Dollar Weakness May Take on a ‘Life of Its Own,’ RBS Says

By Daniel Tilles

Nov. 9 (Bloomberg) -- The dollar’s weakness may gather pace as 2009 draws to a close, according to Royal Bank of Scotland Group Plc.

“Overall risk appetite may remain relatively subdued into year-end, although it would not surprise to see the dollar weakness appear to take on more of a life of its own, rather than just a negative correlation to equities,” Greg Gibbs, a foreign-exchange strategist in Sydney, wrote today in a report.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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German Exports Undercut Trichet’s Weaker Euro Push

By Matthew Brown and Oliver Biggadike

Nov. 9 (Bloomberg) -- A decade after the euro replaced the deutsche mark, Germany’s export-driven recovery is undermining European Central Bank President Jean-Claude Trichet’s efforts to slow the currency’s record rise.

Speculators are the most bullish in almost two years on the euro, betting the eight-month, 20 percent rally won’t stop until it hurts the continent’s biggest economy. Even as Spain, France and Portugal advocate weakening the euro to lower the price of their products overseas, 32 of 47 strategists surveyed by Bloomberg forecast an increase from last week’s $1.4847 close by Dec. 31 or March 31. It rose 0.5 percent to trade at $1.4921 as of 12:56 p.m. in Tokyo.

Intended to unify, the euro is proving divisive as Europe battles recession. Germany, the world’s largest goods exporter in 2008, is leading the rebound, deflating pressure to depreciate the currency. Trichet has argued for a strong dollar repeatedly, calling it “extremely important” Oct. 15. A day later, Germany’s then-Economy Minister Karl-Theodor zu Guttenberg said “there is no reason for concern” because his country’s competitiveness “does not depend on the dollar rate” versus the euro.

“Global growth has helped Germany’s exports and made it less sensitive to the exchange rate,” said Bilal Hafeez, chief currency strategist at Frankfurt-based Deutsche Bank AG, the largest currency trader and Germany’s biggest bank. “They won’t get worried about the euro’s strength until at least $1.55.”

Bullish Speculators

Euro options-trading indicates about a 60 percent chance it will reach $1.55, a 4 percent gain, by March 31, implied volatility data tracked by Bloomberg show. Hedge fund managers and other large speculators had more than twice as many futures and options bets in September and October that the currency would rise as wagers on a decline, the most bullish ratio since November 2007, Commodity Futures Trading Commission data show.

Germany is recovering faster than other euro countries from the worst global downturn since the 1940s. Its economy expanded 0.3 percent in the second quarter, after contracting the previous four. The euro zone shrank 0.2 percent in April, May and June. Deutsche Bank predicts Germany’s exports will rise almost 6 percent in 2010, compared with the region’s 4.4 percent.

An index measuring German executives’ optimism hit a 17- month high of 96.8 in October, the Munich-based Ifo institute’s business climate survey showed. Manufacturing orders increased an unprecedented 19 percent in the seven months to Sept. 30, according to the German central bank.

Spain’s Pain

Mercedes-Benz maker Daimler AG in Stuttgart reported its first quarterly profit in a year on Oct. 27, and the shares are up 84 percent since March 1. Ludwigshafen-based BASF SE, the world’s largest chemical company, earned profits for three straight quarters, including 237 million euros ($352 million) in the third, when 46 percent of its revenue came from outside Europe. Competitors struggled, with Arkema SA in Colombes, France, posting losses for the past three quarters.

Exports accounted for 40 percent of Germany’s economy in the second quarter, compared with 35 percent for the euro region. France and Spain sell a combined 15 percent of Europe’s cross- border shipments of what the Paris-based CEPII Institute considers “high quality” goods.

Germany’s share is almost a third. They include Porsche SE’s 911 Carrera sports cars, which are manufactured in Zuffenhausen and sell for at least $77,800 in the U.S.; Wuerzburg-based Koenig & Bauer AG’s printing presses, which produce 90 percent of the world’s cash; and optical lenses from Carl Zeiss AG, which began making microscopes in Jena in 1847 and is now based in Oberkochen.

Mercedes Sales

Daimler, the world’s second-largest maker of luxury vehicles behind Munich-based Bayerische Motoren Werke AG, said U.S. Mercedes-Benz sales jumped 21 percent in October.

“Germany has shown the capacity to compete probably more effectively at these kind of exchange rates than many other European countries,” said Alan Ruskin, head of international North American currency strategy at RBS Securities Inc. in Stamford, Connecticut.

Spain contracted 1.1 percent in the second quarter, and Deutsche Bank sees its exports trailing Germany’s with a 2.4 percent increase in 2010. Spain’s economy was once an engine of growth, expanding 3.9 percent a year on average in the decade to June 2007, compared with the region’s 2.3 percent.

While France’s gross domestic product grew as much as Germany’s in the three months through June, its exports will lag behind, with 3.8 percent growth next year, Deutsche Bank estimates. After Portugal’s economy rose 0.3 percent in the second quarter, exports slumped in August by 32 percent.

Unprecedented Fall

The euro’s rally followed a record 23 percent, seven-month drop to $1.2330 on Oct. 28, 2008, from $1.6038, the all-time record, in April 2008. It rose to $1.50 on Oct. 21, as investors dumped U.S. assets on signs of a global recovery and central banks diversified away from the greenback.

Euros account for 28 percent of the world’s $4.3 trillion in currency reserves, versus the dollar’s 63 percent, the slimmest margin ever, International Monetary Fund data show.

Meudon, France-based Gemalto NV, the world’s largest maker of smartcards for data storage and financial transactions, reported third-quarter sales on Oct. 22 that fell short of analysts’ estimates, leading to the stock’s worst day in almost two years.

“Weighing on our margin is this adverse currency effect simply because the euro has strengthened quite a bit,” Gemalto Chief Executive Officer Olivier Piou said as the company posted second-quarter earnings on Aug. 25, when the euro was at $1.43. “Year-on-year gross margin was down 3 percentage points,” in part due to the euro’s advance, he said.

Sarkozy’s ‘Disaster’

Service Point Solutions SA in Barcelona, Spain’s only publicly-traded document manager, may post its biggest loss since 2002 in the third quarter, partly because of the stronger currency, analysts’ estimates show.

“About 30 percent of our sales are in the U.K., so our sales are lower,” Chief Financial Officer Matteo Buzzi said in a Nov. 6 interview. The euro was up as much as 12 percent against the pound last month from June’s six-month low.

Henri Guaino, an aide to French President Nicolas Sarkozy, called the euro at $1.50 a “disaster” on Oct. 20, the day before it hit that level for the first time in 14 months. Portuguese Finance Minister Fernando Teixeira dos Santos said in an Oct. 1 interview that he looks with “concern” at its impact on his country’s exports, which fell to a four-year low in August.

