Fed Tries to Prepare Markets for End of Securities Purchases

By Craig Torres and Vivien Lou Chen

Sept. 3 (Bloomberg) -- The Federal Reserve is trying to prepare investors for an end to its housing-debt purchases, while keeping interest rates near zero, reflecting an economy pulling out of a recession with little momentum.

Federal Open Market Committee members discussed extending the end date of the agency and mortgage-backed bond programs, minutes of the group’s Aug. 11-12 meeting showed yesterday. The move would be aimed at avoiding disruptions in housing credit at a time when recovery prospects are clouded by rising unemployment and slowing wage gains, analysts said.

While the economy is projected to expand this quarter, central bankers had “particular” concern about the job market, signaling that the FOMC may need to see a peak in the unemployment rate before it begins withdrawing monetary stimulus. Some policy makers saw dangers of “substantial” declines in the inflation rate, yesterday’s report showed.

“They need to see labor markets improve and inflation stabilize, and not fall, before they even have a serious discussion about increasing interest rates,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York and former member of the Fed’s research staff.

A government report tomorrow is projected to show the unemployment rate rose to 9.5 percent in August from 9.4 percent in July, threatening to curtail consumer spending. Other areas of the economy have indicated the deepest recession since the 1930s has ended: manufacturing grew for the first time in 19 months in August, and home sales and prices have risen.

Next Meeting

Chairman Ben S. Bernanke and his fellow FOMC members next meet Sept. 22-23 in Washington.

“They see positive economic growth, no job growth, a very slow decline in unemployment, and a huge vulnerability to anything that could shock confidence,” said Christopher Low, chief economist at FTN Financial in New York. “I would be really surprised if they tightened at all next year.”

Treasury securities rose yesterday as the minutes said Fed officials expressed “considerable uncertainty” about the strength of recovery. Yields on benchmark 10-year notes declined to the lowest level in more than seven weeks, before closing at 3.31 percent in New York. Stocks dipped, with the Standard and Poor’s 500 Index closing down 0.3 percent to 994.75.

Bernanke, 55, was nominated to a second term as chairman by President Barack Obama last month after overseeing a record expansion of the central bank’s balance sheet in a campaign to prevent a depression. Seeking to unfreeze credit and revive growth, the Fed has loaned to banks, provided backstop financing for the commercial paper and asset-backed securities markets and injected liquidity through direct purchases of securities.

Treasuries Program

Central bankers extended their $300 billion U.S. Treasury securities purchase program by a month in August and continue buying up to $1.25 trillion in agency mortgage-backed securities and $200 billion in the debt of agencies including Fannie Mae and Freddie Mac.

A number of policy makers judged that a “tapering of agency debt and MBS purchases could be helpful,” the Fed minutes said. Officials postponed a decision on extending the initiative, which is scheduled to end in December.

An extension would be “an attempt to make quantitative easing potentially less disruptive when it ends,” Feroli said.

Central bank officials have indicated differences on when to begin withdrawing the monetary stimulus.

Plosser’s Take

“We have to begin to pull back from our extraordinary programs,” Philadelphia Fed President Charles Plosser said yesterday while noting a risk of faster inflation in the future. Speaking in an interview with CNBC, he declined to say whether the Fed should begin raising the main interest rate next year.

Fed district bank presidents Jeffrey Lacker of Richmond and James Bullard of St. Louis last week said the central bank may not need to complete its purchases of mortgage securities. New York Fed President William Dudley by contrast stressed an exit is “premature,” citing “high unemployment” and weak growth.

Policy makers saw the economy recovering “slowly” in the second half of this year, and still “vulnerable to adverse shocks,” the Fed minutes said.

U.S. Treasury Secretary Timothy Geithner cautioned yesterday that it’s too early to remove policies aimed at reviving the economy.

“We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still,” Geithner told reporters in Washington as he prepared to leave for a meeting of Group of 20 finance ministers and central bankers on Sept. 4-5 in London.

Inflation Outlook

Most Fed officials expected “subdued and potentially declining wage and price inflation over the next few years,” the minutes said. “A few saw a risk of substantial disinflation.”

The Fed’s preferred measure of inflation, the personal consumption expenditures price index minus food and energy, rose 1.4 percent for the 12 months ending July.

“They are not tightening anytime soon,” said Mark Spindel, chief investment officer at Potomac River Capital LLC in Washington, which manages about $100 million. “They are going to be sitting there with unemployment approaching 10 percent and inflation falling.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Vivien Lou Chen in San Francisco at +1- vchen1@bloomberg.net

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Geithner Says ‘Too Early’ for G-20 to Implement Exit Strategies

By Rebecca Christie

Sept. 3 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said the Group of 20 nations has been “very successful” in helping to end the global recession and cautioned that it’s too early to remove policies aimed at boosting growth.

“You’re seeing the first signs of positive growth now in this country and countries around the world,” Geithner told reporters in Washington yesterday. “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”

Geithner spoke as he prepared to leave for a meeting of Group of 20 finance ministers and central bankers Sept. 4-5 in London. The officials are laying the groundwork for a summit meeting later this month in Pittsburgh, where leaders will discuss measures to overhaul supervision of the financial system.

Geithner said talks in London will include the start of a discussion on bank capital standards as well as a “framework” for how the world’s largest industrial and developing economies can cooperate to remove policies to stimulate growth. While it’s “too early” to implement exit strategies, it’s not too soon to talk about them, he said.

The U.S. also wants to discuss how to build a new “international capital accord” to rein in the amount of leverage that financial firms take on, Geithner said. Such an arrangement would set standards for how much capital that financial firms would need to hold in reserve to cushion against potential losses.

‘Timetables’

“We’re going to talk about a framework of design principles, and I think we’re going to start to talk about timetables for what we try to get the world to commit to do in that context,” he said.

International cooperation is needed for any new standards to be effective, Geithner said. He said emerging market nations, many of which already have “pretty conservative” bank supervision in place, will play a bigger role than they have in the past.

“This is not something we can take a long time to do,” he said. “It took the world a very long time to reform the previous system, and that was a consequential and costly failure of cooperation, and we’re not going to repeat that mistake.”

Geithner declined to comment on the recent elections in Japan and said he’s looking forward to working with the new members of the Japanese government.

European finance ministers lined up this week behind proposals to limit bank bonuses as governments sought to forge a common stance on overhauling the financial system before the summit of the Group of 20 nations.

‘Bonus Culture’

“The bonus culture must come to an end,” Swedish Finance Minister Anders Borg, whose nation currently holds the rotating European Union presidency, told reporters yesterday as he arrived for a meeting of EU finance chiefs in Brussels. “The bankers are acting like it’s 1999 and it’s in fact 2009.”

French Finance Minister Christine Lagarde said in Brussels before the meeting that she has “firm proposals to put some order into the system of bonuses.” France will suggest curbing bonus pools as a percentage of a bank’s revenue, imposing a ceiling on payments or taxing them, a Finance Ministry official told reporters earlier this week.

