U.S., Europe Stocks Fall, Commodities Drop on Recession Concern

U.S. and European stocks tumbled, sending the Standard & Poor’s 500 Index down the most in two months, as the World Bank said the recession will be deeper than previously forecast. Treasuries rose, while oil fell below $67 a barrel and metals slumped.
Freeport-McMoRan Copper & Gold Inc. and Alcoa Inc. sank at least 8.9 percent, while BP Plc and Occidental Petroleum Corp. lost more than 3.8 percent amid the biggest retreat in the Reuters/Jefferies CRB Index of 19 raw materials in almost three weeks. Bank of America Corp. dropped 9.7 percent as two board members resigned. Both the S&P 500 and Dow Jones Industrial Average erased their gains for the year.
“The worries are still out there,” said John Wilson, who helps oversee $120 billion as chief market technician at Morgan Keegan & Co. in Memphis, Tennessee. “Nobody is ready to get the trumpets out and herald the end of the recession.”
The S&P 500 slid 3.1 percent to 893.04 at 4:05 p.m. in New York following last week’s 2.6 percent slump. The Dow average sank 200.72 points, or 2.4 percent, to 8,339.01. Europe’s Dow Jones Stoxx 600 fell 2.8 percent and the MSCI World Index decreased 2.7 percent. Almost 14 stocks fell for each rising on the New York Stock Exchange, the broadest sell-off since May 13.
Stocks and commodities slid as the World Bank said unemployment and poverty will rise in developing nations and predicted a 2.9 percent contraction in the global economy this year. That compares with a prior estimate of a 1.7 percent decline. Growth is expected to return in 2010 at 2 percent, less than the 2.3 percent forecast about three months ago.
Rebound Pared
While the S&P 500 is still up 32 percent from a 12-year low on March 9, the index has fallen 5.6 percent since June 12. Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago. Insiders of S&P 500 companies were net sellers for 14 straight weeks as the market rallied, according to data compiled by InsiderScmaore.com.
The S&P 500 today slid below 900.77, its average level over the past 200 days, in a bearish signal to analysts who study charts to predict market movements.
Nouriel Roubini, the New York University economics professor who predicted the financial crisis, said the global economy may suffer another slump due to higher oil prices and widening budget deficits.
“I see the worry of a double whammy” from energy costs and fiscal burdens, increasing the risk of a setback in the economic recovery, Roubini told a conference in Paris today. Oil may rise to $100 a barrel, he said.
Commodities Slump
Freeport-McMoRan, the world’s largest publicly traded copper producer, plunged 11 percent to $45.18 for the biggest decline since March 2. U.S. Steel sank 9.2 percent to $34.12. Alcoa decreased 8.9 percent to $10.02. The strengthening dollar dulled the appeal of commodities as an alternative investment, helping send copper, gasoline and oil prices lower.
Exxon Mobil Corp. retreated the most in three months, losing 3.1 percent to $68.84. BP, Europe’s second-largest oil company, lost 3.8 percent to 478 pence in London. Crude oil fell for a second straight day in New York, sliding 3.8 percent to $66.93, on concern that fuel demand will remain depressed.
Commodity shares declined even as Anglo American Plc rallied 4.6 percent in London after Xstrata Plc proposed a “merger of equals” with the mining company.
Banks Slide
Bank of America tumbled 9.7 percent to $11.94, the steepest decline in more than a month. The lender that took $45 billion in U.S. aid said board members Tommy Franks and Joseph Prueher resigned, pushing the total of departing directors to seven since April.
Wells Fargo & Co. and JPMorgan Chase & Co. lost more than 6 percent, dragging a measure of financial stocks down 6.2 percent for the biggest slump among the 10 industry groups.
Mortgage originations in the U.S. may total $2.03 trillion this year, 27 percent less than earlier forecast, as rising interest rates reduce home refinancings, the Mortgage Bankers Association said.
Walgreen Co. lost 5.7 percent to $29.64. The company reported profit of 53 cents a share, missing the average analyst estimate by 6 percent, according to Bloomberg data.
CarMax Inc. declined 8.3 percent to $14.04. The biggest U.S. used-car dealer was cut to “hold” from “buy” at Deutsche Bank AG, which said the risk-reward ratio for the company’s stock is more balanced after its recent rally.
‘Remain Weak’
Federal Reserve officials on June 24, at the conclusion of their two-day meeting, may say the U.S. is showing signs of emerging from the worst recession in a half century. Following their last meeting in April, policy makers said the economy will “remain weak for a time.” The central bankers will also keep the benchmark interest rate in the range of zero to 0.25 percent, economists said.
Apple Inc. slipped 1.5 percent to $137.37. Apple Chief Executive Officer Steve Jobs had a liver transplant about two months ago, a person familiar with the matter said. Jobs, a cancer survivor, went on medical leave in January after saying he wanted to take himself out of the limelight and focus on his health. Apple should disclose whether he had a liver transplant if he returns to work this month in the role of CEO, corporate governance experts said.
Apple slipped even after saying it sold more than 1 million iPhone 3G S units in the device’s opening weekend. Piper Jaffray & Co. predicted sales of about 750,000 after initially forecasting 500,000 in the debut weekend. Apple also said 6 million people have downloaded its new iPhone 3.0 software in the five days it’s been out.
Bonds Gain
Treasuries advanced for a second day as the World Bank forecast made it more likely the Fed will keep interest rates near zero for longer. Traders reduced bets the central bank will raise borrowing costs by the end of the year, according to futures on the Chicago Board of Trade.
Today’s slide extended losses from the S&P 500’s 2.6 percent drop last week, its first weekly decline in more than a month. Last week’s retreat came as lower crude oil hurt fuel producers and S&P downgraded the credit ratings of 18 banks.
The benchmark index for U.S. stock options jumped the most since April 20 today. The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 11 percent to 31.17. The index, which measures the cost of using options as insurance against declines in the S&P 500, is down from a record 80.86 in November yet above its 20 average over its 19-year history.
The S&P 500 has risen or fallen by more than 3 percent on 23 trading days this year, the third-most in the benchmark’s 81- year history after 1932 and 1933, according to Howard Silverblatt, the senior index analyst at S&P in New York.

