Doosan Seeks to Buy Skoda Power in $631 Million Deal

By Seonjin Cha

June 22 (Bloomberg) -- Doosan Group, owner of South Korea’s biggest power-equipment maker, is seeking to buy Skoda Power AS of the Czech Republic in a deal that may cost 800 billion won ($631 million).

Doosan Group has joined a tender to buy the power-equipment maker and plans to raise most of the funds needed for the acquisition from South Korea, spokesman Bae Kyun Ho said today by phone in Seoul.

Buying Skoda will allow Doosan to access technology to make power-plant equipment and bolster the business, Bae said. The South Korean company in 2006 purchased boiler designer Mitsui Babcock Energy Ltd. to diversify its overseas operations.

“Doosan has been seeking to expand its power-plant business and purchasing Skoda Power would help it diversify markets with an additional lineup in turbine,” said Song Sang Hoon, a Seoul-based analyst at Kyobo Securities Co.

Doosan Heavy Industries & Construction Co., Doosan Group’s power-equipment maker unit, dropped 0.1 percent to 70,100 won as of 10:41 a.m. in Seoul, compared with the 0.2 percent decline in the Kospi index.

The bid was reported by the Korea Economic Daily today.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

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Asian Stocks Rise on Growth Optimism; Nissan Motor, ICBC Gain

By Shani Raja

June 22 (Bloomberg) -- Asian stocks rose, led by automakers and financial companies, as a government report showed confidence among Japanese manufacturers improved this quarter and on speculation Chinese banks will boost lending.

Nissan Motor Co. climbed 5.8 percent in Tokyo after Nikkei English News reported the company will invest in a U.S. electric car plant. Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, gained 3.9 percent in Hong Kong as the Shanghai Securities News reported new loans in June will exceed lending in May. Kansai Electric Power Co. gained 3.9 percent in Tokyo on optimism fuel expenses will decline after oil prices fell the most in more than two weeks.

The MSCI Asia Pacific Index gained 1.3 percent to 102.77 as of 2:22 p.m. in Tokyo, with seven stocks advancing for every two that declined. The gauge has rallied 46 percent from a more than five-year low on March 9 on optimism the global economy is recovering.

“Judging by the quality of this rally so far, and how broad-based it’s been, I don’t see this as a bear-market rally. It’s a cyclical bull market,” said Nader Naeimi, a strategist at AMP Capital Investors in Sydney, which manages about $95 billion. “Obviously, it won’t be a straight line and you’ll get corrections along the way. You’ve had a lot of false dawns over the past 18 months.”

Japan’s Nikkei 225 Stock Average added 1 percent, led by Sapporo Holdings Ltd., the country’s fourth-largest beermaker, which rallied 18 percent after Credit Suisse Group AG raised its recommendation. Australia’s S&P/ASX 200 Index gained 0.3 percent as National Australia Bank Ltd. rose to a two-week high after agreeing to buy Aviva Plc’s Australian wealth management and life insurance business.

Higher Forecasts

Hong Kong’s Hang Seng Index climbed 2.5 percent. The Shanghai Composite Index added 1.1 percent as Chinese Premier Wen Jiabao called for “proactive financial policies.” HTC Corp. helped boost Taiwan’s stock market after the China Times said the company expects handset shipments to climb. Malaysia’s Kuala Lumpur Composite Index fell 0.7 percent after Maybank Investment Bank Bhd. said valuations had risen “too far, too fast.”

Futures on the U.S. Standard & Poor’s 500 Index rose 0.3 percent. The gauge added 0.3 percent on June 19. JPMorgan Chase & Co. led banks higher after saying it will cost less to repay government rescue funds than some analysts estimated.

The MSCI Asia Pacific Index has gained 15 percent this year through June 19 on optimism government stimulus measures and looser monetary policies will lift the global economy from recession. The World Bank in a report today predicted global growth to resume in the second half of 2009, even as it forecast a wider contraction for the world economy this year.

Electric Cars

Sentiment among large Japanese manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.

Nissan climbed 5.8 percent to 600 yen. The company and electronics maker NEC Corp. plan to invest as much as $1 billion in a U.S. electric car plant, Nikkei English News reported over the weekend. Fred Standish, a U.S.-based spokesman for Nissan, said the automaker has applied for a loan under the U.S. government program to support fuel-efficient cars, declining to comment further on the Nikkei report.

NEC added 1.1 percent to 383 yen. Taiwan’s HTC gained 3.4 percent to NT$442 after saying handset shipments will climb as awareness of its brand picks up in Europe and the U.S. HTC is the world’s largest maker of handsets that use Microsoft Corp.’s Windows and Google Inc.’s Android operating systems.

Rising Valuations

The stock rally since March has driven the average valuation of companies in the MSCI Asia Pacific Index to 1.5 times the net value of assets, the highest level since September, according to Bloomberg data.

“We are now in a liquidity-driven market where investors are no longer risk averse, so they will continue to push stocks higher and higher,” said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd. in Hong Kong. “There has been quite a dramatic change in attitudes as investors have become more greedy and look for higher returns.”

Industrial & Commercial Bank gained 3.9 percent to HK$5.39 as Premier Wen called for a “moderately loose” monetary policy. Bank of China Ltd., the country’s third-biggest lender, climbed 3.7 percent to HK$3.62.

“We need to fully realize the stimulus measures,” Wen said during a June 19-20 trip to the northern province of Hebei. “We should focus on structural adjustment while maintaining economic stability and relatively fast growth.”

Oil Prices Fall

Bank stocks also rallied as the Shanghai Securities News reported new loans in June will exceed lending in May. The nation had 5.83 trillion yuan of new loans in the first five months of this year, the Shanghai-based newspaper reported.

Utilities were the second-best performers of the MSCI Asia Pacific Index’s 10 industries today on expectations their fuel expenses will decline. Crude oil futures lost 2.6 percent on June 19, the most since June 3. Oil fell 0.1 percent today.

Kansai Electric climbed 3.9 percent to 2,160 yen. Tokyo Electric Power Co. advanced 1.6 percent to 2,525 yen.

