More News • Gold Advances From Two-Month Low in Asia As Weaker Dollar Spurs Rebound • Oil Rebounds From Seven-Week Low as Longest Drop This Year D

By Claire Leow

July 9 (Bloomberg) -- Palm oil futures gained for the first time in four days on speculation that an 8 percent drop in the previous three days was excessive and may lure buyers.

The futures slipped below 2,000 ringgit ($559) yesterday for the first time since March 31 on concern a seasonal increase in production in the second half would swell stockpiles and after soybeans, crushed to produce a rival edible oil, dropped to the lowest in more than three months.

“While we are of the view that prices are not likely to turn around in a significant manner from current levels over the next few months, we believe that the 2,000 ringgit a ton mark is a good fundamental support level,” a report by RHB Research Institute Sdn. analyst Hoe Lee Leng said today.

Palm oil for September delivery on the Malaysia Derivatives Exchange gained as much as 1.8 percent to 2,037 ringgit a metric ton after earlier touching 2,000 ringgit. The contract paused at 2,022 ringgit at the 12:30 p.m. break in trading.

Prices won’t “fall substantially below” 2,000 ringgit in the short term, the RHB Research report said.

Palm oil for January delivery in Dalian rose for the first time in six days, advancing 0.4 percent to 5,566 yuan ($815) a ton at the 11:30 a.m. trading break. China is the biggest consumer of edible oils and the largest importer of palm oil.

Oil crushed from soybeans competes with palm oil as the two are used in applications including cooking and biofuel. Soybean oil is trading at a premium of about 30 percent to palm oil, according to Bloomberg data.

Soybeans Gain

Soybeans for November delivery on the Chicago Board of Trade rose as much as 1.8 percent to $9.0775 a bushel. Soybean oil for December delivery rallied as much as 2 percent to 33.56 cents a pound in Asian trading and was at 33.25 cents at 12:57 p.m. Singapore time.

Indonesia and Malaysia, which account for about 90 percent of palm oil production, have forecast record output this year. More than half the annual output in the countries is usually produced in the second half.

Stockpiles in Malaysia gained for the first time in six months in May as production climbed 8.5 percent, the biggest month-on-month increase in a year, the Malaysian Palm Oil Board said on June 10. It will announce June data tomorrow.

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

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Rubber Drops for Sixth Time in Seven Days Amid Demand Concern

By Rattaphol Onsanit

July 9 (Bloomberg) -- Rubber dropped for a sixth time in seven days in Tokyo on concern demand from China may not be enough to counter falling consumption elsewhere.

The commodity, used to produce tires, lost as much as 2 percent today as shares of Japanese car makers slid on speculation a strengthening yen will crimp sales. China’s passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006.

“Investors are looking at how Japan is doing economically,” Navarat Kaewpratarn, marketing official at Future Agri Trade Co. said by phone from Bangkok. “That sometimes has a greater weight than positive news about demand from China.”

Natural rubber for December delivery lost 0.3 percent to 156.7 yen a kilogram ($1,681 a metric ton) on the Tokyo Commodity Exchange at 12:45 p.m. local time.

Prices slumped as much as 4.7 percent yesterday on concern that demand for the raw material may falter amid a global recession.

Honda Motor Co., which makes 51 percent of its revenue in North America, dropped 2.3 percent after the yen rose to a four- month high against the dollar. Japan’s Nikkei 225 Stock Average fell as much as 1.2 percent today.

Rubber for November delivery on the Shanghai Futures Exchange, the most-active contract, added 0.8 percent to 15,355 yuan ($2,247) a ton at the 11:30 a.m. local time break.

China’s passenger-vehicle sales advanced in June as tax cuts and government subsidies helped the nation extend its lead over the U.S. as the world’s largest auto market this year.

Chinese motorists bought 872,900 cars, sport-utility vehicles and other passenger vehicles last month, the China Association of Automobile Manufacturers said in a statement today. In the first half, vehicle sales surpassed the tally in the U.S. by about 27 percent.

To contact the reporter on this story: Rattaphol Onsanit in Bangkok at ronsanit@bloomberg.net

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Oil Rebounds From Seven-Week Low as Slump Is Viewed as Overdone

By Ann Koh and Christian Schmollinger

July 9 (Bloomberg) -- Crude oil rebounded from a seven-week low as traders took the view that the decline in prices during the longest losing streak this year was overdone.

Oil snapped a six-day slump as traders bought contracts based on technical indicators. Crude has fallen below $62.55 a barrel yesterday, the lower resistance level of the Bollinger Band, indicating it was oversold.

“In the short term, $60 may be the intraday support level, but in the longer term we have to go back to fundamentals, which are weak,” said Clarence Chu, an options trader at Hudson Capital Energy in Singapore.

Crude oil for August delivery gained as much as 85 cents, or 1.4 percent, to $60.99 a barrel on the New York Mercantile Exchange, and traded at $60.81 at 3:30 p.m. Singapore time. Futures touched $60.01 yesterday before closing down 4.4 percent at $60.14, the lowest settlement since May 19. Crude has fallen 15 percent since June 29.

Oil “got very close to $60 and probably attracted a bit of buying support around that level,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.

Crude also gained as the Washington-based International Monetary Fund said in a revised forecast yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth. A contraction this year will be 1.4 percent, worse than an April forecast for a 1.3 percent drop, the IMF said.

China’s passenger-vehicle sales rose 48 percent in June, the biggest jump since February 2006, as government stimulus spending spurred a revival in the world’s third-largest economy.

Gasoline Supplies

U.S. oil inventories dropped 2.9 million barrels to 347.3 million last week, the lowest since January, an Energy Department report showed yesterday. Refineries operated at 86.8 percent of capacity, down 0.2 percentage point from the previous week, the department said.

Gasoline stockpiles climbed 1.9 million barrels to 213.1 million in the week ended July 3, more than twice the increase forecast in a Bloomberg News survey, the Energy Department said. Motor fuel inventories were forecast to increase 900,000 barrels last week, according to the median of 16 responses in a Bloomberg News survey.

Gasoline for August delivery rose as much as 2.47 cents, or 1.5 percent, to $1.6580 a gallon in New York. Yesterday, it declined 5.7 percent to settle at $1.6333, the lowest settlement since May 6 and the biggest one-day drop since March 30.

Inventories of distillate fuel, a category that includes heating oil and diesel, rose to the highest since 1985 as consumption dropped to a 10-year low.

Distillate Overhang

Distillate fuel inventories rose 3.74 million barrels to 158.7 million, the biggest gain since January, the report showed. The increase left supplies last week 30 percent higher than the five-year average for the period. Supplies were estimated to rise 1.83 million barrels.

