Wednesday, October 28, 2009

Dollar ‘Over-Owned,’ Will Fall to Record, Gross Tells CNBC

By Ruby Madren-Britton

Oct. 28 (Bloomberg) -- The dollar is an over-owned currency and likely to fall to an all-time low against major counterparts, Pacific Investment Management Co.’s Bill Gross said in an interview on CNBC.

“The Chinese, the Asians, have owned too many dollars for too long,” said Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds. “The dollar becomes more and more owned and less and less desirable, so ultimately the direction is down. I don’t sense stability in the dollar.”

The U.S. currency stands a chance of moving “substantially lower” unless the Chinese decide the world has renormalized enough that they can start seeking higher-yielding assets, Gross said. Global investors have much less tolerance for risk as the world recovers from the financial crisis, Gross said.

A weaker dollar is positive as it rebalances production levels in the U.S. and Asia, Gross said. With “half the earnings” of the Standard & Poor’s 500 Index coming from overseas, U.S. stocks have been propelled by a weaker dollar, according to Gross.

“The extent that the dollar goes up, it reverses all of those positive trends,” he said.

The Dollar Index, which the ICE uses to gauge the greenback against currencies including the euro, yen and pound, increased 0.2 percent today to 76.289. It reached an all-time low of 70.698 in March 2008.

The six-month rally in high-risk assets is likely at its peak as U.S. economic growth lags behind historical averages, according to Gross.

Gross made the forecast yesterday in commentary posted on Newport Beach, California-based Pimco’s Web site. The company predicts a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

Tuesday, October 27, 2009

Yen Rises as Economic Concerns Damp Demand for Higher Yields

By Yasuhiko Seki and Ron Harui

Oct. 28 (Bloomberg) -- The yen gained against major counterparts on speculation the global economic recovery will slow, reducing demand for high-yielding assets.

The yen traded near a one-week high against the euro before reports this week forecast to show German consumer prices and unemployment worsened, backing the case for the European Central Bank to keep interest rates low. Australia’s dollar fell toward a one-week low after a government report showed annual inflation slowed, easing pressure on the central bank to accelerate interest-rate increases.

“As the market shifts attention to the sustainability or the strength of a recovery from a cyclical upturn, the mood of euphoria may wane,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest bank. “The risk of unwinding, of a capital flight into higher-yielding currencies, may increase.”

The yen rose to 135.55 per euro as of 10:03 a.m. in Tokyo from 135.89 in New York yesterday, after earlier reaching 135.43, the highest level since Oct. 21. Japan’s currency fetched 91.50 per dollar from 91.80. The dollar traded at $1.4813 per euro from $1.4804 yesterday, when it touched $1.4770, the strongest level since Oct. 13.

Australia’s currency lost 0.2 percent to 91.47 U.S. cents. It fell 0.6 percent to 83.60 yen.

The Conference Board’s consumer confidence index dropped to 47.7 in October from a revised 53.4 in the previous month, the New York-based research group reported yesterday. The median forecast of 74 economists in a Bloomberg survey was for an advance to 53.5.

German Prices

The German jobless rate probably rose to 8.3 percent in October from 8.2 percent in the previous month, according to a Bloomberg News survey of economists before the report tomorrow.

German consumer prices, calculated using a harmonized European Union method, fell 0.1 percent in October from a year earlier after slipping 0.5 percent in September, according to a Bloomberg News survey of economists. The Federal Statistics Office in Wiesbaden will release the report later today.

“We expect German CPI to remain weak,” Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. “We continue to target the euro- dollar back at $1.45 in one month as sentiment is clearly showing signs of strain.”

The ECB will maintain its benchmark interest rate at 1 percent through the second quarter of 2010, a separate Bloomberg survey showed. The central bank next meets on Nov. 5.

Australia’s consumer price index advanced 1 percent from the second quarter, when it gained 0.5 percent, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.9 percent increase. Prices gained 1.3 percent from a year earlier.

Unsustainable Rally

The yen rose against all 16 of the most-active currencies on speculation a rally in stocks and commodities can’t be sustained.

The six-month rally in shares and raw materials is probably at its peak as U.S. growth lags behind historical averages, according to Bill Gross at Newport Beach, California-based Pacific Investment Management Co.

Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds, has predicted a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

“What has happened is that our ‘paper asset’ economy has driven not only stock prices, but all asset prices higher than the economic growth required to justify them,” Gross wrote yesterday on Pimco’s Web site.

The Standard & Poor’s 500 Index slipped 0.3 percent to 1,063.41 yesterday in New York. The Nikkei 225 Stock Average fell 0.8 percent today.

