Asian Market Update

Daily Forex Fundamentals | Written by Trade The News | Apr 20 09 06:08 GMT |

Asian Bourses Pare Early Weakness, Return toward Unchanged Levels in Quiet Session ; Australia Q1 PPI Unexpectedly Contracts to Multi-Year Lows; EUR Extends Slide Below 1.30 as ECB's Trichet Grows More Cautious; Gold ETF Holding Contract for 2nd Session Asian equity markets appear to be tracking the absence of any meaningful directional bias exhibited in final day of trading in the US last week, where earnings season is set to shift into higher gear on Monday with the last large Financial in BAC and the next blue-chip tech in IBM. In Tokyo, the Nikkei had entered mid-day break down about 0.9% at session lows before recovering toward unchanged levels as trading entered the final hour. Korea's Kospi and Australia's S&P/ASX traded comparably, falling by just over 1% in opening hours before paring those losses to decline just over 0.5% ahead of close. The absence of substantially meaningful macro theme is also translating into diminished volatility. Light economic calendar saw data limited to Australia's Q1 PPI which came in at -0.4% Q/Q v +0.6% expected, surprisingly registering the first negative print for the first time since Q2 of 2003. This could potentially cement the case for a further RBA cut in early May, particularly if subsequent CPI figure to be released on Wednesday (Tuesday 9:30pmET) confirms hints of disinflationary trends. Statements from a handful of notable speakers in today's session and earlier over the weekend also painted a mixed picture with varied assessment of current conditions and prospects for economic recovery. IMF's Managing Director Strauss-Kahn, interviewed by Handelsblatt, signaled a continued bearish stance, planning to restate his outlook for 2009 global growth to the downside beyond -0.5% to -1.0% in the coming week. ECB's Trichet, in characteristically opaque address, suggested that 'measured' additional rate cuts were still possible even though a zero interest rate policy was out of the question. MOre notably, Trichet confirmed May 7th as decision date to implement and subsequently explain the governing board's plan on use of 'non-standard' easing steps, warning against 'over-interpreting' of other members' comments. ECB member Bini Smaghi's stance was more hawkish as he warned against overemphasizing the threat of deflation in policy decision, urging clearly expressed exit strategy for central bank's innovative measures. Statements coming out of Asia's Boau Forum this weekend are also mixed as markets grapple with last week's poor Q1 GDP from China against some tentative evidence of a bottoming process in the region. Vice Head of Policy Research Zheng thinks the economy has hit bottom in Q1 and target 7.0% growth in Q2, but does suggest that achieving 8% 2009 target would be difficult. Likewise, PM Wen sees the results of implemented stimulus response as better than expected amid stabilizing industrial production. However, PBOC's Zhou sees China economy still struggling on impact of global crisis and shattered export demand, looking for continued policy adjustment to reflect the weak environment. In notable company developments, Japanese press speculated on a number of corporate earnings and equity offering with a predominantly poor outlook. Toshiba was one of the bigger names in play as it was rumored to plan a capital raise of ¥500B, sending its shares down 6% despite denial of the rumor by company spokesman. In Tokyo Financials, Sumitomo Trust fell 4% on media speculation of lowered FY net forecast by over 80%, while in Materials, Marubeni and Nippon Steel were also forecasted to post lower than expected Net income figures. Additionally, Nikkei speculated on TDK and Mitsui OSK falling short of FY09 and FY10 net respectively on tech and materials sector slump. In notable gainers, Fuji Electric picked up 4% on speculation the company would develop power components for hybrid cars, improving their mileage per hour by as much as 10%. In Sydney, Fortescue Metals was sharply higher on speculation of investment talks with China's sovereign wealth funds for the company's widely coveted Pilbara iron ore mine. However, other materials names traded weaker, with OneSteel reopening well to the downside following a A$559M equity raise and Rio Tinto falling on reiterated non-communication with BHP and denial of 'Plan B' equity offer in the event of failed Chinalco deal. In currencies, the dollar and JPY are notably stronger despite the absence of greater conviction by equity sellers. EUR/USD fell below 1.30 for the first time since March 18th, GBP/USD was at lowest level in a week just above 1.47, and USD/CHF extended its rally above 1.17 - also highest level since pre-Fed quantitative easing. USD/JPY fell as low as 98.60s, while EUR/JPY saw its lowest level in April, bottoming around 128.20. In commodity FX, USD strength vs AUD was magnified after poor Q1 PPI from Australia, as the pair reached its lowest on session level around 0.7150. USD/CAD saw its best levels around 1.2180, technically pivotal resistance seen early last week. Crude oil has moved below $50/bbl and is lower by more than 1% on today's session. The losses in oil prices are coming as US equities futures are trading lower. With respect to crude oil options, the May crude contract expires tomorrow. At the time of writing, spot gold prices are little changed, despite the declines in equities. In terms of investment flows, the SPDR Gold Trust ETF announced that as of April 17 its holdings declined by 13.5 tons and this was the second consecutive daily decline reported in the ETF's gold holdings. In other metals news, some dealers are noting that Silver broke below its 200-day moving average, which was seen around $12.30/oz, and this could imply further weakness for the metal. Trade The News Staff Trade The News, Inc. Legal disclaimer and risk disclosure All information provided by Trade The News (a product of Trade The News, Inc. "referred to as TTN hereafter") is for informational purposes only. Information provided is not meant as investment advice nor is it a recommendation to Buy or Sell securities. Although information is taken from sources deemed reliable, no guarantees or assurances can be made to the accuracy of any information provided. 1. Information can be inaccurate and/or incomplete 2. Information can be mistakenly re-released or be delayed, 3. Information may be incorrect, misread, misinterpreted or misunderstood 4. Human error is a business risk you are willing to assume 5. Technology can crash or be interrupted without notice 6. Trading decisions are the responsibility of traders, not those providing additional information. Trade The News is not liable (financial and/or non-financial) for any losses that may arise from any information provided by TTN. Trading securities involves a high degree of risk, and financial losses can and do occur on a regular basis and are part of the risk of trading and investing.

Read more...