In yesterday’s briefing, Geithner said curtailing executive-compensation is “a critical part of our broader reform agenda.” He said the U.S. has proposed “pretty comprehensive reforms” to give shareholders more control over pay policies and also give managers better incentives to act in the best long-term interests of their banks.

‘Common’ Interests

“If you look at what’s happening across Europe, like in many of these areas, there’s a lot in common in terms of basic strategy,” Geithner said. He declined to comment on specific changes sought by his counterparts, saying he had not yet had detailed discussions on the policy proposals.

Geithner, 48, will be in London the same day the U.S. Labor Department releases its report on the job market in August. A Bloomberg survey of economists shows expectations the unemployment rate rose to 9.5 percent in August from 9.4 percent a month earlier.

A private survey released yesterday showed that companies eliminated more jobs last month than expected, signaling employers have yet to gain confidence a recovery from the deepest recession since the 1930s is taking place. The drop of 298,000 workers followed a revised 360,000 decline in the previous month, according to figures from ADP Employer Services.

It is “very important” to the U.S. to “reinforce the progress we are seeing,” Geithner said.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net;

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Yen Falls as Gains in Asian Stocks Encourage Demand for Yield

By Ron Harui

Sept. 3 (Bloomberg) -- The yen fell against the euro and dollar as speculation China’s government will adopt measures to boost the nation’s equities triggered gains in regional shares, boosting demand for higher-yielding assets.

Japan’s currency dropped versus all of its 16 major counterparts after Liu Xinhua, vice chairman of the China Securities Regulatory Commission, said regulators will promote a stable market. The euro traded near a one-week low against the British pound before a European Central Bank meeting where policy makers are expected to leave the benchmark interest rate at a record low.

“Rising stocks are positive for risk-taking appetite,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “This is a factor for selling the yen.”

The yen declined to 131.94 per euro as of 7:30 a.m. in London from 131.54 in New York yesterday. Japan’s currency slipped to 92.37 per dollar from 92.22.

The euro bought $1.4285 from $1.4264 yesterday. The 16- nation currency fell to 87.57 pence after sliding to 87.50 pence yesterday, the weakest level since Aug. 26.

The MSCI Asia Pacific Index of regional shares edged up 0.2 percent, rebounding from a 1.4 percent slide yesterday. China’s benchmark Shanghai Composite Index surged 4.6 percent, the most since March 4.

Liu’s comments, made at a financial forum in Beijing yesterday, were featured on today’s front pages of the China Securities Journal and the Shanghai Securities News, the nation’s biggest financial newspapers.

European Retail Sales

The euro may weaken for a second day against the pound on concern a European report will show that retail receipts fell in July from a year ago, providing more evidence for the ECB to keep interest rates low.

Retail sales in the 16-nation euro region fell 2.2 percent in July from a year earlier, after a 2.0 percent drop in June, according to a Bloomberg News survey of economists. The European Union’s statistics office will release the report in Luxembourg later today.

Gross domestic product in the euro area declined 0.1 percent in the second quarter, the statistics office said yesterday, confirming an initial estimate published on Aug. 13.

“The positive impact from the more robust second-quarter performance seen globally seems to be fading rapidly,” analysts led by Hans-Guenter Redeker, London-based global head of currency strategy at BNP Paribas SA, wrote in a research note yesterday. “European currencies are underperforming.”

The ECB will keep its main refinancing rate at a record low of 1 percent at its meeting today, according to all 58 analysts surveyed by Bloomberg News. The central bank won’t raise rates before the third quarter of 2010, another survey shows.

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

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Rubber Declines as U.S. Jobless Data Raises Demand Concern

By Aya Takada

Sept. 3 (Bloomberg) -- Rubber declined for a second day on concern rising unemployment may slow a global economic recovery and curb raw material consumption.

Futures in Tokyo lost as much as 1.1 percent. Most Asian stocks fell, led by automakers and electronic companies, after a survey by ADP Employer Services showed U.S. businesses reduced payrolls by 298,000 in August, while economists had forecast a drop of 250,000.

“U.S. data dimmed the outlook for an economic recovery, spurring sales of commodities,” Kazuhiko Saito, chief analyst at Tokyo-based commodity broker Fujitomi Co., said by phone.

February-delivery rubber lost as much as 2.2 yen to 197.3 yen a kilogram ($2,141 a metric ton) before trading at 198.8 yen on the Tokyo Commodity Exchange at 10:50 a.m. local time.

The MSCI Asia Pacific Index dropped 0.1 percent to 112.29 as of 10:52 a.m. Tokyo time. The Standard & Poor’s 500 Index lost 0.3 percent yesterday, a fourth-consecutive decline, as the Federal Reserve’s August meeting showed policy makers were concerned about the pace of a likely economic recovery.

Rubber futures also slumped after the Japanese currency advanced against the dollar, reducing the appeal of yen-based contracts for the commodity traded globally in dollars.

The yen appreciated to as much as 92.11 per dollar yesterday, a level not seen since July 13. Japan’s currency also gained to a seven-week high versus the euro.

January-delivery rubber on the Shanghai Futures Exchange added 0.9 percent to 17,660 yuan ($2,585) a ton at 9:53 a.m. local time.

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net

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Corn Slumps on Concern Recovery May Falter, Curbing Crop Demand

By Jae Hur

Sept. 3 (Bloomberg) -- Corn declined after reports on job losses and factory orders raised concerns that the economic recovery may stagnate, curbing demand for food, animal feed and alternative fuel.

U.S. equities dropped for a fourth day after growth in factory orders reported by the Commerce Department trailed forecasts and ADP Employer Services said the number of jobs fell by 298,000 in August. Corn in Chicago has slumped 3.6 percent in three days after losing 5.7 percent in August as cool, wet weather improved U.S. crop prospects.

“Grains and other commodities were under pressure from slumping stock markets,” Hiroyuki Kikukawa, general manager of research at IDO Securities Co., said today by phone.

Corn for December delivery fell 0.5 percent to $3.1775 a bushel in electronic trading on the Chicago Board of Trade at 1:03 p.m. Singapore time. The price touched $3.155 yesterday, the lowest intraday level since Aug. 17.

Soybeans for November delivery were up 0.3 percent at $9.54 a bushel after dropping the previous three days. The price touched $9.425 yesterday, the lowest since Aug. 19.

Production of corn, the largest U.S. crop, will total 13.02 billion bushels, David Smoldt, a vice president at West Des Moines, Iowa-based FCStone Group Inc. said Sept. 1. That compared with the company’s August forecast for 12.814 billion bushels for 2009.

Last month, the U.S. Department of Agriculture predicted 12.761 billion bushels. U.S. farmers harvested 12.101 billion bushels last year and a record 13.1 billion bushels in 2007, government data show.

Soybean Harvest

Farmers will harvest a record 3.266 billion bushels of soybeans, or 2.1 percent more than the USDA’s Aug. 12 forecast of 3.199 billion, FCStone said. Yields may rise to 42.6 bushels compared with 42.4 bushels estimated by the government.