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Dollar Falls Most Against Yen in Month on Fed Rate Outlook

The dollar dropped the most versus the yen in a month as traders pared bets that the Federal Reserve will increase its target lending rate, making U.S. assets less attractive.
The yen gained this week versus all of its major counterparts, rallying against Sweden’s krona and Brazil’s real as the Bank of Japan raised its assessment of the economy for a second month. The dollar weakened as Fed officials considered using their June 24 policy statement to suppress speculation they’re prepared to raise interest rates as soon as this year.
“The Fed will try to tell the market that they won’t withdraw monetary stimulus unless they see a sustained recovery,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina.
The dollar fell 2.2 percent this week to 96.27 yen, from 98.43 yen on June 12. It was the biggest decrease since the five days ended May 15, when the greenback slid 3.3 percent. The yen gained 2.7 percent to 134.18 per euro from 137.89 a week earlier. The dollar appreciated 0.6 percent to $1.3937 versus the euro from $1.4016.
Interest-rate futures indicated a 44 percent chance the central bank will boost its target rate to at least 0.5 percent by December, down from 55 percent odds a week ago.
Fed staff examined the Bank of Canada’s public intention of forgoing an increase until 2010 without concluding the statement proved effective, said a person familiar with the matter.
The greenback will remain “on defensive” before the Federal Open Market Committee’s policy meeting next week, wrote Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London, in a research note yesterday.
‘Bearish Development’
“It is notable that between August 2003 to January 2004, when the Fed committed to maintaining policy accommodation for a ‘considerable’ period, the Dollar Index trended lower,” wrote Hardman. “We believe that the adoption of a similar approach by the FOMC next week to dampen tightening expectations before year-end will ultimately prove a similarly bearish development for the dollar this time around.”
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, lost almost 10 percent from August 2003 to January 2004. The gauge of the dollar increased 0.2 percent to 80.264 this week.
The yen gained 4.9 percent to 12.18 versus the krona and 4.5 percent to 48.86 against the real as the Bank of Japan said this week the world’s second-largest economy has “begun to stop worsening.”
BOJ’s Target Rate
Speculation the worst is over doesn’t mean the Bank of Japan is preparing to raise the key overnight lending rate, which stayed at 0.1 percent after this week’s meeting.
The Bank of Japan should consider whether to stop pumping extra cash into the banking system by evaluating trends in corporate financing and the economy, some policy board members said last month.
They said whether to keep buying corporate debt from banks and providing them with unlimited loans after Sept. 30 “should be determined based on close examination of developments in financial markets and corporate financing,” according to minutes of the May 20-21 meeting published in Tokyo yesterday.
Brazil, China, Russia and India said in a joint statement on June 16 after conducting a summit, in Yekaterinburg, Russia, that emerging economies should have a “greater voice and representation in international financial institutions.”
The first BRIC summit was held after the nations announced plans in recent weeks to shift some foreign reserves into International Monetary Fund bonds, causing the dollar and U.S. Treasuries to fall. The BRIC nations have combined reserves of $2.8 trillion and are among the biggest holders of U.S. government debt.
Aussie Versus Yen
The Australian dollar increased 0.6 percent to 77.48 yen and the New Zealand currency advanced 1 percent to 61.96 yen yesterday as bets the global recession is easing prompted investors to sell assets where interest rates are low and buy where returns are higher. The gains pared the Aussie’s weekly loss to 3.1 percent and the kiwi’s to 2.1 percent.
The Fed’s target lending rate of zero to 0.25 percent and the Bank of Japan’s benchmark compare with 3 percent in Australia and 2.5 percent in New Zealand.
European Union leaders saw the first signs of a “sustainable” economic recovery, making additional stimulus unnecessary, according to a statement from yesterday’s summit in Brussels. The World Bank raised on the previous day its growth forecast for China this year.
‘Positive’ Picture
“The broader picture is turning more positive, and risk appetite is returning,” said Ian Stannard a foreign-exchange strategist in London at BNP Paribas SA. “This is providing support for the pro-cyclical currencies such as the Australian dollar, while the yen is coming under pressure.”
Chile’s peso was the biggest winner against the dollar among all of the world’s currencies after the government announced plans to extend its dollar sales in the foreign- exchange market to fund an additional $4 billion in stimulus spending.
The peso jumped 5.1 percent this week to 535.75 per dollar, its biggest gain since February. It advanced to 534.70 yesterday, the strongest level since Sept. 24.