Speculation lower crude prices will hurt oil producers’ earnings dragged Japan Petroleum Exploration Co. down by 2.7 percent to 5,140 yen. Bigger rival Inpex Corp. sank 2.4 percent to 749,000 yen.

Beer Demand

Sapporo surged 18 percent to 514 yen. Credit Suisse raised its rating to “outperform” from “underperform” because of stronger-than-expected beer demand.

National Australia Bank gained 1.2 percent to A$22.35, set to close at the highest since June 3. The company agreed to pay A$825 million ($662 million) for the Australian wealth management business of Aviva, the U.K.’s biggest insurer.

The acquisition is expected to add to earnings per share and return on equity in the first full year following the purchase, the Melbourne-based bank said in a statement to the stock exchange today.

Macquarie Group Ltd., Australia’s largest investment bank, erased losses to gain 0.7 percent to A$37.50. Brian Johnson, a CLSA Asia-Pacific Markets analyst, said the company’s prospects were better than those of the nation’s four commercial banks.

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

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‘Incredibly Cheap’ Irish Banks Gain as State Readies Loan Plan

By Ian Guider and Dara Doyle

June 22 (Bloomberg) -- Irish bank stocks, the biggest losers in Europe in the first quarter, have been the best performers since March as investors bet the government will rescue the lenders without punishing shareholders.

Dublin-based Bank of Ireland surged 14-fold in Dublin trading after falling to a record low of 12 cents on March 5. Allied Irish Banks Plc jumped 641 percent in the same period, while the Bloomberg Europe Banks and Financial Services Index rose 82 percent.

Irish banks may gain further should the government swallow most of the losses on the lenders’ souring property loans, as seems increasing likely, JPMorgan Chase & Co. analysts said in a research note on June 17. Irish Finance Minister Brian Lenihan will lay out plans for a so-called bad bank, known as the National Assets Management Agency, by the end of the month.

“A favorable NAMA outcome is likely to drive another leg of share price appreciation for Irish banks,” JPMorgan analysts Ignacio Cerezo and Andrea Unzueta said in the note. They rate Dublin-based Bank of Ireland and Allied Irish “underweight.”

Ireland’s banking system came close to collapse as the real estate market cratered and credit markets froze. The economy shrank 2.3 percent in 2008 and may shrink by about 12 percent in the three years through 2010, the fastest contraction for an industrialized economy since the Great Depression, the Dublin- based Economic and Social Research Institute said in April.

Irish house prices, which quadrupled in the decade through 2007, are falling at a record pace. Commercial property values tumbled 37 percent in 2008.

‘Horrific Problems’

The ISEF index of Irish financial stocks plunged 91 percent over the past two years. Even after the rebound from record lows, Bank of Ireland trades at 0.26 percent of book value, and Allied Irish at 0.22 percent. That compares with a price-to-book ratio of 0.86 percent for Bloomberg’s European banks index.

“Ireland has horrific problems,” said Stewart Higgins, head of European equities at Martin Currie Asset Management in Edinburgh. “But the valuation is so incredibly cheap.”

Some investors said further gains are unlikely given the state of the nation’s economy. Irish gross domestic product will shrink by 7.7 percent this year, according to government forecasts. Moody’s Investors Service put the ratings of four Irish banks on review for possible downgrade on June 5.

“It’s hard to see what could drive the shares on from here,” said James Forbes, senior equity strategist at Irish Life Investment Managers in Dublin. “There is still the issue of funding for the two major banks and it’s also prudent to assume that economic conditions in Ireland are going to lag a global recovery as higher taxes impact consumer spending.”

Buying Bad Loans

Headed by interim Managing Director Brendan McDonagh, NAMA will buy, at a discount, real-estate loans with a face value of as much as 90 billion euros ($126 billion) from banks. The smaller the discount, the less pressure banks will face to book losses on the loans and raise more capital from the government.

The agency will take a “long-term economic valuation” approach in pricing the loans, Lenihan, 50, told a parliamentary committee on May 26. He nationalized Anglo Irish Bank Corp. in January, and shored up Allied Irish and Bank of Ireland with 7 billion euros of capital. In return, the government got 25 percent voting rights in each bank, and warrants allowing it to buy corresponding stakes at reduced prices.

Lenihan said in May that Bank of Ireland may not need additional state funds, while he hadn’t reached any conclusion on Allied Irish.

‘Bulls in the Ascent’

“One camp says the government will come up with a shareholder friendly solution,” said Abigail Webb, a London- based analyst at Credit Suisse Group AG who has an “underperform” rating on the two banks. “And there’s the other camp which finds it difficult to make the numbers work for shareholders. I remain cautious on the ultimate outcome, but the bulls are in the ascent at the moment.”

Bank of Ireland will take a 2.7 billion-euro loss on the 17 billion euros worth of loans going to NAMA, estimated Davy, Ireland’s largest securities firm. Allied Irish Banks faces a 6 billion-euro hit on the 30 billion euros of loans it will transfer to the agency, Davy estimated.

A minority of analysts advised investors to buy the banks’ shares during the past three months. Bank of Ireland has three “buy” recommendations from analysts, compared with six “sell or reduce” and eight “hold” ratings, data compiled by Bloomberg show. Allied Irish has five “buy” ratings, five “sells” and seven “hold” recommendations, the data show.

“It might be a bit early to say they are emerging from the crisis,” said Sebastian Orsi, an analyst at Merrion Capital in Dublin, who recommends investors buy Bank of Ireland. “But the share prices are reflecting a better chance of survival now than they would have had over the last few months.”

To contact the reporter on this story: Ian Guider in Dublin at iguider@bloomberg.net.

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Daimler, Escada, Lufthansa, Norsk Hydro: Europe Equity Preview

By Nadja Brandt

June 22 (Bloomberg) -- The following companies may have unusual price changes in European trading. Stock symbols are in parentheses, and share prices are from the previous close.

The Dow Jones Stoxx 600 climbed 1.3 percent to 208.28. The Dow Jones Stoxx 50 Index increased 1.3 percent to 2,138.25. The Euro Stoxx 50 Index, a benchmark for the nations using the euro, advanced 0.8 percent to 2,434.77.