The USDA is set to release its second survey-based crop forecasts on Sept. 11 at 8:30 a.m. in Washington.

Soybeans may slump to $8.50 a bushel as farmers in the U.S. harvest a record crop, according to FCStone’s Smoldt. “There’s no sign of frost,” Smoldt said in a phone interview. The drop could happen at the end of September or start of October on the “realization that we have a large crop,” Smoldt said Sept. 2.

In the export market, South Korea is seeking 55,000 metric tons of corn for feed production.

Wheat for December delivery in Chicago was little changed at $4.855 a bushel at 1:06 p.m. Singapore time, slumping for a third day on signs of weak demand for supplies from the U.S., the world’s biggest exporter. The price touched $4.8075 on Aug. 31, the lowest level since Dec. 8.

Australian Crop

Western Australia, the nation’s biggest wheat grower and exporter, needs significant rainfall to meet grain-output forecasts, according to CBH Group. Australia, the world’s fourth-largest wheat shipper, relies on rain at this time of year to boost yields in winter-grain crops ahead of the harvest from November.

“We are receiving reports from an increasing number of areas that they are getting dry and the crop is going backward,” said Michael Musgrave, operations manager for the nation’s top wheat exporter. CBH is “quite concerned” for about one-third of the wheat-growing area, he said today.

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

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Gold Falls as Biggest Rally Since March Spurs Investors to Sell

By Kim Kyoungwha

Sept. 3 (Bloomberg) -- Gold declined from a three-month high on speculation the biggest rally in more than five months may spur some investors to sell holdings and lock-in gains.

Bullion jumped 2.3 percent to $978.50 an ounce yesterday, the biggest gain since March 18, as a decline in equities and the dollar helped fan demand for the precious metal as an alternative investment. Gold has rallied 11 percent this year while the dollar index is down 3.6 percent.

“We should expect some profit-taking after a big rally,” said Toby Hassall, an analyst with CWA Global Markets Pty in Sydney. “If we see a further significant decline in the U.S. dollar or perhaps more weakness in equity markets then I think we might test $1,000 in the coming trading sessions.”

Gold for immediate delivery fell as much as 0.4 percent to $974.37 an ounce and traded at $977.20 at 1:58 p.m. Singapore time. The MSCI Asia Pacific index of regional shares was up 0.1 percent, after a 0.4 percent drop.

The Dollar Index, a gauge of the dollar’s value against six major currencies, was little changed after falling 0.5 percent yesterday.

Breaking through $976 means gold may have resumed a “bull run,” initially targeting $1,033 and then potentially a high of $1,106, according to Barclays Capital. The metal reached a record of $1,032.7 in March 2008.

“After eighteen months of range-trading, gold looks poised to resume its upside trend,” analysts Jordan Kotick and MacNeil Curry, wrote in a report yesterday. “Historically, the time is ripe for a sustained advance. September is the strongest month of the year from a seasonal perspective.”

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, increased 1.53 metric tons to 1,063.36 tons yesterday, according to the company’s Web site.

Among other precious metals for immediate delivery, silver was up 0.4 percent at $15.46 an ounce. Platinum rose 0.5 percent to $1,237.25 an ounce and palladium added 0.2 percent to $286.75 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Oil Trades Above $68 on U.S. Stockpile Drop, Rising Fuel Demand

By Yee Kai Pin and Ben Sharples

Sept. 3 (Bloomberg) -- Oil traded above $68 a barrel in New York after inventories declined in the U.S., signaling a recovery in fuel consumption in the world’s largest economy.

U.S. gasoline stockpiles fell to an 11-week low even as refinery output increased, according to an Energy Department report yesterday. This was more than three times analysts’ estimates in a Bloomberg survey.

“U.S. oil demand has reached a turning point, with demand indications now likely to turn increasingly positive over the rest of the year,” commodities analysts at Barclays Capital, led by Paul Horsnell, said in a report. “Gasoline demand patterns seem to have been a reasonably good indicator, almost a leading indicator, as to the timing of the U.S. recession.”

Crude oil for October delivery traded at $68.51 a barrel, up 46 cents, on the New York Mercantile Exchange at 2:43 p.m. in Singapore. Yesterday, the contract settled unchanged at $68.05, the first time this has happened since Nov. 24, 2006. Prices have gained 54 percent this year.

U.S. fuel consumption averaged 19.3 million barrels a day in the four weeks ended Aug. 28, up 0.1 percent from a year earlier, the Energy Department said. Gasoline inventories tumbled 2.97 million barrels from a week earlier to 205.1 million. Refineries produced 9.2 million barrels a day of the motor fuel, the highest in six weeks.

Market Cue

“We look to the emergence of better demand indications to provide the main market cue in coming weeks,” Horsnell said. “In particular, we see those positive signals as key in building the base for the eventual break above $75 per barrel.”

Factories in the U.S. expanded in August for the first time in 19 months, an Institute for Supply Management gauge showed Sept. 1. China’s Purchasing Managers’ Index rose to a seasonally adjusted 54 from 53.3 in July, the Federation of Logistics and Purchasing said Sept. 1.

“Over the past week we have seen some positive data,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “There is evidence that China is on a strong growth path and that activity in other developed economies is at least stabilizing.”

The Organization of Petroleum Exporting Countries will probably maintain its output targets at a policy meeting Sept. 9 in Vienna, according to the group’s president.

“The world economy is recovering,” Jose Maria Botelho de Vasconcelos, who is also Angola’s oil minister, said in an interview in Luanda yesterday. “Everything shows that they will keep output unchanged.”

OPEC Output

The 12-member group, which pumps 40 percent of the world’s oil, hasn’t officially increased output since pledging a series of reductions up to December.

Saudi Arabia, the largest OPEC member, yesterday raised its crude oil official selling prices for all grades to be supplied in October to Asia and Northwest Europe. Asia is the kingdom’s biggest export market.

Brent crude oil for October settlement traded at $67.94 a barrel, up 28 cents, on the London-based ICE Futures Europe exchange at 2:44 p.m. Singapore time. Yesterday, the contract declined 7 cents to $67.66, the lowest settlement since July 29.

To contact the reporters on this story: Yee Kai Pin in Singapore at kyee13@bloomberg.net; Ben Sharples in Melbourne at bsharples@bloomberg.net

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Grain Crops Need Rainfall in West Australia, CBH Says

By Madelene Pearson

Sept. 3 (Bloomberg) -- Western Australia, the nation’s biggest wheat grower and exporter, needs significant rainfall to meet grain-output forecasts, according to CBH Group.

“We are receiving reports from an increasing number of areas that they are getting dry and the crop is going backward,” said Michael Musgrave, operations manager for the nation’s top wheat exporter. CBH is “quite concerned” for about one-third of the wheat-growing area, he said by phone.

Australia, the world’s fourth-largest wheat shipper, relies on rain at this time of year to boost yields in winter-grain crops ahead of the harvest from November. Western Australia usually accounts for about 40 percent of the nation’s grain output, with most of the state’s crops exported.