“We may see further price drops, especially for distillates as we have an acute overhang in the U.S. and Europe,” Antoine Halff, head of energy research at Newedge USA LLC in New York, said in an interview with Bloomberg Television.

Total U.S. daily fuel demand averaged 18.4 million barrels in the past four weeks, down 5.9 percent from a year earlier, the report showed. Distillate consumption fell 12 percent to 3.27 million over the period, the lowest since July 1999.

Brent crude for August settlement rose as much as 94 cents, 1.6 percent, to $61.37 a barrel on London’s ICE Futures Europe exchange and was at $61 at 3:06. p.m. in Singapore. Yesterday, it declined $2.80, or 4.4 percent, to $60.43, the lowest settlement since May 25.

Brent is trading at a 32 cent premium to crude oil offered in New York. The West Texas Intermediate contract traded on Nymex is typically priced higher than its European counterpart.

To contact the reporters on this story: Ann Koh in Singapore at akoh15@bloomberg.net; Christian Schmollinger in Singapore at Christian.s@bloomberg.net

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Gold Climbs From Two-Month Low in Asia as Commodities Rebound

By Glenys Sim

July 9 (Bloomberg) -- Gold advanced from a two-month low in Asia as commodities rebounded and the dollar fell against the euro, boosting demand for the metal as a hedge against rising consumer prices.

Bullion, which dropped to $905.10 an ounce yesterday, the lowest since May 6, climbed on inflation expectations as the U.S. government considers more stimulus measures to revive the world’s largest economy. The dollar fell for the first time in six days against a basket of six currencies.

“Those who believe that the printing presses of the governments are going to eventually lead to an out of control inflationary spiral are going to want to accumulate gold, silver and to some extent platinum,” Philip Gotthelf, president of Equidex Brokerage Group in Closter, New Jersey, said in a Bloomberg Television interview.

Gold for immediate delivery rose as much as 0.5 percent to $913.60 an ounce, and traded at $913.08 at 2:21 p.m. in Singapore. Gold for August delivery on the Comex division of the New York Mercantile Exchange was up 0.4 percent at $913.

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” Laura Tyson, an outside adviser to President Barack Obama, said July 7.

Crude oil yesterday led a drop in commodities, on speculation a faltering global economy will damp demand for raw materials from copper to gasoline. The contract for August delivery gained as much as 1.2 percent to $60.87 a barrel today.

The dollar index fell 0.4 percent to 80.411 by 2:22 p.m. in Singapore, aiding the rebound in commodities. A weaker U.S. currency helps boost demand for raw materials priced in dollars.

Among other precious metals for immediate delivery, silver gained 0.3 percent to $12.925 an ounce, platinum rose 0.7 percent to $1,109.50 an ounce and palladium added 0.2 percent to $236.75 an ounce.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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Japanese Stocks Fall for Seventh Day on Yen, Earnings Concern

By Patrick Rial and Kotaro Tsunetomi

July 9 (Bloomberg) -- Japanese stocks slumped for a seventh day on the strong yen and concern the economic recovery will be delayed as companies report falling profits.

Honda Motor Co., which generates almost half its sales in North America, declined 2.7 percent. Electronics retailer Bic Camera Inc. fell 5.1 percent after posting a 57 percent drop in nine-month profit. Chuo Mitsui Trust Holdings Inc., the country’s sixth-largest bank, dropped 5.1 percent after the Nikkei newspaper said a government agency will order the lender to improve its business.

The Nikkei 225 Stock Average fell 129.69, or 1.4 percent, to 9,291.06 at the close of trading in Tokyo, extending its decline to 6.7 percent during the seven-day losing streak. The broader Topix index lost 1.7 percent to 873.91, the lowest close since May 18.

“The market is becoming cautious with regards to the outlook for earnings and the economy,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “If this level of the yen continues, we could see some exporters be forced to cut their profit outlooks.”

Mitsui O.S.K. Lines Ltd. climbed after Nikko Citigroup Ltd. said China’s demand for high quality iron ore should push freight charges up.

In New York, the Standard & Poor’s 500 Index slipped 0.2 percent, led by telecommunications companies after a brokerage cut their profit estimates. Alcoa Inc., which kicked off second- quarter earnings announcements yesterday, gained 4 percent in after-hours trading after reporting a narrower loss than analysts expected.

Yamaha Motor

The Topix soared as much as 36 percent from a quarter- century low reached in March on rising confidence government stimulus steps would revive growth. Worse-than-expected U.S. unemployment data on July 2 prompted concern the recovery will be delayed and helped send the gauge lower for seven-straight days, its longest losing streak since July 2008.

“The economy isn’t going to embark on a sustainable recovery, so we shouldn’t expect stock prices to do so either,” said Kazuyuki Terao, a Tokyo-based manager at the Japanese unit of Allianz SE, which oversees $1.6 trillion.

Honda fell 2.7 percent to 2,325 yen. Ricoh Co., Japan’s second-largest office-equipment maker, declined 3.6 percent to 1,129 yen.

Yamaha Motor Co., the world’s second-largest motorcycle maker, dropped 1.3 percent after Nomura Holdings Inc. gave the stock a “reduce” recommendation. The company’s earnings from U.S. motorcycle and boat sales have suffered as a result of the recession, Nomura’s Shotaro Noguchi wrote in a report dated yesterday. Noguchi began coverage yesterday of the auto industry with a “neutral” stance.

Demand ‘Gloomy’

“While the demand outlook remains gloomy, we consider automakers capable of transforming Japan’s industrial landscape if that is the price of survival,” the analyst wrote, adding that foreign exchange movements “represent the greatest risk.”

The yen rose to as high as 91.81 against the dollar, a level not seen since February, amid concern U.S. earnings will show weakness. The currency later weakened to as low as 93.52, helping export-related shares to pare declines.

Bic Camera tumbled 5.1 percent to 36,100 yen after sluggish sales of air conditioners and personal computers caused earnings to fall for the nine months to May 31. Union Tool Co., a maker of drill bits used for piercing printed circuit boards, plunged 7 percent to 2,315 yen after swinging to a net loss in the first half of the year. Shiseido Co., Japan’s largest maker of cosmetics and toiletries, fell 2.7 percent after Nomura cut the stock to “neutral” on the view that domestic sales will likely remain weak.

Banks, Brokerages

Chuo Mitsui slumped 5.1 percent to 316 yen. Aozora Bank Ltd. dropped 4.6 percent, while Shinsei Bank Ltd. fell 3.6 percent. The Financial Services Agency will force the three banks to submit business improvement plans after they failed to hit profit targets for companies receiving public funds, the Nikkei reported.