Trichet Rhetoric

Trichet said on Nov. 5 that ECB officials “appreciate” U.S. statements supporting a “strong dollar,” a phrase he uttered at least seven other times in the previous five weeks. “I echo this statement as something which is important in the present circumstances,” he said at a Frankfurt press conference. Ivan Sramko, an ECB governing council member, was more direct on Oct. 23, saying the euro rally may cause economic “problems.”

European Monetary Affairs Commissioner Joaquin Almunia, French Finance Minister Christine Lagarde and Spanish Finance and Economy Minister Elena Salgado also have complained about the euro’s strength in the past two months.

Some members of German Chancellor Angela Merkel’s ruling coalition cheer the rise of the euro, which was pegged to a basket of currencies dominated by the deutsche mark when it was created Jan. 1, 1999.

“Sure, the euro’s comparative strength is an irritation for our exporters, but that’s a short-term nuisance,” said Frank Schaeffler, a Free Democratic Party member on parliament’s Finance Committee, in a Nov. 5 interview. “We want a strong euro. The longer-term well-being of the economy depends on it.”

Euro Pride

Investors say intervention to weaken the euro is unlikely at current levels, given the dominance of Germany, which accounted for 27 percent of the zone’s third quarter GDP.

“The German government always believed in a strong- currency policy,” said Werner Eppacher, who oversees $15 billion a year in trades as head of foreign-exchange at DWS Investment GmbH in Frankfurt and predicts the euro will hit $1.52 by May. “They believed it’s something to be proud of, that a strong currency means reliable fiscal policy, strong economic structure. They viewed it as a sign that they are doing their job correctly.”

Last month, Merkel dismissed critics of Germany’s reliance on sales abroad. “All those who now say we’ve depended too much on exports are undermining our biggest source of prosperity and must be rebuffed,” she said on Oct. 14.

Reduced Chance

The last time policy makers intervened to influence the euro was after the currency had fallen 27 percent since its inception. Central banks bought about 6 billion euros on Sept. 22, 2000, pushing it to 90 U.S. cents from 85 cents in a few hours. It bottomed a month later at 83 cents and hasn’t traded below $1.10 since 1993.

An index of the euro’s value, momentum and trading trends last week signaled a 29 percent chance of another intervention, down from 55 percent in January, said Stephen Hull, Morgan Stanley’s global head of currency strategy in London.

“It’s always a combination of levels and speed,” said Thomas Stolper, an economist in London at Goldman Sachs Group Inc., the most profitable securities firm. “A gradual drift higher from here to the old highs would not necessarily trigger an intervention, but if we went to $1.60 in a few weeks, the probability would be substantially higher.”

Rising debt loads for the region’s countries may cause the euro to depreciate once growth takes hold, said Otmar Issing, the ECB’s former chief economist. The zone’s budget deficit will swell to a record 6.9 percent of GDP next year, from 6.4 percent in 2009, with all 16 countries breaching European Monetary Union limits as they pump cash into their economies, the European Commission forecast Nov. 3. Spain, Greece and Ireland will have shortfalls of 10 percent or more this year and next, it said.

‘Big Problem’

“The reasons for running deficits at the moment, to fight the crisis, are accepted, but when it ends it will be a big, big problem for the stability of the currency,” Issing said in an Oct. 26 debate at the London School of Economics.

For now, that isn’t a problem. Interest rates of 1 percent in Europe versus near zero in the U.S. have attracted investors to the euro. The American government has flooded the world with dollars by spending, committing, lending or guaranteeing $11.6 trillion to fight the recession while the ECB has been more restrained on measures that would debase its currency.

“The Fed and the government filled the market with dollars, making it the main currency for carry trades,” where low- interest economies’ money is invested in higher-yielding ones, said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. “This will only end when the Fed starts tightening monetary policy or the market believes a hike is imminent.” He sees the euro rising to $1.53.

‘Upward Pressure’

The International Monetary Fund on Nov. 7 said “there are indications” that traders are using the dollar to fund carry trades across the world and that it may still be overvalued even after its slide this year.

“These trades may be contributing to upward pressure on the euro,” the IMF said in a report.

Investors outside developed Europe bought $6.5 billion of its government and corporate bonds from April 1 to Nov. 4, the fastest pace since March, according to Cameron Brandt, an analyst at fund-flow data provider EPFR Global in Boston. European stock purchases by foreigners totaled $5.8 billion from mid-July to November, the most since at least 1999, Brandt said. The Dow Jones Stoxx 600 Index of Europe’s shares is up 53 percent since March 9 after a record six-month rally. Germany’s DAX index is up 49 percent.

The euro’s “pain threshold is associated with new record highs, so we would need to go above $1.60,” Goldman Sachs’ Stolper said. “Demand for German goods depends a lot more on global growth and investment patterns than on the strength of the euro.”

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net

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Euro Rises Versus Yen, Dollar Amid Signs Economy Is Recovering

By Yoshiaki Nohara and Ron Harui

Nov. 9 (Bloomberg) -- The euro gained against the yen and the dollar before European reports today that may add to signs the economy is recovering, boosting demand for higher-yielding assets.

The dollar declined against 14 of its 16 major counterparts after the Group of 20 governments agreed to keep stimulus measures and remained silent on the greenback’s decline this year. New Zealand’s dollar gained by the most in more than a week as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast for milk prices by 19 percent on growing global demand.

“Overall, economic data are turning positive,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “Demand remains strong for commodity and higher-yielding currencies.”

The euro gained to 134.72 yen as of 7:15 a.m. in London from 133.45 yen in New York on Nov. 6. The euro rose to $1.4950 from $1.4847. It earlier climbed to as high as $1.4952, the strongest since Oct. 26. The U.S. currency traded at 90.11 yen from 89.88 yen.

The euro strengthened as a Bloomberg News survey of economists showed German industrial output probably expanded 1 percent in September, a second month of gains. The Economy Ministry will release the data in Berlin.

Euro Zone

A European investor confidence index improved to minus 12 in November, the highest since July 2008, according to a separate Bloomberg survey. The Sentix research institute will issue the report in Limburg, Germany.

“The euro-zone economy is performing better than economies in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest-rate differentials are also in favor of the euro.”

The yield advantage of 10-year German bunds over similar- maturity Japanese government debt widened to 1.91 percentage point on Nov. 6 from 1.89 percentage point on Nov. 5.

The dollar dropped after Alistair Darling, hosting in the U.K. a meeting of finance ministers from G-20 nations, said his colleagues decided to keep supporting their economies.

“We agreed to maintain support for the recovery until it is assured,” Darling said Nov. 7. “We are not out of the woods yet.”