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Obama Says Proposed Agency Will Protect Financial Consumers

President Barack Obama said a new agency he proposed this week as part of an overhaul of U.S. financial regulations will protect consumers from deceptive lending practices.
The Consumer Financial Protection Agency would oversee products from mortgages to credit cards and require companies to plainly state the terms of financial products while banning “the most unfair practices,” Obama said in his weekly address on the radio and Internet.
“We’re going to level the playing field for consumers,” he said.
Obama proposed on June 17 changes to government oversight of the financial industry that he said would correct a “cascade of mistakes” that helped cause the first global recession since World War II.
The changes, much of which must be approved by Congress, would add an additional layer of regulation for the biggest financial firms. Obama’s plan would make the Federal Reserve the overseer of companies deemed too big to fail and bring hedge and private equity funds under federal scrutiny.
“This crisis may have started on Wall Street,” Obama said in his radio address. “But its impacts have been felt by ordinary Americans who rely on credit cards, home loans, and other financial instruments.”
Obama said some consumers bear responsibility for the financial crisis by taking on too much debt and loans they could not afford. More people, though, were misled by financial companies, he said.
‘No Coincidence’
“It’s no coincidence that the lack of strong consumer protections led to abuses against consumers,” Obama said. “The lack of rules to stop deceptive lending practices led to abuses against borrowers.”
The new agency, Obama said, would prevent unscrupulous financial companies from taking advantage of consumers in the future.
While Obama’s proposals won support from Democrats who control the House and Senate, it is likely to face a lobbying assault from the financial industry. The American Bankers Association said in a statement after Obama announced his plan that the Consumer Financial Protection Agency may “go well beyond consumer protection” in its mandate and add a new regulatory layer for community banks.
Republican Address
In the Republican address, Senate Minority Leader Mitch McConnell of Kentucky said Democrat proposals to overhaul health care would drive up costs and lead to the rationing of care. McConnell also said Democratic congressional leaders are moving ahead too quickly with legislation.
“Americans want health-care reform, but they want the right health-care reform,” said McConnell. “That means taking the time and the care necessary to get it right.”

McConnell said the Obama administration’s claims that its health-care overhaul proposals would save the government money are the same as claims that passage of the $787 billion economic stimulus bill in February would prevent job losses. The current jobless rate of 9.4 percent is at a 25-year high.
“If the stimulus bill taught us anything, it’s that we should be wary anytime someone in Washington says the sky’s going to fall unless Congress approves trillions of dollars immediately,” McConnell said. “Yet once again in the health- care debate, it’s rush and spend.”

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Unemployment of 10% Spreads, Risking U.S. Recovery

More than one-quarter of American states now have unemployment rates higher than 10 percent, and all but two saw a further job-market deterioration in May.
Tennessee and Indiana joined the rank of states, now 13, that have jobless rates exceeding 10 percent, and eight states - - including California, Florida and Georgia -- reached their highest level of joblessness in May since records began in 1976, the Labor Department reported today in Washington.
The figures make it likely President Barack Obama, whose home state of Illinois also passed 10 percent for the first time since 1983, was correct this week in forecasting the national unemployment rate will reach that level this year. With no region escaping the rout, consumers across the country will probably curtail their spending, preventing any boom out of the deepest recession in half a century, analysts said.
“It’s tough everywhere,” said Mark Vitner a senior economist at Wachovia Corp. in Charlotte, North Carolina. “Nobody’s really been spared.” The biggest increases in unemployment will be in states most dependent on manufacturing, construction and financial services, he said.
For the country, “unless hiring magically picks up, a 10 percent unemployment rate is pretty much baked in,” Vitner said.
Jump in Michigan
Michigan’s jobless rate, at 14.1 percent, showed the biggest jump from April and remained the highest in the nation. The bankruptcy of General Motors Corp. and Chrysler LLC is likely to deepen the labor-market slump in the Midwest and ripple through other areas and industries.
Kentucky and Florida were the other two states that passed the 10 percent mark last month. Those remaining on the list included California, Ohio, Oregon, Rhode Island, Nevada and North and South Carolina.
Overall, 48 states and the District of Columbia posted increases in their unemployment rates in May from the prior month. Nebraska was the only one to post a drop, to 4.4 percent from 4.5 percent; Vermont held at 7.3 percent, the Labor Department said.
Payrolls decreased in 12 states in May, led by California with a 68,900 loss, and Florida, where 61,000 workers were dismissed. North Dakota and Alaska reported gains in employment.
Six Million
Nationwide, payrolls fell by 345,000 in May after a 504,000 decline in April, government figures showed earlier this month. The economy has lost 6 million jobs since the recession began in December 2007. The jobless rate reached a 25-year high of 9.4 percent last month.
“It’s different times,” said Stephanie Moyna-Gilbert, a 36-year-old mother of three from Fishers, Indiana. “This is absolutely the longest time I’ve been unemployed.”
She lost her job as a recruiter and human-resource manager for Interactive Intelligence Inc., an Indianapolis-based telephone software maker, in December, and is finding it hard to find a full-time position for herself after four years of hiring and training staff.
Moyna-Gilbert is doing some consulting work to expand her professional contacts and try to bring home some cash. Still, “the income isn’t there until I place people,” she said. “Being without benefits isn’t a good thing.”
Employers remain reluctant to hire even as there are signs that the worst of the job cuts are over. A Bloomberg News survey this month showed economists project the jobless rate will reach 10 percent by year-end and average almost that rate in 2010.
Obama, in a June 16 interview with Bloomberg News, said he couldn’t predict when unemployment will start to decline because it was a “lagging indicator.”
“As soon as this economy has stabilized, we want the market to do what it does best, and that is produce jobs, invest,” he said

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EU Backs New Financial Agencies to Unify Oversight