AFC Ajax NV (AJAX NA): The only publicly traded Dutch soccer club agreed to sell Thomas Vermaelen to Arsenal for 12 million euros ($16.8 million). Ajax slid 13 cents, or 2 percent, to 6.40 euros.

Air France-KLM Group (AF FP): Europe’s biggest airline may see its target for a 2010 fiscal operating loss close to last year’s 129 million-euro loss compromised, La Tribune said, without citing anyone. Air France shares fell 6 cents, or 0.6 percent, to 9.25 euros.

Brisa Auto-Estradas de Portugal SA (BRI PL): Portugal’s biggest highway operator said it agreed to sell a 10 percent stake in the Douro Litoral highway concession. Brisa will hold 45 percent of the project after the transaction. The stock added 7.1 cents, or 1.4 percent, to 5.09 euros.

Daimler AG (DAI GY): The world’s second-largest maker of luxury cars may be in discussions to buy a stake in Porsche SE (PAH3 GY), Manager Magazine said, citing unidentified people in the financial industry. Daimler shares fell 2.7 percent to 24.43 euros. Porsche dropped 1.4 percent to 44 euros.

Deutsche Lufthansa AG (LHA GY): Europe’s second biggest airline said it will trim costs further to avert a loss this year. The shares fell 0.6 percent to 8.80 euros.

Electricite de France SA (EDF FP): French electricity prices for households may rise in August after the government allowed a 2 percent to 3 percent increase in electricity distribution rates from Aug. 1, La Tribune reported. That may translate into a 1 percent to 1.5 percent increase in the bill paid by individuals to Electricite de France and its rivals, the newspaper said. EDF shares fell 11 cents, or 0.3 percent, to 34.88 euros.

Enel SpA (ENEL IM): Italy’s biggest utility sold more than 99 percent of shares available in its 8 billion-euro rights offer, Corriere della Sera reported, without saying where it got the information. Enel rose 17 cents, or 4.6 percent, to 3.86 euros.

Escada AG (ESC GY): The German maker of women’s luxury clothes will release first-half results. The shares fell 3.3 percent to 2.90 euros.

Fomento de Construcciones & Contratas SA (FCC SM): The Spanish builder will build four soccer stadiums in Poland worth 515 million euros, La Vanguardia reported, without citing anyone. FCC shares rose 26 cents, or 1 percent, to 27.15 euros.

Fortis (FORB BB): The insurer that sold all banking units in October to avert a collapse will be “very cautious” about making acquisitions, L’Echo reported, citing an interview with Chairman Jozef De Mey. “It is unlikely that we make very big acquisitions,” De Mey was cited as saying by the paper. The shares were unchanged at 2.39 euros.

Norsk Hydro ASA (NHY NO): The Norwegian aluminum supplier expressed interest in buying Asia Aluminum Holdings Ltd., a move that could stave off bankruptcy at the Chinese company and offer an exit for Western debt holders who might otherwise see much of their investment disappear, the Wall Street Journal reported. The shares fell 1.6 percent to 34.50 kroner.

Novartis AG (NOVN VX): Europe’s fourth-largest drugmaker may spend as much as 1 billion Swiss francs ($930 million) expanding its business in Shanghai, Sonntagsblick reported, without saying where it got the information. An investment of that size is “possible,” company spokesman Michael Schiendorfer told the newspaper. The stock rose 12 centimes, or 0.3 percent, to 45.46 francs.

Porsche SE (PAH3 GY): The maker of the 911 sports car, which has accumulated more than 9 billion euros in debt from buying shares in Volkswagen AG, may find it difficult to receive a loan from KfW Group after the German development bank reject the application, German Economy Minister told Bild am Sonntag in an interview. The carmaker may sell as much as 29.9 percent of its capital to Qatar, Focus reported. The stock slipped 60 cents, or 1.4 percent, to 44 euros.

Renault SA (RNO FP): France’s second-largest carmaker had its long-term corporate credit and debt ratings cut to the speculative-grade level of BB from BBB- by Standard & Poor’s Ratings Services. Renault shares rose 12 cents, or 0.5 percent, to 27.03 percent.

SAP AG (SAP GY): The world’s biggest maker of business- management is in preliminary talks about an acquisition of between 1.2 billion and 1.5 billion euros, Welt am Sonntag reported, citing an unidentified SAP manager. SAP rose 4 cents, or 0.1 percent, to 28.87 euros.

SAS Group AB (SAS SS): The biggest Scandinavian airline was criticized by Danish politicians for leasing airplanes from companies located in the Cayman Islands, Dagbladet Borsen reported. SAS fell 2.4 percent to 3.66 kronor.

Sociedad General de Aguas de Barcelona (AGS SM): Spanish savings bank La Caixa and Suez SA, currently joint owners of the company known as Agbar, are in talks for Suez to purchase La Caixa’s 24.1 percent stake in the Spanish water utility for 829.5 million euros), Expansion reported, without citing anyone.

Agbar shares rose 78 cents, or 4.4 percent, to 18.57 euros.

Telecom Italia SpA (TIT IM) and Assicurazioni Generali SpA (G IM): Italy’s biggest phone company and Italy’s biggest insurer will remain Italian, Tarak Ben Ammar, a board member of Mediobanca SpA which holds stakes in both companies, told Corriere della Sera in an interview. Ben Ammar said there are no plans to merge Telecom Italia and Spain’s Telefonica SA.

Telecom Italia rose 0.8 percent to 0.94 euros, Generali fell 20 cents, or 1.4 percent, to 14.6 euros.

To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

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Derivatives Get Second Look From U.S. Congress That Didn’t Act

By Dawn Kopecki and Matthew Leising

June 22 (Bloomberg) -- Congress will take a second shot at the derivatives industry after its decision nine years ago to forgo regulations led to a $592 trillion market that brought financial firms to their knees.

Using President Barack Obama’s regulatory overhaul proposal last week as a foundation, Senate Banking Committee Chairman Christopher Dodd is holding a hearing today on how to rein in a market that grew almost seven-fold since 2000 and complicated government efforts to assess the risk of banks’ interconnected trading when credit markets froze two years ago.