New Zealand’s currency advanced against all 16 major counterparts after Fonterra said today it will probably pay its 10,500 farmer-shareholders NZ$6.05 ($4.45) for each kilogram of milk supplied in the year to May 31. That would be the second- highest since Fonterra paid a record NZ$7.90 a kilogram in the year ended May 2008.

Milk Prices

Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese and sells products in more than 140 countries.

“Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The market still has a hike in there by March next year, which is quite a bit sooner than what the Reserve Bank outlined in their most recent statement. This is further fuel to the fire.”

The New Zealand currency rose 1.5 percent to 73.58 U.S. cents, the most since Oct. 29. It gained 1.7 percent to 66.30 yen.

U.S. Dollar

The U.S. currency also dropped after the International Monetary Fund said traders are probably using the dollar to fund so-called carry trades around the world and it may still be overvalued.

The IMF said in a report published on Nov. 7 that while the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.” The Federal Reserve last week repeated its intention to leave borrowing costs “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline.

“The dollar was hurt by the IMF’s observation,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note. “With the Fed implying it will keep rates very low until the unemployment rate starts falling, traders continued to pare expectations for rate hikes in 2010, which is weighing on the dollar.”

The U.S. currency has dropped against 15 of 16 major counterparts in the past six months as investors increased carry trades, where they borrow in countries with low interest rates to invest in higher-yielding assets.

The greenback’s decline helped push the price of gold to an all-time high of $1,105.11 an ounce today in Singapore, as demand increased for the precious metal as a store of value.

Interest Rates

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 3.5 percent in Australia and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.

The dollar may fall further as economists forecast the trade deficit in the U.S. probably widened in September, reflecting growing demand for foreign oil and automobiles.

The gap between imports and exports increased to $31.8 billion from $30.7 billion the prior month, according to the median of 60 estimates in a Bloomberg News survey ahead of the Commerce Department’s Nov. 13 report.

Chinese Premier Wen Jiabao called on the U.S. to keep its deficit at an “appropriate size,” saying that it would be conducive to stability and global economic recovery, Reuters reported.

The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners, fell to 75.331 from 75.819 on Nov. 6. The index earlier today touched 75.325, the lowest since Oct. 23.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Wheat Advances as Production in Canada Forecast to Decline

By Luzi Ann Javier

Nov. 9 (Bloomberg) -- Wheat gained for the first time in three sessions as output in Canada, the world’s second-largest exporter, was forecast to drop 15 percent this year. Corn and soybeans also advanced.

Wheat output in Canada may plunge to 24.35 million tons in the marketing year that began Aug. 1, from an estimated 28.611 million tons last year, the U.S. Department of Agriculture’s Foreign Agricultural Service said in a report posted on Nov. 6.

“That’s the news, that’s why the market is rallying,” Peter McGuire, managing director at CWA Global Markets Pty. said by phone from Sydney today.

December-delivery wheat rallied as much as 1.3 percent to $5.035 a bushel in after-hours on the Chicago Board of Trade and was at $5.0225 a bushel as of 2:03 p.m. Singapore time.

Soybeans for January delivery rose as much as 1.5 percent to $9.69 a bushel before trading at $9.68. Corn for December delivery added 1.1 percent to $3.71 at 2:03 p.m. Singapore time.

The Midwest is expected to have warm weather in the coming week, according to a forecast by DTN Meteorlogix LLC.

Drier, warmer weather may advance the harvesting of soybeans and corn in the major growing regions of the U.S., the world’s biggest exporter of both crops, and accelerate planting of winter-wheat, McGuire said.

The USDA may raise its yield forecast in Tuesday’s report, he added. The USDA is scheduled to release Nov. 10 its latest estimates of U.S. and global production and demand for soybeans, corn and wheat.

The USDA forecast in October that the nation’s soybean output will rise to a record 3.25 billion bushels, higher than the 3.245 billion bushels it estimated a month earlier.

It also increased in October its U.S. corn output estimate to 13.018 billion bushels, the second-largest on record, from 12.955 billion bushels a month earlier.

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Palm Oil May Climb 7% by First Quarter, Mistry Says

By Bloomberg News

Nov. 9 (Bloomberg) -- Palm oil prices may advance 7 percent by the first quarter driven by a revival of demand from China and India, the world’s two biggest importers, said Dorab Mistry, director of Godrej International Ltd.

“After a few weeks, as demand from China and India returns, I expect crude palm oil futures to begin to rise and to attain my target of 2,400 ringgit in the first quarter of 2010,” Mistry said in comments prepared for delivery at a conference in Guangzhou, China, yesterday. The prediction is the equivalent of $709 per metric ton.

Palm oil, used in cooking and fuel, has climbed 31 percent this year as crude oil gained 76 percent and rains and freezing weather threatened harvesting of the soybean crop in the U.S., the biggest producer, potentially reducing output of soybean oil.

Futures may reach 2,400 ringgit before the first quarter on speculation a strengthening El Nino may hurt production next year in Southeast Asia, Mistry said in an interview in Singapore today. Prices may even surge to as high as 3,000 ringgit by the end of 2010 if oil prices advance to $100 a barrel, he said.

“My belief is that once the dry weather hits Indonesia in a big way, the sentiment will turn very fast,” Mistry said. “The dryness should be coming in anytime now. Production will be affected in the second or third quarter.”

Energy Costs

The 2010 price outlook appears “friendly,” Mistry said yesterday, adding much will depend on energy costs. His 2,400 ringgit forecast is based on crude oil around $80 per barrel in the next few months, a euro around $1.50 and the rupiah around 9,400 to the dollar.

China and India appear to be “well-covered” at present and it’s possible that palm oil stockpiles will build in the next few weeks toward the end of the calendar year, he said.

Palm oil stockpiles in Malaysia, the second-biggest producer, will probably peak at 2.1 million tons at the end of December before declining in the New Year, said Mistry, whose speech yesterday was delivered in his absence as he was unable to attend the conference.

“Whilst this figure may seem daunting, it will represent less than six weeks consumption,” he said. “It is likely stocks will decline from January or latest from February onwards.” Inventories rose 12 percent to an eight-month peak of 1.58 million tons in September, the palm oil board said Oct. 12.

Price Pressure

“It is quite possible markets may come under pressure” and futures may break 2,100 ringgit temporarily, he said. “I no longer expect CPO futures to decline to 1,900 and believe they have bottomed out at the recent low of 2,020,” he said.

January-delivery palm oil fell 0.9 percent to 2,226 ringgit ($658) a ton at the midday break on the Malaysia Derivatives Exchange. The contract closed at 2,246 ringgit on Friday.

