USD/CAD Daily Outlook

USDCAD Outlook | Written by ActionForex.com | Mar 09 11 07:54 GMT

Daily Pivots: (S1) 0.9698; (P) 0.9722; (R1) 0.9738; More.

Consolidation from 0.9683 is still in progress and intraday bias remains neutral. Even in case of another recovery, upside is expected to be limited by 0.9836 support turned resistance and bring fall resumption. Below 0.9683 will target 161.8% projection of 1.0851 to 1.0138 from 1.0671 at 0.9517 next. Nevertheless, above 0.9836 will dampen this view and bring stronger rebound back to parity instead.

In the bigger picture, whole medium term fall from 1.3063 (2009 high) is still in progress and such down trend could possibly extend further towards 2007 low of 0.9056. Nevertheless, fall from 1.3063 is still looking corrective and hence, we'd expect strong support between 0.9056/9709 to contain downside and bring another medium term rise. Though, break of 1.0851 resistance is needed to confirm medium term reversal. Otherwise, medium term outlook will remain bearish.

Read more...

AUD/USD Daily Outlook

AUDUSD Outlook | Written by ActionForex.com | Mar 09 11 07:54 GMT

Daily Pivots: (S1) 1.0056; (P) 1.0095; (R1) 1.0136; More

No change in AUD/USD's outlook. While upside momentum is clearly seen diminishing with bearish divergence condition in daily MACD, AUD/USD is still drawing strong support from 55 days EMA. Recent up trend is still in favor to continue further. Break of 1.0200 again will target another high above 1.0254. On the downside, break of 0.9943 support is needed to be the first signal of topping. Otherwise, we won't turn bearish yet.

In the bigger picture, note that bearish divergence condition remains in daily and weekly MACD. Reversal should be imminent even if 1.0254 is not yet the major top. We'll continue to look for topping signal in case of another rise. On the downside break of 0.9803 support will now be an early signal of medium term reversal and will turn focus to 0.9536 support for confirmation.

Read more...

EUR/USD Daily Outlook

EURUSD Outlook | Written by ActionForex.com | Mar 09 11 07:51 GMT

Daily Pivots: (S1) 1.3848; (P) 1.3918 (R1) 1.3975; More.

EUR/USD's retreat from 1.4035 is still in progress and deeper fall might be seen. But still, strong support should be seen from near term rising trend line (now at 1.3804) to contain downside and bring another rise. Break of 1.4035 will bring rally resumption towards 1.4281 key resistance next. However, sustained trading below the trend line support will argue that whole rebound from 1.2873 is possibly completed and will bring deeper decline to 1.3472 support instead.

In the bigger picture, as long as 1.3427 support holds, we'd favor the case that rise from 1.2873 is extending rebound from 1.1875. Also, that would mean that we're favoring the case that medium term correction 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. Break of 1.4281 resistance will further affirm this case and target 1.5143 resistance and then 1.6039 high. However, break of 1.3472 will leave the whole rise from 1.2873 in three wave corrective structure, which in turn indicate that fall from 1.4281 is not finished and will turn favors back to the bearish case for at least a test on 1.2873 support.

Read more...

China May Deflect Geithner Pressure by Reporting Smaller February Surplus

China may deflect international pressure for faster yuan appreciation by reporting the nation’s smallest trade surplus in 10 months tomorrow. Photographer: Andrew Harrer/Bloomberg

Play Video

March 7 (Bloomberg) -- Shaun Rein, Shanghai-based managing director of China Market Research Group, talks about the outlook for the yuan and inflation in China. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)

Play Video

March 4 (Bloomberg) -- Hugh Simon, chief executive officer of Hamon Asset Management Ltd. and co-manager of the Dreyfus Greater China Fund, discusses China's economy and currency policy. Simon speaks with Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Play Video

March 7 (Bloomberg) -- Eswar Prasad, a senior fellow at the Brookings Institution and a professor at Cornell University, discusses China's five-year plan and the outlook for the country’s economy. Prasad speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

China may deflect international pressure for faster yuan appreciation by reporting the nation’s smallest trade surplus in 10 months tomorrow.

The excess was $4.9 billion in February, from $6.5 billion a month earlier, according to the median estimate in a Bloomberg News survey of 21 economists. Data for the first two months of the year is typically distorted by the timing of a Lunar New Year holiday.

A smaller surplus may support China’s contention that the world’s second-largest economy is moving toward balanced trade as imports climb. Commerce Minister Chen Deming said March 7 that it’s “totally unreasonable” to say the yuan is undervalued, rejecting renewed calls by U.S. Treasury Secretary Timothy Geithner for faster gains.

“The smaller surplus in the last three months, combined with the trend we saw in the last two years, shows China’s rebalancing efforts are working,” said Sun Chi, a Hong Kong- based economist at Nomura Holdings Inc. who previously worked for the U.S. Treasury in Beijing. “It will also alleviate the pressure for yuan gains.”

Economists combine Chinese data for the first two months of the year to eliminate distortions. On that basis, the surplus may be $11 billion, about half the amount a year earlier. The boost to imports from higher commodity costs is playing a role, Sun said.

Premier Wen Jiabao highlighted efforts to boost domestic demand as a “long-term strategic principle” in his annual report to the legislature in Beijing on March 5.

Yuan Falls

Exports may have climbed an annual 27 percent in February, with imports rising 33 percent, the survey showed.

The yuan dropped 0.1 percent to 6.5720 per dollar in Shanghai as of 9:44 a.m. Non-deliverable forwards traded at 6.4155, reflecting bets the currency will strengthen 2.4 percent in a year.

“While seasonal adjustment is tricky at this time of the year, the typical pattern will be for the trade surplus to rebound after narrowing early in the year,” said David Cohen, a Singapore-based economist for Action Economics who has previously worked for the U.S. Federal Reserve. The annual surplus may be about $160 billion, down from $183 billion last year, he estimated.

That level will “still leave pressure for yuan appreciation,” he added.

China may report trade deficits in some months this year, Chen said at the National People’s Congress in Beijing on March 7. That has only happened once in the past six years, in March 2010.

Currency Stability

The commerce minister also said that the yuan will appreciate gradually over the long term, adding that basic stability in the currency aids the global recovery.

Some U.S. lawmakers, including Senator Charles Schumer of New York, complain China is holding down the yuan’s value to give its exporters an unfair advantage over American rivals. China is the world’s No. 1 exporting nation by value of shipments.

Chinese companies can accept annual gains in the currency of 3 percent to 5 percent, Bank of China Ltd. President Li Lihui said at the Beijing congress on March 5. Central bank Deputy Governor Yi Gang said the same day that the yuan’s exchange rate is the closest it has been to “equilibrium.”

China is “committed” to moving to a market-determined, flexible exchange rate and understands the importance of allowing the yuan to appreciate, the International Monetary Fund’s Zhu Min said on March 7. “The only question remaining is the speed,” Zhu, a special adviser to the IMF and a former Chinese central bank deputy governor, said in Arlington, Virginia.

--Zheng Lifei. Editors: Paul Panckhurst, John Liu.

To contact Bloomberg News staff for this story: Zheng Lifei in Beijing at +86-10-6649-7560 or lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Read more...

Euro Weakens for Third Day Before First Portuguese Bond Sale in Two Months

The 17-nation euro declined 0.3 percent today, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. Photographer: Chris Ratcliffe/Bloomberg

The euro declined for a third day against the dollar before Portugal seeks to borrow as much as 1 billion euros ($1.4 billion) in its first bond sale for two months as it seeks to avoid a European Union bailout.

Europe’s common currency erased an earlier decline against the yen and weakened against all but one of its 16 most-actively traded peers. Portugal is trying to sell bonds due 2013, returning investor focus to the debt crisis that forced Ireland and Greece to seek aid. Greek 10-year yields yesterday soared to the most since the euro’s introduction. Australia’s dollar fell for a fifth day after a report showed home-loan approvals dropped the most in a year.

“The risks in the periphery of the euro zone are building up,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “Portugal’s issuance is going to be very important.”