Lawmakers will field ideas from those who want to move all derivatives trades to monitored exchanges as well as from regulators seeking authority over dealers and an analyst who says some contracts should be banned. Members, who exempted private derivatives from oversight in 2000, are targeting the financial instruments after American International Group Inc. needed a $182.5 billion U.S. bailout because of credit-default swap trades on mortgage-linked securities.

“One of the key underlying problems in the whole lead-up to the meltdown was too much leverage, too little capital or too little collateral,” Mark Halverson, a staff director for Senate Agriculture Committee Chairman Tom Harkin, said in an interview.

Harkin, an Iowa Democrat, is pushing his own legislation that would require all over-the-counter derivatives trades be cleared through a regulated exchange. Such an arrangement would subject the contracts to margin and collateral requirements. Harkin, who endorsed Obama’s proposal to move some trades to an exchange and regulate all dealers, still plans to press forward.

Key Player

“I was pleased that the proposal begins to get a handle on the freewheeling derivatives markets that many economists name as a key player in causing the recent economic downturn,” Harkin said in a June 17 statement.

The economy’s longest recession since the 1930s was triggered when credit markets froze in August 2007 after banks such as Lehman Brothers Holdings Inc. found they couldn’t determine the value of trades linked to mortgage bonds.

Trading in credit-default swaps should be banned, Christopher Whalen, managing director of Institutional Risk Analytics in Hawthorne, California, said in prepared testimony for today’s Senate hearing. Regulators are too cozy with the banks in the market to be counted on to make changes, he said.

“The views of the existing financial regulatory agencies, and particularly the Federal Reserve Board and Treasury, should get no consideration from the committee since the view of these agencies are largely duplicative of the views of JPMorgan Chase & Co. and the large OTC dealers,” he said in the remarks.

Hedge Funds

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather. Credit- default swaps were created initially as a way for banks to hedge their risk from loans. They became a popular vehicle for hedge funds, insurance companies and other asset managers to speculate on the quality of debt or on the creditworthiness of companies because they were often easier and cheaper to trade than bonds.

Citadel Investment Group LLC Chief Executive Officer Kenneth Griffin, whose $11 billion hedge fund may be forced to hold capital to back its trades linked to interest-rate swaps and credit-default swaps under the proposed regulations, is also scheduled to testify today. Griffin, 40, wasn’t available to comment before the hearing.

Obama’s proposal would require standardized over-the- counter derivatives contracts to be guaranteed by clearinghouses. The administration also set as a goal that standardized contracts be “executed on exchanges and other transparent trading venues.”

Other over-the-counter derivatives transactions would have to be registered in trade repositories so regulators would be aware of the activity. All trades in the market would face increased capital requirements.

Dodd’s Support

The Obama plan doesn’t say how much of the over-the-counter market would be moved through clearinghouses, only that if any contract had been accepted by a clearinghouse, it would be required to be cleared. Nor does the plan spell out what would define a standardized contract.

Dodd “expects that efforts will be made to expand on the president’s proposal during the committee’s work,” said Kirstin Brost, a spokeswoman for the committee.

It’s a second chance for Congress, whose 2000 exemption helped the market swell to $684 trillion by June 30, 2008, from about $100 trillion in 2000, according to Bank for International Settlements data. Credit-default swaps outstanding ballooned almost 100-fold within seven years to top $62 trillion by the end of 2007, according to estimates from the New York-based International Swaps & Derivatives Association.

Source of Contagion

The Obama administration said in its regulatory proposal that derivatives “became a major source of contagion through the financial sector during the crisis,” instead of dispersing risk as intended.

Banks such as JPMorgan are already subject to capital requirements through their federal regulator. Unregulated hedge funds, energy companies and other corporations “whose activities in those markets create large exposures to counterparties” could also be required under Obama’s plan to set aside cash and collateral to back trades.

“Any of the world’s largest hedge funds would be viewed as systemically important, and I’d forecast the Fed would include them among the financial players they’d keep an eye on under these new regulations,” said Darrell Duffie, a finance professor at Stanford University’s Graduate School of Business in California.

Thick, Resilient Enough

JPMorgan is the largest user of over-the-counter derivatives, with $87.4 trillion in notional value last year, more than the next two largest, Bank of America Corp. and Citigroup Inc., combined, according to the Office for the Comptroller of the Currency.

Treasury Secretary Timothy Geithner, speaking to reporters last week, cited AIG as an example of a large derivatives dealer that sold credit-default swaps and didn’t have enough capital to make good on its positions when the contracts moved against the company.

“The important thing to do is to make sure there’s enough capital against the commitments firms write, whatever form they take,” Geithner said. “A centerpiece of our reform proposal is to make sure those shock absorbers, which are central, vital to the basic stability of the system in the future, are thick enough, strong enough, resilient enough.”

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net.

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Foreign Exchange Market Commentary

Daily Forex Technicals | Written by HY Markets | Jun 19 09 03:43 GMT |

EUR/USD closed lower on Thursday ending a two-day short covering bounce off Tuesday's low. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices is possible near-term. If it renews this week's decline, the reaction low crossing is the next downside target. Closes above the 20-day moving average crossing are needed to confirm that a short-term low has been posted. USD/JPY posted an inside day with a lower close on Thursday as it consolidated some of this week's rally as the dollar extended its gain. The low-range close sets the stage for a steady to lower opening on Friday. Despite today's setback, stochastics and the RSI remain bullish signalling that sideways to higher prices are possible near-term. If it extends this week's rally, the reaction high crossing is the next upside target. Closes below the 10-day moving average crossing would temper the near-term friendly outlook in the market. GBP/USD closed lower due to profit taking on Thursday as it consolidates above the 20-day moving average crossing. The mid-range close sets the stage for a steady opening on Friday. Stochastics and the RSI are neutral to bearish hinting that sideways to lower prices are possible near-term. Closes below the reaction low crossing are needed to confirm that a short-term top has been posted. If it renews the rally off April's low, the 62% retracement level of the 2008-2009 decline crossing is the next upside target. USD/CHF posted an inside day with a lower close on Thursday ending a two-day short covering bounce as the dollar extended its gain. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices are possible near-term. Closes below the reaction low crossing are needed to confirm that a short-term top has been posted. Closes above the reaction high crossing would confirm that a short-term low has been posted. HY Markets http://www.hymarkets.com