The Southern Oscillation Index had turned “sharply negative” in the past three to four weeks and this is “usually a clear pointer to a strengthening El Nino,” he said. “It appears that we are on the brink of dry weather and rainfall deficits in Malaysia as well as Indonesia,” he said.

“A new stronger El Nino will have a profound effect on CPO production” in June to September, he said.

Palm oil stockpiles in Indonesia, the world’s biggest producer, will increase in the coming months because of higher output, Derom Bangun, a deputy chairman of Indonesia’s Palm Oil Board, said Nov. 2.

Indonesian Output

Inventories probably increased to 1.7 million tons in October, compared with the August and September average of 1.3 million tons to 1.4 million tons, he said. Mistry has previously forecast that Indonesian production would gain by 2 million tons in 2010 and Malaysian output by 500,000 tons.

Imports of vegetable oils by India will be “more or less the same” in the year starting Nov. 1, 2009, as in 2008-2009 or about 8.6 million tons, he said. Palm oil purchases by the country, the largest importer, will be 6.9 million tons, up from 6.65 million, he said. Total consumption of vegetable oils will gain by 500,000 tons on strong economic growth, he said.

“India’s industry has weathered the recession in very good shape and is now poised to grow strongly,” he said. “This will have an effect on per capita consumption.”

Soybean oil’s premium over palm oil may narrow after April as soybean production in South America increases and palm oil supplies slow in Southeast Asia, Mistry said today. “There’s a lot of money to be made on that spread,” he said.

--Feiwen Rong. With assistance from Leslie Tan and Luzi Ann Javier in Singapore and Zeb Eckert in Hong Kong. Editors: Wendy Pugh, James Poole

To contact the Bloomberg News Staff on this story: Feiwen Rong in Beijing at frong2@bloomberg.net

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Most Japanese Stocks Fall on Earnings, Forecasts; Nissan Drops

By Akiko Ikeda and Kotaro Tsunetomi

Nov. 9 (Bloomberg) -- Most Japanese stocks fell, dragging the Topix index to its lowest close in a month, after companies reported lower earnings or forecast losses.

Mitsubishi Rayon Co., a maker of synthetic fiber, sank 4.6 percent and NOK Corp., a maker of carparts, lost 11 percent after they forecast wider full-year losses. Nissan Motor Co., a carmaker that gets about 75 percent of sales abroad, lost 2.3 percent as the yen strengthened against the dollar.

“The market lacks any market-moving news for active trading, since the peak for Japanese earnings has already passed,” said Daisuke Shimazu, an investment manager in Tokyo at Sumitomo Trust Banking Co., which has about $200 billion in assets.

The Topix fell 0.4 percent to 870.67 in Tokyo, the lowest close since Oct. 5, as about two shares declined for each that advanced. The Nikkei 225 Stock Average gained 0.2 percent to 9,808.99, boosted by insurance companies.

Of the companies in the Topix that have announced financial results this earnings season, 58 percent have reported declines, according to data compiled by Bloomberg. Stocks in gauge are valued at almost 36 times estimated earnings on average, compared with 20 times at the beginning of the year.

Nippon Telegraph & Telephone Corp., Japan’s biggest phone company, retreated 1.6 percent to 3,680 yen, the steepest decline since Oct. 8. The Nikkei newspaper said the company’s operating profit probably fell 15 percent in April to September from a year earlier, due to decreased mobile-phone revenue.

Profits, Losses

NOK plunged 11 percent to 1,057 yen, the sharpest slide since Nov. 12 last year, after the maker of oil seals and rubber products forecast a net loss of 5.1 billion yen ($57 million) for the year ending March 31, compared with its earlier estimate of a deficit of 4.5 billion yen.

Mitsubishi Rayon sank 4.6 percent to 289 yen. The synthetic-fiber maker widened its full-year net loss projection to 8.5 billion yen from 1 billion yen, citing foreign-exchange losses and fixed-asset devaluations.

The yen gained to as much as 89.69 against the dollar today, 13 percent stronger than its low for the year in April. That reduces earnings at Japanese companies when overseas revenue is converted into their home currency. Nissan, Japan’s third- biggest automaker, lost 2.3 percent to 642 yen.

“If the yen strengthens to 85 or 80, many companies won’t be able to make up exchange-rate losses,” said Takeshi Osawa, a senior fund manager in Tokyo at Norinchukin Zenkyoren Asset Management Co.

Topix Advances Least

The Topix has risen 1.3 percent this year, the least among the world’s 10 largest equity markets, as the global recession sapped demand for companies’ products and the stronger yen hurt exporters. The Standard & Poor’s 500 Index in the U.S. has climbed 18 percent this year, and the Dow Jones Stoxx 600 Index in Europe has added 22 percent.

Taiyo Yuden Co. lost 4.7 percent to 942 yen, the lowest since June 23. The maker of electronic components swung to a first-half net loss of 1.42 billion yen from a profit the previous year, as sales declined 13 percent.

Insurance companies rose the most among the 33 industry groups in the Topix. Mitsui Sumitomo Insurance Group Holdings Inc. jumped 8.6 percent to 2,275 yen, the largest gain in the Nikkei 225, after its first-half net income unexpectedly rose to 57 billion yen because of smaller-than-expected payouts for typhoons and other natural disasters.

Insurance Companies Gain

Tokio Marine Holdings Inc., Japan’s largest insurer by market value, climbed 4.3 percent to 2,445 yen. The company said in a preliminary earnings statement that first-half net income totaled 71 billion yen, 78 percent more than forecast, on higher-than-expected sales. Mitsui Sumitomo Insurance and Tokio Marine were the biggest positive contributors to the Topix.

“With the typhoon season having passed, we expect any future natural disaster-related losses to be small and think the actual size of these losses will provide upside to full-year earnings,” Masayoshi Kobayashi, an analyst at Nomura Holdings Inc., said in a report dated Nov. 6. “We think this is a good time to reappraise and consider buying non-life insurance stocks based on earnings improvement.”

Aioi Insurance Co. surged 8.7 percent to 427 yen. The casualty insurer doubled its full-year net income projection to 16 billion yen, citing fewer-than-expected typhoons and other natural disasters.

Citizen Holdings Co. soared 7.8 percent to 526 yen, rising the most since May 13. The watchmaker boosted its full-year operating profit outlook 83 percent to 5.5 billion yen, citing lower fixed costs. Operating profit in the six months ended Sept. 30 plunged 82 percent to 1.73 billion yen, as sales fell by 28 percent, the company said in a release.

To contact the reporters for this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Kotaro Tsunetomi in Tokyo at ktsunetomi@bloomberg.net.