The euro lost 0.3 percent to $1.3865 as of 8:46 a.m. in London, capping its longest run of declines since Feb. 15. It climbed to $1.4036 on March 7, the strongest level since November. It was little changed at 114.89 yen, from 114.94 yesterday in New York. Japan’s currency depreciated to 82.86 per dollar from 82.67.

The 17-nation euro declined 0.3 percent today, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. It’s up 2.2 percent this year, driven by expectations that the European Central Bank will boost interest rates.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Read more...

Crude Oil Declines as OPEC Discusses Holding Emergency Meeting on Output

Crude oil fell from a 29-month high in New York as members of the Organization of Petroleum Exporting Countries discussed whether to hold a special meeting.

Crude slipped 0.4 percent after Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting.” Futures trimmed losses as opponents of Libyan leader Muammar Qaddafi plan to recapture a town, Bin Jawad, and after Goldman Sachs Group Inc. and Bank of America Merrill Lynch raised oil-price forecasts.

“OPEC may schedule a meeting to discuss increasing production,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The OPEC news and signals that the U.S. may release some strategic reserves is making some investors think twice about being long.”

Crude oil for April delivery dropped 42 cents to settle at $105.02 a barrel on the New York Mercantile Exchange. The contract ended yesterday at $105.44, the highest settlement since Sept. 26, 2008. Futures are up 28 percent from a year ago.

Prices declined from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles rose 3.82 million barrels to 348.5 million. April oil fell 77 cents, or 0.7 percent, to $104.68 a barrel in electronic trading at 4:34 p.m.

Brent crude oil for April settlement slipped $1.98, or 1.7 percent, to end the session at $113.06 a barrel on the London- based ICE Futures Europe exchange.

Narrowing Spread

The premium of Brent to West Texas Intermediate, the grade traded in New York, surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the WTI delivery point. The premium narrowed to $8.04 today, the least since Jan. 20.

“The spread has become so big that it’s attracted value players,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut, a trading-advisory company. “Widening the spread became a high-stakes poker game among a few players, and it now appears to be coming to an end.”

Kuwait’s oil minister told reporters in Kuwait City today that OPEC Secretary General Abdalla El-Badri is contacting members to see whether a meeting on production levels is needed.

“I’ve talked to Abdalla El-Badri in this regard and he is calling everybody and making a consensus on whether we’ll need an OPEC meeting, an urgent meeting,” Sheikh Ahmad al-Abdullah al-Sabah said. “We have to find out at the meeting whether there is a need for an increase or not.”

Libyan Turmoil

Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to Bloomberg estimates.

“The question now is how much geopolitical risk premium is appropriate,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Prices have risen so much that we need an ongoing stream of frightening news to keep the market moving higher.”

Vienna-based researcher JBC Energy GmbH estimated Libya accounts for 8.8 percents of total global production of light, sweet crude, or crude oil with low density and sulfur content. This type of crude yields more of more lucrative fuels such as gasoline and diesel when processed.

Some OPEC members and producers outside the group have made up for the reduction in crude shipments from Libya, Qatari Energy Minister Mohammed Saleh al Sada said today.

‘Hardly Any Effect’

“There was hardly any effect” on supply because of the Libyan unrest, he said at a conference in Doha.

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, OPEC’s biggest producer, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

“The big news is Libya, at least until Friday,” Beutel said. “Come Friday, all eyes will be on the Day of Rage in Saudi Arabia.”

The Obama administration will consider using the Strategic Petroleum Reserve if rising oil prices caused by turmoil in the Middle East and North Africa threaten the U.S. economy, White House Chief of Staff William Daley said on NBC’s “Meet the Press” program on March 6.

Total SA Chief Executive Officer Christophe de Margerie said there is “no reason” to tap the reserve and that to do so “is to send the message that we are scared.” He spoke at CERAWeek, a Houston conference put on by IHS Cambridge Energy Research Associates.

Goldman Sachs

Goldman Sachs raised its second-quarter outlook for Brent crude by $4.50 to $105 a barrel, citing estimates that spare capacity in OPEC has dropped below 2 million barrels a day, according to a report dated yesterday.

Bank of America Merrill Lynch increased its Brent crude price forecast for this year to $108 a barrel from $88 and for next year to $95 a barrel from $85, in a note today.

Oil volume in electronic trading on the Nymex was 861,561 contracts as of 4:31 p.m. in New York. Volume totaled 902,351 contracts yesterday, 13 percent above the average of the past three months. Open interest was 1.58 million contracts, the highest since July 16, 2007.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Read more...

Oil Falls a Second Day on OPEC Supply Speculation, Rising U.S. Stockpiles

Play Video

March 8 (Bloomberg) -- Nigel Gault, chief U.S. economist at IHS Global Insight, talks about the outlook for oil prices and the U.S. economy. He speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Play Video

March 8 (Bloomberg) -- Alexander Ridgers, head of commodities at London-based CMC Markets, talks about the outlook for oil prices. He speaks with Andrea Catherwood on Bloomberg Television's "Last Word." (Source: Bloomberg)

Oil dropped for a second day in New York as speculation mounted that OPEC will consider boosting output to compensate for disruptions in Libya and rising U.S. supplies signaled weakening demand.

Futures slid as much as 0.8 percent after U.S. crude inventories climbed the most since November, according to American Petroleum Institute data. Angola’s oil minister said the Organization of Petroleum Exporting Countries should wait to see how events in Libya unfold before calling an emergency meeting about prices and production. Kuwait’s oil minister yesterday said members of the group are weighing an “urgent” meeting to determine whether more output is needed.

“I think the situation in Libya to some degree is contained from an oil-price point of view,” said Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne. “There is also a lot of supply in the market, it’s not tight.”

Crude for April delivery decreased as much as 81 cents to $104.21 a barrel in electronic trading on the New York Mercantile Exchange, and was at $104.30 at 3:39 p.m. Singapore time. Yesterday, the contract lost 42 cents from the previous settlement of $105.44, the highest since Sept. 26, 2008. Prices are up 28 percent from a year ago.

Brent oil for April settlement slipped 41 cents, or 0.4 percent, to $112.65 a barrel on the London-based ICE Futures Europe exchange. The contract jumped 3.4 percent last week, its sixth weekly increase.

Crude Inventories

U.S. crude inventories climbed 3.8 million barrels last week to 348.5 million, the industry-funded American Petroleum Institute said. An Energy Department report today may show stockpiles increased by 1 million barrels, according to a Bloomberg News survey of analysts.

Violence in Libya, Africa’s third-largest crude producer, has cut output by as much as 1 million barrels a day, according to the International Energy Agency. The North African country pumped 1.39 million barrels a day in February, down from 1.59 million the previous month, according to Bloomberg estimates.

Crude dropped yesterday after Sheikh Ahmad al-Abdullah al- Sabah, Kuwait’s oil minister, told reporters that OPEC Secretary General Abdalla El Badri is contacting members to see whether a meeting on output levels is needed.

“The information that we have is that the market is supplied,” Angolan Oil Minister Jose Maria Botelho de Vasconcelos told reporters at an IHS Cambridge Energy Research Associates conference in Houston yesterday. Prices have risen because of geopolitical problems in North Africa, and “we need to wait a little bit” to act, he said.

Brent Premium

Demonstrations have toppled leaders in Tunisia and Egypt and there have been protests in countries including Iran, Yemen and Oman. In Saudi Arabia, OPEC’s biggest producer, websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch.

The premium of front-month Brent futures to West Texas Intermediate, the grade traded in New York, surged to a record $19.54 on Feb. 21 as unrest spread in the Middle East and North Africa and stockpiles climbed at Cushing, Oklahoma, the WTI delivery point. The premium was at $8.33 today.

The spread has narrowed even as supplies at Cushing continue to rise. Stockpiles there have climbed to a record 40.3 million barrels, the API data showed yesterday. Brent’s premium has narrowed as hedge funds and other financial investors buy New York futures, according to Anthony Nunan, the assistant general manager for risk management at Mitsubishi Corp. in Tokyo.