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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 19 09 01:31 GMT |

News And Views Data surprises. US data from the Philadelphia Fed and the leading index positively surprised the markets, the S&P500 jumping at the open, and closing up 0.8%. Commodities remained unstirred, however, the CRB index -0.1% on the day. US 10yr treasuries clearly responded, rising 16bp to 3.84%, a record supply next week also contributing. The US dollar, which had been stuck in a 0.5% sideways range during the London session, lurched upwards a couple of hours ago to be +0.5% on the day. It seems a move by the British Bankers Association to expand the Libor fixing panel was behind the lurch, the reasoning being the new panel members are expected to be of lower credit quality, which would raise the Libor fixing rate; the market responded by pushing swap rates higher, in turn supporting the dollar. EUR was contained in a sideways 1.3900 to 1.4000 range before the Libor news, falling to 1.3870 and settling just below 1.3900. GBP saw a volatile range, falling from 1.6460 to 1.6190 during the London morning after a disappointing retail sales report, before recovering to 1.6340. The CHF weakened against the USD from 1.0760 to 1.0900 after the Swiss central bank intervened verbally and supposedly via buying EUR/ CHF. The Canadian central bank repeated its pledge to hold rates until June 2010, and said the CAD was being closely watched, with no obvious effect on the currency. AUD ranged between 0.7925 and 0.8005 until the London afternoon, when it broke higher to 0.8050, settling at around 0.8000. NZD was similarly subdued until an afternoon breakout to 0.6445, settling at 0.6400. AUD/NZD continued its week-long grind lower, to a 1.2480 to 1.2540 range. US Philly Fed jumps to -2.2 in June. The Philly Fed factory survey jumped 20 points this month, and although the headline remained slightly negative, in the detail shipments turned slightly positive. Orders also posted a dramatic improvement although jobs were only marginally less weak. Whilst an undeniably up-beat report, we would note that the NY Fed survey did exactly this a month ago in May, before slipping back in June. Also, the last time the Philly Fed jumped 20+ points was in September last year; in October 2008 it fell 40 points (in the aftermath of the Lehman's collapse). US leading index posted back to back rises of over 1.0% in April-May. Going back 40 years, we cannot find a stronger two month performance. The May gains were driven mainly by the supplier deliveries, interest rate spread, equities, money supply and consumer expectations components. Coupled with the Philly Fed survey, this result has reignited talk of US economic recovery. US initial jobless claims hovered just above 600k for the second week running last week, but the real news was that in the prior week, continuing claims fell a sizeable 148k, their first decline since January this year. Clarification - continuing claims have on occasion fallen this year, but the decline has subsequently been revised away. So before we add this result to the growing swag of evidence pointing to less deterioration in the labour market, we will need to wait for next week's figures at the very least. UK retail sales down 0.6% in May, pay-back for apparent April strength which was due to distortions caused by the timing of Easter and warm weather. May's annual pace of retail volume decline matches February's low point, and those two months represent the slowest annual sales pace since 1992. Also, the June CBI industrial survey only posted the mildest of improvements. Along with huge public sector borrowing numbers in May and deceleration in money supply growth, this added to the weak tone of the UK data. Canadian headline CPI dipped to just 0.1% yr in May, its lowest since 1994. However there was some upward on the core rate. As last year's late cycle gasoline price rises drop out of the annual calculation, and this year's CAD appreciation impacts on prices, the CPI should continue to moderate. Outlook The NZD's short term strength could take it to 0.6470 today, which doesn't damage our medium-term view of a multi-month decline to around 0.5500. US markets tonight could be volatile, given the quadruple witching day, where several important futures and options contracts expire simultaneously. Next week's data calendar is busy, including a number of heavyweight releases such as GDP and the current account, and increased volatility in the NZD is likely. Events Today Date Country Release Last Forecast 19-Jun Jpn Bank of Japan Minutes (May) Ger May Producer Prices %yr –2.7% –3.0% Can Apr Retail Sales 0.30% 0.10% 22-Jun NZ May External Migration 9,100 9,800 May Credit Card Transactions 2.3% – Aus May New Motor Vehicle Sales 0.9% – Jpn Q2 BSI Large Manufacturing –66.0 – Apr Tertiary Industry Index –4.0% 2.30% Ger Jun IFO Business Climate 84.2 85 UK Jun Rightmove House Prices %yr –6.2% – Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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BOJ Members Said Exit Policy Up to Markets, Economy

By Mayumi Otsuma

June 19 (Bloomberg) -- The Bank of Japan should consider whether to stop pumping extra cash into the banking system by evaluating trends in corporate financing and the economy, some policy board members said last month.

They said whether to keep buying corporate debt from banks and providing them with unlimited loans after Sept. 30 “should be determined based on close examination of developments in financial markets and corporate financing,” according to minutes of their May 20-21 meeting published in Tokyo today.

Governor Masaaki Shirakawa said this week that the central bank will decide how to deal with the measures “by the end of September in a predictable manner to market participants.” The Bank of Japan said this week that the country’s worst postwar recession is easing as fiscal stimulus measures worldwide spur demand and companies increase production.

“The governor explicitly indicated the bank will let financial markets know in advance should it decide to make any changes to the policy measures,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “The bank probably wants to allow investors to incorporate policy changes sufficiently beforehand.”

The yen traded at 96.68 per dollar at 9:55 a.m. in Tokyo from 96.66 before the minutes were published.

At the May meeting, the policy board raised its assessment of the economy for the first time since 2006. It lifted the evaluation again this week, saying the economy has “begun to stop worsening.” Still, Shirakawa said he is “cautious” about the rebound because renewed demand may only be temporary.

‘Lose Steam’

“Japan’s economy will probably return to growth this quarter and achieve a pretty solid expansion next quarter,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. “However, the rebound will lose steam next year, when the stimulus effect evaporates. It may well become the shortest recovery since the end of World War II.”

One board member said the central bank needs to pay attention to the risk that bond yields will rise because the government plans to issue more debt. Higher bond yields drive up borrowing costs on mortgages and loans.

The yield on Japan’s 10-year bond rose to 1.47 percent at 9:55 a.m. today after touching 1.44 percent yesterday, the lowest since May 26.