Geithner Comments

Adding to signs the recovery will be slow, Japan’s retail sales fell for a 13th month in September, the Trade Ministry said today in Tokyo. Sales slid 1.4 percent from a year earlier,. The median estimate of 13 economists surveyed by Bloomberg was for a 1.6 percent decline.

Gains in the dollar may be tempered after U.S. Treasury Secretary Timothy Geithner said he expects the government will receive repayment “relatively quickly” from most of the big banks helped by the $700 billion financial rescue program.

“I expect you’re going to see a lot of the rest of the money out in the system there come back relatively quickly,” Geithner said yesterday in New York at a conference of the Securities Industry and Financial Markets Association. The organization is a trade group that includes Goldman, Sachs & Co., Banc of America Securities LLC and State Street Corp.

Monday, October 26, 2009

U.S. Markets Wrap: Stocks, Commodities Slide as Dollar Rebounds

By Rita Nazareth

Oct. 26 (Bloomberg) -- U.S. stocks slid, erasing an early rally, on concern lawmakers will phase out a tax credit for homebuyers and Bank of America Corp. will have to sell shares to pay back its government bailout. The dollar rebounded from a 14- month low against the euro and oil wiped out an early advance.

All 12 shares in a gauge of homebuilders dropped as senators discussed reducing an $8,000 tax credit for first-time buyers. Bank of America sank 5.1 percent on speculation the government will force the bank to raise more capital, while Fifth Third Bancorp, SunTrust Banks Inc. and U.S. Bancorp lost at least 3.2 percent on downgrades from analyst Dick Bove. Treasuries fell, with 10-year yields touching a two-month high.

The Standard & Poor’s 500 Index tumbled 1.2 percent to 1,066.95 at 4:04 p.m. in New York. The Dow Jones Industrial Average retreated 104.22 points, or 1.1 percent, to 9,867.96. Almost five stocks dropped for each that rose on the New York Stock Exchange.

“Plenty of news for traders to sell on,” said James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “We’ve still got a rise in loan losses. Some banks will probably have to raise further capital. And on the tax-credit front, we already know we won’t have that forever. But after a nice stock market run, a lot of players wanted to have a pause.”

Equities rallied earlier, sending the S&P 500 up as much as 1.1 percent, as investors grew more confident that better-than- estimated profits will fuel further equity gains. About 80 percent of companies in the S&P 500 that reported third-quarter results have topped analysts’ earnings projections, exceeding the record pace of 72.3 percent for the period ended in June.

Builders Slump

A gauge of 12 homebuilders in S&P indexes slumped 3.4 percent, led by declines of at least 3.8 percent in Pulte Homes Inc. and D.R. Horton Inc. Senate leaders are negotiating to extend and gradually reduce the housing tax credit through 2010, Senator Bill Nelson said. The credit was set to expire at the end of November.

“The phase out is worse than a straight extension and probably worse for housing than the consensus,” ISI Group Inc. analysts said in a note

Banks fell 3.3 percent collectively, the steepest decline in the S&P 500 among 24 industries, after Bove downgraded Fifth Third Bancorp, SunTrust and U.S. Bancorp on concern loan losses will remain high.

Fifth Third, Ohio’s largest lender, retreated 7.9 percent to $9.52. SunTrust, the seventh-largest U.S. bank, lost 5.4 percent to $19.85, while Minneapolis-based U.S. Bancorp dropped 3.2 percent to $24.15. Bank of America, the largest U.S. lender by assets, sank 5.1 percent to $15.40.

‘Meaningfully Harm’

“The government apparently wants the bank to raise $45 billion in the market from a new capital offering before it will let the bank redeem the TARP preferreds,” Bove wrote in a note dated Oct. 23, referring to the preferred stock purchased by the government as part of the Troubled Asset Relief Program. “Selling more stock would meaningfully harm Bank of America’s shareholders. If the bank did what the government wants it would have to sell 3 billion shares or increase its share base by 35 percent.”

Bank of America pared an earlier slide of as much as 7.1 percent after Citigroup Inc. added the stock to its “top picks” list, saying it is “very attractive” after the sell- off.

‘Serious Challenges’

Federal Deposit Insurance Corp. Chairman Sheila Bair said that banks continue to face “serious challenges.” Bair also said tapping a Treasury Department credit line to replenish funds depleted by a surge of bank failures would harm her agency and the banking industry. She made the comments today during a speech at an American Bankers Association convention in Chicago.

Monsanto Co. fell 6 percent to $70.69, its biggest drop since May. Goldman Sachs Group Inc. lowered its earnings estimates for the world’s largest seed producer, citing company discounts on corn-seed prices.