The state’s output of all grains is forecast at 10 million metric tons to 12 million tons, Musgrave said, restating a forecast. That compares with last year’s 12.3 million ton harvest, the third-largest on record, he said. Wheat usually accounts for about 70 percent of the state’s crop.

“Growers have put in more crop, but right now we really need a significant rainfall system,” he said. “At this point of time, it’s looking slightly worse than last year. We are still hopeful that we may get the 12 million tons.”

Wheat for December delivery fell 0.3 percent to $4.845 a bushel on the Chicago Board of Trade at 11:15 a.m. in Sydney. The commodity has fallen 21 percent this year.

Western Australia’s crop needs rain now, Musgrave said. It can last a couple more weeks without rain because of the regular, light showers the state had in the last month, he said. Output could go either way, Musgrave said.

“If we scored a front, then you would see us push above last year’s third-largest crop on record, but if we don’t we’ll struggle to deliver that,” he said, referring to a weather system that could bring rainfall. “The finishing rains really determine the yield and the size of the crop and we haven’t had that significant event yet.”

To contact the reporter on this story: Madelene Pearson in Melbourne on mpearson1@bloomberg.net

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Rare Earths Supplies May Be Inadequate, China Says

By Bloomberg News

Sept. 3 (Bloomberg) -- China said supplies of two minerals used in hybrid cars and televisions may be inadequate for its needs, amid rising concerns that exports from the largest rare- earths producer may fall.

China has been tightening control of exports of rare earths, a range of 17 chemical elements used to make parts in Toyota Motor Corp.’s Prius and Apple Inc.’s iPods. Restrictions could heighten tensions with the U.S. and Europe, which in June filed a trade complaint against China for metal export limits.

“China itself may not have enough supply” of dysprosium and terbium, Wang Caifeng, deputy director-general of the raw materials department at the Ministry of Industry and Technology, said today. The government won’t ban shipments of rare earths in keeping with its export policy, she said, refusing to comment on possible further limits.

“The rest of the world has become a little concerned” about possible export bans from China, said Judith Chegwidden, managing director at London-based Roskill Information Services Ltd, an industry research group. “Dysprosium is increasingly used in permanent magnet motors in hybrid cars like Prius or wind turbines. Demand is growing fast.”

China contains about half of the world’s rare-earths reserves and produces more than 90 percent of global output. The government started to curb production and exports in 2006, after prices dropped to half of the level in 1990.

Falling Exports

Exports fell 35 percent to 34,600 metric tons in 2008 from 53,300 tons in 2006, according to Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., which owns the largest rare-earths mine.

“Demand is growing in areas of military defense, missiles, electronic information and green energy,” the ministry’s Wang said at a conference in Beijing. “Modern society can’t do without cell phones and televisions.”

China needs 70,000 tons of rare earth a year, she said.

Terbium is a silvery-white metal used to make alloys and phosphors used in lamps and TV tubes. Other rare earths include neodymium, which is used in mini hard drives in laptops and headphones in Apple’s iPod. Yttrium and europium are used to generate red on color TV and computer monitor screens.

Mining for rare earths has led to “serious pollution,” Wang said. To mine a ton of the material could lead to 2,000 tons of dirt and waste, she said.

China cut 2009 output quotas of rare earths by 8.1 percent from a year ago to 119,500 tons, the Ministry of Industry of Information and Technology said May 18.

Minor Metals

The Asian country is also encouraging producers of minor metals to export processed products rather than raw materials to increase the value of shipments, Liang Shuhe, deputy head of foreign trade at the Ministry of Commerce, said today at the conference.

Minor metals include antimony, magnesium, zirconium, mercury and bismuth, according to the Minor Metals Trade Association. China’s Jinduicheng Molybdenum Co. is Asia’s largest producer of molybdenum, used to harden steel.

“The majority of China’s minor metals exports remain in the raw material form,” Liang said. “We encourage exports of high value-adding, high-end products instead of the raw materials.”

--Feiwen Rong, Xiao Yu. Editors: Tan Hwee Ann, Jacob Lloyd-Smith.

To contact the reporters on this story: Feiwen Rong in Beijing at frong2@bloomberg.net; Xiao Yu in Beijing on yxiao@bloomberg.net.

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Japan Stocks Fall on Jobs, Credit Suisse ‘Profit Taking’ Call

By Masaki Kondo

Sept. 3 (Bloomberg) -- Japanese stocks fell for a second day, after U.S. employers cut more jobs than estimated and Credit Suisse Group AG recommended investors “take profits.”

Honda Motor Co., a carmaker that generates almost half its sales in North America, sank 2.4 percent. Kawasaki Kisen Kaisha Ltd., Japan’s No. 3 shipping line, lost 1.8 percent after Nomura Holdings Inc. cut its investment rating on the stock. Fast Retailing Co., the operator of Japan’s biggest casual-clothing chain, rose 2.9 percent after Nomura boosted its rating.

“We still haven’t seen signs of growth in consumer spending and corporate investment,” said Kiyoshi Ishigane, a senior strategist at Tokyo-based Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $54 billion. “The lingering recession is increasing non-performing debt globally, keeping investors anxious.”

The Nikkei 225 Stock Average lost 0.6 percent to close at 10,214.64 in Tokyo and the broader Topix index sank 0.7 percent to 942.77, with three times as many shares falling as gaining. The second day of declines ended a streak of gains and losses on alternate days from Aug. 14 to yesterday, the longest such run since at least 1989, according to data compiled by Bloomberg.

Markets have flipped for more than two weeks as investors pondered whether the Nikkei’s rebound this year from a record tumble in 2008 was justified given the prospects for earnings. The trading volume of Nikkei-listed shares stayed below the daily average of the past year in the lead-up to Japan’s Aug. 30 election, which the opposition party won by a landslide.

In New York, the Standard & Poor’s 500 Index lost 0.3 percent yesterday, a fourth-consecutive decline. A survey by ADP Employer Services showed businesses reduced payrolls in August more than economists had estimated.

The Japanese market is set to drop and investors should “take profits” because a better-than-expected reading on U.S. manufacturing failed to lift markets, Credit Suisse Group AG. said yesterday. The Institute of Supply Management’s Purchasing Managers Index reached 52.9 in August, surpassing the 50.5 estimated by economists.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Asian Stocks Gain on Gold, Alcoa Forecast; Honda Drops on Yen

By Shani Raja

Sept. 3 (Bloomberg) -- Most Asian stocks advanced as gold prices climbed and after Alcoa Inc. said Chinese demand for aluminum will increase this year. Japanese carmakers fell as U.S. employers cut more jobs than forecast.

Newcrest Mining Ltd., Australia’s largest gold miner, climbed 7.7 percent after the metal climbed the most in more than five months yesterday. Aluminum Corp. of China Ltd. gained 7.3 percent in Shanghai. Honda Motor Co., which gets 45 percent of its revenue in North America, dropped 2.4 percent in Tokyo.