FX Technical Analysis

Daily Forex Technicals | Written by Mizuho Corporate Bank | Apr 20 09 06:13 GMT |

EURUSD Comment: Dropping to its lowest level in a month as it struggles with the top of the Ichimoku 'cloud' (which becomes very thin this week). Possibly the lagging Chikou Span will get support from Fibonacci retracement and the candles of 26 days ago. The Euro is slightly oversold. Strategy: Attempt small longs at 1.3000; stop below 1.2900. Add to longs on a sustained break above 1.3100 for 1.3400 short term. Direction of Trade: →↗ Chart Levels: Support Resistance 1.2967 " 1.302 1.2930* 1.3078 1.2855 1.31 1.2825 1.313 1.2765 1.3185 GBPUSD Comment: Retreating to retracement support as we still cannot manage a weekly close above 1.5000. Watch for signs of basing early this week for another attempt higher later this month. Strategy: Attempt longs at 1.4730; stop below 1.4550. Short term target 1.5000/1.5050. Direction of Trade: →↗ Chart Levels: Support Resistance 1.4706 " 1.4815 1.465 1.485 1.4580* 1.4945/1.4960 1.4475 1.5000* 1.445 1.5155/1.5185 USDJPY Comment: Slightly worrying and rather tricky as prices hover unsteadily at current levels for a fourth consecutive day. We still favour an upside probe some time this month. Strategy: Attempt longs at 98.95; stop below 97.50. First target 99.50, then 100.70 Direction of Trade: →↗ Chart Levels: Support Resistance 98.50 " 99.42 98.15 99.68/99.79 97.50* 100 97.1 100.75 96.5 101.45* EURJPY Comment: Dropping below channel support and the moving averages look set to turn negative. Price action this month might be seen as a 'triple top' though currently we still se it merely as consolidation around the fairly pivotal 130.00 area. Strategy: Attempt tiny longs at 128.50; stop below 127.50. Short term target 132.00 then 133.50/134.00 Direction of Trade: → Chart Levels: Support Resistance 128.14 " 129.5 127.7 129.71 127.2 130.5 126.40* 131.5 125.45 132.1 Mizuho Corporate Bank Disclaimer The information contained in this paper is based on or derived from information generally available to the public from sources believed to be reliable. No representation or warranty is made or implied that it is accurate or complete. Any opinions expressed in this paper are subject to change without notice. This paper has been prepared solely for information purposes and if so decided, for private circulation and does not constitute any solicitation to buy or sell any instrument, or to engage in any trading strategy.

Read more...

Forex Technical Update

Daily Forex Technicals | Written by India Forex | Apr 20 09 05:13 GMT |

Rupee: Referring to our previous charts and updates we still maintain a bullish view on rupee aiming 48.80 levels. Dollar has slightly gone strong in the last couple of trading sessions which is looked more as a retracement. Only a break above 50.30 would change the view to neutral otherwise indicators are quite bullish. Bullish Euro: Euro fell sharply due to poor economic expectations and bearish chart formations. The charts are looking quite oversold and retracements are expected to the tune of 1.3130 levels. Look for opportunities to go short around those levels or in turn go long around current levels for 70-80 pips. (Eur/Usd:1.2985). Bearish. Pound: The pair broke the channel support at 1.4770 but is likely to take support from the 100 4-hourly and 21 Daily EMA at 1.4650-4690 levels. Incase the market is turning again from those levels we would look at buying for 100 pips. (Gbp/Usd: 1.4740). Neutral Yen: The Usd/Jpy pair is still stuck in the weekly triangle support at 98.32 and resistance at 101.70 levels. The pair is likely to break the consolidation soon. The direction of the break is likely to determine the direction of the pair for the next few sessions. (Usd/Jpy: 98.60). Australian Dollar: Aussie has just broken the trend line support. It should ideally hold 0.7100 levels. Only a break below 0.7100 for 2 consecutive sessions would change the outlook neutral. (Aud/Usd: 0.7180). Gold: Gold as expected plunged to the 200 Day EMA at $864 levels. Gold is holding below the daily and weekly trend lines and crucial moving averages. Strong break of $864 support can bring a fall upto $850. Sell at retracements around 880 to 890 levels. Short term Bearish (Gold: $887.00) Dollar index : Dollar Index firmed up in the last few trading sessions mainly due to Euro weakness and is seen pressing the 86 – resistance levels once again. The bias for DX remains bullish above the 82-key support. Decisive break above 86.15 could march a rally upto 88 levels. Bullish. India Forex http://www.indiaforex.in DISCLAIMER These views/ forecasts/ suggestions, though proferred with the best of intentions, are based on our reading of the market at the time of writing. They are subject to change without notice.Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. Those acting in the market on the basis of these are themselves responsible for any profits or losses that might occur, without recourse to us. World financial markets, and especially the Foreign Exchange markets, are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved.

Read more...

Oil Declines on Concern U.S. Economic Recovery Will Be Slow

By Christian Schmollinger

April 20 (Bloomberg) -- Crude oil declined on concern reports this week may indicate that any economic recovery in the U.S., the world’s biggest energy user, will be slow to develop.

A U.S. Commerce Department report on April 24 may show orders for durable goods such as refrigerators and computers fell for the fifth time in six months in March, according to a Bloomberg News survey of economists. Crude-oil inventories are at 366.7 million barrels, the highest since September 1990, the Energy Department said on April 15.

“The U.S. is clearly the economy we have to look at to see how the demand side of the equation is working,” said Geoff Clear, the head of Asia Commodities for Australia & New Zealand Banking Group Ltd. in an interview with Bloomberg Television in Singapore. “With that in mind we’ve seen stockpiles growing and we aren’t seeing signs that these builds are being tempered.”

Crude oil for May delivery fell as much as $1.03, or 2.1 percent, to $49.30 a barrel in electronic trading on the New York Mercantile Exchange. It was at $49.46 a barrel at 12:01 p.m. Singapore time. The contract rose 35 cents, or 0.7 percent, to settle at $50.33 a barrel on April 17. Prices are up 11 percent this year.

The May contract expires tomorrow. The more-active June futures were down 86 cents, or 1.6 percent, to $51.61 a barrel, at 12:03 p.m. Singapore time.

“The uncertain demand outlook is going to continue to dominate the outlook for crude,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “The fundamentals really haven’t shown any improvement.”

China Demand

Crude rose on April 17 on reports that oil refiners in China, the world’s second-largest crude consumer, increased their output last month. The country refined 29.4 million metric tons of crude, or about 6.92 million barrels a day, in March, the China Mainland Marketing Research Co. said in a statement April 17. That’s up 0.7 percent from a year earlier.

Still, China’s gross domestic product increased 6.1 percent in the first quarter, the slowest pace in 10 years, a sign that oil-demand growth could be tempered by the global recession.

“China’s GDP number was slightly weaker than expected last week,” said Commodity Warrants’ Hassall. “We are looking to China as well as India to underpin demand as a lot of the industrialized nations contract.”

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report on April 16. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

Angola, Africa’s second-largest producer, will increase daily crude shipments, including the Palanca grade, by 7.3 percent in June as OPEC’s output cuts stall.

Angola Loadings

BP Plc, Total SA, Chevron Corp., Exxon Mobil Corp. and other companies are scheduled to load an average of 1.83 million barrels a day in June, compared with May’s 1.7 million barrels a day, according to loading programs released through today.

Angola’s output totaled 1.6 million barrels a day in March, according to a Bloomberg survey of analysts, traders and producers. That’s 103,000 barrels a day over their quota, set by the Organization of Petroleum Exporting Countries.

“It’s unlikely that you’ll get 100 percent compliance,” said Hassall. “Given the lift we’ve seen in oil prices there is a greater incentive to cheat on those quotas.”