Daiwa Securities Group Inc., Japan’s second-largest brokerage, slipped 2.4 percent to 519 yen after the company said it will raise about 40 billion yen less in a new share sale than originally targeted.

Mitsui O.S.K., the world’s largest operator of iron-ore vessels, rose 0.5 percent to 558 yen. Naoko Matsumoto, an analyst at Nikko Citigroup, lifted her recommendation on the company to “buy.” The decline in quality of China’s domestically produced iron ore should lead to more imports from countries such as Brazil, boosting cargo rates, the analyst wrote.

“Equities are now at the level where the probability of further gains seems about even with the chance of losses, prompting some investors to lock in profits,” said Yuichi Chiguchi, who helps manage about $8.6 billion at Diam Co. in Tokyo. “From a very long-term perspective this is a good time to be a buyer.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

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Air France, ArcelorMittal, EDF, Sperian: French Stocks Preview

By Laurence Frost

July 9 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses after company names and prices are from the last close.

France’s CAC 40 Index fell 38.86, or 1.3 percent, to 3,009.71, the lowest since April 23. The gauge has slumped 11 percent from its high on June 1 amid speculation a three-month rally in equity prices has outpaced expectations for a recovery in the economy and earnings.

Air France-KLM Group (AF FP): Europe’s biggest carrier sees no sign of a recovery in traffic and may resort to temporary layoffs later in the year, Le Figaro said, citing Chief Executive Officer Pierre-Henri Gourgeon. The shares dropped 24.4 cents, or 2.8 percent, to 8.34 euros.

Air Liquide SA (AI FP): The world’s biggest maker of industrial gases purchased a 75 percent stake in Saudi Arabia- based Al Khafrah Industrial Gases. It didn’t give financial terms. The shares lost 61 cents, or 1 percent, to 62.54 euros.

ArcelorMittal (MT NA): The world’s biggest steelmaker said it’s in “advanced discussions” with lenders to change the leverage covenant for its main banking facilities for a year. The company said it doesn’t anticipate breaching the existing covenant. The shares dropped 1.07 euros, or 4.9 percent, to 21.01 euros.

Electricite de France SA (EDF FP): Europe’s biggest power producer may sell all or part of its RTE power-distribution network, La Tribune reported, citing an interview with Chief Executive Officer Pierre Gadonneix. The company also thinks it will receive the necessary approvals in the U.S. to buy 50 percent of Constellation Energy Group Inc.’s nuclear-power business “by the fall,” according to the newspaper. The shares gained 4.5 cents, or 0.2 percent, to 30.95 euros.

Kaufman & Broad SA (KOF FP): The real-estate developer swung to a loss of 27.5 million euros in the first half from a year-earlier profit of 11.7 million euros. The shares added 6 cents, or 0.5 percent, to 12.36 euros.

Maurel & Prom SA (MAU FP): The oil exploration company started buying back its 2010 exchangeable bonds for 22.80 euros each. The results of the buyback will be published on July 15. The shares fell 49 cents, or 4.4 percent, to 10.77 euros.

NRJ Group SA (NRG FP): The operator of French commercial radio station NRJ signed a licensing accord with Canadian broadcaster Astral Media Inc. The shares closed unchanged at 4.84 euros.

Sperian Protection SA (SPR FP): The company, which manufactures equipment designed to protect people in hazardous work environments, won a 25 million-euro order for respiratory masks from the French government. The shares declined 1.18 euros, or 3.2 percent, to 35.60 euros.

To contact the reporter on this story: Laurence Frost in Paris at lfrost4@bloomberg.net.

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Asian Stocks Fall for Seventh Day; Honda Motor, Wesfarmers Drop

By Jonathan Burgos

July 9 (Bloomberg) -- Asian stocks fell for a seventh day, the longest losing streak since December 2007, as a stronger yen threatened the value of Japanese exports and Australian unemployment rose.

Honda Motor Co., which makes 51 percent of its revenue in North America, dropped 2.9 percent as the yen rose to a four- month high against the dollar. Wesfarmers Ltd., Australia’s second-largest retailer, sank 3 percent as the statistics bureau said the jobless rate climbed to the highest in almost six years. Hang Lung Properties Ltd., a developer with investments in China, slid 3.6 percent in Hong Kong on speculation the Chinese central bank will curb lending, damping demand for real estate.

The MSCI Asia Pacific Index lost 0.4 percent to 100.14 as of 3:10 p.m. in Tokyo, taking its seven-day decline to 3 percent. The gauge had climbed as much as 49 percent from a more than five-year low on March 9 on optimism government stimulus measures will revive global growth.

“Markets need to come off some more before people start buying,” said John Koh, who helps manage $1.1 billion at MEAG Hong Kong Ltd. “There is no real reason to come back in. Investors are waiting for earnings to show a recovery is on track.”

Japan’s Nikkei 225 Stock Average declined 1.4 percent, while Hong Kong’s Hang Seng Index lost 0.6 percent. Taiwan’s Taiex Index climbed 1.2 percent.

Taiwan Semiconductor Manufacturing Co. Ltd. climbed 2 percent after Bank of America Corp.’s Merrill Lynch unit recommended investors buy the stock. Chunghwa Picture Tubes Ltd. surged 6.8 percent as the Economic Daily News reported a partner will invest in company. Manila Electric Co. jumped 4.1 percent while CSR Ltd., Australia’s second-largest maker of building products, advanced 5.3 percent on forecasts of higher earnings.

Government Stimulus

Futures on the Standard & Poor’s 500 Index added 0.4 percent after Alcoa Inc., which kicked off second-quarter earnings announcements in the U.S. yesterday, posted a narrower loss than analysts expected. The S&P 500 fell 0.2 percent yesterday, led by telecommunications companies after Sanford C. Bernstein & Co. cut their profit estimates.

Optimism government stimulus measures will revive global growth has fueled the MSCI Asia Pacific Index’s rally since March. Group of Eight leaders said yesterday the economic recovery from the steepest recession since World War II was too fragile for them to consider reversing efforts to pump money into the economy.

The Bank of Korea left the benchmark interest rate unchanged at a record low for a fifth month today. The central bank follows counterparts in Australia and Europe, which both kept borrowing costs at historic lows in the past week to support their economies.

Stronger Yen

Japanese exporters declined as the yen rose to as high as 91.80 against the dollar, a level not seen since February, amid concern U.S. earnings will show weakness. The currency most recently changed hands at 92.98 per dollar, compared with 94.24 at the close of equity trading yesterday.