Five stocks advanced for every four that declined on the MSCI Asia Pacific Index, which added 0.1 percent to 112.57 as of 3:29 p.m. in Tokyo. The gauge has climbed 60 percent from a five-year low on March 9 on speculation the global economy is recovering. The rally has lifted the average price of stocks on the index to 1.5 times book value, close to an 11-month high.

“The economic data has caught up to where the market was,” said Stephen Halmarick, Sydney-based head of investment- markets research at Colonial First State, which holds about $115 billion. “For the equity market to really move on again, you need the next stage to take place, which is a more sustained recovery and better profitability.”

China’s Shanghai Composite Index climbed 4.6 percent, and Hong Kong’s Hang Seng Index gained 1 percent. Taiwan’s Taiex index advanced 0.9 percent. Japan’s Nikkei 225 Stock Average fell 0.6 percent.

U.S. Payrolls

Dainippon Sumitomo Pharma Co. rose 1.2 percent in Tokyo amid plans to buy a U.S. drugmaker. Murchison Metals Ltd. climbed 8.4 percent in Sydney after the Australian iron-ore producer increased its estimate of the size and value of a key mine. Kawasaki Kisen Kaisha Ltd., Japan’s third-largest shipping line, fell 1.8 percent after Nomura Securities Co. downgraded the stock.

Futures on the Standard & Poor’s 500 Index added 0.3 percent. The gauge lost 0.3 percent yesterday as a survey by ADP Employer Services showed businesses reduced payrolls by 298,000 in August, while economists had forecast a drop of 250,000.

The Federal Reserve expressed “considerable uncertainty” about the strength of the economic recovery, minutes of its August meeting showed, while U.S. Treasury Secretary Timothy Geithner told reporters in Washington yesterday it was too soon to remove policies aimed at boosting growth.

A weaker dollar spurred demand for gold as an alternative investment, sending the precious metal’s futures up by 2.3 percent in New York. The gain was the biggest since March 19.

Newcrest climbed 7.7 percent to A$31.85, while Lihir Gold Ltd., Australia’s second-biggest gold-mining company, jumped 7.2 percent to A$2.98. Zijin Mining Group Co., China’s largest gold mine, surged 8.4 percent to HK$6.87 in Hong Kong.

Drilling Program

Aluminum Corp., known as Chalco, rose 7.3 percent to 13.19 yuan. Klaus Kleinfeld, chief executive officer of Alcoa, the largest U.S. aluminum producer, raised the company’s forecast for global aluminum consumption and said China’s demand for the lightweight metal will increase this year.

Alcoa expects China’s consumption of the material to rise 4 percent this year, compared with a previous prediction of zero growth, Kleinfeld said in an interview in New York.

Dainippon Sumitomo rose 1.2 percent to 1,025 yen. The drugmaker plans to buy Sepracor Inc. for $2.6 billion to expand in the U.S., the world’s biggest drug market. Murchison Metals climbed 8.4 percent to A$1.94 in Sydney after reporting that a drilling program revealed the Jack Hills project to be “of a significantly larger scale” than previously considered.

Yen Gains

Honda sank 2.4 percent to 2,840 yen as the stronger Japanese currency threatened the value of sales generated overseas. The yen appreciated to as much as 91.95 per dollar, a level not seen since July 13. Japan’s currency also gained to a seven-week high versus the euro.

Toyota Motor Corp., the world’s largest automaker, lost 1.8 percent to 3,850 yen. Pioneer Corp., which makes car-navigation and audio systems, slipped 5.9 percent to 273 yen.

“Investors are turning cautious as employment concerns have flared up again, while the stronger yen is going to be tough on the exporters,” said Mitsushige Akino, who oversees the equivalent of $637 million at Tokyo-based Ichiyoshi Investment Management Co. “It’s going to be very hard for stocks to start pushing to new highs.”

Since July 31, the MSCI Asia Pacific Index has traded within the 110 and 114 range, Bloomberg data show. The rally since March has boosted the average price of stocks in the gauge to 23 times estimated earnings, compared with 16.5 times for the S&P 500.

Stimulus Plans

The index has climbed 26 percent this year as government stimulus measures revive the global economy. Australia’s statistics bureau yesterday reported second-quarter gross domestic product growth that was faster than economists estimated, while reports today showed the nation’s services industry contracted at a slower pace last month.

Karoon Gas Australia Ltd. rallied as much as 7.1 percent before closing up 3 percent at A$10.41. The company and ConocoPhillips, its partner in an exploration program off Australia’s northwest coast, exercised an option to drill two additional wells under a contract with Sedco Forex International Inc., Karoon said in a statement late yesterday.

In Taipei, Yulon Nissan Motor Co., a joint venture between Japan’s Nissan Motor Co. and Yulon Motor Co., surged 6.9 percent to NT$79 after General Motors Co. raised its full-year China sales forecast. China Motor Corp., which builds Mercedes-Benz vans in China, advanced 6.9 percent to NT$20.15.

Sumitomo Light Metal Industries Ltd. slipped 3.1 percent to 94 yen in Tokyo after the aluminum maker reversed its full-year forecast to a net loss of 5.2 billion yen from 2.5 billion yen profit, citing a restructuring-related charge.

Kawasaki Kisen Kaisha fell 1.8 percent to 391 yen. Nomura cut its recommendation on the stock to “reduce” from “neutral” because of overcapacity among container lines.

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

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Edinburgh Hedge Funds Feel Madoff Effect as Clients Get Pickier

By Rodney Jefferson

Sept. 3 (Bloomberg) -- Hedge funds in Edinburgh say they escaped any direct losses from Bernard Madoff’s Ponzi scheme. That doesn’t mean they’re not living with his legacy.

Clients are demanding more disclosure, quicker access to their money and individual, rather than pooled, accounts after Madoff hurt the loosely regulated business, according to managers in the Scottish capital.

“The Madoff thing was a stunner for the market and it did lead to some pretty serious questions being asked by some investors,” said Andrew Kelly, who helps oversee 550 million pounds ($900 million) at Cartesian Capital Partners. “The industry as a whole probably overplayed the secrecy element, saying ‘leave us to run the money, we’re the smart guys here.’”

Hedge funds, which managed $1.43 trillion at the end of June, are competing for clients by disclosing more about their investments as well as trying to ensure returns keep up with global stock prices. The funds should be required to register and disclose data to regulators, the International Organization of Securities Commissions said in June.

The industry’s assets climbed $100 billion in the second quarter as funds advanced by an average 9.1 percent, the biggest gain in more than nine years, Chicago-based Hedge Fund Research Inc. reported on July 21. The MSCI World Index, a measure of developed stock markets, rose 20 percent in the same period.

“What Madoff’s done is throw into sharp relief what happens if you don’t do your proper due diligence,” said Allan MacLeod, managing director of hedge funds at Martin Currie Investment Management Ltd. in Edinburgh. “The bar was being raised anyway, and then Madoff has raised it again.”

Not Geneva

Edinburgh’s financial industry was built on managing money for pension plans and insurance companies. Geneva, whose institutions lost about $7 billion from investments with Madoff, by contrast is centered on private banking for the wealthy. Madoff, 71, is serving a 150-year prison term in Butner, North Carolina, after pleading guilty in a $65 billion fraud.