“Even though there is this oversupply there is a lot of demand for WTI as a financial asset,” Nunan said by telephone today. “Despite all this talk about it being a broken benchmark the financial community doesn’t seem to care.”

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

Read more...

China Imports of New Zealand Milk Jump Five-Fold, Aiding Quake-Hit Nation

China’s milk imports from New Zealand surged more than five-fold since 2008 as rising incomes stoked demand, sending prices to a record and bolstering the economy as it recovers from the deadliest earthquake in 80 years.

China, the biggest importer of New Zealand dairy products by value, purchased about 353 million kilograms of the country’s milk products in 2010, up from 69 million kilograms in 2008, according to government data supplied by Fonterra Cooperative Group Ltd., the world’s largest exporter. Fonterra processes 95 percent of the country’s milk and earns a fifth of its export revenues, the company said.

New Zealand is relying on China and other emerging markets to buy more dairy products to rekindle economic growth after a contraction in the quarter ended Sept. 30. Asian consumers are demanding more protein as incomes and nutrition levels rise, said Con Williams, rural economist at ANZ National Bank Ltd.

“Milk’s going to be an important component because it’s about 25 percent of export earnings,” Williams said. “It’s going to be a cornerstone in terms of earning overseas dollars and then getting that through the economy.”

Prime Minister John Key said March 2 there’s likely to be “virtually no growth” in New Zealand for the financial year through June. The economy might have contracted in the fourth quarter of 2010, entering its second recession in two years, Finance Minister Bill English said last month.

An economic recovery may be slowed by the 6.3-magnitude earthquake that struck the South Island city of Christchurch on Feb. 22, killing more than 160 people and causing an estimated NZ$15 billion in damage.

Growth Cut

Economic growth in 2011 is expected to be 1.5 percentage points lower because of the temblor, according to the Treasury Department. A “small contraction” in real gross domestic product is predicted in the March quarter, compared with a 0.5 percent growth forecast before the quake, it said on March 6.

High prices for New Zealand’s commodity exports may help Christchurch recover from its second quake in six months, English said March 1. Export prices rose for a sixth month to a record in February, according to the ANZ Commodity Price Index.

Whole milk powder prices surged 41 percent in Fonterra’s last seven global auctions, prompting the company to freeze local wholesale prices for the rest of this year.

Prices reached a record on March 2 amid sustained demand from China and concerns rising input costs may curb supply. Milk prices will likely remain at least 50 percent above historical averages in the longer term, Fonterra’s Chief Executive Officer Andrew Ferrier said on Feb. 14.

Diet Shift

As developing nations’ incomes rise, diets are expected to include more meat and processed foods, favoring dairy and livestock, according to an annual outlook from the Organization for Economic Cooperation and Development and the United Nations’ Food and Agriculture Organization last June.

Global food prices have surged on increased demand coupled with harvest disruptions, including a drought in China, as well as heavier-than-usual rains across parts of Asia. Food prices climbed to a record last month, according to a 55-item basket tracked by the United Nations.

China imported about NZ$2.1 billion ($1.6 billion) worth of New Zealand dairy products in 2010 from $732 million in 2008, according to the government data. The country’s milk imports are likely to remain strong this year as local supply struggles to meet demand growth, according to a Feb. 14 forecast from Dairy Australia.

Higher incomes, population growth and concerns about the safety of domestic milk supply after a melamine contamination in 2008 killed at least six infants will buoy demand, Williams said.

Dairy Farms

“Over the medium term, New Zealand is well positioned to supply that,” he said. “Longer term, it’s how can you work with the Chinese in the country to grow supply from what they have in terms of resources.”

Fonterra in October agreed to develop a dairy farm in China’s Hebei province to expand local milk production. Its existing Tangshan farm has doubled to more than 6,000 cows since it opened in 2007 and produces about 25 million liters of milk for local consumption.

Other countries that recorded the largest growth in imports include India and Sudan. India’s imports of New Zealand dairy products more than doubled to NZ$162 million last year, according to the government data. The value of Sudan imports jumped to NZ$114 million from NZ$39 million in 2008.

Australia and the U.S. were the second- and third-biggest importers of New Zealand dairy products in 2010, according to the data. Australia bought NZ$853 million and the U.S. purchased NZ$748 million of dairy products last year.

To contact the reporter for this story: Phoebe Sedgman in Wellington at psedgman2@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net.

Read more...

Boston Beer, Ciena, Finisar, JDS Uniphase: U.S. Equity Preview

Shares of the following companies may have unusual moves in U.S. trading.

AeroVironment Inc. (AVAV) : The maker of low-flying drones for U.S. military forces reported fiscal third-quarter profit of 52 cents a share excluding some items, beating the average analyst estimate by 37 percent.

Boston Beer Co. (SAM US): The maker of Samuel Adams lager said 2011 profit will be as low as $3.45 cents a share, compared with a prior forecast of $3.95 a share.

Diamond Foods Inc. (DMND) : The nut processor and distributor said 2011 profit will be as low as $2.45 a share versus the average analyst estimate of $2.51.

Finisar Corp. (FNSR) : The maker of fiber-optic transmission gear said it won’t earn more than 35 cents a share excluding some items in the fourth quarter, missing the average analyst estimate of 48 cents.

Other makers of networking equipment may move, including JDS Uniphase Corp. (JDSU) , Ciena Corp. (CIEN) , Infinera Corp. (INFN) , Oclaro Inc. (OCLR) and Oplink Communications Inc. (OPLK) .

Texas Instruments Inc. (TXN) : The largest analog chipmaker narrowed its first-quarter profit estimate to 56 cents to 60 cents a share from 54 cents to 62 cents. The average analyst estimate in a Bloomberg survey was 59 cents.

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

Read more...

U.S. Stocks Advance as Oil Retreats; Sprint, Bank of America Shares Rise

Sprint Nextel rallied 7.1 percent after Bloomberg News reported that people with knowledge of the matter said Deutsche Telekom AG has held talks to sell its T-Mobile USA unit. Photographer: Jacob Kepler/Bloomberg

U.S. stocks advanced, snapping a two-day decline for benchmark indexes, as crude oil retreated and Bank of America Corp. (BAC) sparked a rally in financial shares after saying its home-loan business is in “recovery mode.”

Bank of America jumped 4.7 percent, leading a gauge of financial shares to the biggest gain among 10 Standard & Poor’s 500 Index industries. Sprint Nextel Corp. (S) climbed 4.9 percent after people with knowledge of the matter told Bloomberg News that Deutsche Telekom AG held talks to sell its T-Mobile USA unit to the company. PulteGroup Inc. climbed 8.4 percent after the homebuilder reported “good traffic and sign-up rates.”

The S&P 500 increased 0.9 percent to 1,321.82 at 4 p.m. in New York. The benchmark gauge had fallen 1.6 percent over the previous two trading days. The Dow Jones Industrial Average advanced 124.35 points, or 1 percent, to 12,214.38. Crude oil declined 0.4 percent to $105.02 a barrel in New York.

“We’re in an economic recovery and the stock market is reflecting that,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “Companies are flush with cash and there’s been a pick-up in M&A activity, which is an indication of corporate confidence. In addition to that, crude oil prices are down and people can relax a bit about energy costs not going through the roof.”

The S&P 500 yesterday erased last week’s gain as oil reached a 29-month high. The gauge rallied 5.1 percent this year as companies reported earnings that topped analysts’ estimates for the eighth straight quarter and the Federal Reserve kept interest rates at a record low.

‘Urgent Meeting’

Crude oil fell as members of the Organization of Petroleum Exporting Countries discussed whether to hold a special meeting and Libyan rebels prepared an offensive to regain a town. Kuwait’s oil minister said OPEC members are considering whether to convene an “urgent meeting.”

Nouriel Roubini, who predicted the global financial crisis, said an increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession. Underlying how fragile the recovery is, Roubini said the European Central Bank may be making a mistake by raising interest rates “too soon” when debt-ridden countries on the euro region’s periphery struggle to restore the competitiveness of exports.