Brent crude oil for June settlement fell as much as 90 cents, or 1.7 percent, to $52.45 a barrel on London’s ICE Futures Europe exchange. It was at $52.57 at 11:56 a.m. in Singapore. It rose 29 cents, or 0.5 percent, to $53.35 a barrel on April 17.

Hedge-fund managers and other large speculators decreased their net-long positions in New York crude-oil futures in the week ended April 14, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 4,962 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 7,531 contracts, or 60 percent, from a week earlier.

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

Read more...

Malaysia’s Ringgit Declines on Stock Losses, Recovery Concern

By David Yong

April 20 (Bloomberg) -- Malaysia’s ringgit fell to the lowest level in more than two weeks as Asian stocks declined on concern that the deepening global recession will crimp corporate earnings and steer investors away from emerging-market assets.

The currency dropped for a second day on speculation disagreements among European Central Bank officials on how far to cut interest rates will delay a recovery in the 16-nation economy, sending the dollar higher. The MSCI Asia Pacific Index of regional shares fell by the most in more than a week and the Dollar Index rose to the highest in a month.

“Sentiment is not good on the ringgit as people are still a bit wary” that the equities market rally will fade, said D. Sivadass, a currency forwards trader at EON Bank Bhd. in Kuala Lumpur. “The market is also fixated on the developments in Europe, giving strength to the U.S. dollar.”

The ringgit fell 0.5 percent to 3.6335 per dollar as of 10:42 a.m. in Kuala Lumpur, according to data compiled by Bloomberg. The currency is up 0.2 percent this month.

ECB President Jean-Claude Trichet last week ruled out the prospect of lowering borrowing costs to zero from the current 1.25 percent. Greece’s George Provopoulos and Athanasios Orphanides of Cyprus wanted to keep open the option of deeper rate cuts.

Factory output in the euro area fell 18 percent in February, the biggest drop since records began in 1986, the European Union’s statistics office said April 16. Malaysia depends on the European Union for 12 percent of its exports.

Non-deliverable forwards signal traders are betting the ringgit will weaken 0.2 percent to 3.6425 in three months, compared with expectations for a rate of 3.6235 on April 17. Forwards are contracts in which assets are bought and sold at current prices for delivery at a future specified date.

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net.

Read more...

Australian Dollar to Advance Versus N.Z.’s, TD Securities Says

By Garfield Reynolds

April 20 (Bloomberg) -- Australia’s dollar may rise against New Zealand’s as the Reserve Bank of Australia is likely to leave interest rates unchanged next month while New Zealand policy makers will lower borrowing costs on April 30, TD Securities said today in a note to clients.

Investors may benefit by buying the Australian currency against New Zealand’s, targeting an advance to NZ$1.32, and exit the trade if it weakens to NZ$1.25, analysts led by London-based Stephen Koukoulas wrote in the note. Australia’s dollar traded at NZ$1.2676 as of 9:51 a.m. in Sydney.

To contact the reporter on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net

Read more...

China Yuan Forwards Fall for Fifth Day as U.S. Currency Climbs

By John Liu

April 20 (Bloomberg) -- Yuan forwards fell for a fifth day, the longest losing streak in seven weeks, as a faltering rally in global equities helped shore up support for the dollar.

Premier Wen Jiabao said on April 18 that China must prepare for greater difficulties over a longer period of time even though the stimulus package has shown “better-than-expected” results in reviving economic growth. The People’s Bank of China fixed the reference rate for yuan spot trading weaker for a third day, following five days of gains.

“It seems directly correlated to risk appetite,” said Dwyfor Evans, a strategist at State Street Global Markets in Singapore. “We have seen appreciation pared back in the yuan’s NDFs on a more stable dollar in recent days.”

Twelve-month non-deliverable forwards contracts slid 0.1 percent to 6.7870 per dollar as of 10:25 a.m. in Shanghai, according to data compiled by Bloomberg. In the spot market, the currency traded at 6.8340, little changed from 6.8326 at the end of last week, according to the China Foreign Exchange Trade System. ICE’s Dollar Index, a gauge of strength in the greenback, was headed for its highest close in a month.

China has managed the yuan against a basket of currencies including the euro, the pound and the South Korean won since a dollar peg was scrapped in 2005. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the central parity rate, which was set at 6.8329 today.

Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time and date. Non-deliverable forwards are settled in dollars rather than the underlying asset.

To contact the reporters on this story: John Liu in Shanghai at jliu42@bloomberg.net.

Read more...

Korean Won Weakens as Importers Pay Bills; Bonds Little Changed

By Kim Kyoungwha

April 20 (Bloomberg) -- South Korea’s won weakened for the first time in three days on speculation importers are taking advantage of six straight weekly gains to pay bills. Bonds were little changed.

The currency rose 5.2 percent in the past month, paring this year’s loss to 6 percent, as overseas investors increased bets on higher-yielding assets amid signs a global recession is easing. Investors pumped more money into emerging-market shares in each of the six weeks through April 15, according to Cambridge, Massachusetts-based EPFR Global, a research company that tracks $11 trillion of funds.

“There are not a small amount of import deals coming in,” said Roh Sang Chil, a currency dealer with Kookmin Bank in Seoul. “But the won is supported as foreigners remained net buyers of stocks, supplying the market with foreign exchange.”

The won fell 0.8 percent to 1,342.75 per dollar as of 10:58 a.m. in Seoul, according to data compiled by Bloomberg. It touched a three-month high of 1,298.05 on April 10. The Kospi stock index fell 1.3 percent today and overseas investors bought more shares than they sold every day except three this month, according to Korea Exchange.

Investors are looking for progress in talks between South and North Korean officials after a missile test by the communist North strained relations this month, Kookmin’s Roh said. South Korea accepted a proposal from the North for talks at Gaeseong industrial complex tomorrow.

Bonds Little Changed

Local currency debt was little changed ahead of a government auction. The finance ministry is to sell 1 trillion won ($745 million) of 10-year bonds and the outcome of the sale will be posted on its Web site at 11:30 a.m. local time.

“The market is groping for direction and the outcome of the auction could provide an excuse to either consolidate after last week’s good run or extend gains,” said Ra Woo Sik, a fund manager with Industrial Bank of Korea in Seoul.

The benchmark five-year bond yield fell to 4.38 percent on April 17, the lowest in four weeks after the government’s auction last week drew stronger bids than expected.

The yield on the 4.75 percent note due in March 2014 traded little changed at 4.38 percent, according to data compiled by Bloomberg. The three-year yield was little changed at 3.72 percent.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;

Read more...

Taiwan’s Dollar Weakens as Stocks Retreat Cuts Investor Demand

By Bob Chen

April 20 (Bloomberg) -- Taiwan’s dollar slid to its lowest level in more than a week versus the U.S. currency on concern investor demand for emerging-market assets will cool as a global equities rally shows signs of stalling.