Producers of raw materials and energy dropped 2.5 percent and 1.5 percent, respectively, after the dollar rose, curbing demand from investors who buy commodities as a hedge against inflation. Copper prices retreated from the highest level in almost 13 months, while crude oil dropped 2.3 percent, the most in a month, to below $79 a barrel. Gold fell after gaining for four straight weeks.

Commodity Producers Slump

Newmont Mining Corp., the largest U.S. gold producer, dropped 3.5 percent to $43.34. Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, declined 2.3 percent to $79.48. ConocoPhillips, the second- largest U.S. refiner, lost 2.4 percent to $50.74.

The U.S. Dollar Index, a measure of the currency against those of six major trading partners, rose 0.7 percent, erasing an earlier loss.

Newspaper shares slumped after the Audit Bureau of Circulations said that four of the top five U.S. newspapers, including the New York Times, the Washington Post and Gannett Co.’s USA Today, posted average weekday circulation declines. The Wall Street Journal’s circulation rose.

New York Times Co. slumped 6.2 percent to $10.08, while Gannett dropped 7.1 percent to $12.28.

The S&P 500’s rebound of as much as 62 percent since March 9 propelled the index to a one-year high on Oct. 19 and pushed its valuation to more than 20 times the reported operating income of its companies, the most expensive level since 2004.

Robert Doll, chief investment officer of equities at BlackRock Inc., said in an interview with CNBC that he expects some “digestion” in the market after recent gains. He also suggested health-care stocks may be a “defensive” strategy for investors, particularly those in oil services.


“We’ve already had a good move,” said Richard Sichel, chief investment of officer at Philadelphia Trust Co. in Philadelphia, which manages $1.3 billion. “Some investors are taking a wait-and-see attitude. Certain companies have been richly rewarded as corporate earnings beat expectations.”

The S&P 500 is about 40 percent overvalued and headed for a decline as central banks pull back on securities purchases that pushed up asset prices, according to economist Andrew Smithers. Asset purchases have doubled the size of the Federal Reserve’s balance sheet to $2.1 trillion since the start of the current financial crisis.

In his March 2000 book “Valuing Wall Street,” co-authored with economist Stephen Wright, Smithers argued that U.S. equities were overvalued and should be sold. The S&P 500 then plunged 49 percent over 2 1/2 years.

Technical Watch

The S&P 500 may decline as measures based on the ratio of rising stocks to falling shares are “not confirming” the rally, according to technical analysts at Bank of America’s Merrill Lynch Global Research who base forecasts on price and volume charts.

The Bloomberg Cumulative Advance-Decline Line for New York Stock Exchange shares, which is calculated by subtracting the number of falling stocks from the number of rising stocks, fell 6.7 percent to 18,838 on Oct. 23, the lowest level since Oct. 7.

“The advance-decline diffusion index shows a strong bearish divergence off the August, September and October highs,” Mary Ann Bartels and Stephen Suttmeier wrote in a report today. “This is a sign that the strong uptrends for the advance-decline lines have become overextended and that breadth may begin to narrow.”

Better-than-estimated earnings at companies from Verizon Communications Inc. to Corning Inc. also helped fuel earlier gains in stocks today. Verizon, the second-largest U.S. phone company, erased a gain of as much as 0.8 percent and fell 0.7 percent to $28.64 as the overall market turned lower. Corning, the world’s biggest maker of glass for flat-panel televisions, declined 0.9 percent to $15.51 after earlier rising 2.1 percent.

‘Seen the Bottom’

“We’ve seen the bottom in terms of prices with respect to stocks,” Brian G. Belski, chief investment strategist at Oppenheimer & Co. Inc, told Bloomberg Television. “We’ve seen it in earnings and now the economy will turn as a result.”

Microsoft Corp. had the biggest gain in the Dow, climbing 2.4 percent to $28.68. JPMorgan Chase & Co. raised its share price estimate by 50 percent to $30 after boosting its earnings estimates for the December quarter and fiscal years 2010 and 2011, citing strong performance.

American Express Co. had the second-steepest gain in the Dow, rising 0.9 percent to $34.88. The biggest U.S. credit-card issuer by purchases was raised to “buy” from “hold” at Stifel Nicolaus & Co., which also boosted earnings estimates and said the company is best positioned for “new normal.”

Treasuries fell as the U.S. began to sell a record $123 billion of notes to fund its stimulus program and record deficits. The yield on the 10-year note increased eight basis points, or 0.08 percentage point, to 3.57 percent. The yield touched 3.58 percent, the highest level since Aug. 24.