Honda dropped 2.9 percent to 2,320 yen. Toyota Motor Corp., the world’s largest automaker, fell 1.7 percent to 3,410 yen. Nissan Motor Co. Ltd., Japan’s No. 3 automaker, dropped 2.9 percent to 532 yen.

“If this level of the yen continues, we could see some exporters be forced to cut their profit outlooks,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “The market is becoming cautious with regards to the outlook for earnings and the economy.”

Australian Unemployment

The number of Australians employed dropped 21,400 from May, the country’s statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent from 5.7 percent.

Wesfarmers, which runs businesses from mining to insurance, sank 3.2 percent to A$22.06. Australia & New Zealand Group Ltd. declined 2.6 percent to A$15.88.

In Hong Kong, Hang Lung fell 3.6 percent to HK$22.70. China Overseas Land & Investment Ltd., a developer controlled by the country’s construction ministry, dropped 3.5 percent to HK$16.18.

New loans in China rose almost fivefold in June, central bank figures showed yesterday. Chinese banks have extended 47 percent more loans this year than the central bank’s minimum target for 2009, after the government eased lending restrictions to counter an export collapse.

“The rise in new loans is much larger than expected,” said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong. “People are worrying that the banks are taking too much risk now. The impact will be on banks and developers because their earnings will suffer.”

‘Apparently Improving’

Taiwan Semiconductor climbed 2 percent NT$55.5 after Merrill upgraded the stock to “buy” from “neutral.” United Microelectronics Corp., which Merrill raised to “buy” from “underperform,” was unchanged at NT$11.65 after earlier climbing 2.2 percent.

Prospects for demand in the second half of this year and for 2010 “are apparently improving,” analysts including Daniel Heyler wrote in a note dated today.

Chunghwa Picture Tubes surged 6.8 percent to NT$5.17. The company will have a strategic partner investing in the company in two months, the Economic Daily News reported, citing Chairman Lin Wei-shan. Chunghwa aims to swing to profit in the fourth quarter, the newspaper reported Lin said.

AU Optronics Corp., Taiwan’s biggest liquid-crystal display maker, climbed 5.4 percent to NT$36.15, while Chi Mei Optoelectronics Corp., Taiwan’s second-biggest liquid-crystal display maker, rose 5 percent to NT$19.05. The companies said they expect third-quarter revenue to rise from the previous three-month period on a global glass shortage.

Higher Profit?

Manila Electric jumped 4.1 percent to 176 pesos, a record high. Profit may rise to between 13 billion pesos ($270 million) and 15 billion pesos this year from 3.14 billion pesos in 2008 after the company received government approval in April to increase electricity tariffs for the first time in six years, Director Alan Ortiz said yesterday in a phone interview.

In Sydney, CSR advanced 5.3 percent to A$1.60. There is “a reasonable prospect” that earnings before interest and tax, before significant items, will be “slightly higher than last year,” in the year ending March 31, 2010, Managing Director Jerry Maycock said today in a presentation.

To contact the reporter for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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Barratt, Hays, Premier Oil, Xstrata: U.K., Irish Equity Preview

By Charlie Duxbury and Adam Haigh

July 9 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses and prices are from the last market close.

The benchmark FTSE 100 Index fell 46.77, or 1.1 percent, to 4140.23. The FTSE All-Share Index dropped 1.2 percent and Ireland’s ISEQ Index rose 0.5 percent.

Associated British Foods Plc (ABF LN): The owner of the Primark discount fashion chain said sales from continuing operations rose 19 percent in the year to date. The shares slipped 3 pence, or 0.4 percent to 765 pence.

Barratt Developments Plc (BDEV LN): The biggest U.K. homebuilder said it has begun to start building on new developments following signs the housing market is stabilizing. The shares fell 5.5 pence, 3.4 percent, to 154.5.

Hays Plc (HAS LN): The U.K.’s largest recruitment agency said fourth-quarter net fees fell 40 percent on a like-for-like basis as the company faced “another tough quarter” with continued reductions in demand across all of the 28 countries in which it operates. Shares dropped 0.75 pence, or 0.9 percent, to 81 pence.

JJB Sports Plc (JJB LN): The sports retailer will seek shareholder support for a change in rules that permit conflicts of interest where they are in the company’s broader interests, the Financial Times reported, without saying where it got the information. The shares fell 2.75 pence, or 11 percent, to 21.75 pence.

Man Group Plc (EMG LN): The largest traded hedge fund manager said funds under management declined to $43.3 billion at the end of June from $46.8 billion at the end of March. The shares were down 6.75 pence, or 2.7 percent, to 239.25 pence.

Marks & Spencer Group Plc (MKS LN): The U.K.’s biggest clothing retailer and Home Retail Group Plc were raised to “buy” at Citigroup Inc., which cited a “rapid improvement in consumer cashflow prospects.” Marks & Spencer shares slid 2 pence, or 0.7 percent, to 306.25. Home Retail lost 1.75 pence, or 0.7 percent, to 260.

PartyGaming Plc (PRTY LN): The owner of the PartyPoker.com online-gambling brand said sales remained “robust” since April 6 and are “in line” with the first quarter of 2009. The shares fell 4.25 pence, or 1.7 percent, to 240.5 pence.

Premier Oil Plc (PMO LN): The U.K. explorer with projects in Europe, Asia and Africa said production rose to 39,700 barrels of oil equivalent a day in the first half of this year from 38,000 barrels a day in the year-earlier period. The company’s shares declined 27 pence, or 2.6 percent to 1,026 pence.

Redrow Plc (RDW LN): The U.K. homebuilder said its full- year results are set to be at the lower end of analysts’ estimates. The company said net debt at June 30 was 215 million pounds, below its 225 million-pound target. The shares fell 0.75 pence, or 0.4 percent, to 212.5 pence.

Xstrata Plc (XTA LN): The world’s biggest ferrochrome producer’s offer to combine with Anglo American Plc (AAL LN) may collapse as all of Anglo’s leading institutional shareholders are understood to have turned down the nil-premium merger of equals, the London-based Times reported, citing unnamed shareholders. Anglo’s shares fell 0.64 pence, or 3.9 percent, to 1,563.5 pence. Xstrata shares fell 22.9 pence, or 3.8 percent, to 587.1 pence.

To contact the reporters responsible for this story: Charlie Duxbury in London cduxbury@bloomberg.net; Adam Haigh in London at ahaigh1@bloomberg.net

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European, U.S. Stock Futures Rise; Asia Shares Fall for 7th Day

By Sarah Jones

July 9 (Bloomberg) -- European and U.S. stock futures climbed after Alcoa Inc. kicked off the second-quarter earnings season by reporting results that beat analysts’ estimates.