European Union leaders agreed to their most sweeping overhaul of financial regulation, sharpening scrutiny of banks and risks after spending more than half a trillion dollars propping up lenders in the credit crisis.
The heads of the 27 countries backed the creation of an economic-risk watchdog led by central bankers, plus agencies to unify oversight of banks, insurers, investment firms and credit- rating companies. The U.K. won a compromise trimming the power of the new authorities to make decisions involving national money.
The accord gives the EU its most centralized power over financial firms, after national supervision failed to contain the crisis sparked in the U.S. housing market. The region’s governments and central banks are on the hook for more than 3.7 trillion euros ($5.2 trillion) of guarantees and funding.
“For the first time you will have a place where the most powerful” central bankers and regulators “sit down together to discuss common issues,” David Green, former head of international affairs at the U.K. Financial Services Authority and a former Bank of England official, said in a Bloomberg Television interview.
In a statement, the leaders said closing gaps in oversight will prevent future crises, boost confidence and help spur recovery from the deepest recession since World War II.
The new regulatory agencies will have authority to ensure EU market laws are implemented the same in every country. They also may gain a greater role in crisis management in the future, the leaders said.
U.K. Sovereignty
At the U.K.’s insistence, the EU scaled back the agencies’ proposed powers to override national regulators and order changes to capital or other measures that could put government funds at risk.
“Stronger cross-border supervision is in our interest,” British Prime Minister Gordon Brown said in a news conference at the summit meeting. “I’ve ensured that our taxpayers will be protected.”
Under political pressure at home, Brown cannot afford “to be seen to have U.K. regulators bending to the decisions of an EU body,” Philip Whyte, senior research fellow at the Centre for European Reform, said in a telephone interview from London. “There’s a perception that the other countries don’t always have the best interests of the City at heart.”
Britain still supported the goal of creating a unified EU rulebook to benefit the cross-border businesses run from the City of London, Europe’s largest financial center with some 600 foreign banks plus the bulk of the domestic industry.
Evolving Powers
“Getting identical supervisory practices is something that London has been pressing for, for a long time, and that’s probably the most important thing here,” said Green, who is now an adviser to the U.K. Financial Reporting Council.
The agencies may evolve into a greater role through future practice and legal developments, French President Nicolas Sarkozy said after the meeting.
“It’s a starting point,” Sarkozy told reporters. “We may still be able to expand the scope.”
While industry groups have largely lined up behind initiatives for more uniform regulation, some bankers voiced doubts over the proposal to give new agencies binding powers to mediate disputes between regulators.
Executives from Credit Suisse Group AG, HSBC Holdings Plc and Royal Bank of Scotland Group Plc dissented from a statement of support this week by the European Financial Services Round Table. The proposal was backed by others members of the Brussels-based group, including leaders of BNP Paribas SA, Deutsche Bank AG and UniCredit SpA.
Systemic Risk Board
The EU overhaul also creates a European Systemic Risk Board of central bankers and financial regulators to share information and monitor hazards that cut across borders and industries. While its recommendations won’t be legally binding, the body is designed to flag problems such as the build-up of investments in U.S. subprime mortgages -- the issue that sparked the turmoil in which banks have absorbed almost $1.5 trillion of losses and writedowns.
In another compromise pushed by the U.K., the EU agreed for the board’s chairman to be elected by the general council of the European Central Bank, instead of always handing it to the ECB president as proposed by the EU’s executive arm.
The EU initiative is one of several shakeups around the world, almost two years since the collapse of two Bear Stearns Cos. hedge funds marked the outbreak of the crisis. President Barack Obama this week proposed to revamp U.S. oversight along different lines, giving more power to the Federal Reserve.
Hedge-Fund Regulation
The European leaders also called for action on separate proposals to regulate hedge funds and rewrite bank-capital standards.
The agreement by the prime ministers doesn’t guarantee easy passage for the regulatory revamp. The EU’s executive arm, the European Commission, will propose legislation to enact it in the second half of the year, setting off further debate among the governments and members of the European Parliament. Both those groups must agree for the initiative to become law.

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Pound May Drop to 1-Week Low Against Dollar: Technical Analysis

June 18 - The pound may drop to the lowest level in more than a week against the dollar if it closes below its 20-day moving average, Brown Brothers Harriman & Co. said.

Britain’s currency may fall to $1.60, the weakest since June 9, Marc Chandler, global head of currency strategy in New York, said today in an e-mail. The pound slid 1.1 percent to $1.6226 as of 1:16 p.m. in London. It earlier fell through the 20-day moving average of $1.6223.

The worst recession since at least 1979 led Standard & Poor’s to revise its outlook for the U.K. to negative from stable last month, saying a AAA credit rating is incompatible with debt heading for 100 percent of gross domestic product. The Treasury expects to sell an unprecedented 220 billion pounds ($358 billion) of gilts in the year that began in April to revive the economy.

“The concern about the U.K. debt position is something that may come back, and that’s going to stay here in the near term,” Audrey Childe-Freeman, a senior currency strategist at Brown Brothers in London, said yesterday in an interview. “We’ve seen the dollar doing better in the context where we’ve seen a shaky environment in the equity markets and risk appetite. Sterling is very much influenced by such forces.”

U.K. stocks fell for a second day after retail sales unexpectedly declined in May. The FTSE 100 Index dropped 0.6 percent to the lowest level since May 1.

The pound will fall to $1.61 by year-end, according to the median forecast of 41 strategists surveyed by Bloomberg News.