Wednesday, October 21, 2009

Pound, New Zealand Dollar Rise on Rate Speculation; Oil Falls

By Justin Carrigan

Oct. 21 (Bloomberg) -- The pound and the New Zealand dollar rose after central bankers signaled interest rates may increase as economies emerge from the recession. Oil and emerging-market stocks declined for a second day.

The U.K. currency climbed 0.9 percent against the dollar as of 9:34 a.m. in London and the New Zealand dollar strengthened 0.9 percent. Crude oil dropped 0.9 percent in New York. The MSCI Emerging Markets Index slid 0.7 percent.

Bank of England Governor Mervyn King started preparing Britons for higher interest rates, writing in the Herald newspaper of Scotland that “it would be wise to take account” of the prospect of rising borrowing costs. Reserve Bank of New Zealand Governor Alan Bollard said a strengthening currency isn’t an obstacle to raising rates. Australia last week became the first Group of 20 nation to lift its benchmark rate since the start of the global financial crisis.

“This is the sort of stage where the market gets excited about currencies, when central banks start priming the market to expect higher rates,” Steven Barrow, head of Group of 10 research at Standard Bank Plc, said in a Bloomberg Television interview in London.

The pound advanced against all but one of the 16 most- traded currencies tracked by Bloomberg, rising 0.9 percent compared with the euro. The New Zealand dollar climbed versus all 16, adding 1 percent against the dollar and 0.9 percent compared with the euro.

‘Seismic Shift’

“King is turning and so is the pound,” Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank Ltd., wrote in an e-mailed note. This is a “seismic shift in thinking at the Bank of England,” he said.

U.K. gilts led declines in government bonds, with the yield on the 10-year note rising 9 basis points to 3.63 percent after King’s remarks. Minutes of the Bank of England’s Oct. 8 meeting published today showed policy makers voted 9-0 to hold the benchmark rate at a record low 0.5 percent and keep its asset- purchase program unchanged at 175 billion pounds ($289 billion).

More than $2 trillion in stimulus packages and rising demand in Asia are helping to haul the world economy out of its first recession since World War II. This month, the International Monetary Fund raised its forecast for global growth next year, predicting 3.1 percent expansion, compared with a July forecast of 2.5 percent. The U.K. economy will increase 0.9 percent, up from an earlier forecast of 0.2 percent, the IMF said.

Emerging Markets

The MSCI Emerging Markets Index posted its first back-to- back declines in almost three weeks after China Mobile Ltd. earnings missed analysts’ estimates and the retreat in oil dragged down energy producers. China Mobile, the world’s first phone company with more than half a billion subscribers, declined 1.9 percent in Hong Kong.

Europe’s Dow Jones Stoxx 600 Index slipped for a second day, losing 0.3 percent. Deutsche Bank AG retreated 3.7 percent in Frankfurt after saying it depended on a tax gain for a threefold increase in third-quarter profit.

Automakers posted the steepest drop among 19 industry groups in the Stoxx 600, falling 1.8 percent. PSA Peugeot Citroen, Europe’s second-biggest carmaker, slid 6.2 percent in Paris after reporting a 7.7 percent drop in third-quarter sales.

Futures on the Standard & Poor’s 500 Index decreased 0.2 percent, indicating the benchmark gauge for U.S. equities may drop for a second straight day. The measure retreated yesterday as a disappointing report on housing starts overshadowed better- than-estimated profits at Apple Inc. and Caterpillar Inc.

Improving Earnings

Earnings have surpassed analysts’ projections for 79 percent of the S&P 500 companies that have released results third-quarter results so far, according to Bloomberg data. About 72 percent beat the average estimate in the second quarter, matching the highest proportion in data going back to 1993.

More than 130 S&P 500 companies are reporting results this week, with Morgan Stanley, Boeing Co., Wells Fargo & Co. and Freeport-McMoran Copper & Gold Inc. scheduled to announce today.

Base metals prices were mostly higher on the London Metal Exchange, with copper for three-month delivery rising 0.3 percent to $6,435.75 a ton. Crude oil for December delivery fell 71 cents to $78.41 a barrel in electronic trading on the New York Mercantile Exchange, after reaching a one-year high this week.

Sunday, October 18, 2009

Housing, Leading Index Probably Improved: U.S. Economy Preview

By Courtney Schlisserman

Oct. 18 (Bloomberg) -- Homebuilders and real-estate agents were probably busier in September, and the index of leading indicators increased, adding to evidence the next U.S. expansion has begun, economists said before reports this week.