BHP Billiton Ltd. and Anglo American Plc may be active after Alcoa, the largest U.S. aluminum producer, posted a smaller-than-estimated loss. Daimler AG and PSA Peugeot Citroen may climb after Bank of America Corp. raised European automakers to “overweight” and data showed car sales in China surged the most in more than three years last month.

Futures on the Dow Jones Euro Stoxx 50 Index added 0.8 percent to 2,300 at 7:19 a.m. in London. The U.K.’s FTSE 100 Index may open 15 points higher, according to CMC Markets, before the Bank of England announces its decision on interest rates today.

Standard & Poor’s 500 Index futures climbed 0.6 percent, indicating the benchmark gauge for U.S. equities may rebound from its lowest level since May 1. The MSCI Asia Pacific Index slipped 0.4 percent today, falling for a seventh straight day for the first time since 2007.

Europe’s Stoxx 600, which yesterday fell for a fifth consecutive day, has retreated 7.8 percent since June 11 on speculation share prices have outpaced the outlook for the economy after a three-month rally pushed valuations to the highest level since 2004.

Second-Quarter Earnings

BHP, the world’s largest mining company, and Anglo American may be active. Alcoa’s results beat estimates after production cuts and workforce reductions helped the company save money. The aluminum producer posted a loss excluding certain items of 26 cents a share, narrower than analysts’ average estimate for a 38-cent loss.

Profits fell an average 34 percent at S&P 500 companies in the second quarter and will decrease 21 percent from July through September, according to analyst projections compiled by Bloomberg. Earnings slumped 33 percent during the first three months of 2009, and plunged 61 percent from October through December 2008.

Daimler and Peugeot may gain. Bank of America raised European automakers to “overweight” from “neutral” on optimism the economy will recover this year.

Separately, China’s passenger-vehicle sales surged 48 percent in June, as government stimulus spending spurred a revival in the world’s third-largest economy.

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

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Walmex Upgraded to ‘Overweight’ at Morgan Stanley

By Shiyin Chen

July 9 (Bloomberg) -- Wal-Mart de Mexico SAB, Latin America’s largest retailer, was upgraded at Morgan Stanley, which cited the company’s ability to control costs and the prospects for improving operating momentum.

Walmex, as the company is known, was raised to “overweight” from “equal-weight,” Morgan Stanley analysts led by Lore Serra wrote in a report today. The company’s American depositary shares may rise to $35 apiece by the middle of 2010, they added.

Walmex slipped 1.8 percent to $28 yesterday, trimming its gains this year to 3.7 percent. Second-quarter profit rose 16 percent to 3.8 billion pesos ($281 million) on higher sales related to the swine-flu outbreak.

“Second-quarter results, released last night, mark two consecutive quarters of strong expense control, a positive sign,” the analysts wrote. “Valuation seems reasonable relative to the retailer’s medium-term growth potential.”

Revenue climbed 11 percent to 64 billion pesos, the Mexico City-based company said in an e-mailed statement yesterday.

Walmex benefited in April and May as consumers stocked up on food and medical supplies amid “panic buying” following the swine-flu outbreak, which brought the country to a standstill, said Raquel Moscoso, an analyst at IXE Grupo Financiero SA in Mexico City.

The company was projected to post profit of 3.6 billion pesos, according to the median estimate of six analysts surveyed by Bloomberg.

Walmex said that sales at stores open at least one year dropped 0.1 percent in June, compared with the year-earlier period, dragged by a 2.2 percent decline in the value of the average purchase. The company’s banking unit posted a loss of 133 million pesos for the quarter.

Wal-Mart Stores Inc., the world’s biggest retailer, owns two-thirds of Walmex.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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AIG Stock May Have Zero Value After U.S. Repaid, Citigroup Says

By Erik Holm and Hugh Son

July 9 (Bloomberg) -- American International Group Inc., the insurer bailed out four times by the government, will likely have no value left for private shareholders after repaying the U.S., Citigroup Inc. said.

“Our valuation includes a 70 percent chance that the equity at AIG is zero,” said Joshua Shanker, an analyst at Citigroup, in a note to investors late yesterday cutting his price target on the New York-based insurer by more than half.

Outgoing Chief Executive Officer Edward Liddy is under pressure from lawmakers to sell assets to help repay the $182.5 billion rescue package that was required to prop up the insurer after losses on credit-default swaps tied to U.S. home loans. The company said last week that other derivatives, backing about $193 billion in assets for European banks, could have a “material adverse effect” on AIG’s results.

“The company has not been forthcoming about the sequence of events that would result in a loss” on the European contracts, Shanker said. “Even a proportionally small loss could be significant.”

Liddy said last month at the firm’s annual meeting that the insurer has an “excellent chance” of repaying the government. Liddy’s remarks echo comments he made to Congress in May when he said the company can pay back a government credit line and $40 billion stock investment within five years. The insurer may need more time if markets worsen, he said then. Christina Pretto, a spokeswoman for AIG, had no comment yesterday.

Liddy has announced deals to raise about $6.7 billion in asset sales since the first rescue in September and said he may hold public offerings for stakes in AIG units after the company struggled to sell the businesses in their entirety. Liddy, appointed to run the company after AIG agreed to turn over a stake of almost 80 percent to the U.S., said in May he plans to step down once a successor is found.

Motivation ‘Compromised’

“The CEO’s motivation and ability to lead may be compromised by his preparations to transition the company’s top seat to another,” Shanker said.

AIG dropped 65 cents, or 4.7 percent, to $13.10 yesterday in New York Stock Exchange composite trading, and has declined 44 percent since the firm implemented a 1-for-20 reverse stock split after the close of trading June 30.

AIG split the stock after the company plunged more than 95 percent in the past two years, saying that a higher price may attract institutional investors who don’t typically buy shares trading for less than $5.

“We believe investors have come in on the short side in anticipation of future financial woes,” Shanker said, lowering his price target to $14 from $36. He said the company has a 20 percent chance of continuing to operate as a scaled-back commercial insurer, a 5 percent chance of restructuring its government agreement again, and a 5 percent chance of restructuring its capital position using divestitures.

Short Selling

Short selling is when hedge funds and other investors borrow shares and then sell them betting their price will fall. If it does, they buy the shares back at the cheaper price, return them to the lender of the shares and keep the difference.

