Wednesday, October 21, 2009

Euro Retreats From 14-Month High; Officials May Warn on Gains

By Yasuhiko Seki and Ron Harui

Oct. 21 (Bloomberg) -- The euro was little changed against the dollar, retreating from the strongest level in 14 months, as some investors bet European policy makers will say they are concerned its strength may harm the region’s economic recovery.

The euro also snapped nine days of gains against the yen before speeches by French President Nicolas Sarkozy and European Commission President Jose Barroso. New Zealand’s dollar rose against the 16 most-traded currencies tracked by Bloomberg after central bank Governor Alan Bollard said its advance isn’t an obstacle to raising interest rates. The pound rose as Bank of England Governor Mervyn King said Britons should take “into account” a possible rate increase.

“European officials are expressing worry that the euro’s appreciation is making things difficult for their economy,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “This is causing the euro to undergo a downward correction.”

The euro was $1.4939 as of 7:43 a.m. in London from $1.4945 yesterday in New York, when it advanced to $1.4994, the highest level since August 2008. The euro declined to 135.46 yen from 135.66 yen. The dollar was at 90.68 yen from 90.78 yen.

New Zealand’s dollar was at 75.35 U.S. cents, from 74.96 cents yesterday, after earlier falling as much as 0.4 percent. It climbed to 75.76 yesterday, the strongest level since July 2008. The pound rose to $1.6411 from $1.6382.

‘Excessive Volatility’

The euro has strengthened 15 percent versus the dollar in the past six months, making the region’s exports more expensive to overseas buyers. European Central Bank President Jean-Claude Trichet said on Oct. 19 that “excessive volatility” in currencies is “bad for economic development.”

Sarkozy will hold a weekly cabinet meeting at 10 a.m. in Paris and European Commission President Barroso will speak to the European Parliament at 9 a.m. in Strasbourg, France.

The New Zealand dollar reversed losses after Radio New Zealand reported that Bollard told parliament the currency’s gains are being driven by a weak U.S. dollar and money markets. As recently as Sept. 10, he said he didn’t expect to raise interest rates until “the latter part of 2010.”

Traders are betting New Zealand’s central bank will boost its key rate by 2 percentage points over 12 months, according to a Credit Suisse Group AG index based on swaps.

Benchmark Rates

Benchmark interest rates are 2.5 percent in New Zealand and 3.25 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

The pound gained after King wrote in an article for Scotland’s Herald newspaper that interest rates are “extremely low,” and Britons should prepare for increases “at some point.”

“I never thought King would talk about a rate increase,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “King’s unexpected comments triggered buying of the pound.”

South Korea’s won slumped on concern the government will intervene to counter gains that may hamper exports.

Finance Minister Yoon Jeung Hyun said today he is “concerned” by the decline in retail and manufacturing jobs during the economic recovery. The Bank of Korea said last week it will curb volatility and “excessive herd behavior” in the nation’s currency.

The won dropped 1.1 percent to 1,179.10 per dollar, the biggest decline since Aug. 17. The won has risen 5.9 percent versus the dollar in the past three months, Asia’s second-best performer in the period.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

Copper Pares Losses in Shanghai on China Outlook, Supply Curbs

By Glenys Sim

Oct. 21 (Bloomberg) -- Copper pared losses in Shanghai as optimism about China’s economic growth and concerns that supplies may be disrupted cut back a decline that followed weaker-than-estimated U.S. housing data and rising inventories.

China’s National Bureau of Statistics will probably report tomorrow that growth in the largest metals user accelerated to 8.9 percent, driven by the government’s $586 billion stimulus package, according to a Bloomberg News survey of economists.

“Chinese economic growth continues to be robust on the back of strong domestic-focused consumption and infrastructure- based stimulus spending,” BHP Billiton Ltd., the world’s biggest mining company, said today in a quarterly output report.

January-delivery copper on the Shanghai Futures Exchange ended the day down 0.4 percent at 50,030 yuan ($7,328) a metric ton, trimming a decline of as much as 0.9 percent.

Copper for delivery in three months on the London Metal Exchange rose as much as 0.8 percent to $6,470 a ton, and traded at $6,460 at 3:26 p.m. Singapore time. The December-delivery contract advanced 0.4 percent to $2.9440 a pound on the Comex division of the New York Mercantile Exchange.

“Prices managed to rise even during the slow summer seasonal period,” said Lu Wei, an analyst at Jiangsu Holly Futures Brokerage Co. “The bulls seem to be winning all year, and this momentum and the weaker U.S. dollar will keep prices supported.”

Copper has more than doubled this year as the Dollar Index, which tracks the greenback against six major trading partners including the euro and yen, dropped 7.3 percent. The dollar traded little changed against the euro today, after falling to the weakest level in 14 months.

Supply Disruptions

BHP yesterday declared force majeure on some copper-supply contracts after the closure of a shaft at its Olympic Dam mine in Australia, while copper production at its Spence mine in northern Chile continues at a “reduced rate” due to a strike.

Builders, the biggest users of copper in the U.S., began work on new homes at an annual rate of 590,000 units last month, compared with a median target of 610,000 in a Bloomberg News survey. The worst post-war recession has curbed demand for the metal used mainly in construction and automobiles, boosting London Metal Exchange stockpiles by 68 percent in the past year.

“There are signs of stabilization in developed economies, though there’s little evidence yet of sustainable metals demand emerging,” BHP said in the production report.

Among other LME-traded metals, aluminum rose 0.7 percent to $1,927 a ton, zinc gained 0.4 percent to $2,139.25 a ton, and lead advanced 1 percent to $2,321 a ton. Nickel added 0.8 percent to $19,000 a ton, and tin rose 1 percent to $14,549 a ton.

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

Asian Stocks Fall on Earnings, Crude-Oil Prices; Dollar Rises

By Masaki Kondo and Patrick Rial

Oct. 21 (Bloomberg) -- Asian stocks fell for the first time in three days, led by technology and material shares, as China Mobile Ltd. and China Telecom Corp.’s profit disappointed some investors and oil prices dropped. The dollar rose.