Some members said there’s a risk that companies and households will expect prices to fall as demand slackens. A Cabinet Office official who attended the meeting also alluded to the risk that deflationary expectations may take hold.

Falling Prices

Consumer prices excluding fresh food declined in March and April, and the central bank expects them to keep falling next fiscal year.

At the same time, some members said the bank should watch the risk that commodity prices will increase, stifling the economy’s revival by increasing costs for companies and consumers. Crude oil has risen 20 percent in the past month.

Since lowering the overnight lending rate to 0.1 percent in December, the central bank began buying commercial paper and corporate bonds from lenders. It has also offered to lend to commercial banks limitlessly in exchange for sufficient collateral. The programs expire on Sept. 30.

A weak recovery will probably compel the bank to keep rates on hold until 2012 at the earliest, Nishioka added.

Finance ministers from the Group of Eight nations said over the weekend that they need to begin considering how to roll back policies to counter the financial crisis as their economies show signs of improvement.

Ending Policies

Atsushi Mizuno, a Bank of Japan board member, last month said central banks need to start discussing how to end their unconventional policies even though the global economy is still in a slump.

BOJ policy makers forecast the world’s second-largest economy will return to growth in the year starting next April after contracting for two years.

Gross domestic product will shrink 3.1 percent in the year ending March and expand 1.2 percent in the following 12 months, the central bank said in its twice-yearly outlook on April 30. Policy makers will review the forecasts next month.

One board member said the central bank’s decision in May to start accepting sovereign bonds from the U.S., the U.K., France and Germany should become a permanent measure.

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

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BBA May Increase Number of Banks in Daily Setting of Libor

By Shannon D. Harrington and Liz Capo McCormick

June 19 (Bloomberg) -- The British Bankers’ Association may expand the pool of banks that set the London interbank offered rate in a bid to bolster confidence in the benchmark for more than $360 trillion of financial products around the world.

Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor-setting process, the BBA said yesterday. Banks will have to be “material participants” in the London market, said the BBA, which a year ago said it would look to expand the panel of contributors and possibly add a second daily survey.

The London-based BBA began a review of the 25-year-old system for setting Libor rates last year amid speculation that some banks may have understated their funding costs to avoid being seen as having difficulty raising financing amid a seizure in the credit markets. The rates banks say they pay for three- month dollar-denominated loans fell to 0.61 percent yesterday, from 4.82 percent on Oct. 10.

“Longer-term this change should create more depth and credibility to Libor,” said George Goncalves, chief fixed- income rates strategist at Cantor Fitzgerald LP, one of 17 primary dealers that trade with the Federal Reserve. “More people will trust it. Shorter-term it creates uncertainty in the process and that is what feeds into more volatility, and possibly an uptick in Libor.”

Gaining Attention

Libor, a benchmark rate for everything from mortgages to corporate borrowing costs, gained attention in August 2007 as losses from subprime-contaminated securities made banks wary of lending to each other.

Investors said they were convinced institutions were reporting incorrect Libor figures to keep from appearing that they were in difficulties. The BBA threatened to ban members that deliberately understated rates before beginning a consultation process to discuss improvements.

“The more names you add to the survey the more you dampen the volatility of the results and that’s a good thing,” said Chris Ahrens, Stamford, Connecticut-based head of interest-rate strategy at primary dealer UBS Securities LLC. “But we need to see” which banks join the survey, he said.

The BBA, which isn’t regulated, asks member banks once a day how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. It then calculates averages and publishes them before noon in London. Sixteen banks contribute to the dollar setting, three of which are U.S.-based.

BBA Clarification

“This clarification will not affect the way in which current contributors formulate their rate submissions,” Brian Mairs, a spokesman for the BBA in London, said by e-mail. “It may allow banks that participate in the London markets, whose eligibility for inclusion in the fixing was not previously clear, to apply to join the panels.”

The BBA has “no expectation of the numbers of banks who might apply,” Mairs said. The BBA said it will make a further statement today, he said.

“Most of the banks that are in the panel would tell you that right now it’s not necessarily worth the trouble,” said Carl Lantz, an interest-rate strategist in New York at primary dealer Credit Suisse Securities LLC. “It just brings scrutiny on you. If you put in a high fixing people are saying you’re having problems. If you put in a low fixing people are saying that you’re trying to distort the fixing.”

The BBA first said in June 2008 that it may increase the number of banks that set the rates and was considering the addition of a second daily survey to reflect U.S. trading. London-based ICAP Plc, the biggest broker of transactions between lenders, introduced a new measure of U.S. bank rates last year as an alternative to Libor.

“One can always argue that you’ll get a better fix if you have a larger sample of relative players in the market,” said Laurence Meyer, vice-chairman of Macroeconomic Advisers LLC and a former Fed governor. “There was the somewhat discrediting of Libor earlier and some even suggested that we get a New York sample. This sort of pre-empts something like that.”

To contact the reporters on this story: Shannon Harrington in New York at sharrington6@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net.

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Yen Falls as Signs Global Slump Easing Spurs Demand for Yield

By Yoshiaki Nohara and Ye Xie

June 19 (Bloomberg) -- The yen fell versus the Australian and New Zealand dollars for a second day as signs the global recession is easing spurred demand for higher-yielding assets.

Japan’s currency fell against all 16 major currencies after the Federal Reserve Bank of Philadelphia’s general economic index climbed yesterday to minus 2.2 from minus 22.6 in May, signaling the U.S. recession is bottoming out. The Conference Board’s index of U.S. leading economic indicators also rose more than forecast in May for the second straight month.

“We have seen some encouraging news about the global economy in the last 24 hours,” said Danica Hampton, a currency strategist in Wellington at Bank of New Zealand Ltd., the nation’s third-largest bank. “There’s been some relatively promising data out of the U.S. This is helping underpin growth to currencies like Japanese crosses.”

The yen fell to 61.69 against the New Zealand dollar as of 8:36 a.m. in Tokyo, from 61.56 yen yesterday in New York. The Australian dollar climbed to 77.22 yen from 77.02 yen. Japan’s currency traded at 96.58 per U.S. dollar from 96.47. It fell to 134.30 per euro from 134.17, declining for a third day.