Stock-index futures erased gains before the open of exchanges as European Central Bank Governing Council member Axel Weber said he doesn’t want to correct market expectations for as many as three quarter-point increases in the bank’s benchmark interest rate this year.

‘Zero Rate Trap’

“One of the biggest fears is that the developed nations have gotten themselves into a zero rate trap,” said Peter Sorrentino, who helps oversee $14.4 billion at Huntington Asset Advisors in Cincinnati. “So, if they start to raise rates, the market will begin to move beyond their control.”

Financial shares in the S&P 500 rose 2.2 percent, collectively, the biggest gain within 10 groups. The KBW Bank Index added 2.7 percent, as all of its 24 stocks gained.

Bank of America jumped 4.7 percent, the most in the Dow, to $14.69. The largest U.S. lender said its commercial- and investment-banking businesses are already transitioning this year and may post what the company considers normalized earnings in 2012 and 2013.

Chief Executive Officer Brian T. Moynihan, hosting the lender’s first investor day since 2007, is seeking to assure investors the bank will return to profitability as the economy stabilizes and the company recovers from disputes with investors over soured mortgages. The company’s net loss last year was driven by writedowns at credit-card and home-lending units acquired by Moynihan’s predecessor, Kenneth D. Lewis.

‘Growth Company’

“We are changing the culture of the company from a company that was built upon acquisitions and consolidation,” Moynihan said today in New York. “We are again a growth company.”

Sprint gained 4.9 percent to $4.70. Deutsche Telekom has held talks to sell its T-Mobile USA unit to Sprint in exchange for a major stake in the combined entity, said people with knowledge of the matter. Talks have been on and off, and a deal may not be reached, said the people, who spoke on the condition of anonymity because the talks are private.

“In general, all options are open in the U.S. -- the sale of the whole business or of parts,” Deutsche Telekom Chief Financial Officer Timotheus Hoettges said in an e-mail today. He said the company could also find a partner, sell shares in the market or form a network agreement.

Bill White, a spokesman for Overland Park, Kansas-based Sprint, declined to comment.

M&A Scorecard

Announced takeovers of U.S. companies have totaled $186.4 billion so far in 2011, 21 percent more than in the same period last year, according to data compiled by Bloomberg.

A gauge of homebuilders in S&P indexes rallied 4.8 percent. PulteGroup jumped 8.4 percent, the most in the S&P 500, to $7.09. The largest U.S. homebuilder by revenue said it signed up 2,674 homes for sale in the first two months of the year. The orders showed “demand continues to stabilize and slightly improve entering the current spring selling season,” JPMorgan Chase & Co. said in a note.

The Bloomberg U.S. Airlines Index of 12 stocks jumped 7.3 percent, as the retreat in crude oil prices eased concern about higher energy costs. US Airways Group Inc. (LCC) climbed 12 percent to $9.28. Delta Air Lines Inc. (DAL) added 9.7 percent to $11.07.

Energy shares had the only decline in the S&P 500 among 10 industries, falling 0.6 percent, collectively. Occidental Petroleum Corp. (OXY) slumped 2.1 percent to $100.92. ConocoPhillips (COP) decreased 1.1 percent to $78.32.

McDonald’s Slumps

McDonald’s Corp. (MCD) fell 1 percent, the most in the Dow, to $75.54. The world’s biggest restaurant chain reported sales rose 2.7 percent at stores open at least 13 months in the U.S. last month, missing analysts’ estimates. Analysts had projected a gain of 4 percent, according to the average of three estimates compiled by Bloomberg.

Urban Outfitters Inc. (URBN) had the biggest decline in the S&P 500, tumbling 17 percent to $31.66. The operator of the namesake and Anthropologie clothing chains said profit margins shrank last quarter. Gross margin, or the percentage of sales after the cost of goods sold, narrowed 2 percentage points to 39.7 percent in the quarter ended Jan. 31, the Philadelphia-based company said yesterday. Profit amounted to 45 cents a share, trailing the 52-cent average of estimates compiled by Bloomberg.

The past two years have shown that stock investors need to focus on “the beaten-up areas of the market” when prices rebound, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

More than Quintupled

Auto stocks set the S&P 500’s pace since March 9, 2009, according to data compiled by Bloomberg, as the industry-group index more than quintupled in the period through yesterday. Grocery and drugstore stocks had the smallest gain, at 34 percent. The two industries’ rankings were almost exactly the opposite in the preceding bear market, which lasted 17 months. The S&P 500 Automobiles and Components Index tumbled 84 percent, more than any other industry except banks. The S&P 500 Food and Staples Retailing Index did best by losing only 26 percent.

“Fears of a Great Depression reenactment provided investors with a powerful trading opportunity over the past two years,” Levkovich wrote today. The auto industry is among those most closely linked to the economy’s performance, while food and drug retailers had less to gain from economic growth.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

European Stocks Fluctuate; EADS Advances on Earnings, Alcatel Shares Slide

European stocks fluctuated as a second day of declines in the price of oil offset concern about the levels of euro-region government debt. U.S. index futures and Asian shares were little changed.

European Aeronautic, Defence & Space Co. advanced 3.3 percent after the company returned to profit in 2010 and reinstated its dividend. Alcatel-Lucent SA dropped more than 4 percent after U.S. rival Finisar Corp. forecast earnings that missed estimates. E.ON AG (EOAN) declined 1.2 percent after the world’s largest utility by sales said net income will fall.

The Stoxx Europe 600 Index fell 0.1 percent to 281.42 at 9 a.m. in London. The gauge has lost 3.1 percent since peaking at a 2 1/2-year high on Feb. 17 as oil surged amid escalating unrest in North Africa and the Middle East, increasing concern that higher energy costs will harm the economic recovery.

“Any gains from the easing oil price are offset by the threat of euro-zone debt troubles and prospects of tighter monetary policy,” said Jonathan Sudaria, a London-based trader at London Capital Group.

Standard & Poor’s 500 Index futures slipped 0.2 percent today. The MSCI Asia Pacific Index gained 0.1 percent.

Crude fell as much as 0.8 percent to $104.21 a barrel in New York as speculation mounted that OPEC will consider boosting output to compensate for disruptions in Libya and U.S. crude inventories climbed.

OPEC Production

Angola’s oil minister said the Organization of Petroleum Exporting Countries should wait to see how events in Libya unfold before calling an emergency meeting about prices and production. Kuwait’s oil minister yesterday said members of the group are weighing an “urgent” meeting to determine whether more output is needed.

In Europe, Moritz Kraemer, managing director of European sovereign ratings at S&P, warned some countries may have their credit ratings cut further while a Greek debt default is a “possibility.”

Asked if the worst was over for the region’s sovereign credit-rating outlook, Kraemer said: “I wish I could say yes, but the answer is no.” Kraemer was speaking in an interview at a EuroMoney conference in London yesterday.

EADS rose 3.3 percent to 20.49 euros after reporting full- year net income of 553 million euros ($767 million) compared with a 763 million-euro loss a year earlier. The aerospace company also said profitability will rebound after this year as it smoothes out currency swings and jet deliveries gain.

Alcatel Falls

Alcatel, France’s largest telecommunications equipment maker, dropped 4.4 percent to 3.80 euros. Finisar, the Sunnyvale, California-based maker of fiber-optic transmission gear, yesterday forecast fourth-quarter earnings of 31 to 35 cents a share. That missed analyst estimates of 48 cents.

E.ON lost 1.2 percent to 22.85 euros after the German utility said adjusted net income will fall as much as 32 percent this year after the government imposed a new tax on its nuclear plants and it sells power at lower prices.

Prudential Plc (PRU) gained 3.4 percent to 738.5 pence after the U.K.’s biggest insurer by market value more than doubled full- year net income to 1.43 billion pounds ($2.31 million). Operating profit for the period rose 24 percent to 1.94 billion pounds, beating analyst estimates of 1.74 billion pounds.