AIG was cut to “sell” by Standard & Poor’s equity analyst Catherine Seifert yesterday on the prospect that more investors will bet against the shares. The split “may ease the mechanics of shorting AIG shares,” Seifert said. She previously rated the shares “hold.”

The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and an investment of as much as $70 billion. AIG plans to reduce its debt under the credit line by $25 billion by handing over stakes in two non-U.S. life insurance units, the insurer said last month. AIG has tapped about $40 billion from the line.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

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Alcoa, Human Genome, Kennametal, Verigy: U.S. Equity Preview

By Lu Wang

July 9 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Alcoa Inc. (AA US): The largest U.S. aluminum producer reported a second-quarter loss that was narrower than analysts estimated after production cuts and workforce reductions helped the company save money.

Data Domain Inc. (DDUP US): The maker of technology that conserves storage space agreed to a $2.1 billion acquisition by EMC Corp. (EMC US), backing out of a previous deal with NetApp Inc. (NTAP US).

Human Genome Sciences Inc. (HGSI US): The company’s experimental anthrax treatment, raxibacumab, increased survival in animals infected with the deadly disease, a U.S.-funded study said.

Kennametal Inc. (KMT US): The company, which supplies tools to the mining and energy industries, said it plans to sell 6.5 million shares, raising money to pay debt.

Verigy Ltd. (VRGY US): The maker of semiconductor-testing equipment said it plans to sell $110 million of convertible notes. Proceeds may be used to fund potential purchases.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Europe’s Economy Shrinks Most on Record on Exports

By Simone Meier

July 8 (Bloomberg) -- Europe’s economy contracted by a record in the first quarter as exports dropped and companies cut spending and jobs to weather the slump in demand.

Gross domestic product in the 16-member euro region shrank 2.5 percent from the fourth quarter, when it declined 1.8 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest drop since the data were first compiled in 1995 and matches an estimate published on June 3. Investment fell 4.1 percent and exports dropped 8.8 percent.

The economy has shown some signs of recovery from the worst recession since World War II, with measures of business confidence and manufacturing improving in the second quarter. Industrial output in Germany, Europe’s largest economy, surged the most in almost 16 years in May, according to a separate report today.

“The rate of contraction within the euro region clearly moderated substantially in the second quarter,” said Howard Archer, chief European economist at IHS Global Insight in London. “The outlook still looks far from bright and we suspect that a sustainable recovery will be delayed until 2010.”

Euro-area consumer spending fell 0.5 percent in the first quarter, the EU report showed. Government spending rose 0.2 percent and imports fell 7.6 percent. From a year earlier, overall GDP declined 4.9 percent, more than the 4.8 percent estimate.

‘Great Uncertainty’

Germany’s economy shrank 3.8 percent in the first quarter, the biggest drop since data were first compiled in 1970. Italian GDP contracted 2.6 percent, the most since records began in 1980, while the economies of France, Spain and the Netherlands also contracted.

“In the middle of next year, in the second half, we will see some countries returning to positive growth,” ECB Executive Board member Jose Manuel Gonzalez-Paramo told reporters in Madrid today. “That scenario is still surrounded by great uncertainty.”

The World Bank on June 22 cut its outlook for this year, forecasting that the global economy will contract 2.9 percent, compared with a previously projected 1.7 percent. In 2010, the economy may expand 2 percent, the Washington-based lender said.

Unemployment Rising

In Europe, investor confidence dropped for the first time in four months in July. Companies from Austrian Airlines AG to ThyssenKrupp AG are cutting jobs and the region’s unemployment rate rose to 9.5 percent in May, the highest in a decade.

PSA Peugeot Citroen, France’s largest automaker, said yesterday that first-half car and light-truck sales dropped 14 percent as the global slump eroded demand.

Governments have stepped up spending to protect their economies and the ECB this month kept its benchmark interest rate at a record low of 1 percent. It also started buying 60 billion euros ($83 billion) of covered bonds, securities backed by mortgages and public-sector loans, to stimulate the economy. ECB President Jean-Claude Trichet said on July 2 that the euro- region economy is probably past the worst and may show a “gradual recovery” by mid-2010.

MAN SE, Europe’s third-largest truckmaker, probably broke even in the second quarter as the market for commercial vehicles showed signs of recovery, CEO Hakan Samuelsson said on July 3.

“We have reached the bottom,” Samuelsson said. “We are quite sure and positive on long-term transport demand.”

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

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Darling Gives FSA, BOE New Power Over U.K. Banks

By Gonzalo Vina

July 8 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling said he’ll give the Financial Services Authority and Bank of England more powers over U.K. banks and curtail risky practices that triggered the worst recession in a generation.

The Treasury also will propose increasing competition among banks by bolstering mutual lenders owned by their customers. It will force the industry to pay a levy funding education for consumers about how to manage their money. It will require banks to limit executive pay and improve the caliber of directors.

The measures are aimed at preventing a repeat of the turmoil in markets that forced the U.K. to take on 1.4 trillion pounds ($2.3 billion) of liabilities and controlling stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. Darling has coordinated his proposals with President Barack Obama’s administration in the U.S.

“The world economy has been hit by a severe financial crisis,” Darling said in a statement to Parliament in London today. “Its origins lie in failures in the banking system around the world. Irresponsible pay practices made banks take unnecessary risks.”

Darling said he’s adopting all the recommendations made in March by FSA Chairman Adair Turner, who called for a “revolution” in the way the industry is governed. Those plans include requiring banks to hold more capital and hedge funds to be more open with regulators. Turner suggested banks write mortgages for no more than the value of the homes against which they’re secured, though Darling didn’t mention that today.

Questions Outstanding

The chancellor’s comments brushed over the specifics of exactly what levers the government will develop to rein in the most risky lending practices, saying he will consult finance ministers from the Group of 20 nations on more detailed plans.

“I suspect this paper will be greeted with a great sigh of relief,” said Vince Cable, a lawmaker from the Liberal Democrat opposition who speaks on finance. “It is yet another indication that we are getting back to business as usual.”

Those proposals already have attracted criticism. The British Bankers’ Association has said the plan to reorganize units to lower risk may lead some lenders to relocate abroad. Today, the lobby group welcomed Darling’s proposals and said it would work with ministers on the details.

Industry View

“Banks recognise the need for change and will continue to work positively with all the relevant authorities to ensure the long term success of the U.K. economy and the banking sector,” BBA Chief Executive Angela Knight said in a statement.

Parliament will start work on drafting laws to implement Darling’s plan after its summer recess ends in October. The Treasury issued a draft of proposed legislation today.