A moving average is a technical indicator that displays the average value of an index or security over a period of time. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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Canada Currency Little Changed as Stocks, Oil, U.S. Dollar Rise

June 18 - Canada’s dollar was little changed as gains in crude oil and stocks offset pressure from a U.S. dollar that was strengthened by speculation it will be made more attractive by changes to the way the London interbank offered rate is set.

Canada’s currency, known as the loonie, traded at C$1.1331 per U.S. dollar at 3:59 p.m. in Toronto, from C$1.1318 yesterday. It earlier climbed as much as 0.7 percent, then depreciated 0.4 percent. One Canadian dollar purchases 88.26 U.S. cents.

“Oil and equities are the main pushers for the Canadian dollar,” said Michael Leavitt, a Montreal-based institutional- derivatives broker at MF Global Canada Co.

The British Bankers’ Association said it may allow more institutions to take part in the daily survey that sets Libor, the rate banks say they charge each other for loans in dollars and the benchmark for more than $360 trillion of financial products around the world. The dollar also gained today as investors abandoned bets the euro would rise further after failing to appreciate beyond $1.40.

Bank of Canada Governor Mark Carney, in a speech today in Regina, Saskatchewan, said the nation’s households face rising “stresses” that could lead to losses for banks. He reiterated a pledge to keep interest rates unchanged for a year and repeated comments from a speech last week last week that the global economy will not rebound quickly from recession.

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Pound May Drop to 1-Week Low Against Dollar: Technical Analysis

June 18 -- The pound may drop to the lowest level in more than a week against the dollar if it closes below its 20-day moving average, Brown Brothers Harriman & Co. said.

Britain’s currency may fall to $1.60, the weakest since June 9, Marc Chandler, global head of currency strategy in New York, said today in an e-mail. The pound slid 1.1 percent to $1.6226 as of 1:16 p.m. in London. It earlier fell through the 20-day moving average of $1.6223.

The worst recession since at least 1979 led Standard & Poor’s to revise its outlook for the U.K. to negative from stable last month, saying a AAA credit rating is incompatible with debt heading for 100 percent of gross domestic product. The Treasury expects to sell an unprecedented 220 billion pounds ($358 billion) of gilts in the year that began in April to revive the economy.

“The concern about the U.K. debt position is something that may come back, and that’s going to stay here in the near term,” Audrey Childe-Freeman, a senior currency strategist at Brown Brothers in London, said yesterday in an interview. “We’ve seen the dollar doing better in the context where we’ve seen a shaky environment in the equity markets and risk appetite. Sterling is very much influenced by such forces.”

U.K. stocks fell for a second day after retail sales unexpectedly declined in May. The FTSE 100 Index dropped 0.6 percent to the lowest level since May 1.

The pound will fall to $1.61 by year-end, according to the median forecast of 41 strategists surveyed by Bloomberg News.

A moving average is a technical indicator that displays the average value of an index or security over a period of time. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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Asian Stocks Fall for Third Day on Growth Concern; BHP Drops

Asian stocks fell for a third day, led by mining companies and banks, after U.S. President Barack Obama said unemployment in the world’s largest economy may reach 10 percent.
Jiangxi Copper Co., China’s biggest producer of the metal, sank 3.3 percent as metal prices dropped amid concern demand will decline. Westpac Banking Corp., Australia’s biggest lender by market value, dropped 2.6 percent after a government official said it’s too soon to say the economy avoided a recession. Sekisui House Ltd. jumped 3.9 percent in Tokyo, pacing gains by developers as the central bank raised its assessment of the economy for a second month.
“We’re probably more into a grinding period for the economy rather than a rapid recovery,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $102 billion. “We’ve avoided the Armageddon scenario, but it doesn’t mean we’re back to the brave new world that we were all in a few years ago.
The MSCI Asia Pacific Index lost 0.3 percent to 101.74 at 2:46 p.m. in Tokyo, having swung between gains and losses at least seven times. Japan’s Nikkei 225 Stock Average added 1 percent, while the Topix Index gained 0.9 percent as a weaker yen boosted prospects for export earnings.
Hong Kong’s Hang Seng Index lost 1.3 percent, with China Resources Gas Group Ltd. tumbling 13 percent as Credit Suisse Group AG and Morgan Stanley offered to sell their stakes in the company. Australia’s S&P/ASX 200 Index dropped 1.3 percent, led by ports and rail operator Asciano Group, which slumped 12 percent after it increased the size of a share sale. The Philippines Composite Index sank 2.9 percent.
The MSCI Asia Pacific Index’s 3.4 percent drop in the past three days pared its rally from a five-year low on March 9 to 44 percent. The rally drove the average valuation of companies in the gauge to 1.5 times the book value of assets, the highest level since September, according to Bloomberg data.
Copper Drop
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge slid 1.3 percent yesterday as Best Buy Co., the world’s largest electronics retailer, posted disappointing sales.
In an interview with Bloomberg News, U.S. President Obama predicted a 10 percent unemployment rate even as he said the “engines” of an economic recovery have begun to turn. Obama is due to unveil his plan to revamp financial market regulation later today.
Jiangxi Copper slipped 3.3 percent to HK$12.74. Mitsubishi Corp., which gets more than half of its profit from commodities, slipped lost 1.3 percent to 1,857 in Tokyo. Alumina Ltd. sank 4.9 percent to A$1.45 in Sydney.
Copper prices in New York sank 1.4 percent yesterday as the U.S. Federal Reserve said industrial production sank in May. In London, a gauge of six metals dipped for a third day, the longest losing stretch since February.
Australian Banks
BHP Billiton Ltd. the world’s biggest mining company, sank 3 percent to A$35.36 in Sydney. Its credit-default swaps, the cost of protecting its debt, had their biggest gain since Oct. 22 on speculation it is planning an acquisition.
Westpac dropped 2.6 percent to A$19.34. Australia & New Zealand Banking Group Ltd. fell 2.1 percent to A$16.45. Commonwealth Bank of Australia, the nation’s largest mortgage lender, lost 1.3 percent to A$37.60.
The MSCI Asia Pacific Index slumped as much as 51 percent in the past year as the financial crisis dragged economies including Japan into recession. Australia’s economy unexpectedly grew 0.4 percent in the first quarter after contracting a 0.6 percent in previous three months, government figures released on June 3 showed.
“Celebration would be premature,” David Gruen, executive director of the Australian Treasury Department’s Macroeconomic Group, said in a speech late yesterday. “The global recession, and its Australian counterpart, still has some way to run.”
Taking Profit
The MSCI gauge climbed more than 10 percent for a second month in May, which hasn’t happened since the two months ended 1993. Stocks on the index trade at 23 times estimated profit, more than the MSCI World Index’s 15 times, Bloomberg data show.
“Some people are taking profit as the market has risen too fast,” said Naoki Fujiwara, who oversees the equivalent of $3.7 billion at Shinkin Asset Management Co. in Tokyo. “Investors’ appetite for bargain hunting is surprisingly strong.”
Japan’s Sumitomo Forestry Co. surged 12 percent to 777 yen, while Sekisui House jumped 3.9 percent to 989 yen. Morgan Stanley upgraded the stocks to “overweight” and lifted its outlook on the country’s real estate sector to “attractive,” saying home orders probably bottomed in the first quarter and should benefit from tax breaks.
Daiwa Investment
Daiwa Securities Group Inc. gained 0.6 percent to 651 yen. The company will invest 10 billion yen ($104 million) in DA Office Investment Corp., the Nikkei newspaper reported today, without citing anyone. Daiwa said it is not the source of the Nikkei report. DA Office, which denied the report, wasn’t traded as orders to buy outnumbered those to sell.
In Hong Kong, China Resources Gas plunged 13 percent to HK$5.10. Credit Suisse and Morgan Stanley are offering a combined 166 million existing shares at HK$4.30 to HK$4.60 each, according to an e-mail sent to fund managers yesterday.
Asciano slumped 12 percent to A$1.28 after the Australian ports and rail operator increased a share sale by 18 percent to A$2.35 billion ($1.86 billion) to slash debt.