Construction started last month on 610,000 houses at an annual rate, the most since November, according to the median forecast of 53 economists surveyed by Bloomberg News before an Oct. 20 Commerce Department report. Sales of existing homes rose to a two-year high and the gauge of the economy’s future course advanced for a sixth month, other reports may show.

Housing is stabilizing as Americans take advantage of government programs, including credits for first-time buyers and efforts to lower borrowing costs, aimed at stemming the recession. Some Federal Reserve policy makers remain concerned the economy will relapse should the stimulus be removed too soon, signaling interest rates will remain low for months.

“The housing market is recovering from very depressed levels,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “We’re definitely emerging from recession, finding a bottom in some sectors, but the recovery is still uneven and it’s not particularly vigorous.”

Building permits, a sign of future activity, may have risen to a 590,000 pace, also the highest since November, the Commerce Department’s report on housing starts may show, according to the survey median.

In April, builders broke ground on new homes at a record- low 479,000 pace.

Leading Index

The index of leading economic indicators, due from the New York-based Conference Board on Oct. 22, may have risen 0.9 percent, according to the survey of economists. The gain was probably driven by the increase in building permits, a drop in claims for jobless benefits and an improvement in consumers’ outlooks, economists said.

A sixth consecutive gain in the leading index would mark the best performance since early 2004.

U.S. stocks have risen in recent weeks amid better-than- forecast earnings and signs the economy is improving. The Standard & Poor’s 500 Index closed at the highest level in a year on Oct. 15.

Google Inc., the world’s most popular Internet search engine, plans to resume hiring and acquisitions after the recovering economy helped third-quarter sales beat analysts’ estimates. Large customers stepped up spending on Google ads last quarter, a rebound from the first half of the year, Chief Financial Officer Patrick Pichette said.

‘Incredible Recession’

“We weathered what is an incredible recession,” Pichette said in an interview last week. “If you have all this behind you, the only outcome you should have as management is: ‘OK, let’s build now.’”

Fed policy makers at their September meeting decided to slow purchases of mortgage securities to avoid disrupting the housing market while extending the duration of the program by three months. In the minutes of the Sept. 22-23 meeting, which were released last week, they noted the housing market and retail sales got a boost from government incentives.

The Fed’s Beige Book report on regional economies, scheduled to be released on Oct. 21, will be used by policy makers to gauge the state of the housing market and the economy overall when they meet again in the first week of November.

An Oct. 23 report from the National Association of Realtors may show that sales of existing homes rose to a 5.35 million rate last month, according to the Bloomberg survey. That would be the highest level since August 2007.

Less Pessimistic

Tomorrow, a report may show builder confidence continued to climb this month. The National Association of Home Builders/Wells Fargo index probably rose to 20 from 19, economists surveyed said. It would be the seventh straight increase. While higher, readings less than 50 still signal that most respondents view conditions as poor.

Finally, a Labor Department report on Oct. 20 may show wholesale prices were unchanged in September, compared with a 1.7 percent increase a month earlier. Excluding food and energy, prices increased 0.1 percent, compared with a 0.2 percent gain in August, according to the survey, indicating inflation isn’t a risk as the economy recovers.

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
NAHB Housing Index 10/19 Oct. 19 20
PPI MOM% 10/20 Sept. 1.7% 0.0%
Core PPI MOM% 10/20 Sept. 0.2% 0.1%
PPI YOY% 10/20 Sept. -4.3% -4.3%
Core PPI YOY% 10/20 Sept. 2.3% 2.0%
Housing Starts ,000’s 10/20 Aug. 598 610
Building Permits ,000’s 10/20 Aug. 580 590
Initial Claims ,000’s 10/22 10-Oct 514 517
Cont. Claims ,000’s 10/22 3-Oct 5992 5990
LEI MOM% 10/22 Sept. 0.6% 0.9%
Exist Homes Mlns 10/23 Sept. 5.10 5.35
Exist Homes MOM% 10/23 Sept. -2.7% 5.0%

Friday, October 9, 2009

Dollar Rises, Bonds Fall on Bernanke Comments; Commodities Drop

By Justin Carrigan

Oct. 9 (Bloomberg) -- The dollar rose against the yen and the euro and government bonds fell after Federal Reserve Chairman Ben S. Bernanke said the bank will tighten monetary policy once the economy improves. Commodities slipped.

The U.S. currency advanced as much as 1.2 percent versus the yen, the most since Aug. 7, and was up 0.4 percent at 8:08 a.m. in New York. Yields on two-year Treasuries and German notes jumped as much as eight basis points. Copper fell 1.1 percent. Futures on the Standard & Poor’s 500 Index declined 0.3 percent.

