestic product isn’t compatible with a AAA grade.

Reshuffle Required

Smith’s departure alone would require changes to Brown’s team. Children’s minister Beverley Hughes also wants to leave her job, and Sky News said Cabinet Office Minister Tom Watson will step aside. Since the expenses scandal began, eight of Labour’s 350 members of Parliament have decided not to seek re- election. Late yesterday, the party barred a ninth, Ian Gibson, from standing again as a Labour candidate, effectively ending his career.

Thatcher resigned in November 1990 after support from her own Cabinet melted away. Howe served her for 11 years, first as chancellor and then as foreign secretary and then deputy prime minister.

Unhappy with Thatcher’s increasingly autocratic style, he quit his Cabinet post and gave a speech attacking her policies and management ways. It led Michael Heseltine to challenge her for the party’s leadership, precipitating her downfall.

“Howe took it, and took it, and took it, and took it and then snapped,” said Cowley of Nottingham University. “And the attack, when it came, was more damaging because it was Howe.”

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net; Robert Hutton in London at rhutton1@bloomberg.net

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U.K. Consumer Confidence Increased to Six-Month High in May

By Jennifer Ryan

June 3 (Bloomberg) -- U.K. consumer confidence increased in May to the highest level in six months as shoppers became more hopeful that the economy will emerge from recession, Nationwide Building Society said.

An index of sentiment rose 2 points to 53, Britain’s biggest customer-owned lender said in an e-mailed statement today. It based the report on a survey of 1,001 people taken from April 20 to May 17.

The Bank of England may decide tomorrow not to expand its plan to aid the economy with newly created money for now as evidence emerges that the recession is easing. Other data this week showed mortgage approvals rose to the highest in a year and house prices stopped falling for the first time in 20 months.

Consumers “appear to be much more confident about the future,” Martin Gahbauer, chief economist at Nationwide, said in the statement. “As we continue to see contrasting news about the state of the economy, it is likely that confidence will remain fragile.”

A gauge of consumers’ expectations for the future rose 5 points to 76, while a measure of their willingness to make a major purchase climbed by 1 point to 101, Nationwide said. The index of attitudes on the present situation fell to 17 from 21.

Mortgage Lending

Shoppers were more willing to add debts on their credit cards in April, raising net consumer credit by six times from the previous month to 314 million pounds ($519 million), the Bank of England said yesterday. It also said that banks granted 43,201 home loans in April, up from 40,038 in March.

Other data have signaled improvement in the housing market. Hometrack Ltd. said on June 1 that its survey of real-estate agents showed average house prices in England and Wales held at 155,600 pounds in May after falling 0.3 percent in April. A Nationwide report last week showed home values jumped by the most since 2007.

The labor market shrank at a slower pace in May, KPMG and the Recruitment and Employment Federation said in a separate report. A measure of permanent staff appointments by job consultants increased to 41.7, the highest in 10 months, from 37.3 in April. Results below 50 indicated contraction.

The Bank of England will tomorrow probably leave the key interest rate at a record low of 0.5 percent, according to all 61 economists in a Bloomberg News survey. All but two of 39 economists forecast the bank will refrain from expanding its plan to pump new money into the economy from the current 125 billion pounds.

Shop-price inflation eased to 1.3 percent in May from 1.4 percent the previous month, the British Retail Consortium said in a separate report today. Annual gains in food prices fell to 6.4 percent, the slowest this year, from 7.9 percent the previous month.

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

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Fed Said to Raise Standards for Banks’ TARP Repayment

By Christine Harper and Craig Torres

June 2 (Bloomberg) -- Federal Reserve officials surprised bankers in the past week by demanding they raise specific amounts of new capital before repaying taxpayer funds, applying a more stringent assessment than the stress tests in May.

JPMorgan Chase & Co. and American Express Co. were told they need to boost common equity, less than four weeks after being informed they had enough to withstand a deeper economic slump. Morgan Stanley was directed to raise more funds after already selling stock to cover its stress-test shortfall. One firm was told only yesterday, people with direct knowledge said.

The central bank’s further scrutiny signals concern at the political and economic dangers of having a bank boomerang back to government aid once it leaves the program.

“The Fed doesn’t want to be criticized for allowing people to repay this and then having the banks say we just don’t have the capital to make loans now,” said Lawrence Kaplan, a former attorney at the Office of Thrift Supervision who now works at law firm Paul, Hastings, Janofsky & Walker LLP in Washington. “It’s an exercise to make sure that no one is going to get criticized for allowing these redemptions.”