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Obama Sees 10% Unemployment Rate, Chides Wall Street Critics

June 17

President Barack Obama offered stern words for Wall Street and a prediction of 10 percent U.S. unemployment even as he said the “engines” of an economic recovery have begun to turn.
“Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected,” Obama said, referring to criticism of the government’s growing role in the economy and markets.
Obama, in an interview with Bloomberg News on the eve of the release of his plan to revamp financial-market regulation, voiced confidence the economy would recover soon, while warning that robust growth was needed if the U.S. is to rein in its budget deficit without raising taxes on most Americans.
“You’re starting to see the engines of the economy turn,” Obama said. Still, he said, “It’s going to take a long time” for a full-fledged recovery as households work off the debt accumulated during the real estate boom.
The jobless rate will continue to climb from its current 25-year high of 9.4 percent as employers are slow to take on new workers, the president said. “Jobs are a lagging indicator,” he said, while adding that he didn’t have “a crystal ball” to predict when unemployment will start to decline.
Praise for Bernanke
Obama, 47, gave high marks to Federal Reserve Chairman Ben S. Bernanke for his role in fighting the financial crisis. Bernanke “has done an extraordinary job under extraordinary circumstances,” the president said during the interview in the East Room of the White House. He declined to say whether he would nominate Bernanke, 55, for another four-year term when his tenure runs out in January.
Ahead of today’s regulatory announcement expected at 12:50 p.m. in Washington, Obama pledged to make the derivatives market, which he called a system of “enormous risk,” more transparent. He also said it is important for the U.S. to maintain fiscal discipline to ensure investors in China and around the world keep buying U.S. government debt.
“The No. 1 risk of the next crisis would be that the foreign lenders take a look at this situation and decide it’s too risky,” said Peter G. Peterson, senior chairman of Blackstone Group International Ltd.
While expressing confidence in the long-term prospects for the economy, the president stressed the necessity of making tough reforms, including overhauling the health-care system, to generate the growth needed to reduce thGrowth and Taxes
He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.
“If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama said. “If we’ve got anemic growth, if we don’t have a strategy for recovery without bubbles, which is essentially what we’ve had over the last couple of recovery cycles, then we’re going to continue to have problems.”
The president has repeatedly said he would keep his presidential campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.
During the campaign, Obama opposed taxing employer-provided health-care benefits, a proposal gaining traction among Senate Democrats to pay for a $1 trillion health-care plan.
He said he preferred other means of funding the legislation, including reducing itemized deductions for the wealthiest Americans and focusing on cutting health-care costs.
Vigorous Debate’
Still, he said, “Congress is having a vigorous debate on the Hill, and I don’t want to predetermine the best way to do this.”
“I’ve already put forward what I think is the best way, but let me see what comes out of the Hill,” Obama said.
Only five months into a presidency that inherited the worst financial meltdown since the 1930s, Obama’s self-described “extraordinary” actions to stem the crisis have reached a critical juncture. He will now be tested less on his crisis- management skills and more on the policies that have extended the government’s reach into private industry.
Obama is assuming ownership of his bank-bailout plan, $787 billion economic-stimulus package, auto-industry restructuring and proposals to revise financial-market regulations.
New Terrain
He is also navigating new terrain as a steward of some of the best-known corporations, from General Motors Corp. to Citigroup Inc., asserting the kind of control unseen since former president Harry Truman tried to force action on the steel industry in 1952.
Obama has set a goal by the end of this year to complete legislation to curb climate change as well as overhaul health care. On foreign policy, he is picking up where past presidents have failed -- to reignite an Israeli-Palestinian peace deal, as he confronts foreign policy crises from Iran to North Korea to Pakistan.
The president comes at these challenges with a 67 percent approval rating, putting him above former presidents George W. Bush and Bill Clinton at the same point in their presidencies, according to the latest Gallup polling.
In a sign of the high stakes, Obama stepped up his sales pitch. Yesterday’s series of interviews as well as a Rose Garden press conference on North Korea that also touched on Iran and his regulatory, economic and health-care proposals followed his June 15 address before the American Medical Association in Chicago and a June 11 Wisconsin town hall on health care.
Financial Regulations
The president today will announce his proposal for revamping financial regulation. Many of the changes must be approved by Congress, where jurisdictional and ideological clashes may shape the final legislation.