Seven of Asia’s 10 most-traded currencies outside Japan declined and the MSCI Asia-Pacific Index of stocks retreated from a three-month high. Taiwan may let mainland Chinese institutional investors invest up to 10 percent of their funds in Taiwan stocks, more than triple a 3 percent limit previously mooted, the Economic Daily News reported, citing unidentified government officials.

“The Taiwan dollar weakened because of the broad-based buying in the dollar; there’s talk that the recent rally is coming to an end,” said Daniel Soh, an economist at Forecast Pte in Singapore. “The momentum in the global equities market is getting weaker.”

Taiwan’s currency fell 0.2 percent to NT$33.886 per dollar as of 9:57 a.m. local time, according to Taipei Forex Inc. It touched NT$33.955, the weakest level since April 8.

The island will report March export orders, indicative of shipments in the following one to three months, on April 23. Overseas sales dropped for a seventh straight month in March, the longest slump in seven years. China, Taiwan’s top trade partner, reported last week that its economy expanded in the first quarter at the slowest pace in a decade.

To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

Read more...

Australian, N.Z. Dollars Fall on ECB Split, Weak Producer Price

By Patricia Lui

April 20 (Bloomberg) -- The Australian and New Zealand dollars weakened on concern disagreements among European policy makers will exacerbate the global economic slump.

Losses in Australia’s dollar deepened after a report showed producer prices unexpectedly fell in the first quarter, increasing the scope for the Reserve Bank of Australia to extend interest-rate cuts. The producer price index contracted 0.4 percent in the three months ended March 31, compared with a forecast gain of 0.6 percent in a Bloomberg News survey.

“We were already seeing a weaker tone in the Aussie as it was due for some pullback after its recent rally,” said Amy Auster, head of foreign-exchange and international economics research at Australia & New Zealand Banking Group Ltd. in Melbourne. “The weaker-than-expected PPI underlines the fact that the RBA will need to cut rates again.”

Australia’s dollar fell to 71.67 U.S. cents at 12:35 p.m. in Sydney from 72.25 cents on April 17 in New York. It was at 70.84 yen from 71.64 yen. New Zealand’s currency slid to 56.66 U.S. cents from 56.80 cents. It bought 56.04 yen from 56.32 yen.

The euro declined to a one-month low against the U.S. dollar on concern policy disagreements within the ECB will undermine efforts to help the region’s economy recover.

The 16-nation currency slid to $1.2989 from $1.3044 in New York on April 17. It earlier reached $1.2967, the lowest level since March 17.

‘Due for Correction’

“The Aussie is already due for some downward correction and it’s not surprising we are seeing this today as there’s quite a bit of selling of the euro and buying of U.S. dollars this morning,” said Richard Grace, chief currency strategist at Commonwealth Bank of Australia in Sydney, using the currency’s nickname. “The market seems to think the Federal Reserve will be able to steer the U.S. economic recovery and inflation risks better than the ECB can.”

The RBA will release the minutes on its April policy meeting tomorrow while the statistics department will announce first quarter inflation numbers on April 22.

Both these events may potentially weigh on the Australian dollar in the next few days, ANZ’s Auster said, citing a trading range of 70.50 to 73.00 against the greenback.

Euro Weakens

“No one really knows whether the ‘green shoots’ represent the start of a real recovery, so doubts are lingering and we’re hovering around key levels for metals, equities and currencies,” said Adam Carr, senior economist at ICAP Australia Ltd. in Sydney. “The market is looking for a decisive move in either direction.”

Australian government bonds fell for a second day, pushing the 10-year yield up four basis points, or 0.04 percentage points, to 4.56 percent. The price of the 5.25 percent security due in March 2019 slid 0.299, or A$2.99 per A$1,000 face value, to 105.482, Bloomberg data show.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, declined to 3.66 percent from 3.6750 percent on April 17.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net

Read more...

Euro Falls to 1-Month Low on Concern Europe’s Economy to Worsen

By Ron Harui

April 20 (Bloomberg) -- The euro weakened to a one-month low against the dollar and fell against the yen on concern the European economy will deteriorate as central bank officials disagree on the measures needed to combat the recession.

The yen strengthened versus all of the 16 most-active currencies as a decline in Asian stocks spurred investors to reduce holdings of higher-yielding assets. The Dollar Index approached the highest level in three weeks on prospects a U.S. report today will show a gauge of the economy’s direction over the next three to six months improved.

“Investors fear that European policy makers aren’t doing enough to safeguard the economy,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Any sign that the euro zone economy is deteriorating will likely add to the downward pressure on the euro.”

The euro dropped to $1.3002 as of 12:07 p.m. in Tokyo from $1.3044 in New York on April 17. It earlier declined to $1.2967, the lowest level since March 17. Europe’s currency fell to 128.39 yen from 129.33 yen, after touching 128.17, the weakest since March 30.

The yen gained to 98.75 per dollar from 99.16 last week. It advanced to 55.93 versus the New Zealand dollar from 56.32, and climbed to 70.84 versus the Australian currency from 71.64.

Worsening Economy

The euro has weakened against 13 of the 16 most-active currencies this month on signs the recession in the 16-nation region is worsening. Germany’s ZEW Center for European Economic Research in Mannheim may say tomorrow its gauge of current conditions fell to minus 90 in April, the least since September 2003, from 89.4 in March, according to a Bloomberg News survey.

ECB governing council member Miguel Angel Fernandez Ordonez will speak in Madrid tomorrow, and vice-president Lucas Papademos will speak in Strasbourg, France on the same day.

“There are cleavages on the unwieldy decision-making ECB governing council,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. “The market sees the apparent disunity as a reason to sell the euro.”

ECB council member Axel Weber said last week the bank shouldn’t cut rates below 1 percent, putting him at odds with policy makers who say borrowing costs can fall below that threshold. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the target rate below 1 percent and buying debt to pump money into the economy, a policy known as quantitative easing.

The ECB will lower its benchmark rate by a quarter- percentage point on May 7, according to a Bloomberg News survey of economists.

Yen Gains

The yen rose for a third day against the euro as concern the global recession will worsen helped push Asian stocks lower.

“Worries that Europe’s response to its recession is lagging behind other countries is causing risk aversion,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen is being bought and may strengthen” to 128.27 per euro and 98.80 against the dollar today, he said.

Japan’s Nikkei 225 Stock Average fell 1 percent and the MSCI Asia-Pacific Index of regional shares slipped 0.6 percent.

The Dollar Index climbed for a fifth day, its longest run of gains since January, before the Conference Board releases its index of leading U.S. economic indicators today. The index fell 0.2 percent in March, after dropping 0.4 percent in February, according to a Bloomberg survey of economists.

President Barack Obama said yesterday that he’ll demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the economic downturn worsen.

‘Fast and Comprehensive’

“The policies being taken by the Obama administration are fast and comprehensive and there are signs the recession there is waning,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “This is positive for the dollar.”

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, rose to 86.148 from 85.981.

Gains in the yen may be tempered after the JPMorgan Chase & Co. benchmark index of investor expectations for currency swings dropped to a six-month low of 14.4 percent on April 17.