The Fed’s demands also partly reflect the biggest three- month rally in U.S. financial shares in at least two decades, which has made it easier for banks to raise the funds. The central bank said in a statement yesterday that the biggest 19 lenders “must successfully demonstrate access to public equity markets” before repaying TARP money.

Goldman’s Case

Goldman Sachs Group Inc. hasn’t been required to seek any more funds since the firm raised $5.75 billion by selling shares in April, according to a person familiar with the matter. The firm sold $1.91 billion of stock in Industrial & Commercial Bank of China Ltd. this week, of which about half is owned by funds managed by Goldman Sachs. That sale was unrelated to any capital raising requirements, the person said.

JPMorgan Chase & Co. Chief Financial Officer Michael Cavanagh told analysts on a conference call yesterday that the New York-based bank was informed by regulators it needed to raise $5 billion in common equity. JPMorgan announced it would sell that amount yesterday.

“We believe we’ve met all the terms to get out of TARP,” JPMorgan Chairman Jamie Dimon said on the conference call. “If we don’t get out of TARP, we’d be very surprised. We don’t think we should be surprised.”

First Approvals

Fed approvals for an “initial set” of TARP repayments by banks among the 19 largest institutions are scheduled to be announced next week.

“Both the banks and the government would like to have the institutions operate on their own,” said former Fed Governor Randall Kroszner, who is now an economics professor at the University of Chicago’s Booth School of Business. “It is very important that the stability of those institutions not be questioned during the recovery.”

Morgan Stanley, JPMorgan and American Express raised at least $7.7 billion this week as they learned of the new hurdles to leave the TARP.

Morgan Stanley was judged in last month’s stress tests to need an additional capital buffer of $1.8 billion. The New York- based bank then raised $4.6 billion in common equity, only to be told this week it needed $2.2 billion more to repay TARP.

‘Little Bit More’

“It doesn’t make a lot of sense if they’ve raised well in excess of the initial capital requirement to then be told you need a little bit more,” said David Killian, a portfolio manager at Sterling Asset Management LLC in King of Prussia, Pennsylvania, who manages $500 million including stock in Morgan Stanley, JPMorgan and Goldman Sachs. “It’s government.”

The 19 largest U.S. banks have more than $200 billion of preferred equity shares owned by the Treasury. The TARP program became a stigma for banks after the government set compensation limits and began criticizing the expenses of companies receiving aid. JPMorgan’s Dimon poked fun at the program yesterday, reading a mock letter to Treasury Secretary Timothy Geithner.

“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us,” Dimon said at the 31st Annual NYU International Hospitality Industry Investment Conference. “We hope you enjoyed the experience as much as we did.”

Gauge of Stress

Banks’ funding costs have declined and their reliance on the Fed’s liquidity programs has diminished as confidence in the financial system improves. The London interbank offered rate, or Libor, for three-month dollar loans stood at 0.65 percent today, down from 1 percent May 1, according to the British Bankers’ Association.

The Fed’s May 7 analysis showed that banks could lose $599.2 billion over two years in a “more adverse” scenario. That projection was based on an unemployment rate averaging 10.3 percent in 2010, with a 0.5 percent economic expansion -- less than the 1.9 percent median estimate in a Bloomberg News survey.

One risk is that the loss estimates the Fed used on specific products, such as credit-card loans and commercial real-estate loans, is even higher for some firms.

If banks repay TARP funds next week, “politically, the administration can claim a victory,” said Dino Kos, managing director at Portales Partners LLC and a former New York Fed executive vice president. “They can claim TARP is working, we’re getting our money back and making a profit. But there are more shoes to drop in commercial and industrial loans, leveraged loans, and real estate.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.

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BOJ’s Kamezaki Says Economy Is No Longer in Freefall

By Mayumi Otsuma

June 3 (Bloomberg) -- Bank of Japan board member Hidetoshi Kamezaki said the world’s second-largest economy is no longer in freefall and a recovery will soon take hold as production improves and stimulus plans take hold.

“Until now, the economy was sliding down a steep hill,” Kamezaki said in a speech today at a business meeting in Shizuoka, central Japan. “We can expect the economy to head for a recovery in the near future as the pace of production cuts by companies eases and stimulus measures take effect.”