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China May Offer Subsidies to Buy Domestic Soybeans

By Bloomberg News

Nov. 9 (Bloomberg) -- China, the world’s largest soybean importer, may offer subsidies to buyers of locally grown oilseeds to boost farm incomes, potentially curbing purchases from overseas, industry executives said.

“China may give a subsidy to local crushers who use domestically produced soybeans,” said Zhu Yufeng, managing director at Hanfeng Huayu (Beijing) International Trading Co. Ltd. The government may then allow the crushers to sell the soybean meal and oil onto the domestic market, Zhu said at a conference in Guangzhou at the weekend.

Slowing imports may help extend a decline in Chicago soybean prices, already down 1.1 percent this year. China’s government bought more than 6 million tons from the 2008 domestic crop in an effort to boost prices as the global recession threatened to cut farm incomes. Auctions of the soybeans, held to make room in reserve silos for the new crop, have failed to attract significant buying.

“If the government does indeed adopt this subsidy policy, then imports may fall because of the possible increase in consumption of domestically produced soybeans,” Chen Tao, chairman of Louis Dreyfus (Beijing) Commodities Trading Company Ltd., said at the conference.

The government may pay 200 yuan ($29) a ton to crushers who buy the oilseed from government supplies, three analysts and traders said in August. They asked not to be identified as the information was confidential.

Imports Jump

China relies mostly on imports to meet its soybean needs, with consumption estimated at more than 54 million tons this year and domestic supply at 14.5 million tons, according to the U.S. Department of Agriculture. China’s inbound soybean shipments jumped 13 percent from a year ago to 32.4 million tons in the first nine months of this year, customs figures show.

Soybeans for September 2010 delivery on the Dalian Commodity Exchange, the most-actively traded contract for locally produced soybeans, were little changed at 3,719 yuan a ton today. Prices have gained 10 percent this year.

“Despite robust demand in China, the high stockpiles will suppress local market prices and may lead to a situation where domestic prices are lower than the imported cost,” said Zhou Xuejun, general manager of vegetable oils and protein trading, Cargill Investments (China) Ltd.

Soybeans gained 1.5 percent to $9.6975 a bushel in Chicago at 3:33 p.m. in Singapore today.

China may slow vegetable oil imports in 2009-2010 amid high domestic stockpiles, Wang Yinji, deputy general manager at Cofco Oil & Grains Co. said Nov. 7. Soybean oil imports will fall 20 percent to 2 million tons and palm oil shipments will be “mainly flat” at 6 million tons, Wang said.

--Feiwen Rong. Editors: Richard Dobson, James Poole.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at +86-10-6649-7563 or frong2@bloomberg.net

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Asian Stocks Gain on G-20; Weaker Dollar Drives Gold to Record

By Darren Boey and Jonathan Burgos

Nov. 9 (Bloomberg) -- Asian stocks rose after Group of 20 governments agreed to maintain stimulus efforts and Axa SA and AMP Ltd. made the region’s biggest takeover offer this year. Gold climbed to a record after the dollar fell.

The MSCI Asia Pacific Index advanced 0.7 percent to 117.18 as of 4:50 p.m. in Tokyo. Gold for immediate delivery reached an all-time high of $1,107.91 an ounce as the weakening U.S. currency prompted investors to increase bullion holdings as a store of value. The dollar declined against 13 of its 16 major counterparts amid expectations of low borrowing costs in the U.S. Oil rose as a hurricane disrupted Gulf of Mexico production.

“Maintaining stimulus measures will help support a further rally in equities and commodities, though it’s not necessarily a positive thing,’ said Pauline Dan, Hong Kong-based chief investment officer at Samsung Investment Trust Management, which oversees $100 billion in assets. “That means the economy is not recovering at a desirable pace. The U.S., for instance, does not really have a choice but to keep its monetary policy loose.”

Axa Asia Pacific Holdings Ltd. shares surged 33 percent in Sydney after rejecting a hostile bid from its parent and AMP, Australia’s No. 2 insurer by value. The country’s benchmark S&P/ASX 200 Index rallied 1.8 percent, buoyed by Commonwealth Bank of Australia’s report of A$1.4 billion ($1.3 billion) in first-quarter profit.

Hong Kong’s Hang Seng Index gained 1.7 percent as Moody’s Investors Service upgraded its outlook on Hong Kong and China’s debt ratings to “positive” from “stable.” Futures on the U.S. Standard & Poor’s 500 Index added 0.6 percent.

Carry Trades

Yields on 10-year Treasury notes rose three basis points to 3.52 percent, according to BGCantor Market Data. The U.S. House approved health-care legislation that would cost more than $1 trillion over 10 years, indicating the government will have to increase its debt sales to pay for it.

Gold for immediate delivery advanced 1.1 percent to $1,107.19 an ounce. Prices of the precious metal jumped 5.5 percent in the past month as the Dollar Index, which measures the U.S. currency against 6 major counterparts, lost 1.5 percent.

“It’s inextricably linked to the dollar,” said Geoff Clear, head of Asia commodities at Australian & New Zealand Banking Group Ltd. “All commodities are reflecting dollar weakness and gold at a record is a result of investor appetite and safe-haven buying.”

The Dollar Index dropped 0.7 percent today. The International Monetary Fund said in a Nov. 7 report traders are probably using the dollar to fund so-called carry trades around the world and it may still be overvalued.

Maintaining Support

The U.S. currency fell to $1.4957 per euro in Tokyo from $1.4847 in New York on Nov. 6. It dropped to as low as $1.496, the weakest since Oct. 26. The dollar traded at 90.25 yen from 89.88 yen.

Alistair Darling, hosting in the U.K. a meeting of finance ministers from G-20 nations, said his colleagues decided to keep supporting their economies. Australian Treasurer Wayne Swan said on Nov. 8 that it’s too early to retract government stimulus.

The New Zealand currency rose 1.7 percent to 73.70 U.S. cents as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast for milk prices by 19 percent amid growing global demand. Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese.

“Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington.

Hurricane Ida

Crude oil for December delivery in New York rose as much as 1.7 percent to $78.78 a barrel in after-hours trading as Hurricane Ida, packing 105 mile-an-hour winds, entered the southern Gulf of Mexico. Offshore output along the U.S. Gulf accounted for 28 percent of national output in June, according to U.S. Energy Department data.

Chevron Corp. said it began evacuating some personnel. Petroleos Mexicanos, the government-owned oil company, shut 90 wells at onshore fields in the western states of Veracruz and Tabasco, the EFE news service reported.

Ida “could be a mildly bullish event” for oil if any production gets shut-in as a result, said Toby Hassall, research analyst with CWA Global Markets Pty in Sydney. “The market doesn’t have the same sensitivity to supply-side issues that it did a couple of years ago.”