Iberdrola Renovables SA (IBR) jumped 8.4 percent to 2.97 euros, the biggest gain since 2008, after parent company Iberdrola SA (IBE) bid 2.5 billion euros to buy out minority investors in its renewable energy unit. Iberdrola SA shares slipped 0.8 percent to 5.94 euros.

Tognum AG (TGM) climbed 4.1 percent to 24.16 euros as Daimler AG and Rolls-Royce Group Plc offered 24 euros a share to purchase the German maker of heavy-duty engines. Tognum surged 23 percent on March 7 after Daimler and Rolls-Royce said they were considering a joint bid for the company.

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

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

Read more...

How Long Can USD Keep Head of Steam?

The USD followed through on its smart little technical reversal yesterday with follow-up strength today, but will the currency follow through to the strong side here, or is this simply another modest consolidation that will fade to yield further gains for the greenback like all previous attempts by the currency to make a stand?

UK BRC Sales

The UK Like-for-Like sales number for February were very weak (though overall sales did rise +1.1% YoY) and suggests rather weak end demand from consumer. This makes sense in light of the austerity descending on the British population since the first of the year. The weak demand wasn't as evident in January due to pent up demand from historically disruptive winter weather that kept people pinned up in their homes in December. Continued weak demand will be an interesting possible theme for the UK in coming months.

Riksbank

The Swedish Krona caught a bit of a bid today despite generally souring risk markets and despite dovish talk from the Riksbank Deputy Governor Svensson. He was out arguing for a “lower repo rate path” and for a focus on employment as well as inflation. Sounds like Mr. Svensson needs to join the Bernanke Fed. Another Riksbank member is out speaking later today.

Chart: EURUSD

EURUSD is reversing after its extensive grind higher all the way from the . So far, we can only speak of an orderly consolidation. The key is whether the sell-off cuts deeply through the 1.3860 area support provided by the previous high, a move that would weaken the uptrend. Note that the recent test above 1.40 just barely took out a falling trendline - a tease that proved a false break. Round numbers have often been important in EURUSD's history and that 1.40 level remains the key upside resistance for now as we inch close to the EU summit later this month.

Chart: AUDUSD

The technical situation in AUDUSD is becoming a farce, with an ever-shrinking range between 1.02 and higher and higher lows. The nominal technical formation is an ascending triangle, normally considered a bullish formation, but the longer the pair dallies, ironically, the weaker the formation becomes as an indicator of future direction. Parity is the key downside support beyond the tactical 1.0075 level.

Chart: AUDNZD

A large scale reversal in AUDNZD, which shows the most significant crack in the uptrend in over a month. This may be the beginning of the end of the uptrend - as valuation here is extreme and there is only so much an earthquake can do to a country's currency. Longer term fair value lies closer to 1.30 if not 1.25 for the pair.

Looking ahead

The USD has followed through a bit stronger today, a development presaged by yesterday's neat technical reversal in key USD crosses. The question now is whether we follow through and move back through more strategic resistance levels for the greenback. To take three USD pairs, that would be on the order of 1.3860 in EURUSD, parity in AUDUSD and 1.6000 in GBPUSD. Certainly from a contrarian perspective, there are grounds for further USD strength as USD shorts are out there in record swarms by some measures. Again (as we discussed yesterday), a continued rally in fixed income (which should tend to favor the USD in interest rate spreads), a easing off of crude oil prices and another couple of percent of downside for equities could prove powerful medicine for the greenback in coming days.

For USDJPY, we await today's 3-year auction with interest. Expectations are relatively low after last month saw a very anemic auction despite relatively high yields (if you can call 1.25% a high yield - but that was higher than the 0.45% the 3-year debt was yielding around the time of Bernanke's official QE2 announcement). The 3-year debt is yielding about the same now as it was at last month's auction - so this will be an interesting one to see whether recent events and disruptions in equity markets see a stronger bid coming into the market.

The rest of the week's calendar is fairly heavy for Australia, with Consumer Confidence and Home loan data tonight, and the employment report tomorrow night. Seems like by this time next week, we are either trading above 1.0200 or below parity.

Economic Data Highlights

• New Zealand Feb. QV House Prices fell -1.7% YoY vs. -1.5% in Jan.
• Japan Jan. Adjusted Current Account Total out at ¥1089B vs. ¥1167B expected and ¥1519B in Dec.
• UK Feb. BRC Like-for-Like Sales out at -0.4% YoY vs. +0.7% expected and +2.3% in Jan.
• UK Feb. RICS House Price Balance out at -26% as expected and vs. -31% in Jan.
• Australia Feb. NAB Business Conditions out at -2 vs. -6 in Jan.
• Australia Feb. NAB Business Confidence out at 14 vs. 4 in Jan.
• Switzerland Feb. Unemployment Rate fell to 3.4% as expected and vs. 3.5% in Jan.
• Germany Jan. Factory Orders rose +2.9% vs. +2.5% expected and -3.6% in Dec.
• US Feb. NFIB Small Business Optimism out at 94.5 vs. 95.0 expected and 94.1 in Jan.
• Canada Feb. Housing Starts out at 181.9k vs. 174k expected and 170.6k in Jan.

Upcoming Economic Calendar Highlights (all times GMT)

• US Fed Nominee Diamond to Testify (1500)
• Sweden Riksbank's Ekholm to Speak (1500)
• US Fed's Krieger to Speak (1620)
• US Weekly API Crude Oil and Product Inventories (2130)
• Australia RBA Assistant Governor Lowe to Speak (2230)
• Australia Mar. Westpac Consumer Confidence (2330)
• Japan Jan. Machine Orders (2350)
• UK Feb. BRC Shop Price Index (0001)
• Australia Jan. Home Loans (0030)

About the Author

Saxobank

Analysis Disclosure & Disclaimer

Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained.

Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment.

If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations.

The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time.

In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.

Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.

Read more...

Is AUD Poorly Positioned Heading Forward?

In today's trading we saw the AUD/USD pair fall rather strongly, as the USD strengthened against most of its rivals. However, we have see the pair again rejected at the 1.02 level. For the most part, the pair has been in sideways price action throughout the first two months of 2011 as it has been unable to push above 1.02, though at the same time is have been setting higher lows during the period.

The Aussie has a spectacular run throughout 2010 as its economy was bolstered by strong demand from China for its exports of raw materials including iron ore and coal. It also had a very strong advantage in that the central bank - facing a mining jobs boom - was one of the few central banks from the "developed world" raising interest rates helping to increase the interest rate differential between it and the other major central banks.

While the economy still enjoys strong fundamentals, including an unemployment rate that at 5% is at "full employment" the two factors we described above may wane in helping to sustain the currency and could mean a dip back below the parity level.

First, China is trying to reign in its economy with higher interest rates of its own. Inflation is a large concern as is the chance that Chinese banks have lent out too much credit which could cause a financial crisis. China has raised rates 3 times since October, bringing its benchmark interest rate from 5.31 back in September 2010 to 6.06 in February. More may be needed to cool the economy a sufficient amount to get a handle on inflation. That can mean less industrial production in China and therefore less demand for Australian goods.

We saw exports in Australia for the month of January fall by 4%, though much of that was due to the impact of recent flooding. Still further attempts by China to tighten policy will have an adverse effect on Australian exports, and can cause the AUD some problems.

The Aussie's second reason for strength, its interest rate differential against other developed countries, will also not play as important a role going forward. With the price of Brent Crude oil contracts climbing above $115 it has created a lot of anxiety in central banks that it will fuel inflationary pressure.

That has caused the ECB to telegraph an upcoming interest rate increase, and traders are pricing in a Bank of England increase in the coming months. As global interest rates play catch up, the Reserve Bank of Australia is in a wait-and-see mode as it assesses the pass through of the damage that was caused by the strong flooding and recent cyclone.