Crafted by Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers, the plan would put the Federal Reserve in charge of regulating companies whose collapse could damage the entire financial system. It would also create a new agency to oversee consumer financial products, such as mortgages and credit cards.
The proposal encompasses areas ranging from derivatives to executive pay to the mortgage-backed securities that helped fuel the housing boom and touch off the credit crisis.
“Derivatives are a huge potential risk to the system,” he said. “We are going to make sure that they have to register, that they are regulated, that you have clearinghouses.”
Derivatives are contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or the weather.
Role in Economy
The president also said he would like the government to get out of the economy when it can.
“As soon as this economy has stabilized, we want the market to do what it does best, and that is produce jobs, invest,” he said.
He brushed aside concerns that the rise in Treasury bond yields would stifle an economic recovery by pushing up borrowing costs for homebuyers. The 10-year Treasury note yield has increased 0.57 percentage point since May 14.
Obama said Treasury yields are rising because investors have grown “more confident that we may have avoided the very worst scenarios” for the economy and are putting their money into investments with higher returns.
Skittish Investors
Still, he warned that long-term deficits would deter international investors, including China, which holds $767.9 billion of U.S. debt. China has already shifted purchases of Treasuries into shorter-maturity securities amid concern about unprecedented debt sales.
“There’s no doubt that, at some point, you know, whether it’s the Chinese, the Koreans, the Japanese, whoever else has been snatching up Treasuries are going to decide that this is too much of a risk,” Obama said.
The Standard & Poor’s 500 Index has gained 15 percent since Obama’s Jan. 20 inauguration, compared with a decline of 9.6 percent in the first five months of the Bush administration and an increase of 3 percent under Clinton. Corporate bonds have returned 11.5 percent, according to Merrill Lynch & Co. index data, and companies have sold about $680 billion of debt, a record pace, Bloomberg data show.
The president said his plan to re-regulate markets would include a “systemic regulator” to oversee the “entire financial system” and catch risky activity “before the crisis occurs.”
His toughest language was reserved for those on Wall Street who criticize his administration for putting too many restrictions on aid, including limits on executive compensation.
“When I hear some of the commentary that’s been creeping up about, “You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them -- all we’re doing is cleaning up after the mess that was made,” Obama said.

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Economists see end to US downturn

The US economy should emerge from recession by the late summer, according to economists from some of the country's top banks.
The American Bankers Association's Economic Advisory Committee has said it expects economic activity to increase by 0.5% between July and September.
But committee head Bruce Kasman said the economy would "return to growth [in the quarter] but not to health".
The bankers also said US unemployment would hit 10% early next year.
Separately, the secretary-general of the Organisation for Economic Co-operation and Development (OECD) has said that economic recovery within the group's 30 countries will begin at the end of this year.
Speaking in Mexico, Angel Gurria added that the US would be one of the first countries to come out of recession.
Housing recovery
US consumer spending, which accounts for about two-thirds of economic growth in the US, should increase in the second half of the year and help to moderate lay-offs and cuts in investment spending, the Economic Advisory Committee said.
"Coupled with support from policy stimulus and an improvement in financial market conditions, these developments have made it likely that the overall economy will expand in the second half of the year," it predicted.
Mr Kasman, chief economist for JP Morgan Chase, also said that a recovery in the housing market would be an "important contributor" to economic growth.
But he cautioned against too much optimism.
"Growth in the coming quarters is likely to gather momentum but will not prove sufficiently robust to undo much of the severe damage done to our labour markets and public finances," he said.
This means that growth would not return to "trend pace" until the middle of 2010, he added.
For this reason, unemployment would remain at or above 9.5% for the whole of next year.
The current unemployment rate in the US is 9.4%, the highest since 1983.
Mixed messages
The US economy contracted by an annual rate of 5.7% in the first three months of 2009.
It has shrunk for three consecutive quarters - the first time that has happened since 1975.
And recent figures have sent out mixed messages about the timing of any recovery.
Earlier on Tuesday, figures showed that the number of new houses being built in the US in May bounced from record lows in April.
But separate figures showed that industrial production fell by more than analysts had expected.