The Fed will need to raise rates “at some point” to control inflation, Bernanke said at a Board of Governors conference yesterday in Washington. Australia’s Reserve Bank unexpectedly increased its key rate Oct. 6. The MSCI World Index of 23 developed stocks has advanced 4.5 percent this week as U.S. jobless claims fell more than analysts estimated and Alcoa Inc. reported an unexpected profit.

Bernanke’s remarks “were interpreted to suggest that the Fed stood ready to tighten,” Gareth Berry, a currency strategist at UBS AG in Singapore, wrote in a note today. “The comments come as investors look for evidence that the policy tightening timetables of other central banks will be brought forward” after the Australian move.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, rose 0.2 percent to 76.054. It fell to 75.767 yesterday, the lowest level since August 2008.

Yen Drops

The yen fell against 13 of the 16 most-traded currencies tracked by Bloomberg, losing 0.4 percent versus the dollar, after Japan’s Cabinet office said machinery orders rose 0.5 percent in August, compared with the 2.1 percent increase predicted in a Bloomberg survey of 27 economists.

The increase in the German two-year yield narrowed the gap, or spread, with the 10-year bund by three basis points to 184 basis points, the lowest level since May 1, based on closing prices. The U.S. Treasury spread also narrowed two basis points, to 234 basis points.

Copper for delivery in three months fell as much as 1.4 percent on the London Metal Exchange, leading a decline in industrial metals. Crude oil slipped 0.7 percent to $71.18 a barrel in New York trading. Gold for immediate delivery declined 0.5 percent to $1,050.03 an ounce. The metal rose to a record for three consecutive days this week.

European Stocks

Basic-resource producers led the decline in Europe’s Dow Jones Stoxx 600 Index, which slipped 0.6 percent after earlier rising as much as 0.3 percent. BHP Billiton Ltd., the world’s largest mining company, fell for the first time in five days, losing 1.5 percent. U.S. futures dropped after the S&P 500 posted four days of gains, the longest streak in a month.

Developing-nation shares rose for a fifth day. The MSCI Emerging Markets Index added 0.3 percent, extending its weekly increase to 4.6 percent, the most since Sept. 11.

The Shanghai Composite Index of stocks in China posted its biggest gain in five weeks as the nation’s markets opened after an eight-day holiday.

China’s banking regulator said today it would be premature for the government to start winding down stimulus efforts in the world’s third-largest economy.

“It’s far too early to talk about an exit strategy,” Liu Mingkang, chairman of the China Banking Regulatory Commission, told a conference in Hong Kong. The economy “may face a bumpy road ahead.”

The International Monetary Fund on Oct. 1 raised its forecast for global growth next year as more than $2 trillion in stimulus packages and demand in Asia pull the world economy out of its worst recession since World War II. The Washington-based IMF said the economy will expand 3.1 percent in 2010, after a July forecast of 2.5 percent.

Monday, October 5, 2009

Australia’s August Trade Deficit Narrows as Oil Imports Fall

By Jacob Greber

Oct. 6 (Bloomberg) -- Australia’s trade deficit narrowed in August as imports of oil and consumer goods fell.

The shortfall narrowed to A$1.52 billion ($1.33 billion) from a revised A$1.78 billion in July, the Bureau of Statistics said in Sydney today. The median estimate in a Bloomberg survey of 19 economists was for a A$900 million gap.

Kamei Says Moratorium Won’t Increase Japan Bad Loans (Update1)

By Finbarr Flynn, Takahiko Hyuga and Shingo Kawamoto

Oct. 6 (Bloomberg) -- Japanese banks’ bad loans won’t be driven higher by a proposed moratorium on debt payments by struggling small companies, said Financial Services Minister Shizuka Kamei.

Lenders won’t have to classify loans encompassed by the plan as non-performing, Kamei, 72, said in an interview yesterday at his office in Tokyo. That means they won’t be forced to boost provisions when borrowers postpone repayments of interest or principal, he said. At the same time, Kamei vowed to push banks to extend more credit to small businesses after bankruptcies hit a six-year high in Japan.

“We’re going to get financial institutions to provide these firms with more loans,” said Kamei. “Banks won’t have to treat debt on which they provide a moratorium as bad.”

The Topix Banks Index has fallen 11 percent since Kamei, who has blamed “unbridled capitalism” for the global credit crisis, was appointed by Prime Minister Yukio Hatoyama on Sept. 16. Japan’s three largest banks, including Mitsubishi UFJ Financial Group Inc., posted combined losses of almost $14 billion last fiscal year as bad-debt charges surged.

“There is a potential for any proposal along the lines Kamei has made of debt moratoriums to backfire horribly,” said David Threadgold, a Tokyo-based analyst at Fox-Pitt Kelton. The plan could make banks more reluctant to lend to small firms, Threadgold said.