The U.S. dollar rose versus the euro yesterday for the first time in three days after the British Bankers’ Association said it may allow more institutions to take part in the daily survey that sets the London interbank offered rate, the benchmark for more than $360 trillion of financial products around the world. Investors also abandoned bets that the euro would appreciate further after the common European currency failed to strengthen beyond $1.40.

Higher Libor?

“It would be a wider group of banks, so some ‘weaker’ ones who would submit higher rates, thus Libor would aggregate higher,” said Scott Ainsbury, a portfolio manager at New York- based FX Concepts Inc., the world’s largest currency hedge fund with about $12 billion in assets. “The market really has no conviction either way. So people are easy to get squeezed out.”

The dollar traded at $1.3906 per euro from $1.3900. It touched $1.4001 yesterday.

The Swiss franc weakened versus the euro yesterday on speculation the country’s central bank may sell the currency as it approaches the strongest level since March.

The franc slid 0.3 percent to 1.5103 per euro yesterday after rising as much as 0.3 percent to 1.5008. The currency hasn’t reached 1.50 since March 12, when the Swiss National Bank intervened. The SNB and the Basel-based Bank for International Settlements declined to comment on the currency’s turnaround.

Yield Differentials

Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor-setting process, the BBA said yesterday. The BBA threatened in April 16 to ban members that deliberately understated rates before beginning a consultation process to discuss improvements.

“We think it’s the knock-on from the BBA report that’s boosting the dollar,” wrote Benedikt Germanier, a currency strategist in Stamford, Connecticut, at UBS AG, in a research note to clients yesterday. “The simple way to look at it is from a perspective of interest rate differentials moving in favor of the dollar.”

The yield advantage of two-year German bunds over the same- maturity U.S. note narrowed to 0.27 percentage point yesterday, the least since March.

“There is some focus on rising U.S. rates across the curve, and that is lifting the dollar,” aid Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-biggest bank.

Treasuries fell yesterday, pushing yields higher, as reports showed the deepest recession in 50 years may be ending and the U.S. said note sales will increase to a record $104 billion next week. Yields on two-year notes increased 0.09 percentage point to 1.25 percent yesterday.

A “very large” euro sell-order hit the market immediately following the BBA news, said Greg Salvaggio, vice president of capital markets at currency-trading firm Tempus Consulting Inc. in Washington.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net.

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Japan Stocks Rebound on U.S. Economy, Weaker Yen; Shippers Rise

By Masaki Kondo and Kotaro Tsunetomi

June 19 (Bloomberg) -- Japanese stocks rose, trimming a weekly slump, as U.S. economic reports indicated a recession in the world’s biggest economy is easing, helping drive gains in the dollar.

Canon Inc., which gets a third of its sales from the Americas, jumped 2.9 percent as the yen weakened versus the dollar. Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., Japan’s second- and third-biggest shipping lines, rose at least 3 percent after Morgan Stanley raised their ratings. Sumitomo Realty & Development Co. led property stocks higher after Merrill Lynch & Co. boosted share prices estimates on the sector’s three-largest companies.

The Nikkei 225 Stock Average climbed 107.33, or 1.1 percent, to 9,811.05 as of 9:38 a.m. in Tokyo. The broader Topix index rose 11.95, or 1.3 percent, to 923.16.

“The yen’s depreciation will likely give a boost to exporters,” said Juichi Wako, a senior strategist at Tokyo- based Nomura Holdings Inc.

The Nikkei has lost 4.3 percent in the past four days and is poised for the steepest weekly drop since March 6. Companies on the gauge trade at 44.5 times estimated net income, compared with 15.5 times for the Standard & Poor’s 500 Index and 12.8 times for Europe’s Dow Jones Stoxx 600 Index.

In New York, the S&P 500 Index climbed 0.8 percent, breaking a three-day losing streak. The number of Americans collecting unemployment insurance dropped in the week to June 6 by the most since November 2001, the Labor Department said yesterday. The Conference Board, a New York-based non-profit organization, said its leading economic index rose 1.2 percent last month, exceeding the 1 percent gain estimated by economists.

Weaker Yen

The Japanese currency depreciated versus the dollar to as much as 96.73 today from 95.88 at the close of stock trading in Tokyo yesterday. A weaker yen boosts the value of overseas sales at Japanese companies.

Canon leapt 2.9 percent to 3,190 yen, breaking a four-day slide. Sony Corp., an electronics maker that gets a quarter of its sales from the U.S., added 2.6 percent to 2,540 yen.

Kawasaki Kisen jumped 4.4 percent to 431 yen, and Mitsui O.S.K. added 3 percent to 660 yen. Morgan Stanley raised Kawasaki Kisen to “equal weight” and Mitsui O.S.K. to “overweight.”

Sumitomo Realty, Japan’s third-biggest property company, jumped 4.1 percent to 1,771 yen, while bigger rival Mitsubishi Estate Co. climbed 4.3 percent to 1,640 yen. Mitsui Fudosan Co. advanced 3.6 percent to 1,684 yen. Merrill Lynch lifted its estimated share prices for the developers by at least 17 percent.

Nikkei futures expiring in September added 0.8 percent to 9,810 in Osaka and Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

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Stock Futures Discount Lowest Since ‘07 as Credit Freeze Fades

By Alexis Xydias

June 19 (Bloomberg) -- Futures traders are demanding the smallest discounts to speculate on European stocks since June 2007 as equities rally and financial markets recover from last year’s credit seizure.

Markdowns that traders require to exchange the current Dow Jones Euro Stoxx 50 Index futures contract, which expires today, for one that matures in three months was 2.63 index points as of June 17, according to estimates by Frankfurt-based Deutsche Bank AG. The discount averaged 8 points in the two weeks leading up to the December expiration, the widest difference since the data began in March 2006.

The narrowing gap for the so-called rollover shows traders are growing less concerned about financial markets freezing again, like they did when Lehman Brothers Holdings Inc. collapsed in September. It also suggests that investors are growing less pessimistic about stocks in the benchmark index for the euro region’s biggest companies.