Oil, which was recently at $78.65, reached a one-year high of $82 on Oct. 21 as rising stock markets boosted investor confidence and a falling dollar encouraged buying of physical assets.

Axa Takeover

Shares of Cnooc Ltd., China’s largest offshore oil producer, gained 1.8 percent to HK$12.48. Woodside Petroleum Ltd., Australia’s No. 2 oil company, added 1.3 percent to A$48.51.

Axa Asia Pacific soared 33 percent to A$5.70 after rejecting the takeover bid, which is worth about $10 billion. Sydney-based AMP planned to buy Axa Asia Pacific, keep the Australian and New Zealand units, and sell the Asian divisions to Paris-based Axa for A$7.7 billion ($7.1 billion).

“The companies that have come through the crisis best are reasonably cashed up and are looking at how to deploy that cash,” said Angus Gluskie, who oversees about $300 million at White Funds Management Pty. in Sydney, including AMP and Axa Asia Pacific shares.

Commonwealth Bank’s profit report drove the shares up by 4.5 percent to A$55.08 even as Chief Executive Officer Ralph Norris pledged to maintain “conservative business settings.”

The MSCI Asia Pacific Index has climbed 66 percent from a more than five-year low on March 9, outpacing gains by the S&P 500 and Europe’s Dow Jones Stoxx 600 Index. Stocks in the MSCI gauge are valued at 22 times estimated earnings, compared with 17 times for the S&P and 15 times for the Stoxx.

Japanese insurers climbed after boosting profit forecasts. Casualty insurer Aioi Insurance Co. gained 8.7 percent to 427 yen after doubling its full-year net income projection, citing fewer-than-expected typhoons and other natural disasters.

To contact the reporters on this story: Darren Boey in Hong Kong at dboey@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

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London Bourse Delays Baikal Launch on Turquoise Talks, WSJ Says

By Patrick Rial and Jackie Cohen

Nov. 9 (Bloomberg) -- London Stock Exchange Group Plc has postponed the launch of its dark-pool trading system Baikal as it negotiates a possible purchase of rival Turquoise, the Wall Street Journal reported.

Jane Zhu, Hong Kong-based head of Asia Pacific for the LSE, wasn’t immediately available to comment. The LSE, Europe’s largest bourse by value of listed companies, had planned to start matching orders through Baikal this year.

Stock exchanges have been losing market share to so-called multilateral trading facilities including Turquoise that offer lower fees, faster trades and anonymity. The LSE said on Oct. 1 it’s in exclusive talks with Turquoise, a trading system founded by banks including Morgan Stanley and Goldman Sachs Group Inc., that “may lead to a transaction.”

“You’re going to see a general move of more and more exchanges looking to set up something first of all from a profitability perspective, but also from a competitive perspective you have to be involved,” said Christian Kielland, head of trading at BTIG Hong Kong Ltd.

Trading on dark pools, off-exchange platforms that don’t display public quotes, will likely rise to 7 percent of the total in “major” European markets next year from the current level of 4.1 percent, Tabb Group LLC said on Nov. 2. Average daily trading on the LSE fell 43 percent in the five months ended Aug. 31, the exchange said in September.

The LSE will likely merge Turquoise with Baikal in a non- cash transaction that will give the LSE a 51 percent share of the joint venture, the Financial Times reported on Oct. 31.

The “need to effect large crosses of risk not just for equities, but for fixed income, foreign exchange, for many asset classes, matches the needs of corporates, investors and intermediaries,” Xavier Rolet, chief executive of the bourse, said in an Oct. 28 interview with Bloomberg. “That need has existed for decades and will continue to exist.”

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Jackie Cohen in San Francisco at jcohen72@bloomberg.net.

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European, U.S. Stock-Index Futures Gain; Asian Shares Advance

By Adria Cimino

Nov. 9 (Bloomberg) -- European and U.S. stock-index futures rose and Asian shares advanced after the Group of 20 nations agreed to maintain stimulus efforts and Axa SA and AMP Ltd. offered to buy Axa Asia Pacific Holdings Ltd.

Axa Asia Pacific, the Australian unit of France’s biggest insurer, soared 33 percent after rejecting an unsolicited $10 billion bid from parent Axa SA and wealth manager AMP Ltd. Cadbury Plc may be active as today is the deadline for Kraft Foods Inc. to make a formal bid for the world’s second-largest candy and chocolate maker. Continental AG may gain after Citigroup Inc. recommended the tiremaker.

Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, added 1 percent at 7:16 a.m. in London. The U.K.’s FTSE 100 Index may increase 33, according to Cantor Index, a betting firm.

“Equity markets in Europe are set to start the week on an upbeat footing after the G-20 meetings concluded that global stimulus efforts would remain in place,” Ben Potter, research analyst at IG Markets in Melbourne, wrote in a note.

U.K. Chancellor of the Exchequer Alistair Darling, hosting a meeting of finance ministers from G-20 nations, said his colleagues decided to keep supporting their economies. The G-20 agreed to keep interest rates low and maintain record budget deficits until recoveries take hold.

Tobin Tax

The G-20 split on whether to introduce a so-called Tobin tax on financial trading as part of a broader strategy to ensure the global economy’s expansion is less crisis-prone.

U.K. Prime Minister Gordon Brown told the meeting in St. Andrews, Scotland that such a levy could prevent excessive risk taking and fund future bank rescues, adding momentum to a debate begun by France. U.S. Treasury Secretary Timothy Geithner said a “day-by-day” tax on speculation is “not something we’re prepared to support.”

European stocks last week rebounded from a one-month low as better-than-expected earnings at companies from Swiss Reinsurance Co. to Delhaize Group SA fed investors’ expectations a seven-month advance will go on. U.S. shares halted a two-week retreat after worker productivity, manufacturing and home sales beat economists’ projections and Warren Buffett’s Berkshire Hathaway Inc. made its biggest purchase.

The global rally in equities lost pace in October on concern the rebound has gone too far relative to the prospects for economic growth. The Stoxx 600 is up 53 percent since March 9 even after dropping 2.3 percent last month.

U.S., Asian Shares

Standard & Poor’s 500 Index futures added 0.5 percent today, while the MSCI Asia Pacific Index advanced 0.7 percent.

Axa Asia Pacific soared 33 percent to A$5.70 in Sydney. The offer, Asia’s largest takeover bid this year, marks the second attempt by parent Axa SA to buy the unit in the past five years to tap rising wealth in a region recovering from the global financial crisis faster than the U.S. and Europe. Axa said it will raise 2 billion euros ($3 billion) in a rights offering to finance acquisition opportunities.