The moratorium, postponing repayment of principal and interest, will be extended to individuals as well as firms Kamei said. It will aim at giving relief to companies with about 100 million yen ($1.1 million) or less in capital.

‘Extremely Easy’ Money

Corporate bankruptcies increased 12 percent to 16,146 in the year ended March 31, the highest in six years, according to data from Tokyo Shoko Research Ltd.

“As long as I’m financial services minister, I’m not going to leave small companies in the lurch unable to get loans,” Kamei said. “If a bank takes that approach, I’ll hit them with a business improvement order.”

Publicly traded companies probably won’t be encompassed by the program, Kamei said. Japanese “salarymen” struggling to pay mortgages after bonus cuts may be eligible, he said. “We’re going to make it extremely easy for very small companies to get money,” Kamei said.

Bank Stocks Rise

The government will make allowances for any lenders whose capital ratios fall because of the moratorium legislation, which may be submitted to parliament next month.

Bank stocks rose, with Mitsubishi UFJ Financial Group Inc., the nation’s biggest lender by market value, gaining 3.7 percent to 472 yen as of 9:16 a.m. in Tokyo. Sumitomo Mitsui Financial Group Inc. increased 3.3 percent and Mizuho Financial Group Inc. rose 2.2 percent.

Kamei’s deputy minister, Kouhei Ohtsuka, who is leading a team that’s studying options for legislation, told Fuji Television on the weekend that banks shouldn’t “worry” because the government’s proposals will be workable.

Lawmakers and government officials were set to hold their first working-team meeting on legislation yesterday, Ohtsuka told reporters on Sept. 29.

Katsunori Nagayasu, president of Mitsubishi UFJ’s main banking unit and head of the Japanese Bankers Association, is ready to cooperate in aiding small companies, Kamei said Oct. 1. Kamei, who met Nagayasu that day, said at the time he would start taking opinions from banker lobbies from Oct. 7.

Kamei met yesterday with Tadashi Ogawa, head of Regional Banks Association and president of Bank of Yokohama Ltd. Ogawa in September said regional lenders aren’t forcing troubled borrowers to repay loans and are dealing with requests to reschedule repayments on an individual basis.

Thursday, October 1, 2009

U.S. Markets Wrap: Stocks Tumble as Treasuries, Dollar Rally

By Matt Townsend

Oct. 1 (Bloomberg) -- U.S. stocks fell the most in three months as Treasuries and the dollar rallied after a decline in a gauge of manufacturing and an increase in jobless claims spurred concern over the strength of a recovery from the recession.

JPMorgan Chase & Co., DuPont Co. and American Express Co. fell at least 4.2 percent to lead all 30 stocks in the Dow Jones Industrial Average lower. Treasury 30-year bond yields fell below 4 percent for the first time since April as a report showed inflation remains subdued. The dollar rallied against most of its major counterparts. Crude oil was little changed.

“The market had gotten a little ahead of the economy,” said Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas in Norfolk, Virginia, which manages $1.3 billion. “For the month of October we are on alert for a correction driven by the acknowledgment of a weak economic recovery.”

The Standard & Poor’s 500 Index slid 2.6 percent to 1,029.85 at 5:22 p.m. in New York a day after capping its biggest back-to-back quarterly rally since 1975. The Dow sank 203 points, or 2.1 percent, to 9,509.28. Both gauges lost the most since July 2. About 18 stocks fell for each that rose on the New York Stock Exchange, the broadest sell-off since April.

Benchmark indexes opened lower after the number of Americans filing first-time claims for unemployment benefits climbed by 17,000 to 551,000 last week. Stocks extended losses after the Institute for Supply Management said its manufacturing index dropped to 52.6 in September, lower than the reading of 54 projected by economists in a Bloomberg survey.

Not Double-Dip

Bonds rallied as signs recovery from the worst slump since the Great Depression will be slow prompted traders to reverse bets that yields would increase before tomorrow’s monthly employment report. The Labor Department may say that job losses last month totaled 175,000, according to a Bloomberg survey. The Treasury announced plans to sell $78 billion of notes and bonds over four consecutive days next week.

“We are not in the double-dip camp, but there are still headwinds for the economy,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley Smith Barney. “There is a ton of money on the sidelines. Investors are feeling more comfortable with interest-rate risk and are moving out on the curve.”

The yield on the 30-year bond fell nine basis points, or 0.09 percentage point, to 3.97 percent, according to BGCantor Market Data. The yield touched 3.93 percent, the lowest level since April 29. The 4.50 percent security due in August 2039 rose 1 18/32, or $15.63 per $1,000 face amount, to 109 1/4.