China Mobile, the world’s biggest phone carrier by market value, and China Telecom, the nation’s biggest fixed-line phone carrier, lost at least 1.4 percent in Hong Kong. Cnooc Ltd., China’s largest offshore oil producer, fell 1.8 percent as the Wall Street Journal reported the company’s nine-month profit slumped. Samsung Electronics Co. retreated 2.3 percent in Seoul after AT&T Inc. sued the company and other liquid-crystal- display makers for collusion to fix prices.

The MSCI Asia Pacific Index lost 0.3 percent to 120.84 as of 3:43 p.m. Tokyo time. The gauge has surged 71 percent from a five-year low on March 9 amid signs the global economy is rebounding from the worst slowdown since World War II. The index sank by a record 43 percent in 2008.

“Investors haven’t forgotten the nightmare we had last year and are quick to sell when they get anxious,” said Kiyoshi Ishigane, a strategist at Mitsubishi UFJ Asset Management Co., which oversees about $56 billion in Tokyo. “Company profits are gradually returning, but we need to discern whether the stock price already reflects the improvement or not.”

Japan’s Nikkei 225 Stock Average was little changed, while the Hang Seng Index dropped 0.4 percent in Hong Kong. South Korea’s Kospi Index declined 0.3 percent as Samsung SDI Co., the world’s second-largest maker of lithium-ion rechargeable batteries, slumped 3.9 percent on brokerage downgrades.

Toshiba Recommendation

Among stocks that rose today, Toshiba Corp., the world’s No. 2 maker of flash-memory chips, gained 4 percent in Tokyo after CLSA Ltd. recommended the shares. Japan Airlines Corp., Asia’s biggest carrier, jumped 6.8 percent after the Nikkei newspaper said a government panel proposed more funding.

Futures on the Standard & Poor’s 500 Index dipped 0.1 percent. The gauge sank 0.6 percent yesterday after a Commerce Department report showed housing starts rose 0.5 percent in September, missing economists’ estimates.

The dollar strengthened amid lower demand for higher- yielding assets. The dollar traded at $1.4936 per euro from $1.4945 in New York yesterday, when it touched $1.4994, the weakest level since August 2008. The yield on 10-year Treasuries fell one basis point to 3.33 percent.

China Mobile fell 1.4 percent to HK$77.65 in Hong Kong. Third-quarter net income rose 2.6 percent to 28.6 billion yuan ($4.2 billion), compared with the 29 billion yuan anticipated by analysts in a Bloomberg News survey.

China Mobile Profit

“It will be very tough for people to get very excited about this set of results,” said Wendy Liu, who rates China Mobile shares “hold” at Royal Bank of Scotland Group Plc in Hong Kong. “Is a 2 percent increase that much different from a 2 percent decline? It will be tough for people to say they have turned around a corner.”

China Telecom fell 2.1 percent to HK$3.74 after its third- quarter net income tumbled 47 percent to 2.98 billion yuan, missing the 3.16 billion yuan expected by analysts.

Cnooc lost 1.8 percent to HK$12.24 as crude oil futures in New York declined 0.6 percent to $78.65 a barrel in after-hours trading. The company’s nine-month pretax profit fell 46 percent from a year earlier on lower oil prices, the Wall Street Journal reported. Oil futures are at about half the intraday record of $147.27 reached in July 2008.

Sumitomo Metal Mining Co., Japan’s largest nickel producer, dropped 1.6 percent to 1,561 yen. The London Metals Index, a measure of six metals including copper and nickel, fell 1 percent yesterday, retreating from a two-month high.

Liquid Crystal Display

Samsung, the world’s biggest maker of liquid-crystal displays, lost 2.3 percent to 735,000 won. LG Display Co. dropped 0.5 percent to 32,750 won, while Taiwan’s AU Optronics Corp. slid 2 percent to NT$32.05.

AT&T, the biggest U.S. phone carrier, filed a complaint in federal court, claiming the companies were among those that “formed an international cartel illegally to restrict competition” in the LCD market in the U.S.

“The material impact on the panel stocks may be limited, since the lawsuit can drag on for several years,” said Bevan Yeh, who helps manage about $1.2 billion at Prudential Financial Securities Investment Trust Enterprise in Taipei. “It’s inevitable that there will be some knee-jerk reaction.”

Better-than-estimated economic and earnings figures have driven the MSCI Asia Pacific Index’s seven-month rally. Stocks in the gauge are priced at 23 times estimated earnings, compared with an average of 18 times in the past three years.

Central Bank Action

This month, reports showed the U.S. service industries grew for the first time in a year and an export decline slowed in China. Amid signs the global economy is strengthening, Australia’s central bank unexpectedly raised its benchmark rate on Oct. 6 and has signaled further increases in coming months.

The U.S. housing report from yesterday helped drag down Nissan Motor Co., which counts North America as its biggest market, by 1 percent to 666 yen. Advantest Corp., the world’s biggest maker of memory-chip testers, sank 1.6 percent to 2,405 yen. James Hardie Industries NV, the biggest seller of home siding in the U.S., lost 0.7 percent to A$7.52 in Sydney.

In Seoul, Samsung SDI fell 3.9 percent to 137,000 won. Daishin Securities Co. and Meritz Securities Co. downgraded the stock even after the company reported a 48 percent surge in third-quarter earnings.

Toshiba gained 4 percent to 546 yen in Tokyo. CLSA raised its investment rating on the stock to “buy” from “underperform,” citing rebounding demand for flash memory.

Japan Airlines jumped 6.8 percent to 126 yen, the sharpest gain in the Nikkei 225. A government panel recommended the airline receive 300 billion yen ($3.3 billion) in private and public funds, more than an earlier proposal for 150 billion yen, the Nikkei newspaper reported.

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

Credit Suisse May Report Profit, Follow Deutsche Bank

By Elena Logutenkova and Aaron Kirchfeld

Oct. 21 (Bloomberg) -- Credit Suisse Group AG will probably follow Deutsche Bank AG in reporting a third straight quarter of profit after the lenders shunned state aid during the financial crisis and benefited from the rebound in bond and stock markets.