Cadbury may be active. Kraft, the world’s second-largest food maker, may have to increase its 9.8 billion-pound ($16 billion) bid for confectioner Cadbury Plc by today’s deadline to keep its takeover attempt alive, investors said. U.K. regulators set a Nov. 9 deadline for Kraft to make a formal offer or walk away for six months.

Cadbury Chairman Roger Carr has met most of the company’s 50 largest shareholders to persuade them to back the confectioner’s defense against the takeover offer, the London- based Sunday Telegraph reported, citing people familiar with the matter.

Continental, EDF

Continental, Europe’s second-largest auto-parts maker, was upgraded to “buy” from “hold” at Citigroup, which cited improved earnings prospects and the potential for a “favorable” debt refinancing next year in a note to clients.

Electricite de France SA, Europe’s biggest power producer, had its recommendation cut to “underweight” from “neutral” at HSBC Holdings Plc.

Allianz SE, Europe’s biggest insurer, said third-quarter profit more than doubled after investment income recovered from year-earlier writedowns. Net income rose to 1.32 billion euros, from 545 million euros a year earlier, excluding the sale of Dresdner Bank. That beat the 1.25 billion-euro median estimate of 18 analysts surveyed by Bloomberg.

Stocks around the world are falling at the fastest rate since the worst of the credit crisis on concern central banks will start raising rates, a signal that triggered the biggest rallies over the past three decades.

Benchmark indexes from New York to Tokyo to Frankfurt have lost an average of 4.4 percent since Oct. 19 on speculation policy makers will curtail stimulus measures before the global economy revives. History shows stocks have climbed 92 percent of the time in the six months before government borrowing costs began the biggest increases, data compiled by Bloomberg show.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

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Morning Forex Overview

Daily Forex Fundamentals | Written by Dukascopy Swiss FX Group | Nov 06 09 08:29 GMT |

Previous session overview Major currencies are stalled in a holding pattern Friday, as cautious investors looked toward Friday's U.S. jobs data, seen as a key gauge of economic health. Yesterday, the Federal Reserve kept interest rates at a record low range of zero to 0.25%. The Fed also repeated its intention to keep interest rates 'exceptionally low' for 'an extended period' as long as inflation expectations are stable and unemployment fails to decline. The possibility of better-than-expected figures lifting the dollar, however, could not be ruled out, dealers said. A separate employment report released Wednesday by payroll giant Automatic Data Processing, Inc. showed the pace of private sector job losses easing to 203,000 in October, while a revised estimate showed 227,000 jobs lost in September, less severe than the 254,000 initially reported. Elsewhere, the euro stood at JPY134.86 compared to JPY135.00 late Thursday in New York. The Euro continued to find strength on dips as US stocks soared and the ECB was relatively upbeat at their ECB meeting were they held rates at 1.0%. The pair failed to track the gains completely on Wall Street as the market pauses ahead of the US Unemployment data tonight. Sterling increased against the dollar after the Bank of England expanded its debt-buying program by less than predicted. As other central banks, UK policy makers kept interest rates at record lows of 0.50% and increased asset purchases to 200 billion pounds, 25 billion pounds less than forecast, citing signs of economic recovery taking hold. The Australian dollar climbed Friday buoyed by upbeat comments on the economic outlook from the Reserve Bank of Australia and strength in regional equity markets. Market expectation Major currencies are stalled in a holding pattern Friday, as cautious investors looked toward Friday's U.S. jobs data, seen as a key gauge of economic health. The payrolls data are expected to show an easing in the number of jobs lost, with 175,000 jobs shed in October compared with 263,000 lost in September, according to economists. If the numbers come in as expected, the euro could shoot toward USD1.50, said several analysts. For EURUSD resistance seen placed from around the Asian high at USD1.4884, with interest extending through tech resistance at USD1.4890 and USD1.4900 (61.8%/76.4% USD1.4918/1.4845). Above the figure and resistance ahead of USD1.4920 is back in focus with stops remaining in place on a break above. Traders have suggested that a weekly close above USD1.4900 targets USD1.5064. GBPJPY tracking EURJPY lower as some players sell on view U.S. nonfarm payrolls later may bring negative surprise, sending risk assets lower; but given GBP-positive relief that BOE did not expand liquidity-boosting asset purchase scheme more than expected overnight, GBPJPY could continue on general upward trend next week, particularly if global share markets extend gains, says analysts. Says GBPJPY could rise to JPY153.00 next week building off this week's upward trend; meanwhile, while cross last down at JPY150.22 from intraday high JPY150.80, still up nearly 4.5 yen from week's low marked Monday at JPY145.80. Dukascopy Swiss FX Group Legal disclaimer and risk disclosure This overview can be used only for informational purposes. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

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The Dollar Drops As Investor View The FED's Stimulus To Continue Well Into 2010

Daily Forex Fundamentals | Written by Finotec Group | Nov 06 09 09:00 GMT |

The greenback traded lower versus the euro before the U.S. payrolls report on speculation the Federal Reserve will trail other major central banks in ending economic stimulus. The U.S. unemployment rate rose to 9.9 percent last month from 9.8 percent in September, according to the median estimate of 81 economists in a Bloomberg survey before tomorrow's Labor Department report. The S&P advanced 1.5 percent after the U.S. Labor Department announced that initial jobless claims dropped to 512,000 in the week ended Oct. 31. The Fed reiterated yesterday its intent to keep interest rates 'exceptionally low' for 'an extended period' as long as the inflation outlook is stable and unemployment fails to decline. Policy makers held the target rate for overnight lending between banks in a range of zero to 0.25 percent. The EUR/USD is currently trading at $1.4870 as of 20:41pm, GMT with a bullish trend. The British pound jumped against the dollar on Thursday after the Bank of England expanded its quantitative easing program by 25 billion pounds, against some analysts expectations of a bigger increase expected at 50 billion. The announcement helped the sterling recover losses made in early trade, when traders had been divided on the size of any increase in the asset-buying plan, if the bank extended it at all. The BoE left interest rates unchanged at a record low of 0.5 percent, as expected. Analysts said the pound rallied as market participants were relieved the BoE did not take more drastic action on quantitative easing, and on the view that it may hold off from implementing aggressive stimulus through the end of the year. The GBP/USD is currently trading at $1.6590 as of 21:00pm, GMT with a bullish trend. European Central Bank President Jean Claude Trichet said officials will withdraw some of the emergency liquidity measures introduced to fight the worst recession since World War II. 'Not all our liquidity measures will be needed to the same extent as in the past' as the economy recovers, Trichet said at a press conference in Frankfurt today after the ECB left its benchmark interest rate at a record-low 1 percent. Extraordinary liquidity measures will be 'phased out in a timely and gradual fashion' in order to 'counter effectively any threat to price stability over the medium to longer term,' he said. Trichet indicated that the auction of unlimited 12 month- loans, one of the ECB's flagship policies this year, won't be continued after next month's operation. 'The market is not expecting that we will prolong' it, he said. 'And I will say nothing to dispel the sentiment of the market.' Finotec Group Inc. http://www.finotec.com/ Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