Therefore the AUD may lose some of its interest rate advantage. While the US Fed is not close to tightening policy - in addition to the ECB and BOE, we have the Bank of Canada on the cusp of needing to being to raise interest rates. If the AUD falls against the EUR, GBP and CAD those effects will be felt in the AUD/USD pair as well.

Therefore, the factors that could hamper AUD strength are there - higher Chinese interest rates and higher oil prices causing central banks to hike rates. They are not givens, but it looks pretty clear that oil prices will remain elevated for the time being.

If these factors materialize then the Aussie may be poorly positioned heading forward for the next few months. It's worth keeping an eye on them in anticipation of Aussie weakness.

About the Author

FXTimes

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness.

FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analyses.

All screenshots are made from VT Trader 2.0 and are of actual market data at the time of the screenshot.

Read more...

USDCAD: Struggling To Put In A bottom But Vulnerable

USDCAD: Its bottom forming process continues to play out as USDCAD is still consolidating slightly above the 0.9682 level, its Mar 01'2011 low. In case a recovery higher occurs, we expect it to be capped at the 0.9809 level, its Feb 17'2011 low. This level should reverse roles and provide resistance thus turning the pair back lower in the direction of its long-term weakness. This will see USDCAD attacking its Mar 01'2011 low at 0.9682 with a convincing break of this level extending further weakness towards its psycho level at 0.9600 and then the 0.9500 level. On the upside, if a break of its Mar 02'2011 high at 0.9774 level and the 0.9809 level, its Feb 17'2011 low happen, further upside risk will shape up towards the 0.9958 level, Feb 15'2010 and then the 1.0056 level.

About the Author

Mohammed Isah
Market Analyst
www.fxtechstrategy.com

This report is prepared solely for information and data purposes. Opinions, estimates and projections contained herein are the author's own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which the author incur any responsibility. The does not accept any liability whatsoever for any loss arising from any use of this report or its contents. This report is not construed as an offer to sell or solicitation of any offer to buy any of the currencies referred to in this report

Read more...

Fed Presidents Signal No Urgency to Expand $600 Billion Bond Purchase Plan

Richard W. Fisher, president of the Federal Reserve Bank of Dallas. Photographer: Alex Kraus/Bloomberg

Three Federal Reserve district bank presidents expressed little need to expand $600 billion in bond purchases any time soon, while differing over whether to end the central bank’s record stimulus early.

Dallas Fed President Richard W. Fisher said yesterday he may vote to end the bond buying before the planned end in June if he deems it to be “counterproductive.” Atlanta Fed President Dennis Lockhart said he’s “very cautious” about additional purchases, while not ruling out the possibility. Charles Evans, president of the Chicago Fed, told CNBC he believes the hurdle for altering the plan is “pretty high.”

Policy makers are set to meet in Washington on March 15 as economic data over the past month indicate their policies are helping to revive growth and reduce unemployment. Fed officials including Charles Plosser, president of the Philadelphia regional bank, have favored an abrupt end to the purchases of Treasuries, rather than a gradual pullback beyond June.

Treasury markets are “so deep and liquid that there doesn’t seem to be a need” to taper the purchases, said Evans, 53, who votes on the Federal Open Market Committee this year. “I wouldn’t be surprised that if we decide to end it, we just end it.”

The Standard & Poor’s 500 Index has gained more than 9 percent since Nov. 3, when the Fed announced its second large- scale round of asset purchases. Central bankers are about half way through their bond buying program, known as QE2 for the second round of so-called quantitative easing. The Fed ended a $1.7 trillion program in March 2010.

Expanded Payrolls

Joblessness in the U.S. unexpectedly fell to 8.9 percent in February, according to a March 4 report from the Labor Department. The rate fell for a third straight month to the lowest level in almost two years as employers boosted payrolls by 192,000 amid growing confidence in the expansion.

The economy grew at a 2.8 percent annual rate in the fourth quarter, up from 2.6 percent in the previous three months, according to figures from the Commerce Department. The economy, excluding inventories, expanded at a 6.7 percent pace, the most since 1998.

“The liquidity tanks are full, if not brimming over,” Fisher, an FOMC voter this year, said at the Institute of International Bankers Annual Washington Conference. “The Fed has done its job. What is needed now is for business to be incentivized to commit that liquidity to creating American jobs.”

The regional bank chief reiterated that he would vote against extending or enlarging the $600 billion program “barring some frightful development.” If the plan proves to be “counterproductive,” Fisher said he will “vote to curtail or perhaps discontinue it.”

Middle East Turmoil

Lockhart said in a speech in Arlington, Virginia, that the central bank shouldn’t rule out additional purchases because turmoil in the Middle East risks causing a slowdown in the U.S.

“With the information I have today, my first inclination is to be very cautious about extending asset purchases after June,” he said. “Given the emergence of new risks, however, I prefer a posture of flexibility” as it relates to policy options.

Lockhart’s comments echoed Fed Chairman Ben S. Bernanke, who told Congress last week that economic conditions continue to justify holding the central bank’s benchmark interest rate near zero. The chairman also didn’t rule out expanding purchases to keep stimulating the economy.

A survey of economists released yesterday by the National Association for Business Economics found 71 percent expect the Fed to raise its target interest rate over the next year.

Third Round

Lockhart told reporters after his speech that a third round of large-scale asset purchases might be needed in the event of another downturn. “I want to remain open to whatever has to be done or needs to be done at a given time,” Lockhart said.

The Fed has bought $397.6 billion in Treasury securities since Nov. 12 under plans to purchase $600 billion of government debt through June and reinvest proceeds from maturing mortgage debt.

The hurdle for altering the Fed’s current plan is “pretty high,” and a tapering of the purchases is unlikely, Evans said in a CNBC interview.

“It looks more and more to me like $600 billion is a good number,” the Chicago Fed president said. “We’re going to continue to need short-term interest rates to be low for an extended period of time.”

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Read more...

Euro Weakens Against Dollar Amid Concern European Debt Crisis Will Deepen

The euro fell the most in two weeks against the dollar as concern the region’s leaders won’t agree on a solution to its debt crisis damped appetite for its assets.

The 17-nation currency retreated from almost the strongest level in nine months against the yen. Financing costs rose as Greece sold 1.625 billion euros ($2.3 billion) of treasury bills a day after having its credit rating cut by Moody’s Investors Service. The Norwegian krone declined against 15 of its 16 major peers as oil fell for the first time in three days.

“As we get closer to the results of the euro summit and you have these concerns lingering and spreads widening, you have these pent-up aggressions playing out,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “Being overweight euros is probably not the most prudent decision.”

The shared currency declined 0.6 percent to $1.3881 at 10:26 a.m. in New York. It reached $1.4036 yesterday, the strongest level since Nov. 8. It was little changed at 114.84 yen after touching 116 on March 4, the highest since May 14. The dollar strengthened 0.6 percent to 82.73 yen.

Dollar Trend

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against currencies including the euro and yen, climbed for a second day, gaining 0.5 percent to 76.878.

The euro, which has risen 3.9 percent against the dollar this year, has struggled to extend its advance beyond $1.40 as European Union leaders clashed about how to deal with the sovereign-debt crisis that forced Ireland and Greece to seek financial aid last year. The 27-nation EU intends to approve a “comprehensive” package of measures at a March 24-25 summit in a bid to calm bond markets.

The yield on 10-year Greek debt jumped as much as 45 basis points to the most since before the euro was created in 1999, according to data compiled by Bloomberg. Greece sold the 26-week bills today to yield 4.75 percent, up from 4.64 percent the last time the securities were sold in February, the Athens-based Public Debt Management Agency said.

Portugal plans to sell up to 1 billion euros of September 2013 notes tomorrow, its second auction this year.

Austria opposes easing conditions of bailouts sought by Ireland and Greece, Chancellor Werner Faymann told reporters today in Vienna. The nation’s Finance Minister Josef Proell said he didn’t see “pressure from other EU countries” for a change.

ECB Watch

The euro climbed 1.2 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, which track the currencies of 10 developed nations, fueled by speculation that the European Central Bank may raise interest rates as early as next month to contain inflation.