Net income at Credit Suisse, the second-largest Swiss bank, probably totaled 1.74 billion francs ($1.72 billion) in the third quarter after a loss a year earlier, based on the median estimate of 14 analysts surveyed by Bloomberg. Frankfurt-based Deutsche Bank said today it expects to report net income of about 1.4 billion euros ($2.1 billion), helped by tax credits, beating the 811 million-euro analyst estimate.

Both profited from the record-low interest rates that drove revenue from trading debt, currencies and commodities to a record at JPMorgan Chase & Co. and to the third-highest level ever at Goldman Sachs Group Inc. UBS AG probably missed out on the credit-market rebound after closing debt units and shedding employees, analysts said.

“Deutsche Bank and Credit Suisse are benefiting from the rebound in capital markets,” said Daniel Hupfer, who helps manage about $46 billion, including shares in all three banks, at M.M. Warburg in Hamburg. “UBS will also profit from a better environment, but not as much as the others because it’s still busy restructuring certain businesses.”

Credit Suisse, which publishes third-quarter results tomorrow, has risen 107 percent in Swiss trading so far this year to 59.10 francs, while Deutsche Bank has climbed 93 percent to 53.80 euros. Zurich-based UBS, the largest Swiss bank by assets, has advanced 29 percent to 19.11 francs.

A Year Later

Banks that navigated the crisis are piling up profits a year after the bankruptcy of Lehman Brothers Holdings Inc. spurred an unprecedented effort by governments around the world to save the financial system. New York-based JPMorgan earned $3.59 billion in the third quarter, while Goldman said net income more than tripled from a year earlier to $3.19 billion.

Credit Suisse Chief Executive Officer Brady Dougan told investors in London this month the bank’s interest rates business was the biggest contributor to revenue at the investment bank in the first half. The market environment for that business has been “better than historic levels,” he said.

The Zurich-based bank gained market share in underwriting global bond and stock sales in the first nine months of the year, data compiled by Bloomberg show.

Dougan, 50, announced a plan yesterday to boost salaries for 7,000 senior employees as a portion of total pay after Wall Street bonuses were blamed for contributing to the financial crisis. The bank will also introduce deferred equity and cash- based awards whose value will vary based on earnings.

‘Fragile’ Economy

Deutsche Bank, which is due to report detailed third- quarter earnings on Oct. 29, said it expects all business segments to report positive results. Pretax profit for the quarter will be about 1.3 billion euros, it said.

CEO Josef Ackermann said last month that Germany’s largest bank may gain share in areas including U.S. interest-rate derivatives, global fixed income and emerging-market debt after competitors dropped out or were bought.

While rising stocks and bonds led to a “significant improvement” in sentiment, the financial industry and economy remain “fragile” because of rising corporate insolvencies and unemployment, Ackermann, 61, said in a speech on Oct. 12.

Deutsche Bank’s securities unit, led by Anshu Jain, 46, and Michael Cohrs, 53, may have earned 811 million euros in the third quarter, helped by rising revenue from trading stocks and bonds, according to estimates from eight analysts before today’s announcement. The unit generated more than two-thirds of the bank’s pretax profit in the first half.

‘Big Swing Factors’

“For Deutsche Bank the big swing factors are write-ups of asset valuations and fixed-income trading,” said Christian Gattiker, head of research and strategy at Bank Julius Baer & Co. in Zurich.

Deutsche Bank’s debt unit may have generated revenue of 2.2 billion euros in the third quarter, the analysts estimated, compared with 2.8 billion francs at Credit Suisse.

“As long as interest rates are low, investment banks will have good earnings,” said Florian Esterer, who helps manage about $49 billion at Swisscanto Asset Management in Zurich. “If you get money from the central banks practically for free, it’s quite easy to reinvest it profitably.”

At UBS, CEO Oswald Gruebel, 65, said in August that rebuilding the fixed-income business may take nine more months after it cut risk and “lost key people.” The bank said that month that it added more than 20 senior bankers, including Dimitri Psyllidis, 43, formerly at Merrill Lynch & Co., who joined as head of foreign exchange and rates trading globally.

Money Outflows

UBS will book a charge to reflect an improvement in its own debt in the third quarter, Chief Financial Officer John Cryan said on Sept. 30. A 1.2 billion-franc charge on its own debt contributed to UBS’s second-quarter loss of 1.4 billion francs.

The bank may report a 281 million-franc third-quarter loss on Nov. 3, according to the median estimate of seven analysts. UBS had the biggest losses of any European bank from the credit crisis, data compiled by Bloomberg show.

UBS, which in August agreed to pass on data on as many as 4,450 accounts to the U.S. to settle a lawsuit related to tax evasion, probably saw further withdrawals from its wealth management business, analysts said. The outflows may amount to 19 billion francs in the third quarter, while Credit Suisse’s private bank probably attracted a net 11 billion francs, according to Sanford C. Bernstein Ltd.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

German Stocks Pare Gains; Infineon, Deutsche Bank Shares Decline

By Sarah Jones

Oct. 21 (Bloomberg) -- German stocks pared gains, led by Infineon Technologies AG and Deutsche Bank AG.

The DAX Index fell 0.1 percent to 5,805.48 at 10:18 a.m. in Frankfurt. The gauge earlier rose as much as 0.6 percent.

Shares of Infineon dropped 3.9 percent to 3.73 euros, while Deutsche Bank lost 3.3 percent to 53.51 euros.

U.K. Stocks Climb, Led by Tesco, Sainsbury; Wolseley Advances

By Sarah Jones

Oct. 21 (Bloomberg) -- U.K. stocks advanced for a second day this week, led by retailers as Nomura Holdings Inc. recommended shares of Tesco Plc and a report said Qatar may raise its stake in J Sainsbury Plc.

Tesco rallied the most in three months as Nomura raised its price estimate on Britain’s largest retailer 30 percent, citing prospects for increased profitability and foreign sales. Sainsbury gained 1.8 percent after the Financial Times reported Qatar Holding LLC may lift its 26 percent stake. Wolseley Plc climbed as BofA Merrill Lynch Global Research upgraded the heating and plumbing gear supplier to “buy.”