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Forex Technical Analytics

Daily Forex Technicals | Written by FOREX Ltd | Nov 06 09 09:10 GMT |

CHF The estimated test of key resistance range levels was not confirmed and activity fall of both parties as the result of previous trading day gives grounds for preservation of trading plan made before almost intact. Namely, we can assume probability of rate return to channel line '3' at 1,0200/20 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term sales positions on condition of the formation of topping signals the targets will be 1,0140/60, 1,0100/20 and (or) further break-out variant up to 1,0040/60, 0,9980/1,0000. The alternative for buyers will be above 1,0250 with the targets of 1,0290/1,0310, 1,0350/70, 1,0420/40. GBP The estimated test of key supports for the implementation of pre-planned buying positions has not exactly been confirmed but the estimated rate rise has marked signs of rate overbought and has considerably diminished the perspective of preservation of implemented long positions from variant of break-out of key resistance. Therefore, at the moment, considering activity fall of both parties as a probable period of rate range movement we can assume probability of rate return to close 1,6540/60 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of formation of topping signals the targets will be 1,6600/20, 1,6660/80, 1,6700/20 and (or) further break-out variant up to 1,6760/80, 1,6840/60, 1,6960/1,7000. The alternative for sales will be below 1,6460 with the targets of 1,6400/20, 1,6340/60, 1,6240/60. JPY The pre-planned test of key resistance range levels was confirmed with conditions for the implementation of pre-planned short positions. Therefore, considering the trading plan made before, the targets for opened sales will be 90,00/20 levels and (or) further break-out variant up to 89,40/60, 88,80/89,00, 88,20/40. The alternative for buyers will be above 91,40 with the targets of 91,80/92,00, 92,40/60. EUR The pre-planned long positions from key supports were implemented with the achievement of minimal estimated targets. OsMA trend indicator having marked activity fall of both parties, does not clarify the choice of planning priorities for today. Therefore, considering the suppositions of further rate range movement we can assume probability of rate return to 1,4820/40 levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 1,4880/1,4900, 1,4920/40 and (or) further break-out variant up to 1,4980/1,5000, 1,5040/60. The alternative for sales will be above 1,4750 with the targets of 1,4690/1,4710, 1,4620/40. FOREX Ltd www.forexltd.co.uk

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Fed Signals Return to Growth Alone Won’t Warrant Rate Increase

By Scott Lanman

Nov. 5 (Bloomberg) -- Federal Reserve officials signaled a return to economic growth alone won’t warrant higher interest rates, saying an increase will instead depend on when the labor market and inflation pick up.

The Fed’s rate-setting Open Market Committee yesterday restated its pledge to keep rates “exceptionally low” for an “extended period.” The panel added for the first time that its commitment depends on “low rates of resource utilization, subdued inflation trends and stable inflation expectations.”

The comments prompted traders to reduce bets for an increase in borrowing costs in the first half of 2010, given that policy makers are focused on reducing unemployment that’s forecast to rise above 10 percent. The dollar weakened yesterday and short-term Treasury yields fell.

“There are still many downside risks to the recovery,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “The Fed looks to be on hold for longer than I thought,” possibly beyond the second quarter, he said.

Policy makers, acting the week after a report showed the U.S. economy expanded in the third quarter for the first time in more than a year, left their target for the overnight interbank lending rate unchanged at a range of zero to 0.25 percent. The vote of 10 officials was unanimous.

The conditions “put some meat on the bones” of the Fed’s rate stance, said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

‘Not Unlimited’

“The Fed is simply trying to set up conditions or parameters for the continuation of the current easy policy, so that it’s not unlimited with no boundaries,” said Silvia, who previously worked as a senior economist in Congress. Silvia didn’t change his forecast for the Fed to raise interest rates after July 2010.

The dollar weakened after the decision, falling to $1.4861 against the euro from $1.4724 on Nov. 3, the biggest drop since Sept. 8. The yield on two-year Treasuries fell 2 basis points to 0.90 percent from 0.92 percent, while yields on 10-year securities rose 6 basis points to 3.53 percent from 3.47 percent. A basis point is 0.01 percentage point.

U.S. employers probably reduced payrolls by 175,000 in October, according to the median forecast in a Bloomberg News survey of 84 economists ahead of Labor Department report tomorrow. The unemployment rate probably rose to 9.9 percent from 9.8 percent, based on the median estimate of 81 analysts.

Prices Fall

Consumer prices have fallen on an annual basis for the past seven months in the longest such decline since 1955. The consumer-price index fell 1.3 percent in the 12 months to September. Excluding food and energy, prices rose at a 1.5 percent annual rate.

While some measures of inflation expectations have been rising, the Fed said longer-term expectations are “stable” and reiterated that price increases “will remain subdued for some time.”

The ebb of the global crisis that caused more than $1.6 trillion in credit losses and writedowns has already helped spur central banks from Australia to Norway to start increasing borrowing costs. Yesterday’s unanimous statement indicates the Fed isn’t yet ready to follow some of its counterparts abroad.

“We are nowhere near there,” Michael Holland, chairman of New York-based Holland & Co., which oversees more than $4 billion in assets, said on Bloomberg Television. “We don’t have anything approaching the position where they can start unwinding.”

Through First Quarter

The Fed completed its $300 billion program of purchasing Treasuries last month. Yesterday’s statement said the central bank will purchase a total of $1.25 trillion of agency mortgage- backed securities and about $175 billion of agency debt through the first quarter of next year.

Previously, the Fed said it would buy as much as $200 billion of debt issued by Fannie Mae and Freddie Mac, the government-supported mortgage-finance companies, and government- chartered Federal Home Loan Banks. The central bank said the change is “consistent with the recent path of purchases and reflects the limited availability” of the notes.

“It’s a relatively small change,” said Michael Hanson, senior economist at Bank of America-Merrill Lynch in New York and a former Fed economist. “They don’t want to do anything that’s going to really knock markets off kilter.”

The bigger change was adding the 13 words that clarified the “extended period” pledge on interest rates, economists said. The shift, while prompting investors to lengthen their prediction for a tightening, gives the Fed less leeway to avoid rate increases when labor and inflation indicators start rising.

Adding the three conditions “gives investors a framework when rate hikes are likely to come and forces discipline on the Fed,” said Chris Low, chief economist at FTN Financial in New York. “When those conditions change, it almost forces them to follow through.”

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.netScott Lanman in Washington at slanman@bloomberg.net.

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