Darling brushed over exactly what he plans to do to rein in executive pay at banks, saying he’d develop specific proposals after reviewing a report by David Walker, a senior adviser at Morgan Stanley. He issues his proposals next week.

“We need a change of culture in the banks and their boardrooms, with pay practices that are focused on long-term stability and not short-term profit,” Darling said, adding that he will ask the FSA to report annually on the issue. “Boards and institutional investors must become better equipped, with more effective risk management and greater independence of non- executives who must not be afraid to ask searching questions.”

Bank Supervision

At a less-developed stage are proposals for “macro- prudential supervision” of banks, which aim to limit lending excesses during a boom and strengthen institutions during a slump. Darling said there’s no consensus yet on what tools are required to “lean against the wind,” although central bankers probably will have the most important role to play.

“The principle of leaning against the cycle is easy to agree,” Darling said. “Deciding what action to take, and when, is far more complex.”

George Osborne, the lawmaker for Britain’s Conservative opposition who speaks on finance, said it was a concern that Darling hasn’t yet cleared up whether the central bank or FSA will have the decisive role in keeping banks out of trouble.

“Institutional jealousies and blurred lines of responsibility means everyone gets involved but no one gets in charge,” Osborne said in Parliament. “The Labour Party wants to stick with the financial system that failed us, that they created.”

Big Banks Preserved

Darling also rejected the case for splitting up the biggest institutions to protect retail depositors from the risks of investment banking. Instead, he said authorities will require banks to have in place detailed plans to unwind their businesses in the event they fail or go bankrupt.

“The FSA and the Bank of England will make institutions put in place practical resolution plans which can be deployed in the event they get into difficulties,” Darling said.

The FSA will get a new statutory duty to preserve the financial stability of the economy and extended power to develop the rules it thinks are needed to oversee banks. It will have tougher powers to impose penalties against misconduct, though Darling didn’t say exactly what those will be.

“Darling did not say that much,” said Thomas Kirchmaier, professor of management at the London School of Economics. “I would have liked more concrete proposals on competition and how to improve the supervisory framework. It looks like the old times with slightly revised terms.”

G-20 Talks

British officials will consult G-20 nations later this year when the organization’s finance ministers meet in London, and at that time Darling will unveil proposals to take big banks into custody when they run into trouble. He also wants tighter standards for the derivatives market to keep problems there from spreading.

The Bank of England, FSA and Treasury each will contribute officials to a new Financial Stability Council aimed at monitoring risks to the economy.

“Financial institutions in many countries took on too much risk,” Darling said. “They became over-reliant on wholesale funding, too exposed to particular products. Some financial institutions had little appreciation of what was going on inside their businesses.”

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net.

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Democrats Split on Stimulus as Job Losses Mount, Deficit Soars

By Matthew Benjamin

July 8 (Bloomberg) -- Democrats who control the levers of power in Washington are divided over whether to push for more deficit spending to end the recession and stem job losses, complicating the possibility of a second stimulus bill.

“We need to be open to whether or not we need further action,” House Majority Leader Steny Hoyer, a Maryland Democrat, told reporters yesterday. Senate Majority Leader Harry Reid of Nevada countered that “there is no showing to me that another stimulus is needed.”

President Barack Obama underscored the dilemma by addressing both sides of the argument. In an interview with ABC News yesterday, he said unemployment approaching 10 percent is something “we wrestle with constantly.” He added that spending more borrowed money is “potentially counterproductive.”

The split reflects two major challenges facing the Democrats: Record budget deficits that make additional spending much tougher to pass and a 26-year-high unemployment rate of 9.5 percent that is expected to rise to double digits.

“They’re between a rock and a hard place,” said Stuart Rothenberg, editor of the Rothenberg Political Report in Washington.

The U.S. economy lost 467,000 jobs in June, exceeding economists’ forecasts, while the federal budget deficit is projected by the Congressional Budget Office to top $1.8 trillion this year and $1.4 trillion in fiscal 2010. That’s provoked criticism of the $787 billion stimulus bill passed in February as either wasteful or not large enough.

Borrowing Surge

The Treasury is increasing debt sales to pay for the spending. After more than doubling note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to Barclays Plc. The second-half sales would be more than the total amount of debt sold in all of 2008.

The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the bill approved in February was “a bit too small,” said Laura Tyson, an adviser to Obama during last year’s presidential campaign who now sits on the White House’s Economic Recovery Advisory Board.

Rhode Island Senator Sheldon Whitehouse, a Democrat whose home state has a 12 percent jobless rate, told ABCNews.com that a second stimulus is “probably needed.” Action by Congress would “probably take place towards the end of the year,” Whitehouse said.

With the White House and congressional Democrats focused on a major health-care overhaul and a climate bill, some lawmakers expressed pessimism about the likelihood of such legislation.

Deferring to Obama

“I’m not sure how you would do it,” said the Senate’s second-ranking Democrat, Dick Durbin of Illinois. He said he would leave any decision on the need for a fiscal stimulus to “the president’s evaluation.”

Republicans seized on the unemployment rate and job losses of about 6.5 million since the recession began in December 2007 as validation of their vote against the measure in February.

Senate Republican leader Mitch McConnell of Kentucky said in a floor speech yesterday that Democratic proponents of the stimulus program “over-promised on results and now their predictions are coming back to them.”

McConnell mocked the idea of another stimulus. He called it “mind-boggling” and a worse idea than the previous one, which he said “has been demonstrably proven to have failed.” He added, “There is no education in the second kick of a mule.”

Bernstein Defense

The White House dismissed calls to augment or alter the initial legislation.

“It’s working, it’s demonstrably working,” said Jared Bernstein, chief economic adviser to Vice President Joseph Biden, whose office is overseeing the rollout of the first stimulus.

Bernstein said about $200 billion of the $787 billion allocated in the bill has been obligated or spent, adding that the effects of the spending and tax cuts will continue to ramp up in the next few months.

“There is no conceivable stimulus package on the face of this earth that would fully offset the deepest recession since the Great Depression,” Bernstein said in a telephone interview yesterday.

The Obama administration may have to stick with that argument, as more spending is unlikely in the face of record deficits, said Stan Collender, a former House and Senate budget analyst.

“Adding additional spending or tax cuts right now would be very difficult,” Collender said. He added, however, that if the economy deteriorates, another bill to juice the economy may become possible.

“Right now it doesn’t seem to be justified,” said Collender, managing director of Qorvis Communications in Washington. “Come September, it might be.”