“There are other issues than simply a more hawkish ECB,” said John McCarthy, director of currency trading at ING Groep NV in New York. “The implication of higher rates is also there. The last thing those countries need is higher interest rates.”

ECB council member Axel Weber said the bank has embarked on a normalization of interest rates and he doesn’t want to correct market speculation for as many as three quarter-point increases this year.

It was the intention of the ECB to bring forward market expectations and “I see no reason at this stage to signal any dissent with how markets priced future policies,” Weber told Bloomberg News in Frankfurt today when asked about investors pricing in an increase in the benchmark rate to 1.75 percent by the end of the year.

Krone Declines

Norway’s krone depreciated by 0.6 percent to 5.5866 per dollar and was little changed at 7.7569 against the euro.

Crude oil traded in New York fell 0.8 percent today as the Organization of Petroleum Exporting Countries discussed the possibility of boosting output, easing concern that supply shortages may be prolonged. It reached $106.95 yesterday, the most since September 2008.

New Zealand’s dollar advanced, halting a five-day loss, as a technical indicator showed its recent declines may have been excessive. The so-called kiwi rebounded from the weakest level since September against the yen as traders reduced their bets that the central bank will cut interest rates at its meeting this week.

The New Zealand dollar rose to 73.95 U.S. cents from 73.69 in New York yesterday, after falling to 73.39 on March 4, the weakest since Oct. 1. The kiwi gained to 61.19 yen from 60.60 yen yesterday, when it touched 60.35 yen, the weakest level since Sept. 9.

The pound reached a one-week low against the dollar and snapped a four-day decline versus the euro. Retail sales dropped 0.4 percent from January, when they gained 2.3 percent, a report from the British Retail Consortium and KPMG showed. Bank of England policy makers will maintain the U.K. interest rate at 0.5 percent on March 10, according to all 61 economists surveyed by Bloomberg News.

The pound was 0.3 percent lower at $1.6157, after touching $1.6166, the least since Feb. 28. It strengthened to 85.96 pence per euro from 86.21 pence, after reaching 86.36 pence, the weakest since Jan. 28.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Read more...

Natural Gas Futures Advance in New York, Reversing Earlier Decline of 2.4%

Natural gas futures climbed in New York, reversing an earlier decline.

Gas for April delivery rose 1.3 cents, or 0.3 percent, to $3.94 per million British thermal units at 11:29 a.m. on the New York Mercantile Exchange. The futures earlier fell as much as 2.4 percent.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Read more...

European Stocks Fluctuate; National Bank of Greece Tumbles

Traders work at the Frankfurt Stock Exchange in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

Play Video

March 7 (Bloomberg) -- Jonathan Golub, chief U.S. market strategist at UBS Securities LLC, talks about the outlook for U.S. stocks. Golub also discusses crude oil prices and the U.S. economy. He speaks with Matt Miller, Carol Massar, Dominic Chu, Adam Johnson and Julie Hyman on Bloomberg Television's "Street Smart." Doug Prskalo of Blue Capital Group also speaks. (Source: Bloomberg)

European stocks fluctuated, following two days of declines, as European Central Bank council member Axel Weber signaled that the ECB may raise interest rates several times this year.

National Bank of Greece SA (ETE) and EFG Eurobank Ergasias SA (EUROB) both lost more than 6 percent as the yield on Greek 10-year bonds surged to a record. Andritz AG (ANDR) rose 3.5 percent after reporting higher-than-estimated full-year net income. Aegon NV (AGN) gained 1.4 percent as Scor SE (SCR) was said to be in talks to buy a unit of the Dutch insurer.

The benchmark Stoxx Europe 600 Index rose 0.1 percent to 281.11 at 3:57 p.m. in London, after earlier rising as much as 0.7 percent and falling as much as 0.5 percent. The gauge dropped yesterday as oil climbed above $105 a barrel in New York after forces loyal to Libya’s ruler Muammar Qaddafi repelled a rebel attack on the central city of Sirte.

“We have enormous pressure from the commodity side at the moment,” said Andreas Lipkow, an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt. “The ECB and the Fed have to react right now and have to raise interest rates. Investors are very nervous and the way central banks will formulate the next steps is very important.”

Weber said he doesn’t want to correct market expectations for as many as three quarter-point increases this year in the bank’s benchmark interest rate this year. ECB President Jean- Claude Trichet yesterday said that the world’s central bankers are united in their aim to prevent surging oil prices from fanning broader inflation.

Oil Falls

Crude fell in New York after Kuwait’s Oil Minister confirmed that the Persian Gulf country has held talks to boost production. Organization of Petroleum Exporting Countries are holding “consultations” and have yet to decide to raise output, Sheikh Ahmad al-Abdullah al-Sabah said.

National benchmark indexes decreased in 9 of the 18 western European markets today. The U.K.’s FTSE 100 Index slipped 0.4 percent, Germany’s DAX Index retreated 0.2 percent while France’s CAC 40 Index added 0.2 percent.

European stocks erased an earlier advance as Greek government bonds slid, driving the yield on the 10-year security to the highest level since Bloomberg began collecting the data in 1988. The yield jumped as much as 48 basis points to 12.82 percent, while credit-default swaps insuring Greek government bonds rose 5 basis points to an all-time high of 1,037.

National Bank of Greece, Greece’s biggest lender by market capitalization, slid 6.8 percent to 6.15 euros. Eurobank and Alpha Bank SA lost 6.1 percent to 4.30 euros and 4.3 percent to 4.69 euros, respectively. Moody’s Investors Service yesterday downgraded Greece’s government bond ratings to B1 from Ba1, and assigned a negative outlook. The Greek equity market was closed for a holiday yesterday.

Randgold Retreats

Randgold Resources Ltd. (RRS), a producer of the metal in West Africa, sank 8.6 percent to 4,462 pence, the biggest decline in the Stoxx 600. Ivory Coast President Laurent Gbagbo took control of local purchases and exports of cocoa and coffee, escalating his conflict with rival Alassane Ouattara, the internationally recognized winner of November’s election.

Andritz jumped 3.5 percent to 63.71 euros. The Austrian maker of machines for the paper and steel industries reported full-year net income of 179.6 million euros ($249.6 million), beating analysts’ estimates. Andritz also forecast that its 2011 sales will “increase substantially compared to 2010” and that its profit will rise.

Deutsche Telekom, Vodafone

Deutsche Telekom AG soared 4 percent to 10.02 euros. Europe’s largest telecommunication company has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. in exchange for a major stake in the combined entity, said people with knowledge of the matter.

Telecommunication stocks advanced after Morgan Stanley raised its recommendation on the industry’s shares to “maximum overweight.” BT Group Plc (BT/A) advanced 3.4 percent to 190.1 pence and Vodafone Group Plc (VOD) gained 1.8 percent to 181.9 pence.

“Telecoms is our preferred defensive sector as we think it offers greater potential for a positive growth surprise as well as offering a substantial dividend yield boost over other sectors,” strategists led by Morgan Stanley’s London-based head of European equity strategy Graham Secker wrote in a report.

Aegon rose 1.4 percent to 5.60 euros, erasing yesterday’s decline. Scor, France’s largest reinsurer, is in talks to buy Dutch rival Aegon’s Transamerica Reinsurance unit, said four people with knowledge of the matter. Scor dropped 3.6 percent to 20.30 euros as the company said that catastrophes in Australia and New Zealand will cost it a total 200 million euros, net of retrocession.

Lundin Petroleum AB (LUPE) surged 4 percent to 82.80 kronor after BofA Merrill Lynch Global Research upgraded the company to “buy” from “sell.”

Wacker Chemie AG (WCH) climbed 2.5 percent to 137.80 euros as UBS AG lifted its recommendation on the chemicals company to “buy” from “neutral.”

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

Read more...

Chilean Peso Slides Most in a Week on Decline in Copper Prices

The Chilean peso fell the most in a week as the price of copper, the country’s main export, declined faster than oil prices, weakening the country’s terms of trade.

