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.

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