Japan’s deepest postwar recession is easing as exports stabilize and manufacturers increase production to replace inventories. Kamezaki said the recovery will be mild because it will take “considerable time” before output and sales return to prior levels and the “severe” outlook for profits will curb business spending. Job prospects and incomes will deteriorate further, weakening consumption, he added.

“Japan and Asian nations are seeing big rebounds in production ahead of the rest of the world,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. Still, “the revival is only being driven by inventory adjustments, and it’s not a sign that demand is beginning to surge.”

Factory output climbed 5.2 percent in April from March, the biggest increase in 56 years, as companies replaced stockpiles they managed to run down during the worst of the export collapse. Production is still only about two-thirds of last year’s levels.

Konica Minolta

Konica Minolta Holdings Inc., a maker of film used in liquid-crystal displays, said yesterday that it will eliminate jobs and reduce spending on research to help save 33 billion yen ($345 million) in costs this year. Japan’s unemployment rate climbed to a five-year high of 5 percent in April and household spending slid for a record 14th month.

Central bank Governor Masaaki Shirakawa said last week spending by companies and consumers will remain “severe” even as the economy resumes growing this quarter. Japan’s recovery “will inevitably be mild and attended by high uncertainty,” he said.

Gross domestic product shrank at an unprecedented 15.2 percent annual pace in the first three months of 2009.

Weakening domestic spending has increased concern that deflation will return to haunt the world’s second-largest economy.

The output gap, a measure the difference between supply and demand, almost doubled to a record last quarter, the Cabinet Office said this week. Consumer prices excluding fresh food dropped for a second month in April and wages slumped for an 11th month.

Kamezaki, 66, joined the central bank’s policy board in April 2007 from trading company Mitsubishi Corp.

For Related News and Information: Japan’s top stories TOP JN Bank of Japan policy news STNI BOJMOVE Bank of Japan portal page BOJ Benchmark interest-rate graph BOJDTR GP M Core consumer prices graph JNCPIXFF GP M

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Philippine Interest Rates May Fall to Record Low, Tetangco Says

By [bn:PRSN=1] Clarissa Batino []

June 3 (Bloomberg) -- The Philippine central bank could cut the benchmark interest rate to a record low this year as economic growth weakens and inflation heads to the slowest in two decades, central bank Governor Amando Tetangco said.

“We’re in a good position because we have remaining ammunition or bullets, unlike in other countries where rates are already very low and they have little room to move down further,” Tetangco said in an interview at his office in Manila yesterday. “This gives us more flexibility.”

The central bank has cut borrowing costs by a total 1.75 percentage points since mid-December to 4.25 percent, in its longest easing cycle since at least 2002. Economic growth slowed to a decade low last quarter as the global recession hurt exports, adding pressure for further reductions in the key rate, which is higher than that of Malaysia, Thailand and South Korea.

“There is a lot of room to cut relative to the U.S. and other countries we benchmark with,” said Ces Tanchoco, an economist at Bank of the Philippine Islands in Manila. Still, “there’s a reversal in the oil price scenario already. They really have to look at how growth is emerging. I think they’ll be a little more cautious.”

The Philippines imports almost all of its oil.

Inflation will ease to 1 percent in the third quarter, damped by softer commodity prices, an improving exchange rate and an economy that grew the least in a decade in the first quarter, Tetangco said. That would be the slowest pace since April 1987.

Record Low

“The inflation forecast shows we will be within the target range in 2009 and 2010,” he said. “In each of these years, the forecast is below the mid-point of the target range. That would indicate that there is further room to maneuver.”

A further reduction in the key rate to 4.125, which would be a smaller cut than the last move, would bring the benchmark to the lowest level since central bank data started in 1990.

The central bank may lower its overnight borrowing rate by a quarter of a percentage point in July and then “see how the second quarter is looking,” Bank of the Philippine Islands’ Tanchoco said.

The central bank’s rate cuts will ease pressure on government bond yields that have been rising on concern the budget deficit will widen, Tetangco said.

The growing deficit will have to be seen in the context “that it’s temporary” and due to higher public spending to boost the economy, the governor said. “If the market is convinced that government is still on a fiscal consolidation path in the medium term, it may even be positive because it signals that government is ready to sustain economic growth.”

Public Spending

Public spending needs to complement monetary policy to stimulate the economy, and the government needs to ensure that money allocated for projects is “actually used,” Tetangco said.

The Philippines may cut its 2009 economic target and widen the budget-deficit estimate a third time this year as it increases public spending amid faltering revenue, Budget Secretary Rolando Andaya said June 1. The government is “committed” to boosting spending to support the $144 billion economy, Finance Secretary Gary Teves said the same day.