Martin Currie, the largest manager of hedge funds in the Scottish capital, and city rival SVM Asset Management have been attracting money from institutions. Martin Currie’s hedge fund assets rose about $400 million to $1.2 billion since January as investors become “more diligent and selective,” MacLeod said.

The company hired two people for hedge fund sales this week, one based in London and the other in New York, he said.

SVM received about 20 million pounds from U.K. investors during the past four months for a new regulated retail hedge fund, Chief Executive Officer Colin McLean said.

‘Regulatory Cover’

“Family offices and others, particularly post-Madoff, have really looked to try to protect themselves from being sued and look for that regulatory cover,” said McLean, 56, whose company has about 100 million pounds in so-called long-short strategies, funds that can bet on rising as well as falling markets.

Cartesian is trying to make up the assets it lost last year as clients pulled money, Kelly said. The company has 90 million pounds in hedge funds.

“I am not completely convinced the industry is seeing huge inflows,” said Kelly, 44. “There probably are now net inflows overall, but not significant ones and they are nothing like as significant as the outflows last year. That was devastating.

“We had strong performance last year and had outflows in the order of 20 percent,” he said. “That’s tough.”

Hedge funds, which are designed to do better when markets fall and tend to lag when they rise, must now show they are worth investing in as stocks rally, according to McLean.

‘More Pressure’

Investments in hedge funds declined 18 percent on average last year, the most since Hedge Fund Research started collecting the data in 1990. The MSCI World Index slumped 42 percent as economies went into recession and the financial industry imploded.

“At lot of people who generally do shorting did quite well last year and all of those have found this year quite difficult,” said McLean. “For funds that fell a bit last year, they are under a bit more pressure to show that they can keep up with markets and do better than conventional equity funds.”

Those regulated stock funds also aren’t coming under the same scrutiny as the hedge fund industry. While not a hedge fund manager, Madoff’s scheme led to questions about the reviews carried out by firms that manage funds of hedge funds.

These so-called funds of funds were among Madoff’s biggest clients. Madoff demanded anonymity as a cost of doing business, according to PBS’s “The Madoff Affair” aired on May 12.

Funds of Funds

Funds of funds from Geneva fell 22 percent last year, according to Eurekahedge and Hedge Fund Research. Their assets sank to $15 billion in May from $54.2 billion at the end of 2007, the figures showed.

“There’s no doubt Madoff was a bad thing for hedge funds, particularly for the fund of funds industry,” said MacLeod, 43. “The better quality funds whose due diligence process kept them out of Madoff will prosper.”

That means fund companies have to show more clearly what they are doing with a client’s money, publish more data on holdings and offer cheaper terms for trading stocks, according to the Edinburgh managers.

“If we’re not prepared to tell people what we’re doing, then we have a problem,” said Kelly.

To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

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German Stocks Pare Earlier Gains; BASF Drops on Nomura Downgrade

By Christiane Lenzner

Sept. 3 (Bloomberg) -- German stocks pared earlier gains, with the DAX Index falling 0.1 percent to 5,315.27 as of 9:19 a.m. in Frankfurt. BASF SE led declines, losing 2.7 percent to 34.94 euros after Nomura Holdings Inc. downgraded the stock to “reduce” from “neutral.”

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European Stocks Fluctuate Before ECB; U.S. Index Futures Gain

By Daniela Silberstein

Sept. 3 (Bloomberg) -- European stocks fluctuated before the European Central Bank’s meeting on interest rates. Asian shares rose and U.S. index futures gained as Alcoa Inc. said Chinese aluminum demand will increase and investors speculated the contraction in American service industries slowed.

Xstrata Plc and Antofagasta Plc advanced more than 1.3 percent after metals rose in London and Alcoa boosted its forecast for global aluminum consumption. Alcoa added 1 percent in German trading. Newcrest Mining Ltd., Australia’s largest gold miner, climbed 7.7 percent after the metal surged the most in more than five months yesterday.

Europe’s Dow Jones Stoxx 600 Index was little changed at 8:39 a.m. in London. The gauge has slumped 2.9 percent this week on concern that a six-month, 46 percent rally has outpaced the prospects for earnings and economic growth. The regional measure is valued at 48.6 times profit, the highest level since June 2003, according to weekly data compiled by Bloomberg.

The MSCI Asia Pacific Index added 0.2 percent. China’s Shanghai Composite Index surged 4.8 percent, the biggest rally since March, on speculation regulators will adopt measures to boost equities following declines in the past month.

Futures on the Standard & Poor’s 500 Index climbed 0.5 percent. The benchmark gauge for U.S. equities slid for a fourth straight day yesterday, the longest losing streak since May, as reports on job losses and factory orders spurred concern that the economy is struggling to recover.

Fed, ISM Services

The Federal Reserve expressed “considerable uncertainty” about the strength of the economic recovery, minutes of its August meeting showed yesterday, while U.S. Treasury Secretary Timothy Geithner told reporters in Washington that it was too soon to remove policies aimed at boosting growth.

A report today may show U.S. service industries shrank at a slower pace in August. The Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 48 -- the highest level in 11 months -- from 46.4 in July, according to the median forecast in a Bloomberg News survey. Readings below 50 signal contraction.

Data from the Labor Department may show that first-time claims for jobless benefits fell to 565,000 last week from 570,000 the week before, according to economists’ estimates.

ECB Meeting

The European Central Bank will leave interest rates at a record low of 1 percent today and signal it’s in no rush to withdraw emergency stimulus measures as the economy shows signs of recovering, economists said. The central bank, led by President Jean-Claude Trichet, won’t raise rates before the third quarter of 2010, another survey shows.

Xstrata rose 2.4 percent to 797.5 pence and Antofagasta gained 1.3 percent to 720 pence. Copper, lead, nickel and aluminum rose today on the London Metal Exchange.

Newcrest climbed 7.7 percent to A$31.85, while Lihir Gold Ltd., Australia’s second-biggest gold-mining company, jumped 7.2 percent to A$2.98. Zijin Mining Group Co., China’s largest gold mine, surged 9.2 percent to HK$6.92 in Hong Kong.

A weaker dollar spurred demand for gold as an alternative investment yesterday, sending the metal up 2.3 percent in New York.

Klaus Kleinfeld, chief executive officer of Alcoa, the largest U.S. aluminum producer, said in an interview in New York that China’s consumption of the lightweight metal will rise 4 percent this year. The company had previously predicted zero growth. Alcoa added 1 percent to $11.66 in Germany.

BASF SE slid 2.1 percent to 35.14 euros. Nomura Holdings Inc. cut the world’s largest chemical company to “reduce” from “neutral” because margins may decline next year.

To contact the reporter on this story: Daniela Silberstein in Zurich at dsilberstei2@bloomberg.net.