The FTSE 100 Index gained 15.67, or 0.3 percent, to 5,259.07 at 9:02 a.m. in London, paring some of yesterday’s 0.7 percent retreat. The FTSE All-Share Index rose 0.3 percent and Ireland’s ISEQ Index added 0.4 percent.

Tesco increased 2.3 percent to 392.20. Nomura raised its price estimate for the shares 30 percent to 526 pence. The retailer is a “disciplined, defensive, sustainable growth story that is significantly undervalued by the market,” analysts including Matthew Truman wrote in an e-mailed note. Services like banking will drive Tesco’s British growth as the grocery market matures, they said.

Sainsbury gained 1.8 percent to 353.9 pence. The Financial Times said Qatar Holding, the direct investment unit of the Qatar Investment Authority, may raise its stake in the U.K. supermarket chain. The newspaper did not say where it got the information.

Sainsbury rallied 5.4 percent yesterday after Qatar sold shares in Barclays Plc, stoking speculation the emirate may make a new bid for the retailer.

Wolseley climbed 3.2 percent to 1,459 pence, the best performer on the benchmark FTSE 100. BofA Merrill Lynch raised its recommendation on the stock to “buy” from “underperform,” saying “positive GDP growth should drive operational leverage.”

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

Drugstore.com, IMS, SanDisk, SLM, Yahoo: U.S. Equity Preview

By Lu Wang

Oct. 21 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Drugstore.com Inc. (DSCM US): The online seller of medicine and cosmetics said fourth-quarter sales will be at least $107 million, topping the average estimate of $100.4 million by two analysts in a Bloomberg survey.

IMS Health Inc. (RX US): The provider of prescription data to drugmakers and analysts, which is reported to be in takeover talks with private-equity firms, said it is exploring strategic alternatives.

SanDisk Corp. (SNDK US): The biggest maker of flash-memory cards used in digital cameras and mobile phones forecast sales that beat analysts’ estimates as chip prices rebounded.

SLM Corp. (SLM US): The biggest U.S. student loan company reported earnings excluding some items of 26 cents a share in the third quarter, more than five times the average analyst estimate, according to Bloomberg data.

Yahoo! Inc. (YHOO US): The owner of the second-largest U.S. search engine reported more third-quarter profit than analysts estimated after cutting costs by paring jobs and jettisoning businesses.

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

Dark Pools Face SEC Restraints Curbing Fastest-Growing Markets

By Jesse Westbrook and Whitney Kisling

Oct. 21 (Bloomberg) -- The Securities and Exchange Commission may halt the expansion of the fastest-growing stock networks in the U.S. with rules to improve transparency in so- called dark pools.

The SEC will today propose lowering the amount of daily volume in a company’s shares that can be executed on the systems before quotes must be made public to 0.25 percent from 5 percent, according to two people familiar with the matter. Dark pools are electronic, off-exchange platforms that investors use to avoid revealing who they are and what they are trading.

Democratic Senators Charles Schumer of New York and Ted Kaufman of Delaware are urging regulators to crack down on practices they say create an unfair advantage for the biggest investors. Regulators proposed banning so-called flash trades, in which some investors get a half-second glimpse at share orders before the public, last month.

“It will initially take money out of many dark pools’ pockets,” said Matthew Samelson, the Stamford, Connecticut- based founder of market research firm Woodbine Associates Inc. “They’re either going to have to adjust their pricing to be more competitive with the current displayed markets or that flow’s going” elsewhere, he said.

The proposal is the latest sign the SEC is toughening oversight of strategies spurred by the growth of alternative exchanges and advances in technology. Dark pools are sometimes used by so-called high-frequency traders, brokerages that execute thousands of orders in a second to profit from tiny price gaps.

Sigma X

Trading on dark pools such as Zurich-based Credit Suisse Group AG’s Crossfinder and New York-based Goldman Sachs Group Inc.’s Sigma X, the two largest, has more than quadrupled to 9.4 percent of all U.S. equity volume in three years, according to Tabb Group LLC, a New York-based financial-services consultant.

Under the SEC plan, dark pools will have to publicly report quotes once they handle 0.25 percent of a stock’s daily average volume. The electronic networks usually shut down trading in a security when they approach the existing 5 percent limit.

John Nester, an SEC spokesman, declined to comment.

NYSE Euronext and Nasdaq OMX Group Inc., operators of the biggest U.S. stock exchanges, may benefit from the rule change, according to Woodbine’s Samelson. Both have suffered market share losses as investors shifted to newer venues.

The New York Stock Exchange handled 28 percent of all U.S. equity trading in September, while Nasdaq processed 22.7 percent. Their combined share has fallen to 50.7 percent from 74.1 percent in March 2006.

Block Exemption

The SEC will exempt block trades, or orders exceeding a certain number of shares, from the new rule, according to one of the people, who declined to be named because the discussions were private. Firms specializing in blocks account for 8 percent of all dark-pool trading in the U.S., according to data compiled by Aite Group LLC, a financial-services consultant in Boston.

Transactions are biggest at New York-based Liquidnet Holdings Inc. and Pipeline Trading Systems LLC, where orders average 50,000 shares. That compares with 300 to 450 shares at venues such as Getco Execution Services, run by Chicago-based Getco LLC.

Dark pools reduce costs and benefit small investors by letting mutual funds buy and sell securities in private, Goldman Sachs said in a statement posted on its Web site yesterday.

“Institutional investors can improve their trading performance by executing in an anonymous manner that diminishes their footprint,” according to Goldman Sachs, the most- profitable securities firm in history. “In doing so, the clients of these institutional investors, for example mutual funds and pension funds where the bulk of small investors have their money invested, are direct beneficiaries.”

Siphoning Liquidity

Growth of the networks is hurting traditional markets, which face more regulation, the World Federation of Exchanges said in a letter last month to Mario Draghi, chairman of the financial-stability board of the Basel-based Bank for International Settlements.

“The more the dark pools exist without any comprehensive regulation, the more you’re going to see liquidity siphon off from exchange markets,” William Brodsky, the chief executive officer of the Chicago Board Options Exchange and chairman of the WFE, said at a conference in Vancouver on Oct. 7.

The new SEC threshold may push smaller orders off of dark pools and onto exchanges, analysts said.