“The last remnants of the panic are vanishing,” said Gunnar Stangl, the head of portfolio strategy at Commerzbank AG in Frankfurt. “A normally operating futures market is yet another sign confirming that the panic is over.”

Rollover discounts compare the spread between the market values of current and approaching futures contracts and their so-called theoretical fair values.

The contract on the Euro Stoxx 50 that expires in September traded at 2,406 at 10:48 p.m. in Frankfurt yesterday, compared with its 2,410.95 theoretical value, which takes into account the index price, expected dividend payments, days to expiration and interest rates. The contract that expires today traded at 2,412 compared with a fair value of 2,414.52.

Futures Trading

Futures trading plunged as the Euro Stoxx 50 tumbled from its bull-market high on July 16, 2007, until March 9 of this year and wiped out almost 1.6 trillion euros ($2.2 trillion) in market value. The volume of Euro Stoxx 50 futures fell 63 percent in January from a year earlier to 607 billion euros, the steepest decline this decade, according to data from Frankfurt- based Eurex. In March, open interest had the biggest drop in at least six years, tumbling 40 percent to a four-year low of 48.2 billion euros, the data show.

There are currently 2.8 million Euro Stoxx 50 futures traded on Eurex, Europe’s largest derivatives exchange, with a notional value of 68 billion euros of shares, according to the exchange’s Web site.

Diminishing Discounts

Futures discounts are diminishing along with the cost of borrowing in dollars between banks and the price of protecting European corporate debt from default.

The Libor-OIS spread, a measure of the willingness of banks to lend to each other, has dropped to 37 basis points from 87 before New York-based Lehman’s collapse, the biggest bankruptcy in history. Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings slid as low as 101.75 basis points this month, compared with 102 on Sept. 12, according to CMA DataVision.

The Euro Stoxx 50 is still down 26 percent since the day before the Lehman debacle, even after a three-month, 33 percent rebound. The VStoxx Index, which measures the cost of using options as insurance against declines in the index, has dropped to 32.44 from a record 87.51 in October.

“Seeing Euro Stoxx 50 roll costs revert closer towards a longer-term average is somewhat of a representation of an overall normalization of the market, which would be in line with the decline in volatility and the rebound in equities we had in the last three months.” Pamela Finelli, an equity derivatives strategist at Deutsche Bank in London, said in an interview.

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

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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Jun 18 09 01:24 GMT |

News And Views Risk soggy, but dollar sold. US equities were mixed, tech shares doing well (Nasdaq up 1.0%) but Standard & Poor's downgrades of 22 US banks hurting the bank index (3.8% lower), and the S&P500 closed unchanged. Fedex issued a gloomy outlook to late 2009, wilting some of the green shoots. US CPI was lower than expected, helping 10yr US treasuries rally around 10bp early on, the equities revival later pushing them down to close unchanged. Norway's central bank cut the policy deposit rate 25bp to 1.25%. Credit spreads were wider, Citibank's +100bp over the past two days notable. The dollar index fell around 0.6%. EUR slumped to 1.3825 early London on the weak equities opening, but then followed the reversal to reach 1.3985. GBP's parabola bottomed at 1.6220 and peaked recently at 1.6450, supporting factors including UK unemployment rising by less than consensus, and cautiously optimistic BoE minutes. The stronger yen trend continued, 96.70 to 95.50, Japanese officials raising their assessment of the economy for the second month. AUD copied the patterns of the other majors, 0.7995 to 0.7850 to 0.7985. NZD reached a low of 0.6245 before peaking an hour ago at 0.6370, the weak equities close dragging it back to 0.6340. AUD/NZD made a recent low at 1.2510. US CPI up 0.1% in May. The CPI was constrained to a 0.1% headline gain, despite a 3.1% jump in gasoline prices, by a 0.2% fall in food prices and generally subdued price gains elsewhere (hence the core rate rounding down to 0.1%). The annual CPI fell to -1.3% yr, its lowest since 1950, though the core rate was in the middle of the 1.7%-1.9% yr range that has prevailed since late last year. US current account deficit narrowed from $155bn to $102bn in Q1, much wider than expected, due to the Q4 deficit being revised up by $22bn. The known narrower goods trade deficit was partly offset by a smaller than expected investment income surplus. The Q1 deficit was the narrowest since 2001, and represents a halving of the deficit compared to 2006 and 2007, when it averaged about $200bn per quarter. Eurozone trade deficit €0.3bn in April, its narrowest since April last year, reflecting a 1.3% fall in exports, more than offset by 2.7% slump in imports. That suggests a positive contribution to the economy from net exports at the start of Q2, even though exports' 27.0% yr slump is indicative of the crisis facing the region's exporters. The Bank of England minutes to the June policy meeting showed a unanimous 9:0 vote to keep the bank rate unchanged at 0.50% and continue the quantitative easing program begun in March, and expanded by £25bn in May. The minutes had a cautiously optimistic tone: 'the news over the past month had been mostly encouraging'. On the data front, unemployment rose 39k in May, its smallest rise since July last year. Canadian wholesale sales fell 0.6% in April, their seventh consecutive monthly decline, although in the latest three months, the pace of contraction diminished significantly. Similarly, the leading index fell 0.1% in May, its ninth consecutive fall, but the trend rate of decline has pulled back sharply. These outcomes point to a economy that is still receding, but showing signs of bottoming out. Outlook The NZD has been stuck in a 0.6240 to 0.6400 range for the past three days, and there's nothing on today's horizon to suggest a breakout. Longer term, our view remains negative NZD, the initial target 0.6150. Events Today Country Release Last Forecast Aus Q2 WBC-ACCI Survey of Industrial Trends 34.0 – May Merchandise Imports AUDbn 16.2 – RBA Monthly Bulletin US Initial Jobless Claims w/e 13/6 601k 590k May Leading Index 1.00% 1.00% June Philadelphia Fed Index –22.6 –15.0 UK May Retail Sales Volumes 0.90% –0.3% May Public Sector Net Borrowing £bn 8.5 19.3 May Money Supply M4 %yr 17.40% 17.30% Jun CBI Industrial Trends Survey –56 – Can May CPI %yr 0.40% –0.2% May CPI BoC Core Ex 8 %yr 1.80% 1.60% Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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