To contact the reporter on this story: Matthew Benjamin in Washington at Mbenjamin2@bloomberg.net

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G-8 to Prepare Exit Strategy Once Recovery Assured

By Helene Fouquet and Roger Runningen

July 8 (Bloomberg) -- Group of Eight leaders said they will delay reversing stimulus measures until an economic recovery is assured and will each decide on their own exit strategies.

“We agreed on the need to prepare the appropriate strategies for unwinding the extra policy measures taken to respond to the crisis, once the recovery is assured,” according to a draft statement today during their summit in L’Aquila, Italy. The strategies “will vary from country to country depending on domestic economic conditions and public finances.”

While some policy makers have expressed optimism that the global recession may be easing, reports indicate any recovery is likely to be slow. The International Monetary Fund today said this year’s 1.4 percent global economic contraction will be worse than its 1.3 percent April forecast, while 2010 growth of 2.5 percent will be stronger than it previously estimated.

In mid-June, G-8 finance ministers concluded that it was time to begin drafting contingency plans for rolling back budget deficits and bank bailouts as the economy showed signs of recovery. They also said it was premature to rein in more than $2 trillion in stimulus packages.

Economy Unstable

An aide to President Barack Obama said earlier today that the global economy remained unstable and that it was too soon to begin withdrawing the stimulus.

“There is still uncertainty and risk in the system,” Mike Froman, deputy National Security Adviser, told reporters at a briefing in L’Aquila.

Obama arrived in Italy today from Russia where he met President Dmitry Medvedev and Prime Minister Vladimir Putin. He met Italian President Giorgio Napolitano in Rome before traveling to L’Aquila.

More U.S. Stimulus

Obama has left the door open to a second stimulus package after the first one for $787 billion was signed into law in February.

Obama has underscored the dilemma of either boosting an already record budget deficit or letting unemployment climb. In an interview with ABC News yesterday, he said unemployment approaching 10 percent is something “we wrestle with constantly.” He added that spending more borrowed money is “potentially counterproductive.”

The G-8 leaders also agreed on the need for “enhanced” financial regulation, including coordinating accounting and oversight standards as well “comprehensive oversight of all systemically significant entities and activities.”

And they called for the “rapid” conclusion of global trade talks and the rejection of “protectionism of any kind.”

The members of the G-8 -- Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S -- comprise 880 million people with combined gross domestic product of $32 trillion.

Other participants at this week’s meetings include Brazil, China, India, Mexico, South Africa, Egypt and several other nations from Asia, Africa and Europe. The summit concludes July 10.

To contact the reporter on this story: Roger Runningen in L’Aquila, Italy, at rrunningen@bloomberg.net; Helene Fouquet in L’Aquila, Italy at hfouquet1@bloomberg.net

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Currency Currents

Daily Forex Fundamentals | Written by Black Swan Capital | Jul 08 09 12:46 GMT |

Key News Policy makers on both sides of the Atlantic launched an effort to crack down on what they called speculation in oil markets, underscoring concerns that a sharp rise in oil prices could worsen the global economic downturn. (WSJ) A steep drop in exports and corporate investment led to a record economic contraction in the euro zone in the first quarter of 2009, the European Union's statistics office said on Wednesday. (Reuters) Chinese authorities are detaining Rio Tinto Ltd's top iron ore negotiator on suspicion of espionage and stealing state secrets, Australia said on Wednesday, threatening to strain already fraying ties. Key Reports Due (WSJ): 7:00 a.m. July 1 Mortgage Refinance Applications: Previous: -30%. 10:30 a.m. July 2 U.S. Energy Dept Oil Inventories 3:00 p.m. May Consumer Credit: Expected: -$7.7B. Previous: -$15.7B. Quotable "We are the cause of all the values that you covet, we who perform the process of thinking, which is the process of defining identity and discovering causal connections. We taught you to know, to speak, to produce, to desire, to love. You who abandon reason-were it not for us who preserve it, you would not be able to fulfill or even to conceive your wishes. You would not be able to desire the clothes that had not been made, the automobile that had not been invented, the money that had not been devised, as exchange for goods that did not exist, the admiration that had not been experienced for men who had achieved nothing, the love that belongs and pertains only to those who preserve their capacity to think, to choose, to value. "You-who leap like a savage out of the jungle of your feelings to the Fifth Avenue of our New York and proclaim that you want to keep the electric lights, but to destroy the generators-it is our wealth that you use while destroying us, it is our values that you use while damning us, it is our language that you use while denying the mind." Ayn Rand FX Trading - Deflationary Spiral Source: WSJ Above is the yield curve. Notice how far rates in the low-end (left side) of the curve have fallen. This is good for banks but likely bad for us who want to borrow and not too good for those who depend on deposits for income. The spread between the long-end, where banks do lend, and the short-end, where they do borrow, is quite high. It is quite profitable to lend. But it is also quite profitable not to lend because the Fed is paying a nice little interest rate on reserves at the bank. So in effect, the banks can hold reserves and garner a risk free rate of interest from the Fed. So, if you are a bank and have some bad paper still hanging around, and are still in need of personal healing, it likely makes more sense to grab the risk free rate and let the political chips fall where they may on lending…heck, the US administration has bigger fish to fry, like determining how to dole out socialized medicine to the highest politically connected bidders, fixing executive pay by nasty little bureaucrats who never met a payroll, and making sure there isn't too much profit making in the oil market by those evil speculators who risk their hard earned private capital everyday to make a market liquid and don't complain when they lose. Yes, the US government is far too busy to understand what motivates real profit-seeking players in the real world. Thus, the Fed has increased reserves by "$858 billion in the last 12-months ended May. But excess reserves on the books of depository institutions have increased by almost as much, $842 billion. So, in the 12 months ended May, 98% of the increase in reserves created by the Fed has simply ended up as idle reserves on the books of depository institutions," according to Northern Trust very smart economist Paul Kasriel. This leads to the following equation (our apologies to real economists and econometricians): Deflation =Massive Government Stimulus (eating private stock of capital) + Increases Money Supply + Plunging Monetary Velocity + Huge Reserves + High Savings + Tight Lending Standards + Private Deleveraging of Bad Paper + Global Tax of Rising Commodities Prices + Rising Unemployment + Obliteration of the Export Model Prices are falling just about EVERYWHERE in case the inflationist crowd hasn't noticed. Of course our illustrious government has noticed, thus the talk of yet another stimulus to eat away at more private capital and continue to add leverage to solve a problem that was created by leverage. So let's keep regulating away the ability to make profit so the market won't clear or keep thinking of ways to tax it away to hand over to the moochers or spend it away for political power and then wonder why we are entering a global deflationary spiral? Who is John Galt? Jack Crooks Black Swan Capital http://www.blackswantrading.com Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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