The peso slid 0.4 percent, more than the other six major Latin American currencies tracked by Bloomberg, to 475.6 per U.S. dollar as of 10:40 a.m. New York time from 473.85 yesterday.

As copper falls compared with oil, Chile’s export income declines relative to the cost of its imports. South America’s fifth-largest economy relies on imports for 99 percent of its oil while oil and gasoline are its two largest imports.

“Terms of trade keep hitting the local economy,” said Alejandro Araya, a trader at Banco Santander SA in Santiago. “Copper is falling and oil remains above $100. As long as they don’t fall into line we’ll have the peso between 474 and 478 per dollar.”

Foreign investors in the Chilean peso forwards market had a net bet of $1.3 billion that the peso would weaken against the dollar as of March 4, central bank data show.

Copper declined on concern that high oil prices may slow economic growth. A pound of the metal for May delivery slid as much as 1.7 percent to $4.254 on the Comex in New York.

Chile’s central bank bought $50 million today at an average of 475.5 pesos per U.S. dollar, according to its website, as part of a $12 billion plan to weaken the peso.

The bank is scheduled to announce today whether it will reduce or continue its daily dollar buying. Economists Rodrigo Aravena at Banchile Inversiones and Felipe Alarcon at Banco de Credito & Inversiones said they don’t expect any changes.

Inflation Expectations

The peso weakened 6.6 percent in the first week after the bank announced its dollar-buying plan. That weakness contributed to an increase in inflation expectations, which is now fueling speculation that the central bank will consider accelerating the pace of its interest-rate increases on March 17.

Factors other than the bank’s dollar purchases are now driving the currency. It was the weakest currency in the region in January and the strongest in February as copper rose to a record. So far in March the peso is little changed as expectations of rate rises mitigate the weaker terms of trade.

Buying a greater volume of dollars every day would mean the bank needs to sell more bonds to soak up the extra pesos it would be leaving in the market, said Banchile’s Aravena.

“That could mean an increase in yields which, given the probable rise in central bank rates, could have a very negative effect on the fixed-income market,” he said. “The only thing the dollar buying is achieving is the accumulation of international reserves, nothing else.”

Inflation-Linked Debt

The bank may say it plans to sell an increased volume of inflation-linked debt, according to BCI’s Alarcon.

Yields on central bank inflation-linked bonds have declined as traders price in expectations of faster-rising prices. Banco Security this week recommended investors have all bond portfolios in short- and medium-term inflation-linked debt.

“Anything that even looks inflation-linked gets bought up completely,” Alarcon said. “It wouldn’t be a surprise if the bank kept overweighting inflation-linked bond sales versus pesos. They may want to affect breakeven inflation and they could do that by overweighting inflation-linked issuance.”

Breakeven inflation is a measure of the gap between inflation-linked and nominal yields. It reflects traders’ estimation of the likely average of future inflation.

The gap between 10-year nominal and inflation-linked central bank bonds rose to 3.81 percent on March 2, the highest since October 2008, according to data compiled by Bloomberg.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at Papadopoulos@bloomberg.net

Read more...

Roubini Sees Double Dip for Advanced States If Oil Hits $140

Nouriel Roubini speaks at the 12th Hedge Funds World Conference in Dubai, on Tuesday, March 8, 2011. Photographer: Gabriela Maj/Bloomberg

Play Video

March 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., and Daniel Yergin, chairman of IHS-Cambridge Energy Research Associates, offer their views on the possible impact of $100 a barrel crude oil on the U.S. economy and corporate America. This report also contains comments from Stephen Girsky, vice chairman at General Motors Co.; Robert Livingston, chief executive officer at Dover Corp.; Mark Zandi, chief economist at Moody's Analytics Inc.; Nariman Behravesh, chief economist at IHS Inc., and Mark Gertler, a professor at New York University. (Source: Bloomberg)

Nouriel Roubini, the economist who predicted the global financial crisis, said an increase in oil prices to $140 a barrel will cause some advanced economies to slide back into recession.

Underlying how fragile the global economic recovery is, Roubini said the European Central Bank may be making a mistake by raising interest rates “too soon” when debt-ridden countries on the euro region’s periphery struggle to restore the competitiveness of exports.

“If you had the oil price going up to where it was in the summer of 2008, at $140 a barrel, at that point some of the advanced economies will start to double dip,” he told reporters in Dubai today. “In the U.S., where growth is accelerating fast, a 15 to 20 percent increase in oil prices, there won’t be double dip, but growth reaching a stalled speed again.”

Popular revolts sweeping the Middle East and North Africa, home to more than half of the world’s proven oil reserves, have pushed Brent crude-oil prices close to $120. Goldman Sachs Group Inc. raised its forecast for Brent crude in the second quarter of the year to $105 a barrel amid fighting in Libya between Muammar Qaddafi and rebels seeking to end his four-decade rule.

Crude for April delivery fell as much as $2.11 to $103.33 a barrel in electronic trading on the New York Mercantile Exchange, and was at $105 at 5:19 p.m. in Dubai. Yesterday, the contract settled at $105.44, the highest since Sept. 26, 2008. Prices are up 27 percent from a year ago.

IMF Forecast

In January, the International Monetary Fund revised its forecast for global economic growth this year to 4.4 percent from an earlier estimate of 4.2 percent, reflecting stronger U.S. output based on tax-cut extensions, while emerging nations lead the recovery.

Oil prices at their current levels probably won’t lead to a “significant” acceleration in inflation in advanced economies because they are recovering from a “severe recession” and still face high unemployment, Roubini, 52, told a conference on hedge funds in the Persian Gulf emirate earlier today.

“Workers don’t have much wage-bargaining power,” he said.

Joblessness in the U.S. unexpectedly dropped to 8.9 percent in February, according to a March 4 report from the Labor Department. The rate fell for a third straight month to the lowest level in almost two years as employers boosted payrolls by 192,000 amid growing confidence in the expansion.

The U.S. economy grew at a 2.8 percent annual rate in the fourth quarter, up from 2.6 percent in the previous three months, according to figures from the Commerce Department.

‘Barely Enough’

Still, Roubini said job creation this year in the U.S., the world’s biggest economy, is going to be “barely enough to satisfy the increase in labor supply.”

With unemployment keeping core inflation in check, raising interest rates in some advanced economies too soon would be a mistake, Roubini said.

ECB President Jean-Claude Trichet said on March 3 that policy makers may boost borrowing costs as soon as next month to fight increasing price pressures even as governments from Spain to Ireland struggle to lower their budget deficits and revive economic growth. Euro-region inflation quickened to 2.4 percent last month, the fastest since October 2008.

“My view of it is that the ECB is worrying too much about inflation,” Roubini said. A premature increase in interest rates by European policy makers may put “significant” pressure on the Bank of England to follow suit, he said.

U.K. Squeeze

The U.K. government is engaged in the country’s biggest fiscal squeeze since World War II as growth faltered and the economy shrank in the final quarter of 2010. With spending cuts due to take effect from next month, Prime Minister David Cameron is trying to drive growth in the private sector by easing planning restrictions, cutting business taxes and making it easier for small companies to bid for public contracts.

Soaring food and energy costs pushed inflation to 4 percent in January, twice the Bank of England’s target. While the central bank expects inflation to accelerate in the coming months, it has kept its benchmark interest rate unchanged. Still, three of the Bank of England’s nine policy makers last month voted for an increase.

“In the U.K., things are even more complicated because even before the monetary and fiscal tightening, fourth-quarter growth was negative,” Roubini said. “Monetary and fiscal tightening is coming to the U.K. at the worst of all times, when the economic activity is weak.”

The U.K. economy may expand 2 percent this year and 2.3 percent in 2012, according to IMF projections in January.

In the developing economies, the Washington-based lender expects consumer prices to average 6 percent this year. Roubini said inflation in some emerging economies “where monetary policy is behind the curve” risks going “out of control, in some cases to double digits,” unless central banks start raising interest rates soon or use exchange rates to stabilize prices.

To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

Read more...