“If you were to limit the dark pools to that small amount of trading, it will be much harder to find a counterparty,” said Dirk Hoffmann-Becking, a London-based analyst for Sanford C. Bernstein & Co. For stock exchanges, “if they would see less competition from the dark pool world, that would certainly be a positive for them.”

To contact the reporters on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net.

Tuesday, October 20, 2009

The Australian Central Bank May Continue Raising Rates

Daily Forex Fundamentals | Written by ecPulse.com | Oct 20 09 07:32 GMT |

Throughout the minutes of their last meeting when they raised the interest rates by 25 basis points to 3.25, the Australian central bank confirmed that this decision was the best one taking into consideration the economic performance of the country, which started recovering from the crisis; therefore, it was necessary to keep a balance between inflation and growth.

This could only be a confirmation that this was only the beginning and that the monetary policy will only get tighter from now on. After maintaining the rates at their lowest levels in 49 years for six consecutive months the bank members decided finally to start raising, considering that the need for eased policies diminished considerably, while the risks of delaying raising interest rates at the proper time may be great.

Keeping interest rates at low levels would have led to a sharp expansion in credit operations, raised the liquidity in the financial markets and imbalanced prices which already started to show some upside pressures especially since rise that began in commodity prices, while the bank's target is to stabilize inflation between 2 and 3%.

The current prices levels are higher than the bank's objectives, yet projections indicate the tendency to decline on the short term, while on the long term we may see more inflationary pressures especially in 2011 according to the central bank minutes. It was also pointed out that the economic indicators started to show that the Australian economy is more stable and improving, while the investment operations have started increasing which might be able to support economic growth significantly.

The GDP during the first half grew by 1.0%, after the rise in consumer spending as a result to the government stimulus plan worth 20 billion Australian dollars directed to the household sector, in addition to the cut in interest rates by 4.25% from September last year to April. As a result, the household sector benefited the greatly and was able to overcome the rise in unemployment and the fall in income.

Thereby confidence improved reaching this month its highest in two years, as well as spending on retail sales. All of this was crowned with the fall in unemployment to 5.7% during the month of September, confirming that the labor market in Australia began to overcome the crisis. The optimistic view presented by the Australian central bank today, confirms that on November the 2 we might witness another increase by 25 basis points at least in interest rates

Ecpulse

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Currencies: Dollar Remains Under Pressure, As Risk Appetite Improves Further

Daily Forex Fundamentals | Written by KBC Bank | Oct 20 09 07:26 GMT |

Sunrise Market Commentary

Technicals prevent bonds from more losses, as equities continue to power ahead
Yesterday, equities and commodities gained further ground, putting bonds again under pressure. Technical support levels however held and bonds rebounded further out in the session. For now, we hold on to a sell bonds on up-ticks approach.
Dollar remains under pressure, as risk appetite improves further
Another day, another low for the trade weighted dollar. Commodity currencies are doing great, but EUR/USD near the eye-catching 1.50 level. Strong results of Apple might prolong equity rally in the European session, but later on a slew of new results will be closely scrutinized as the bar for the results should have been raised in step with the rally.

The Sunrise Headlines

In a rather dull session, US Equities reversed Friday's losses on optimism about the remainder of the third quarter earnings season. The Dow jumped back above the 10 000-level. This morning, Asian shares climb higher after both Apple and Texas Instruments reported better than expected earnings after the US closure.
Fed Chairman Bernanke called on the US to save more by cutting the federal deficit and added that Asian nations should promote domestic consumption to avert a return of trade distortions that preceded the financial crisis.
Euro zone finance ministers agreed on Monday to start forcefully cutting budget deficits in 2011 if forecasts from the European Commission point to economic recovery in 2010 and the following year.
The Australian central bank shifted its emphasis to inflation from growth the minutes of last meeting showed. The Bank also indicated that it would raise rates further, leading markets to price in at least two rate hikes before the end of the year and push the Aussie to a 14 month high.
Crude oil prices rose further on Monday, nearing the $80 a barrel level on growing optimism about the economy. Gold climbed closer to last week's highs as the dollar fell to a 14-month low.
Today, the calendar contains the UK pubic sector finance data, US housing starts and permits and PPI. Du Pont, Coca Cola Co, Pfizer, Caterpillar and Yahoo will announce earnings.

EUR/USD

On Monday at the start of a new trading week, risk appetite unmistakably dominated all markets. At the end of last week, investors apparently were considering whether it wasn't the time to book profit on the recent stock market gains after GE and BoA results didn't satisfy the high expectations. A similar sign of fatigue was visible on the EUR/USD charts. However, this investor caution was very short-lived. Without much concrete news, European equity markets started the week strongly, even if there was no higher profile corporate news to support the rally. This positive global investor sentiment also blocked the downside in EUR/USD. The increased risk appetite wasn't limited to equities though as most commodities and oil in particular did well, adding to the negative sentiment for the US dollar. So, EUR/USD swiftly recouped the Asian losses and settled above the 1.49 mark. During the day, there was a lot of market talk on a meeting of the euro-group of Ministers of Finance, which might temporarily have helped the dollar as EUR/USD re-tested the 1.49 mark, but the latter held and more equity strength send the EUR/USD pair again higher and towards a 1.4965 close that compares to the 1.4904 close on Friday. Overnight the pair even shyly approached the 1.50 psychological key level, but the pair changes currently hands little changed at 1.4973.

The euro-group meeting didn't bring much new info on the EUR/USD rate and thus had little impact on the market, as chairman Juncker said the group sticks to the G-7 statement on forex and shares US views on a strong dollar. Juncker added that they didn't like volatility in forex markets. The French Finance Minister Lagarde added later that she is preoccupied about the euro levels while Trichet kept to its standard commentary. The Dutch Minister would have said that the strong euro reflected the strength of the European economy.

Fed chairman Bernanke said that the performance of the US economy and of the dollar will depend on the government's success in controlling the budget deficit. He added the Obama administration recognized the need for a fiscal exit strategy. His words followed the publication late on Friday of a record $1.4 Trl. 2009 fiscal deficit. The remarks might have been damage control and were not specific enough to incite dollar buying. On the contrary, the statement of the NY Fed that the reverse-repo test should not be considered as a sign of an imminent tightening of monetary policy underlines that it the extremely easy monetary policy, one of the reasons of the dollar weakness, might be kept unchanged for longer.