Lower currency volatility indicates smaller exchange-rate fluctuations that can erode profit on so-called carry trades. This strategy involves borrowing funds in countries with lower interest costs, such as Japan, and investing them in those with higher rates, allowing investors to pocket the difference.

‘Volatility Spike’

“Big currency moves are behind us,” said Maxime Tessier, chief of foreign exchange at Montreal-based Caisse de Depot et Placement du Quebec, Canada’s biggest pension fund manager, with C$120 billion ($98.6 billion) in assets. “The volatility spike has to unwind itself over time. Selling volatility has been the winning trade so far this year and will continue to work well.”

The benchmark interest rate is 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in Australia and in New Zealand.

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

Read more...

Swedish Riksbank May Cut Rate to Record Low to Escape Recession

By Johan Carlstrom

April 20 (Bloomberg) -- Sweden’s Riksbank will probably cut the benchmark interest rate to a record low tomorrow to help tug the economy out of its worst recession in more than 50 years.

The world’s oldest central bank may halve the seven-day repo rate to 0.5 percent, according to 10 of 17 economists in a Bloomberg survey. Six forecast a cut to 0.25 percent and one to 0.1 percent. The bank will give its decision tomorrow at 9:30 a.m. in Stockholm and will for the first time reveal how board members voted two weeks before the minutes are released.

The largest economy in the Nordic region will contract for the first time since 1992 this year as recessions in Europe and the U.S. crimp demand for Swedish exports, which make up half the country’s output. With some of the biggest employers planning job cuts and inflation slowing to a four year-low of 0.2 percent in March, the Riksbank has room to stimulate growth.

“The next step by the Riksbank will likely be to cut rates close to zero and signal that the repo rate will remain low for quite some time,” said Eva Christina Horwitz, a senior economist at Svenska Handelsbanken AB in Stockholm, in a client note. “Low inflation in March supports our view.”

There is a 75 percent to 80 percent chance policy makers will cut the key rate by a quarter of a percentage point, the bank said after its last meeting, when it halved the rate to 1 percent. The central bank of neighboring Norway expects to bring down its benchmark borrowing cost to 1 percent in the autumn after cutting it by half a point to 2 percent last month.

Job Cuts

The Swedish economy will shrink 4.2 percent this year after slipping into recession in the first quarter, the government predicted this month. Unemployment will rise to 8.9 percent in 2009, and peak at 11.7 percent in 2011, it said.

Companies including Sony Ericsson Mobile Communications Ltd., the mobile phone venture between Sony Corp. and Ericsson, Volvo AB, the world’s second-largest truck maker, and Electrolux AB, Europe’s largest maker of kitchen appliances, are planning to cut jobs in Sweden to weather the crisis.

The government last week said its forecasts for the economy depend on the Riksbank lowering its key rate to 0.25 percent this year and keeping the rate at that level next year.

“Room for further political stabilization measures is very limited,” Finance Minister Anders Borg said last week, putting further pressure on the central bank to cut rates. The budget will have a deficit of 2.7 percent of gross domestic product this year and 3.8 percent in 2010, swelling the national debt to 41.4 percent by the end of next year, Borg predicts.

The government is committed to spending 45 billion kronor ($5.4 billion), or 1.5 percent of GDP, this year on tax cuts, infrastructure investment and research to contain unemployment. This will rise to 60 billion kronor in 2010.

The Riksbank has pumped 400 billion kronor of loans denominated in dollars and kronor into the financial system since October to revive lending.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

Read more...

Australia’s Producer Prices Unexpectedly Decline 0.4%

By Jacob Greber

April 20 (Bloomberg) -- Prices paid to Australian producers unexpectedly fell last quarter for the first time in almost six years, increasing the central bank’s scope to cut interest rates.

The producer price index declined 0.4 percent from the previous quarter, the Bureau of Statistics said in Sydney today. The median estimate of 15 economists surveyed by Bloomberg was for a 0.6 percent gain. The index rose 4 percent from a year earlier, slowing from 6.4 percent in the fourth quarter.

Wholesale inflation is cooling as the economy contracts amid a global recession that has cut prices for raw materials from copper to coal, reducing manufacturing costs. Reserve Bank of Australia Governor Glenn Stevens pared the benchmark rate to a 49-year low of 3 percent this month to revive domestic demand.

“Inflation is clearly not going to stand in the way of the Reserve Bank cutting rates further,” said Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Those decisions will be based more on what’s happening to demand in the economy.”

Today’s report is “consistent with a gradual easing in inflation pressures,” she added.

The Australian dollar traded at 71.64 U.S. cents at 12:25 p.m. in Sydney from 71.74 cents before the report was released, extending today’s slide. The two-year government bond yield fell 1 basis point, or 0.01 percentage point, to 2.91 percent.

Interest Rates

The Reserve Bank has slashed borrowing costs by 4.25 percentage points since early September. Investors are pricing in a 63 percent chance the bank will lower the overnight cash rate target by another quarter point on May 5, according to a Credit Suisse Group index based on swaps trading today.

Inflation pressures are easing across the globe. Wholesale prices in the U.S. tumbled 1.2 percent last month, and U.K. producer prices rose 2 percent, the smallest gain in 20 months. China’s producer prices dropped 6 percent in March.

With the Organization for Economic Cooperation and Development forecasting the steepest economic contraction in more than 50 years across its member nations, demand for resources has slowed, cutting prices for raw materials.

The Reuters/Jefferies CRB Index of 19 commodities fell 4 percent in the first quarter, extending last year’s 36 percent decline.

Australia’s economy shrank 0.5 percent in the fourth quarter, the first decline in eight years. The jobless rate jumped to 5.7 percent in March from 5.2 percent in February, the biggest gain since the economy was last in a recession in 1991.

Construction, Petroleum

Construction costs fell 1.6 percent in the first quarter and costs for petroleum refining dropped 10 percent, the producer prices report showed. In contrast, the cost of electricity, natural gas and water rose 2 percent last quarter from the previous three months.

A report this week may show the nation’s consumer-price inflation returned to the central bank’s 2 percent-to-3 percent target band for the first time in more than a year.

Consumer prices rose 2.8 percent in the first quarter from a year earlier, slowing from a 3.7 percent gain in the fourth quarter, according to the median estimate of 19 economists surveyed by Bloomberg. The report will be released on April 22.

“Deflation in the Australian context is still very unlikely,” said ANZ Bank’s Polygenis. “There is a big offset from the weaker Australian dollar.

The local currency tumbled 20 percent against its U.S. counterpart in 2008, making imports of machinery, gasoline and equipment more expensive. The Australian dollar has gained 2.5 percent so far this year.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

Read more...

Economists Split on Odds of First Pakistan Rate Cut Since 2002

By Khalid Qayum and Farhan Sharif

April 20 (Bloomberg) -- Economists are divided on whether Pakistan will lower interest rates for the first time since 2002 to stoke growth as price gains remain “stubbornly” high.