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FX Thoughts for the Day

Daily Forex Technicals | Written by Kshitij Consultancy Services | Sep 02 09 12:22 GMT |

USD-CHF @ 1.0671/74...Resistance at 1.0700 R: 1.0700 / 1.0750-60 / 1.0800-10 S: 1.0630-00 / 1.0570/ 1.0530-00 Swiss is trading in a very narrow range of 1.0650-80. As any significant move on either side was not seen during the day, our view continue to remain the same on the pair. On the upside 1.0700 is the significant level to watch for. A strong break above 1.0700 might see a rise towards the Resistance at the 55-DMA (1.0750) during the day. Note that the projected Max-High for the day is 1.0759. A further strong upmove above 1.0750 might take it up towards 1.0850 over the next few days. However if it continues to trade below 1.0700 we might see a downmove towards 1.0630-00 in the US session. A break below 1.0600 might further pull it down towards 1.0550-30. Cable GBP-USD @ 1.6223/26...Strong Support zone 1.60-61 R: 1.6222-44 / 1.6278 / 1.6350 S: 1.6113 / 1.6069 / 1.6029-20 / 1.5750 Cable has risen once again on the Support of 1.6113. And as mentioned in the morning, till this holds, we would continue to bet in favour of the Support zone of 1.60-1.61. We also continue to mention that if broken, it could be very bearish targeting 1.5750 (38.2% retracement of the rise since March 2009) initially and 1.5600 thereafter. Though the weekly charts suggest bearishness immediately, the same shall be comfirmed on a break of the Support zone mentioned above. Aussie AUD-USD @ 0.8303/07...Holding long R: 0.8338-53 / 0.8378 / 0.8450-70 S: 0.8280 / 0.8250-30 / 0.8175 Aussie traded in a range of 0.8280-0.8340 during the day. Failure to see a strong downmove below 0.8300 during the day is still keeping the bullish sentiment intact. on the upside a break above 0.8350 might see a rally once again towards the significant Resistance region 0.8450-70 over the next few sessions/days. On the downside as mentioned earlier significant Support is seen in the region 0.8250-30 which we expect to hold on any downmove below 0.8300. Holding: AUD 10K Long at 0.8280, SL 0.8210, TP Open. As soon as the market trades 0.8360 bring the SL up to 0.8290 Kshitij Consultancy Service http://www.fxthoughts.com Legal disclaimer and risk disclosure These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsibly for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

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The Euro Area Narrowed Contraction was Confirmed Today

Daily Forex Fundamentals | Written by ecPulse.com | Sep 02 09 13:23 GMT |

Day after day, the European outlook brightens significantly boosted by the ongoing improvements in fundamentals, as activity is being revived once again from the protracted measures taken by policy makers to end the drastic downturn seen previously. The taken measures came to push two of the sixteen nations into an unexpected expansion, where France and Germany faced 0.3% expansion. However, the narrowed contraction seen in the second three months of the year records the fifth consecutive contraction. The gained back activity in the euro area was one of the reasons to narrow the pace of contractions in the second quarter, where the national governments of Germany and France introduced new measures in order to bolster the economy and stop the bleeding of unemployment rates. As we all know, Germany devoted some of it’s the money to support the car industry which was teetering on the brink of fading away, therefore a total of 2500 euros was givens to individuals in order to scarp their cars and purchase new ones. However, what really grabbed our attention today was the improvements seen to the Consumer spending where it added 0.2% in the second quarter, whereas the ongoing bailout finally came to create a sense of stability and encourage households to consider spending at the time prices plummet heavily into the negative levels giving the chance for households to use the increased purchasing power of the euro. The surprising thing seen today was the improvement seen in the export levels, as it contributed in narrowing the contractions seen previously. We can take those reading positively because the main reason behind the stalled activity in the sixteen nations was the drastic fall in export levels seen since the dilemma started, where Germany, the European economy which depends heavily on the levels of exports to external rivals faced a stalled demand, along with a weakened new orders to the manufacturing sector. Okay, projections in markets project further contractions this year, where according to the IMF a 4.8% contraction will be seen this year, as it would extend further in 2010 to -0.3%. However, personally I believe if improvements are taking place that rapid then economies will be heading toward an expansion faster than markets already projected, therefore an expansion would be taking place in the before the end of the 2010, but the threat of surging unemployment rates along with the threats of easing spending would stand as an obstacle in the path of improvements. Nevertheless, with the extensive actions taken by the European Central Bank and National governments the euro area will remain under prolonged stresses from the falling consumer prices, as it currently struggling in the negative levels. Yet we can’t really call a deflation in the sixteen nations because according the seen CPI readings we’ve seen it fall down to -0.7% but as seen in the last flash estimate it narrowed to -0.2% as a positive levels might take place in the upcoming periods. The sixteen nations are finally headed in the safe zone, because the pace of contractions had narrowed significantly given out some hopes of an expansion in the upcoming year, yet policy makers have to take actions in order to end the bleeding in some sectors. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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USD Lower, AUD Rallies on Strong Q2 GDP

Daily Forex Fundamentals | Written by Easy Forex | Sep 02 09 12:20 GMT |

FX Highlights USD is opening mixed to lower and JPY rises as investors are cautious and fear recent rise in stocks and commodities is ahead of the economic news, AUD outperforms supported by strong Australian Q2 GDP, EU producer prices decline at a record pace, UK construction PMI declines Focus turns to today's release ADP employment, productivity unit, labor cost and factory orders Australia's Q2 GDP rises 0.6%, a 0.2% rise was expected, Australia's Swan says the government stimulus will be withdrawn and interest rates will have to be adjusted at some point, unemployment to remain elevated, AUD higher JPY trades at a seven week high supported by rising risk aversion, Japanese officials try to reassure the US about US and Japanese relations, DPJ party says they will not interfere with BOJ policy EU GDP falls 0.1% in Q2, producer prices decline at a record annual rate of 8.5% in June, EUR higher UK construction PMI comes in weaker than expected, GBP higher CAD lower, pressured by report that Canada's Liberals said they will no longer support the minority government Libor euro and sterling rates at record lows Challenger says job cuts were down 14% lower than a year ago International Financial Services says currency trading volume slumped by 25% form the same month last year from a record high, FX trading nearly doubled from April 2005 to April 2008 August auto sales up 1% above 14.1 mln for the first time since 2008, Ford sales rise 17% in August but Chrysler and GM sales lag as the cash for clunker program ends Economists declare the recession has ended as ISM rises above 50, S&P says it may not be until Q4 before we see solid evidence of recovery US equity markets set to open mixed, European equities 0.5% lower, Nikkei closed 250 points lower Upcoming Events US- Wednesday, ADP employment will be released expected at -250k compared to -371k last month along with Q2 final productivity and unit labor costs expected at -5.9% and -5.8% respectively and July factory orders expected at 1.8% compared to 0.4% last month, CAN- Wednesday, no major Canadian economic data is scheduled for release today By Michael J. Malpede Easy Forex Michael J. Malpede is Chief Market Analyst with Easy-Forex® and has previously been featured on Bloomberg TV, Bloomberg radio, Reuters, MarketWatch, Wall Street Journal, Chicago Tribune, Chicago Sun Times, Toronto Star and Nikkei press. In analyzing the markets, he draws from 29 years of Foreign Exchange Research as a Foreign Exchange Analyst. Please note that Forex trading (OTC Trading) involves substantial risk of loss, and may not be suitable for everyone. This report is provided by Easy- Forex® for informative purposes only. In no way it is a recommendation by Easy-Forex® for you to engage in any trade. It is your sole responsibility and you will have no claims with regards to this report against Easy-Forex®. If you do not agree to this, you are strongly advised not to use this report. Hence, Easy-Forex® shall not be held responsible for any outcome of trading decisions, in regards with this report or similar reports.