EUR/USD: uptrend well in place as the 1.50 threshold is now within striking distance

Support comes in at 1.4940/36 (STMA/reaction low hourly), at 1.4906/1.4899 (daily envelop/reaction low hourly), at 1.4829 (week low), at 1.4804 (MTMA), at 1.4745 (Boll Midline) and at 1.4609 (LT uptrend line).

Resistance stands at 1.4994 (new high), at 1.5021/32 (2nd target double bottom/weekly/daily envelopes), at 1.5150 (Starc top) and at 1.5164 (76% retracement from 1.6040).

The pair is in overbought conditions.

USD/JPY

Today, the US calendar contains the PPI (no market mover) and the housing starts & building permits that have more potential to move the market. As usual, any impact on EUR/USD will occur via the reaction on the stock markets. With respect to the latter, Apple and Texas Instruments reported overnight strong and stronger-thanexpected earnings, that bolsters the bullish sentiment, at least at the onset of trading. A number of bellwethers will report before the open today, which may still affect equity trading and thus affect the dollar.

Global context: recently, the swings in risk appetite/risk aversion were the drivers on the currency markets. In this context, improving investor sentiment towards risk is still considered a good reason to sell the US dollar. On top of that, in this low yield environment, the dollar has become (or is at least perceived to have become) the preferred currency to fund carry-trade deals. Lingering uncertainty on the huge US financing needs, some international debate on the status of the dollar and the Fed's intention to run an expansionary monetary policy for a prolonged period of time offer additional ammunition for carry traders to use the dollar rather than other currencies. This has put the dollar in a vulnerable position. We stay dollar skeptical as long as we don't get a clear signal that the Fed is coming closer to scale down its stimulating monetary policy. Nevertheless, the ongoing building up of USD short positions at some point will trigger a ST correction (cf. the price action in sterling last week). Such a correction most probably will occur in step with the stock markets. Nevertheless, we still have the impression the EUR/USD market is becoming (too?) heavily positioned to the upside.

Looking at the (technical) charts, the break of EUR/USD above the range top at 1.4438/48 and above the 1.4919 (Dec high) improved the picture, but the move continued to develop in a rather gradual way. Nevertheless, the corrections are very limited, too. We still don't feel any need to row against the tide. However, as we come closer to the 1.50 mark and to our long-standing technical target of 1.5021 (2nd target double bottom of 1.3739), we become more cautious on the ST upside potential in the pair. Partial profit taking on standing EUR/USD long positions can still be considered. We wait for a correction to (re)establish EUR/USD long exposure.

On Monday, USD/JPY showed some technically driven, intraday swings, but after all the currency joined the broader dollar negative trend. Higher equities and rising commodity prices drove the dollar lower and USD/JPY this time was no exception to this rule. The Minutes of the RBA (Australia) showed that the central bank switched its attention from supporting growth to fighting inflation, which means that the RBA may already hike its rates again at the next meeting. This (and commodity strength) pushed the Aussie dollar to a new 14 month high and supported the likes of the Kiwi and the Won. The trade weighted dollar as a result continues its downtrend, setting new lows also every day.

This morning, the yen strengthened further on the general dollar weakness story, supporting the view that the upward correction of the pair last week was over. There was little new info coming from Japan. The leading indicators for August were confirmed little changed and the more important machine tool orders are not yet published. The Nikkei is up 1%, but doesn't distinct itself with other markets making it no factor in the forex markets.

Global context: USD/JPY reached a reaction high in the 97.80 area early August. Despite positive global investor sentiment, the dollar could not hold on to its gains against the yen. The link between USD/JPY and global investor risk aversion/risk appetite became less tight and sometimes it even reversed. The dollar (and not the yen) was said to have become the preferred funding currency for carry trades. So, the price action in USD/JPY more or less joined the global dollar trend (decline). The long-term trend obviously remains USD/JPY negative. However, recently, we turned more cautious on USD/JPY shorts on technical considerations. On top of that, the change in talk from the Japanese authorities also slowed the ascent of the yen. So, the situation in USD/JPY has become a bit paralysed. Recently, we indicated that we were looking to sell into a more pronounced up-tick, hopefully in the 92/93 area, but we had become a bit worried whether this level would be feasible. Last week, the pair moved above the first important resistance area at 90.50, but the move didn't go much further. We keep a wait-and-see approach and still hope to get the opportunity to resell higher.

USD/JPY: downtrend intact and most recent upward correction completed

Support is seen at 90.03(Reaction broken weekly STMA), at 89.90 (break-up daily), at 89.69 (weekly envelop/MTMA), at 89.31/26 (Reaction lows hourly) and at 88.83 (last week low).

Resistance comes in at 90.80 (reaction high hourly), at 91.15 (week high), at 91.33/41 (last week high/Bollinger top), at 91. 74 (38% retracement), at 92.55 (21 Sep high).

The pair is in neutral territory

EURGBP

On Monday, trading in sterling still developed in a nervous and volatile way. Early in European trading, sterling faced some headwinds as investors focused on an interview with BoE's Posen. He indicated that the BoE must continue its policy of quantitative easing because the financial system has yet to recover fully. EUR/GBP jumped from the 0.91010 area at the start of trading in Europe to test offers in the 0.9190 area. Better than expected Rightmove house prices were ignored at that time. However, in order driven trade (there were no eco data on the UK calendar), sterling again found a better bid and erased all the intra-day losses. Apparently, the market was still sterling short, even after last week's violent correction. The adjustment process is still ongoing. The pair closed the session at 0.91104, little changed from the 0.9112 close on Friday evening. So, a second test of the key 0.9080 area didn't occur.

Later today, the UK eco calendar contains the money supply data and the monthly budget data, usually no market movers, but we keep an eye on the monthly budget data. After the close more importantly, BoE's King will give a speech in Edinburgh. Market will probably already look forward to BoE minutes (to be published on Wednesday) and the Q3 GDP data (scheduled for release on Friday). This means that today's EUR/GBP trading might be dominated by technical oriented elements and the global sentiment.