State Bank of Pakistan will cut its benchmark rate from a decade high of 15 percent, according to seven of 15 economists in a Bloomberg News survey. The rest expect the central bank to keep borrowing costs unchanged when it meets in Karachi today.

Governor Syed Salim Raza, who took over as head of the State Bank in January, says the battle against inflation has yet to be won. The International Monetary Fund, which provided Pakistan with a $7.6 billion bailout in November, last week said the central bank agreed it was “premature” to reduce rates even as economic growth slumps to an eight-year low.

“One major headache for policy makers remains the rather stubborn core inflation,” said Farhan Rizvi, an economist at JS Global Capital Ltd. in Karachi. “Moreover, being in an IMF program makes the task even more challenging as any rate cut would require a go ahead from the fund.”

Pakistan’s core inflation rate, which excludes volatile and controlled prices, dropped to 18.5 percent in March from 18.9 percent in February. That was less than the decline in the nation’s key consumer-price index, which fell to an 11-month low of 19.1 percent from 21.1 percent in the same period.

South Asia’s second-largest economy was forced to turn to the IMF for a rescue package in November to avoid defaulting on its debt, after the country’s foreign-exchange reserves shrunk 75 percent in a year to $3.5 billion and the current-account deficit widened to a record.

Taliban Insurgents

Pakistan’s economy has been deteriorating over the past two years as political tensions prevent the government from tackling slowing growth and worsening security. U.S. President Barack Obama’s administration is pushing Pakistan President Asif Ali Zardari’s government to fight Taliban guerrillas and other militants along the country’s border with Afghanistan.

International donors meeting in Tokyo last week pledged more than $5 billion to help Pakistan shore up its ailing finances and fight terrorism. The U.S. and Japan each pledged $1 billion at the conference.

“Whether growth returns in Pakistan with any vigor depends largely on the outlook for political stability and public security,” said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “What Pakistan needs, in short, is more time and stability to put its house in order.”

Reviving Growth

Lowering the highest borrowing costs in Asia would help revive growth in Pakistan, according to economists including Khalid Iqbal Siddiqui from Invest & Finance Securities Ltd. in Karachi, who expects the central bank to lower its benchmark to 14.5 percent next week.

Governor Raza should have more room to cut interest rates as inflation slows. The central bank expects inflation to ease to 11 percent by June, the slowest pace since December 2007.

In its last policy statement in January, the central bank kept its benchmark lending rate unchanged. Policy makers last raised the rate by 2 percentage points on Nov. 12, the fourth increase in 2008, as part of conditions for the IMF loan.

“Certainly the country is nearer to the point where they can cut,” said Philip Wyatt, a senior economist at UBS AG in Hong Kong. “But inflation likely has to come down bit more significantly below the 20 percent level before they can cut rates without risking currency weakness.”

Pakistan’s rupee plunged 22 percent last year and the benchmark stock index tumbled 58 percent as investors withdrew funds from riskier emerging markets amid a downturn in the global economy.

The Washington-based IMF said in its report last week that Pakistan policy makers “saw the need to reassess interest rates down the road” in order to stimulate the economy. The lender expects growth of as little as 2.5 percent this fiscal year, compared with a 3.4 percent prediction in November.

“Economic activity has slowed much more sharply than anticipated under the IMF economic stabilization plan,” said Sayem Ali, an economist at Standard Chartered Bank in Karachi. “The policy focus now needs to shift to supporting growth.”

Contributor                   Key Rate

KASB Securities               Cut by 2 percentage points
Invest Capital                Cut by 1 percentage points
Arif Habib                    Cut by 1 percentage points
BMA Capital                   Cut by 0.5 percentage points
AKD Securities                Cut by 0.5 percentage points
Al Falah Securities           Cut by 0.5 percentage points
Invest & Finance              Cut by 0.5 percentage points
Invisor Securities            Unchanged
JS Global Capital             Unchanged
Foundation Securities         Unchanged
Elixir Securities             Unchanged
IGI-Finex Securities          Unchanged
UBS                           Unchanged
HSBC                          Unchanged
Standard Chartered            Unchanged

To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net; Farhan Sharif in Karachi at fsharif2@bloomberg.net.

Read more...

Japan Stocks: Marubeni, KDDI, Promise, Tokai Rika, Toshiba

By Akiko Ikeda

April 20 (Bloomberg) -- Japan’s Nikkei 225 Stock Average fell 49.31, or 0.6 percent, to 8,858.27 as of 9:30 a.m. in Tokyo. The following are among the most active shares in the Japanese market today. Stock symbols are in parentheses after company names.

Steelmakers: Japanese steelmakers were lifted to “buy” from “neutral” at Nomura Securities Co. Kobe Steel Ltd. (5406 JT) jumped 4.6 percent to 183 yen. Sumitomo Metal Industries Ltd. (5405 JT) gained 2.9 percent to 249 yen. Nippon Steel Corp. (5401 JT) added 1.5 percent to 351 yen. JFE Holdings Inc. (5411 JT) rose 1.8 percent to 3,040 yen.

Coca-Cola West Holdings Co. (2579 JT) climbed 6.3 percent to 1,712 yen. Japan’s biggest soft-drink maker was raised to “buy” from “hold” by Mizuho Securities Co. analyst Hiroshi Saji.

Furuno Electric Co. (6814 JO) tumbled 9.1 percent to 522 yen. The marine-equipment maker expects net income to fall by more than half to 600 million yen ($6.04 million) in the year started March 1. The company posted a 60 percent decline in full-year profit with a 6.9 percent drop in sales for the year ended Feb. 28, citing weak demand and the stronger yen.

Gourmet Navigator Inc. (2440 JT) jumped 5.2 percent to 211,700 yen. The restaurant information provider was lifted to “buy” from “hold” by Hiroshi Yamashina, an analyst at Nikko Citigroup Ltd.

J. Front Retailing Co. (3086 JT) declined 2.1 percent to 428 yen. The retailer’s sales in March declined 14.4 percent compared with a year ago.

KDDI Corp. (9433 JT) declined 3.9 percent to 450,000 yen. Japan’s second-largest mobile-phone service provider was reduced to “underperform” from “buy” by Kei Takahashi, an analyst at Merrill Lynch & Co.

Kadokawa Group Holdings Inc. (9477 JT) dropped 3.9 percent to 1,919 yen. The publisher’s net loss amounted to 5.3 billion yen, wider than its forecast of a 2.24 billion yen loss, due to a decline in revenue from advertising and charges on devalued stockholdings, the company said in a preliminary earnings statement. Nikko Citigroup Ltd. analyst Soichiro Fukuda cut his rating on the company to “hold” from “buy.”

Marubeni Corp. (8002 JT) fell 2.2 percent to 406 yen. The trading company said in a preliminary earnings statement full- year net income fell below forecast after a writedown of its holdings in retailer Daiei Inc. (8263 JT) and other assets. Net income for the year ended March 31 fell 25 percent to 110 billion yen from 147 billion yen the year before. Marubeni had forecast profit of 150 billion yen. The company cut its yearend dividend to 3 yen from 7 yen. Daiei slid 0.5 percent to 392 yen.