The government “has room” to increase borrowings from the overseas and domestic markets to fund its budget deficit, Tetangco said. The central bank’s easing stance will have to be calibrated, he added.

“At this point in time, the stance of policy is still towards easing but at the same time we remain cognizant of the fact we’ve been easing since the fourth quarter,” Tetangco said.

Inflation Risk

There are “upside risks” to inflation with oil prices rising again, he said. “We also need to look at the medium term because if there’s a need to change the stance of monetary policy at some point in the future, that change or shift should be done in a smooth adjustment.”

The local currency has strengthened 0.3 percent this year, lagging behind a 6.2 percent gain in Indonesia’s rupiah and a 1.7 percent increase in the Thai baht.

Sustained inflows from overseas Filipinos sending money home and returning appetite for the nation’s stocks and bonds will boost the nation’s balance of payments and support the peso, Tetangco said. International reserves will climb to $39.5 billion in May from $39.3 billion in April, he said.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net

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Australia’s Stevens Keeps Rates Unchanged Ahead of GDP Report

By Jacob Greber

June 3 (Bloomberg) -- Australia’s central bank kept interest rates unchanged for a second month ahead of a report today that may show the nation’s economy has outperformed most of its largest trading partners.

Gross domestic product shrank 0.2 percent last quarter from the previous three months when it fell 0.5 percent, according to the median estimate of 18 economists surveyed by Bloomberg News. The figures will be published at 11:30 a.m. in Sydney today.

Unlike the U.K., Japan, the U.S. and 16-member euro region -- all of which have fallen into recessions -- Australia’s economy may even have expanded in the first quarter, according to some economists, including Savanth Sebastian at Commonwealth Bank of Australia. Central bank Governor Glenn Stevens kept the benchmark lending rate unchanged at 3 percent yesterday.

“It is now becoming clearer that the worst period for the Australian economy is behind us,” Sebastian said.

A government report yesterday showed the current account deficit narrowed in the first quarter as agricultural exports surged. The contribution from overseas shipments to Australia’s economy, or net exports, added 2.2 percentage points to GDP in the March quarter, the statistics bureau estimated.

That’s the largest contribution to GDP from net exports in more than 48 years, according to Sebastian.

Among other evidence that Australia is weathering the worst global economic slump since the Great Depression, reports this week showed building approvals jumped twice as much as economists forecast in April, retail sales rose for a second month, new homes sales gained for a fourth month and manufacturing shrank at a slower pace.

Better Than Most

Australia’s economy probably contracted 0.4 percent in the first quarter from a year earlier, according to the median estimate economists surveyed by Bloomberg. By contrast, Japan’s economy shrank 9.7 percent in the year, the U.K.’s GDP dropped 4.1 percent, the 16-member euro region fell 4.6 percent and the U.S. slid 2.5 percent.

“Thoughts of Australia having to follow the U.S. belong in the dustbin of previous-century economics,” said Clifford Bennett, senior economist at Kinetic Securities in Sydney. “Australia is last in, and will be first out of recession.”

The Reserve Bank will keep borrowing costs at a 49-year low until next year, the nation’s trade balance will remain in surplus, and mining companies such as BHP Billiton Ltd. will benefit from the “magical historical positioning of being a major commodity exporter on the doorstep of Asia,” Bennett said.

Global Economy

Governor Stevens said yesterday that evidence continues to emerge that the global economy is stabilizing. Rate cuts and government spending “in most countries is helping to contain the downturn, and should support an eventual recovery,” he said.

“The turnaround is clearest in China,” Australia’s largest trade partner, the governor added.

Stevens slashed Australia’s overnight cash rate target by a record 4.25 percentage points to 3 percent between September and April, and said yesterday he has scope to reduce borrowing further “if needed.”

By contrast, central bankers in the U.S., Japan and Switzerland have benchmark rates that are close to zero. The European Central bank’s rate is 1 percent and the U.K.’s key rate is 0.5 percent.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading.

Traders forecast the benchmark will be 25 basis points higher in 12 months, the index showed at 4:16 p.m. yesterday in Sydney. At the start of May, they tipped 37 basis points of cuts. A basis point is 0.01 percentage point.

“We’ve got super-stimulatory monetary policy and we need to reassess whether that’s appropriate for an economy that’s clearly not in a deep recession,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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