Global context: Since early August, sterling sentiment deteriorated again. The August BoE decision to raise the asset purchase program to £175B and Governor King's call for an even greater effort indicated that the Bank intended to maintain a loose policy for a prolonged period of time. This triggered a new sterling selling wave. At the September meeting, the BoE took no additional policy steps. Nevertheless, the (monetary) picture stays sterling negative and more BoE talk on the positive effects of sterling weakness for the UK economy reinforced investors' feeling that the BoE was happy with the course of events. We have a long-standing sterling negative view and don't feel any need to change it. However, recently we advocated some caution on the recent steep EUR/GBP rise. We were looking to add/reinstall EUR/GBP long positions around first important support area at 0.9080. A break below the latter would suggest that the short-term negative bias toward sterling is changing, which isn't our preferred scenario though. For now we maintain a wait-and see approach and look out whether the correction has run its course. If the 0.9080 area would give away, 0.8984 is the next point of reference

EUR/GBP: tests 0.9080 support area not over yet.

Support comes in at 0.9112 (today low), at 0.91/9094 (week low/last week low), at 0.9078 (3O Sept low/neckline double top), at 0.9061/54 (Break-up daily/LTMA).

Resistance is at seen at 0.9148 (breakdown hourly), at 0.9176 (STMA), at 0.9190 (STMA) and at 0.8220 (MTMA).

The pair is in neutral conditions

News

US: home builders' confidence unexpectedly worsens

US Home builders' confidence unexpectedly deteriorated in October. The NAHB housing market index dropped from 19 to 18, while the consensus was looking for a slight improvement (to 20). The NAHB's chief economist added that builders are experiencing the effects of the expiring tax credit on their sales activity, since it would be virtually impossible at this point to complete a new home sale in time to take advantage of that buyer incentive. In the coming months, it will be interesting to see whether the expiring government incentives will also have their impact on sales. Of course, the Congress might decide to prolong the measures.

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Disclaimer: This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

Currencies: Dollar Remains Under Pressure, As Risk Appetite Improves Further

Daily Forex Fundamentals | Written by KBC Bank | Oct 20 09 07:26 GMT |

Sunrise Market Commentary

Technicals prevent bonds from more losses, as equities continue to power ahead
Yesterday, equities and commodities gained further ground, putting bonds again under pressure. Technical support levels however held and bonds rebounded further out in the session. For now, we hold on to a sell bonds on up-ticks approach.
Dollar remains under pressure, as risk appetite improves further
Another day, another low for the trade weighted dollar. Commodity currencies are doing great, but EUR/USD near the eye-catching 1.50 level. Strong results of Apple might prolong equity rally in the European session, but later on a slew of new results will be closely scrutinized as the bar for the results should have been raised in step with the rally.

The Sunrise Headlines

In a rather dull session, US Equities reversed Friday's losses on optimism about the remainder of the third quarter earnings season. The Dow jumped back above the 10 000-level. This morning, Asian shares climb higher after both Apple and Texas Instruments reported better than expected earnings after the US closure.
Fed Chairman Bernanke called on the US to save more by cutting the federal deficit and added that Asian nations should promote domestic consumption to avert a return of trade distortions that preceded the financial crisis.
Euro zone finance ministers agreed on Monday to start forcefully cutting budget deficits in 2011 if forecasts from the European Commission point to economic recovery in 2010 and the following year.
The Australian central bank shifted its emphasis to inflation from growth the minutes of last meeting showed. The Bank also indicated that it would raise rates further, leading markets to price in at least two rate hikes before the end of the year and push the Aussie to a 14 month high.
Crude oil prices rose further on Monday, nearing the $80 a barrel level on growing optimism about the economy. Gold climbed closer to last week's highs as the dollar fell to a 14-month low.
Today, the calendar contains the UK pubic sector finance data, US housing starts and permits and PPI. Du Pont, Coca Cola Co, Pfizer, Caterpillar and Yahoo will announce earnings.

EUR/USD

EUR/USD: uptrend well in place as the 1.50 threshold is now within striking distance

Resistance stands at 1.4994 (new high), at 1.5021/32 (2nd target double bottom/weekly/daily envelopes), at 1.5150 (Starc top) and at 1.5164 (76% retracement from 1.6040).

The pair is in overbought conditions.

USD/JPY

USD/JPY: downtrend intact and most recent upward correction completed

Support is seen at 90.03(Reaction broken weekly STMA), at 89.90 (break-up daily), at 89.69 (weekly envelop/MTMA), at 89.31/26 (Reaction lows hourly) and at 88.83 (last week low).

Resistance comes in at 90.80 (reaction high hourly), at 91.15 (week high), at 91.33/41 (last week high/Bollinger top), at 91. 74 (38% retracement), at 92.55 (21 Sep high).

The pair is in neutral territory

EURGBP

EUR/GBP: tests 0.9080 support area not over yet.

Support comes in at 0.9112 (today low), at 0.91/9094 (week low/last week low), at 0.9078 (3O Sept low/neckline double top), at 0.9061/54 (Break-up daily/LTMA).

Resistance is at seen at 0.9148 (breakdown hourly), at 0.9176 (STMA), at 0.9190 (STMA) and at 0.8220 (MTMA).

The pair is in neutral conditions

News

US: home builders' confidence unexpectedly worsens

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Technical Analysis for Crosses

Daily Forex Technicals | Written by ecPulse.com | Oct 20 09 07:58 GMT |

GBP/JPY

As we discussed yesterday, the Fibonacci level of 261.8% proved its strength, claiming that the allover bearish harmonic AB=CD pattern is in progress. The candlesticks bearish formation alongside the bearish signs that are appearing on OsMA, RSI 14 and AROON helps us keep our intraday overview to the downside. A breakout below 147.10 will bring a panic sell-off action.

Trading range for today is among key support at 142.25 and key resistance at 155.80.

The general trend is to the downside as far as 167.40 remains intact with target at 116.00.