Mixi Inc. (2121 JT) gained 2.4 percent to 386,000 yen. The operator of Japan’s largest online social-networking service was lifted to “buy” from “hold” by Nikko Citigroup Ltd. analyst Hiroshi Yamashina.

Orix JREIT Inc. (8954 JT) sank 4.1 percent to 375,000 yen. The real estate investment trust was lowered to “neutral” from “outperform” by Daiwa Institute of Research analyst Hiroshi Torii.

Plenus Co. (9945 JT) advanced 2.6 percent to 1,384 yen. The take-away meal seller forecast full-year net income will increase 28 percent to 4.06 billion yen with a 7.8 percent gain in sales. Profit in the year ended Feb. 28 was 3.18 billion yen, 39 percent lower than a year earlier. The company said it had higher costs for advertising and sales promotions as it changed its brand name for stores.

Promise Co. (8574 JT) plummeted 10 percent to 1,400 yen. The consumer finance company posted a full-year net loss of 127 billion yen, missing its forecast of 16.2 billion yen in net income, according to a preliminary earnings statement. The company earned 16 billion yen a year ago. Promise canceled its yearend dividend of 20 yen. The company also said it will discontinue its shareholder special benefit plan.

Ryohin Keikaku Co. (7453 JT) fell 3.3 percent to 3,550 yen. The retailer of Muji-brand household goods was cut to “underperform” from “neutral” by Maki Shinozaki, an analyst at Daiwa Institute of Research.

Sanken Electric Co. (6707 JT) slumped 5.5 percent to 312 yen. The maker of semiconductors and electronic components was reduced to “underperform” from “neutral” by Masashi Kubota, an analyst at Merrill Lynch & Co.

Sumitomo Trust & Banking Co. (8403 JT) lost 3 percent to 420 yen. Japan’s fifth-largest bank posted a 94 percent decline in full-year profit on investment losses and nonperforming loans to real estate companies. Net income fell to 5 billion yen from 82.3 billion yen a year earlier, the lender said, citing preliminary figures. Sumitomo Trust forecast net income of 30 billion yen as recently as Jan. 30.

Tokai Rika Co. (6995 JT) surged 14 percent to 1,282 yen, heading for the largest gain since September 1975. The maker of electronic parts for cars had 1.4 billion yen in net income in the year ended March 31, compared with its forecast for a 4.5 billion yen loss, it said in a preliminary earnings statement. Smaller-than-expected charges for devalued securities and cost cuts contributed to profit. The company earned 21.3 billion yen a year earlier.

Tokyo Style Co. (8112 JT) gained 2.9 percent to 722 yen. The apparel maker forecast it will have net income of 3.33 billion yen in the year started March 1, recovering from a net loss of 9.39 billion yen. The company earned 2.1 billion yen a year ago.

Toshiba Corp. (6502 JT) plunged 7.2 percent to 308 yen. The world’s second-largest maker of flash memory chips may increase its capital by 500 billion yen, the Nikkei newspaper reported.

Separately, the company will cut capital spending 42 percent this fiscal year, it said in a statement. Toshiba will also slash research expenditures by 18 percent to 320 billion yen.

To contact the reporter on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net.

Read more...

Bank of Japan May Cut Economic, Price Outlook as Spending Falls

By Mayumi Otsuma

April 20 (Bloomberg) -- The Bank of Japan will probably cut its forecasts for the economy and prices next week as the recession takes a toll on spending by companies and households.

The world’s second-largest economy will probably contract 4.2 percent in the year to March 2010, more than twice the pace the central bank projected three months ago, according to the median estimate of 16 economists surveyed by Bloomberg News. Consumer prices excluding fresh food will tumble 1.3 percent, they said, also faster than the bank’s earlier estimate.

Governor Masaaki Shirakawa said this month that the economy has “underperformed” since January and weakening spending by companies and consumers will impair growth even as declines in exports and production moderate. Economists say Prime Minister Taro Aso’s record 15.4 trillion yen ($155 billion) stimulus package is unlikely to sustain a recovery.

“BOJ policy makers are expected to present a pretty cautious view of the economic outlook because the risk lingers that growth will stumble after being lifted temporarily by fiscal stimulus,” said Mari Iwashita, chief market economist at Daiwa SMBC Securities Co. in Tokyo. “The bank may place a big emphasis on the downside risks for the outlook.”

With the benchmark interest rate already at 0.1 percent, the bank will probably be forced to buy more debt issued by the government and companies to inject money into an economy heading for the worst recession since 1945, analysts said.

Policy Direction

The central bank releases the twice-yearly outlook on April 30 at 3 p.m. in Tokyo. The report will present board members’ forecasts for gross domestic product and consumer prices in the year ending March 2010 and the following 12 months. The semiannual reports, which are reviewed each January and July, also describe the bank’s policy direction.

In January, the board predicted the economy would shrink 2 percent this fiscal year before expanding 1.5 percent next year. Consumer inflation will tumble 1.1 percent this fiscal year and drop 0.4 percent in the next, it said.

The economists surveyed said GDP will grow 0.9 percent next fiscal year and core prices will fall 0.5 percent.

Shirakawa last week said the bank remains “cautious” about the outlook despite recent reports from China and the U.S. indicating the global economy may be beginning to recover.

“There are signs that economies are emerging from freefall at home and abroad, but it will take more than a year before Japan can return to a sustainable growth path,” said Teizo Taya, a former BOJ board member who now advises the Daiwa Institute of Research.

Production Plans

Japanese manufacturers planned to increase output in March and April, ending a five-month drop, a government report showed last month. Gauges of confidence among consumers, merchants and small businesses all rose in March.

Prime Minister Aso’s stimulus plan prompted Nomura Securities Co., Morgan Stanley and Nikko Citigroup Ltd. to raise their GDP forecasts for the current fiscal year, while adding that the measures would only provide a temporary boost.

The central bank will probably stick to its view that the economy will start to improve later this fiscal year, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo.

“Even so, we expect growth won’t take root at least until late 2010 and the bank will eventually be forced to push back its prediction for a recovery.”

An unprecedented decline in exports has saddled manufacturers with too many workers and excessive capacity, the central bank’s quarterly Tankan survey showed on April 1, signaling more cuts in jobs and capital investment are likely.

Toshiba Cuts Jobs

Toshiba Corp. last week said it will cut 3,900 temporary jobs this fiscal year, on top of 4,500 eliminations announced in January. The chipmaker will also reduce research and development spending by 18 percent.

“Production capacity and employment are becoming excessive,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Investment and consumer spending continue to weaken and corporate failures may accelerate.”

The policy board will probably keep the benchmark overnight lending rate at 0.1 percent before releasing the outlook report, according to 15 of the 16 economists surveyed. One predicted a cut to a range of zero to 0.1 percent.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Read more...