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South Korea Ratings Outlook Raised to Stable by Fitch

By Heejin Koo

Sept. 2 (Bloomberg) -- South Korea’s credit-rating outlook was raised to “stable” from “negative” by Fitch Ratings, citing the resilience of the nation’s economy and banks.

The country’s investment grade A+ is the same the company applies to Taiwan and China. Fitch lowered the outlook to negative in November on concern South Korea’s foreign-exchange reserves may decline due to its unstable financial system and widening current deficits.

“The term structure of banks’ debt has improved,” Fitch said in an e-mailed statement today. “On the public-finances front, Korea is likely to have avoided large fiscal costs associated with the deleveraging of the banking sector.”

Asia’s fourth-largest economy expanded 2.3 percent last quarter, the fastest pace in almost six years, as exports and household spending jumped. South Korea’s foreign-exchange reserves rose for a sixth month in August and it posted a current-account surplus in July, boosted by exports.

Fitch’s outlook “appears to reflect increased confidence on the Korean economy,” said Kim Seung Hyun, head of research at Taurus Investment Securities Co. in Seoul.

The Bank of Korea will probably report tomorrow the economy grew at a faster pace in the second quarter than initially estimated, Finance Minister Yoon Jeung Hyun said. Yonhap News cited Yoon as saying today second-quarter growth was probably between 2.6 percent and 2.7 percent.

Exports Improve

“The Korean economy has been resilient in the latest global economic downturn compared to the past,” said Taurus’s Kim. “That’s because exporters successfully boosted their global market share by increasing technological competitiveness, and reduced volatility arising from the global economic performance.”

South Korea’s foreign-exchange reserves rose to $245.5 billion in August after it received funds from the International Monetary Fund and as a weaker U.S. dollar increased the value of holdings in other currencies.

“Korea’s economic resiliency and the authorities’ upcoming efforts to re-establish a conservative fiscal agenda will likely provide scope for the government to revert to a fiscal balance position by 2011, with Korea being only one of six amongst all Fitch-rated sovereigns to do so from a deficit position,” Fitch said in the statement.

North Korea

South Korea slashed interest rates to a record low 2 percent to try to boost exports and encourage corporate and consumer spending. The government also allocated extra funds and spent 68 percent of this year’s budget through July in an effort to boost the economy.

South Korea’s sovereign ratings continue to balance its credit strengths, including fiscal prudence and external finance improvements, against potential security risks and reunification costs from North Korea, Fitch said.

North Korea today re-established telephone lines with the South Korean military, a year after severing them, in the latest reconciliatory gesture from the regime since last month.

North Korean leader Kim Jong Il also met with South Korea’s Hyundai Group Chairwoman Hyun Jeong Eun and released a worker detained for more than four months after criticizing the regime at a jointly run industrial park.

The moves contrast with North Korea’s military threats earlier this year, when the regime also launched a ballistic missile and conducted its second nuclear-weapons test.

To contact the reporter on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net

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Thai Government to Spend $5.9 Billion on Economy by End of 2010

By Daniel Ten Kate and Haslinda Amin

Sept. 2 (Bloomberg) -- Thailand’s government will inject 200 billion baht ($5.9 billion) into the economy by the end of next year to bolster growth as a revival in export orders helps the nation recover from its first recession in a decade.

The spending is about a fifth of a 1.06 trillion-baht, three-year investment program on transportation, health and education projects, which will boost economic growth by as much as 2.5 percent a year, Finance Minister Korn Chatikavanij said in an interview today. Gross domestic product will expand in the fourth quarter from a year earlier as the spending kicks in this month and overseas demand improves, he said.

“Our forecast looks on solid ground,” Korn, a former chairman of JPMorgan Chase & Co.’s Thailand unit, told Bloomberg Television. “Every indication in terms of export orders has significantly improved in key sectors.”

Thailand’s benchmark stock index has surged 58 percent from this year’s low in March as companies from Hana Microelectronics Pcl to Delta Electronics (Thailand) Pcl report higher orders. The central bank has kept its key interest rate unchanged at 1.25 percent for three meetings after four cuts from December to April as a brighter global outlook bolster economic prospects.

“We have passed the bottom, but the recovery process will be gradual and take some time,” Prasert Bunsumpun, chief executive officer of PTT Plc, Thailand’s biggest energy company, said in Bangkok yesterday. “If the government can restore confidence, everything will come back.”

Australia’s economic growth unexpectedly accelerated to 0.6 percent in the second quarter on consumer spending, according to a Bureau of Statistics report today.

‘Stimulative’ Spending

Thailand’s planned government stimulus totals about 15 percent of GDP, Korn, 45, said.

“It will hit the economy in the month of September and onwards,” he said. “We have reason to be confident that it will be stimulative and lead to improved GDP growth later.”

The economy shrank 4.9 percent in the second quarter from a year earlier, after contracting 7.1 percent in the previous three months, the government said Aug. 24. GDP may decline as much as 3.5 percent in 2009 before expanding as much as 3 percent next year, it predicts.

Southeast Asia’s second-largest economy grew 2.3 percent in the second quarter from the previous three months, and may expand at a “similar” pace this quarter, Korn said.

Political turmoil since a 2006 coup has compounded Thailand’s economic woes as rival demonstrators seized airports, streets and government buildings in the past year. Anti- government protesters have pledged to continue targeting Abhisit, who they say lacks a popular mandate to govern.

Election Schedule

After his opponents forced the cancellation of an Asian summit in April, Abhisit set up a panel to recommend constitutional changes and said he wouldn’t call a new election until they were approved. Korn said his ruling Democrat party, which Abhisit heads, was “not stuck on that issue” and the timetable for amendments is not tied to a new election.

“Ideally, from an economic perspective, we want to be in position at least for another year in order to make sure our key policies are implemented before a general election is called,” he said. “That should give us sufficient time for political reform.”

Korn is “confident” his party’s key coalition ally Bhum Jai Thai, which left the previous government last year to shift power to Abhisit, is “on board” and won’t leave to trigger a new election. The Democrat party hasn’t won the most seats in an election since 1992.

“Our recovery will be very fast if we have political stability,” said Anant Asavabhokhin, president of Land & Houses Pcl. “The economy will turn around very quickly if people feel secure and come out to eat food and start spending.”

To contact the reporter on this story: Haslinda Amin in Singapore at hamin1@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

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