Support: 147.65, 147.10, 146.20, 145.50, 144.75
Resistance: 148.30, 148.90, 149.35, 150.00, 150.80

Recommendation: Based on the charts and explanations above our opinion is, selling the pair from 148.20 targeting 145.60 and stop loss above 150.50 might be appropriate

EUR/JPY

Same case appears on the EUR/JPY chart as 261.8% Fibonacci has forced the pair to form a bearish engulfing candlestick pattern as seen on the above four-hour chart. A breakout below 134.70 will accelerate the intraday bearish harmonic scenario of AB=CD, targeting 133.60 and we think that it will extend further towards the key support level of 132.50. Indicators support our scenario while the bears power are increasing.

Trading range for today is among key support at 132.50 and key resistance now at 138.20.

The general trend is to the downside as far as 141.44 remains intact with targets at 100.00 followed by 88.97 levels.

Support: 134.70, 134.15, 133.60, 133.00, 132.50
Resistance: 135.25, 135.90, 136.35, 136.80, 137.40

Recommendation: Based on the charts and explanations above our opinion is, selling the pair from 135.20 targeting 133.00 and stop loss above 137.00 might be appropriate.

EUR/GBP

Having a look at the daily time scale we will find that the royal pair is on its way to form the internal [b] of the bigger 4th while forming the allover impulsive wave. The technical target of the aforesaid internal [b] wave resides at 0.9260. Hence we keep our intraday outlook to the upside, supported by the bullish harmonic formation appearing on Stochastic.

Trading range is among the key support at 0.8930 and key resistance now at 0.9340.

The general trend is to the upside as far as 0.8020 area remains intact with targets at 1.0000 followed by 1.0400 levels.

Support: 0.9100, 0.9070, 0.9030, 0.9000, 0.8960
Resistance: 0.9140, 0.9175, 0.9205, 0.9260, 0.9300

Recommendation: Based on the charts and explanations above our opinion is, buying the pair from 0.9100 targeting 0.9205 and stop loss below 0.9010 might be appropriate.

Ecpulse

Technical Analysis for Major Currencies

Daily Forex Technicals | Written by ecPulse.com | Oct 20 09 08:01 GMT |

EURO

The Euro versus Dollar pair inclined yesterday to breach the pivot resistance at 1.4970 supporting the expected uptrend. The Stochastic indicator is providing bearish signs, which may pressure the pair to decline. Yet, we expect a general incline on the intraday basis targeting 1.5100 as far as 1.4845 is intact.

The trading range for today is among the key support at 1.4675 and the key resistance at 1.5280

The general trend is to the upside as far as 1.4135 remains intact with targets at 1.6000

Support: 1.4970, 1.4900, 1.4845, 1.4785, 1.4745
Resistance: 1.5020, 1.5080, 1.5130, 1.5205, 1.5270

Recommendation: Based on the charts and explanations above, our opinion is buying the pair from 1.4970 to 1.5080 and stop loss below 1.4900 might be appropriate

GBP

The Cable neared the awaited support level yesterday at 1.6210 as it recorded a low at 1.6240 before rebounding back to the upside to breach the pivot resistance, which represents the neckline for the bullish pattern seen in the image above . The pair is fluctuating between the key resistance at 1.6445 and the neckline at 1.6390, in an attempt to gather bullish momentum. From here we expect the pair to incline after breaching 1.6445 to target 1.6740

The trading range for today is among the key support at 1.6100 and the key resistance at 1.6740

The general trend is to the upside as far as 1.4840 remains intact with targets at 1.7100

Support: 1.6390, 1.6320, 1.6270, 1.6210, 1.6165
Resistance: 1.6445, 1.6500, 1.6600, 1.6635, 1.6660

Recommendation: Based on the charts and explanations above, our opinion is buying the pair with the breach of 1.6445 to 1.6600 and stop loss below 1.6320 might be appropriate

JPY

The USD/JPY pair retested the 90.55 since yesterday to confirm the breach, where the decline is within a minor descending channel that may take the pair towards 89.70 before rebounding back to the upside on the short term targeting 93.00 as far as 89.70 remains intact on the four hour charts. The stochastic indicator is supporting our uptrend for today.

The trading range for today is among the key support at 86.75 and the key resistance at 93.30

The general trend is to the downside as far as 102.60 remains intact with targets at 84.95 and 82.60

Support: 89.70, 89.45, 88.90, 88.35, 87.80
Resistance: 90.80, 91.30, 92.10, 92.80, 93.30

Recommendation: Based on the charts and explanations above, our opinion is buying the pair from 89.70 to 90.80 and stop loss below 88.90 might be appropriate.

CHF

The Dollar versus Swissy pair was able to breach the pivot support at 1.0125 to decline towards 1.0000. From here we expect the pair to decline on the intraday basis to support the short term decline requiring 1.0295 to remain intact on the four hour charts. The stochastic indicator is showing bullish signs, which may push the pair to retest the previously breached support.

The trading range for today is among the key support at 0.9880 and the key resistance at 1.0450

The general trend is to the downside as far as 1.1225 remains intact with targets at 0.9600

Support: 1.0080, 1.0000, 0.9935, 0.9880, 0.9840
Resistance: 1.0125, 1.0185, 1.0260, 1.0295, 1.0350

Recommendation: Based on the charts and explanations above, our opinion is selling the pair from 1.0125 to 1.0000 and stop loss above 1.0185 might be appropriate.

CAD

Trading for the pair remained below 1.0300 as the pair closed below it on the daily charts opening the way for further declines without the need for an upside correction. We see a pivot support at 1.0255 in the image above, which may become a neckline for a bearish technical patter where targets are at 1.0100 and 1.0000 respectively. The stochastic indicator may limit further declines for now yet the overall trend is to the downside on the intraday basis as far as 1.0125 is intact on the four hour charts.

The trading range for today is among the key support at 1.0000 and the key resistance at 1.0580

The general trend is to the downside as far as 1.1870 remains intact with targets at 1.0000

Support: 1.0255, 1.0205, 1.0150, 1.0090, 1.0000
Resistance: 1.0325, 1.0370, 1.0400, 1.0450, 1.0500

Recommendation: Based on the charts and explanations above, our opinion is selling the pair with the breach of 1.0255 to 1.0150 and stop loss above 1.0325 might be appropriate.