Euro Drifts to One Month Low

by Korman Tam

The greenback advanced across the board in the Friday session, rising to a one-month high against the euro at 1.3025 and edging up to 1.4757 versus the sterling. The US equity bourses were up marginally, with the Dow Jones and Nasdaq up by nearly 0.5% by afternoon trading.

The US economic calendar was light today, seeing only the release of the University of Michigan consumer sentiment survey for April. The preliminary April University of Michigan Sentiment survey improved by more than anticipated to 61.9, beating out calls for an improvement to 58.5 from 57.3. The conditions component improved to 66.6, compared with forecasts for an increase to 64.0 from 63.3 previously, while the expectations component increased to 58.9.

Euro Slumps

The euro fell to its lowest level in one-month to 1.3025 against the greenback breaking beneath its recent consolidation. The catalyst of the move lower in the euro was sentiment that the Bank is now divided on whether to further aggressively ease policy over the coming meetings to stimulate the economy. Although Bank President Trichet reiterated the Bank was “very united”, there remains some uncertainty over whether some members want to aggressively slash interest rates below 1.0%. Board member Weber has stressed that he opposes such aggressive easing, while Trichet has hinted at the possibility for another 25-basis point cut to 1%.

EURUSD will find support at 1.30-figure, followed by 1.2970 and 1.2940. Subsequent floors are seen at 1.29, backed by 1.2850 and 1.28. Gains will target 1.3050, followed by 1.3080 and 1.31. Additional ceilings will emerge at 1.3140, backed by 1.3170 and 1.32.

Taken From : Forexnews.com


Read more...

Trichet Faces Biggest Council Split as ECB President

By Simone Meier

April 17 (Bloomberg) -- Jean-Claude Trichet is facing the biggest split on the European Central Bank’s Governing Council in his six years as president.

Months after other central banks cut their key interest rates close to zero and started pumping money into their economies, the ECB’s 22-member council is still divided over whether to follow suit. The stand-off has delayed new measures to stem the euro region’s worst recession since World War II.

“I fear the ECB will be bogged down by internal squabble,” said Ken Wattret, chief euro region economist at BNP Paribas in London. “It seems to be turning into a battle between the activists and those with a more conservative persuasion. It’s the biggest dispute under Trichet.”

His search for consensus is being thwarted by a split so great that three different views have been aired in the past week alone. In one corner, Germany’s Axel Weber has ruled out cutting the ECB’s key rate below 1 percent from 1.25 percent at present and said he doesn’t want to buy debt securities.

In another, Greece’s George Provopoulos and Athanasios Orphanides of Cyprus want to keep open the option of deeper rate reductions and asset purchases to fight the risk of deflation. Between them sits Austria’s Ewald Nowotny. While agreeing with Weber that the main rate shouldn’t go below 1 percent, he argues debt purchases are “sensible.”

‘Very United’

For his part, Trichet denies a split, saying in Tokyo today that “we have a very united Governing Council.”

Nevertheless, the debate prompted the ECB to this month cut its benchmark by less than economists had forecast, by a quarter point to 1.25 percent, and delay a decision on new measures until May. While Trichet has signaled another quarter-point rate cut is likely, he’s declined to comment on what new tools the bank will unveil as officials continue to bicker. “Since it’s taking the ECB so long to agree, I wouldn’t have high hopes of a major surprise at the May meeting,” said Julian Callow, chief European economist at Barclays Capital in London. “Asset purchases are something they’ll have to consider at a later stage. They won’t resolve this dispute before summer.”

Trichet said in Tokyo that “it is important not to create or encourage expectations” about the next rate meeting. The euro extended declines after Trichet’s comments today and fell 0.7 percent to $1.3089.

Opposition

Outright opposition from Weber’s Bundesbank could make it harder for Trichet to negotiate a compromise. Weber represents Europe’s largest economy on the council and a central bank whose inflation-fighting mandate served as a blueprint for the ECB itself.

“He’s a Bundesbank president, he’s very influential,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “I always see his remarks as a very good indication of what happens next.”

Weber said this week that cutting the ECB’s benchmark rate too close to its overnight deposit rate would reduce the incentive for banks to lend to each other, creating the risk of the interbank money market becoming “completely paralyzed.”

While not ruling out the purchase of corporate debt, Weber said it shouldn’t be a priority for an economy that is primarily bank-financed. Instead, he favors extending the maturities of the ECB’s loans to banks from the current six- month limit to ease credit concerns.

Longer-term loans may require the ECB to signal that the benchmark rate won’t drop any further. That’s because banks would be reluctant to borrow for longer terms if they thought they could get money cheaper in the future.

Framework

“It’s necessary that we announce a refinancing framework that can be relied upon for a certain period of time,” Weber said. “That includes the medium-term level for the main refinancing rate.”

There are signs Weber is gaining support. Jose Manuel Gonzalez-Paramo, one of the ECB’s six Executive Board members, said yesterday the margin for a further rate reduction is “very moderate” and excessively low rates have “disadvantages.”

“It’s a done deal” that the ECB will extend the maturities of loans to banks, said Aurelio Maccario, chief euro-area economist at UniCredit MIB in Milan. “However, we fear that this won’t suffice and that eventually the ECB may be forced to expand its balance sheet via an asset-purchase program.”

The Federal Reserve, Bank of England and Bank of Japan have already cut rates close to zero and are buying government and corporate debt. Orphanides, a former Fed economist, has spearheaded the argument for a more expansive monetary policy at the ECB.

Flexible

He said in an April 11 interview that the risks of deflation have “increased somewhat” and the ECB needs to remain “open and flexible” regarding additional policy measures.

ECB Vice President Lucas Papademos has also spoken in support of corporate debt purchases, saying they would “enhance liquidity” and “improve the cost of funding.”

Still, economists say debt purchases would be financed by the 16 national central banks that belong to the euro system, so any losses would end up on their balance sheets. As the biggest central bank in the region, Weber’s Bundesbank would take the lion’s share of the risk.

Trichet’s task is further complicated by the dynamics of the ECB’s decision-making procedures. While Fed Chairman Ben S. Bernanke and Bank of England Governor Mervyn King can use majority voting to settle contentious issues on their boards, the ECB’s consensus-oriented approach forces Trichet to shepherd 21 other policy makers toward a position they can all stomach.

Around the Table

“There must be some agreement and the discussion must go on until everyone around the table is happy with it,” said Laurent Bilke, an economist at Nomura International in London who used to work at the ECB.

The Organization for Economic Cooperation and Development expects the euro-region economy to contract 4.1 percent this year. Inflation slowed to 0.6 percent in March, the lowest on record and less than half the ECB’s 2 percent limit.

“I hope that common sense will prevail and they’ll come up with some asset-purchase program because ultimately, that’s the only way,” BNP’s Wattret said. “Weber’s opinion may be an obstacle, but it’s not an obstacle that can’t be overcome.”

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

Read more...