The 10-year note yield touched 3.17 percent, the lowest level since May 21.

Prices Rise

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent from the previous month and was up 1.3 percent from a year earlier, the smallest year-over-year gain since September 2001. Spending by U.S. consumers climbed 1.3 percent in August, Commerce Department figures showed in Washington.

The dollar gained much as 0.8 percent to $1.4517 versus the euro as Federal Reserve Chairman Ben S. Bernanke said he doesn’t see an “immediate risk” to the dollar’s status as the world’s main reserve currency.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency versus six counterparts including the euro and yen, rose as much as 0.8 percent to 77.231 today.

“We’ve seen hiccups in consistent improvement to data,” said Todd Elmer, currency strategist at Citigroup Inc. in New York. “The underlying uptick in risk aversion lent the dollar some support ahead of the payroll report.”

Gold prices fell for the first time this week as the dollar’s rebound eroded the precious metal’s appeal as an alternative investment. Silver also dropped.

‘Problem For Gold’

“It’s all dollar-related,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “If we do see a significant rally in the dollar, that’s a problem for gold.”

Gold futures for December delivery fell $9.50, or 0.9 percent, to $999.80 an ounce on the Comex division of the New York Mercantile Exchange.

Oil for November delivery rose 12 cents to $70.73 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures are up 59 percent this year.

Japan’s Jobless Rate Unexpectedly Falls From Postwar Record

By Aki Ito

Oct. 2 (Bloomberg) -- Japan’s unemployment rate unexpectedly retreated in August from a postwar record.

The jobless rate fell to 5.5 percent from a record 5.7 percent in July, the statistics bureau said today in Tokyo. The median forecast of economists surveyed by Bloomberg was for an increase to 5.8 percent.

Fed Balance Sheet Shrinks 0.8% for First Decline in Eight Weeks

By Scott Lanman

Oct. 1 (Bloomberg) -- The Federal Reserve’s balance sheet contracted for the first time in eight weeks as lending to banks in the U.S. and abroad declined.

The Fed’s assets shrank $17.6 billion, or 0.8 percent, to $2.14 trillion in the week ended yesterday, the central bank said today in Washington. Credit extended through the Term Auction Facility, which sells cash loans to commercial banks, fell $17.6 billion to $178.4 billion. Currency swaps to central banks outside the U.S. slipped $2.37 billion to $56.8 billion.

While the Fed is completing purchases of housing debt and Treasuries, demand for some of the Fed’s emergency liquidity programs has waned. Fed Vice Chairman Donald Kohn said yesterday that when conditions are no longer “unusual and exigent,” some emergency lending programs “will be terminated.”

Mortgage-backed securities declined by $1.23 billion to $692.4 billion and Treasury-bond holdings increased $3.53 billion to $769.2 billion. Federal agency debt gained $1.97 billion to $131.2 billion.

Fed Chairman Ben S. Bernanke and his colleagues are trying to balance two goals: securing an economic recovery after the deepest contraction and financial crisis since the Great Depression while withdrawing fiscal and monetary stimulus in time to avoid driving inflation and borrowing costs higher.

The Fed said Sept. 24 it will further shrink auctions of cash loans to banks and Treasury securities to bond dealers, reducing the combined initiatives to $100 billion by January from $450 billion. The central bank cited “continued improvements” in financial markets.

Policy makers said Sept. 23 they will complete the Fed’s planned $1.25 trillion in purchases of mortgage securities and extended the end-date of the program to March from December. They kept the benchmark interest rate in a range of zero to 0.25 percent and repeated that rates will stay low for an “extended period.”

The Fed is reducing the TAF’s capacity to $75 billion in January from $375 billion in September.

Discount-window lending to commercial banks fell to $28.2 billion from $28.5 billion the previous week. The face value of commercial paper held by the Fed under an emergency program begun last October shrank to $36.8 billion from $38 billion on Sept. 23.

M2 money supply fell by $8 billion in the week ended Sept. 21, the Fed said. That left M2 growing at an annual rate of 7.8 percent for the past 52 weeks, above the target of 5 percent the Fed once set for maximum growth. The Fed no longer has a formal target.

The Fed reports two measures of the money supply each week. M1 includes all currency held by consumers and companies for spending, money held in checking accounts and travelers checks. M2, the more widely followed, adds savings and private holdings in money market mutual funds.

For the latest reporting week, M1 fell by $31.1 billion, and over the past 52 weeks, M1 rose 17.5 percent. The Fed no longer publishes figures for M3.