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California running out of $10,000 tax credits

Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.
"We're less than four months into it, and all the tax credits authorized are gone, or practically gone," said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).
The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state's Franchise Tax Board.
That leaves nearly $76 million in credit available - but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.
"The program is working better than intended," said Coyle. "It's really pushing people off the fence."
The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it's an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home -- even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer's income.
The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.
For example, if the buyer's tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn't claim the extra $1,333 back from the state.
First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership
More money coming?
Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it's running a $24 billion budget deficit and has the lowest bond rating of any state.
But Coyle argues that the credit is a net win for state coffers and it puts people to work. "Every time you build a home in California, you're generating $16,000 in taxes," he said.
During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.
Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.
There has been little opposition, she said, but the program has to be "revenue neutral," which could limit how much is made available as funds would have to be cut from other areas to pay for it.
There is also one big change from the original offering: People buying homes under construction - not just those already finished - will qualify, which should help put projects back on track.
"It creates a reservation system that was absent in the first bill," said Caballero. "Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract."
"Contractors in Southern California were reporting no housing starts last January," she added. "Now, they have new crews out on the job. That's significant for California

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US Confidence at 9-mth High, USD Mixed

The greenback received a boost ahead of this weekend’s G8 Finance Minister’s meeting, with Japan’s FinMin Yosano jawboning the currency higher. In light of recent speculation among Chinese and Russian government officials touting the need for a new global currency given the deteriorating US fiscal outlook, Japan’s Yosano expressed confidence in US Treasuries – calling his nation’s trust in US debt “absolutely unshakeable”.The University of Michigan consumer confidence survey, released earlier today climbed to its highest level in 9-months but was largely mixed against consensus estimates. The June preliminary conditions index sharply beat expectations, printing at 74.5, versus calls for an improvement to 68.5 from 67.7. The expectations component disappointed, slipping to 65.4 and missing estimates for a gain to 72.0 from 69.4 in May while sentiment survey edged up by less than forecast to 69.0 from 68.7 previously

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Oil retreats after 3-day climb

Crude prices turn around after reaching an eight-month high as investors think the recent run-up may have gone too far.

Oil fell on Friday, a day after reaching a near eight-month high, pressured by a firmer dollar and views that prices have risen too far despite improving economic sentiment.

The market on Thursday settled at $72.68, the highest since Oct. 20 after a three-day rally, making it look overvalued to some analysts. The dollar gained, reducing the investment appeal of oil and commodities.
"Most commodity markets are still quite overbought and could be subject to a modest sell-off next week," said Edward Meir, analyst at MF Global. "We are getting to a stage where the steep run-up in prices has arguably over discounted the modest brightening we are seeing in the U.S. macro picture."
U.S. crude fell 59 cents to $72.09 a barrel, after reaching a 2009 intra-day high of $73.23 on Thursday.
The Organization of the Petroleum Exporting Countries on Friday further reduced its forecast for world oil consumption this year, but said the worst appears to be over for the oil market.
"As the world economy stabilizes, the world oil demand appears to be settling down," OPEC said in its Monthly Oil Market Report. "There are no significant downward revisions to our previous oil demand forecasts."
Two other closely watched forecasters, the U.S. Energy Information Administration and the International Energy Agency, slightly raised their demand estimates this week, after months of downward revisions.
Stronger-than-expected Chinese economic data helped support prices.
Official figures showed a rebound in China's industrial growth and retail sales in May, following on from U.S. data on Thursday showing an increase in retail sales and a slowdown in weekly jobless claims.
Data also showed refinery output in the world's number two energy user rose 10.7% in May versus a year earlier, in its third monthly rise in seven months to a fresh record high.
Concerns over tightening gasoline supplies have given oil an extra boost this week.
U.S. energy firm Valero (VLO, Fortune 500) said on Thursday it will shut its refinery on the Caribbean island of Aruba for the summer due to weak profit margins. The U.S. has already been hit by a spate of refinery outages in recent weeks.

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Dollar moves higher after trouncing

Dour reading on European industrial production weighs on the euro, giving the dollar a leg up at the end of a down week.



NEW YORK (Reuters) -- The dollar rose Friday, rebounding from vicious selling earlier this week, while data showing a plunge in euro-zone industrial production highlighted economic weakness in the region and pushed the euro lower.
Other recent top performers, including sterling and the Canadian and Australian dollars, also fell as oil prices dipped and G8 finance ministers prepared to start a meeting in Italy.
The dollar had spent most of the week under pressure as investors betting on a global recovery bought higher-yielding currencies and assets such as stocks and commodities, and traders said investors were largely taking profits on Friday.
"We're seeing a classic correction," said Brown Brothers Harriman currency strategist Meg Browne. "The top performers on the week are the worst performers today, suggesting the move is largely corrective in nature and will not be sustained."
The euro was down 0.9% at $1.3973 while sterling fell 1.1% to $1.6388 after having moved above $1.66 on Thursday. The dollar was up 0.6% at 98.18 yen and surged 1.7% against the Canadian dollar to to 1.1208.
Profit-taking on the euro accelerated after data showed industrial production in the 16-country euro zone plunged 21.6% in the year to April, a record fall that was steeper than economists' forecasts.
"I'm not surprised the figures are poor. The euro zone .... will suffer more than the rest of the world, ergo my view that the euro will underperform for quite some time," said Maurice Pomery, managing director at Strategic Alpha in London
Exchange rates are not on the agenda at a two-day G8 meeting that starts on Friday, but analysts said they may come up in light of the dollar's recent slide, which has undermined euro-zone exports by making them more costly.
A French official told Reuters on Thursday that authorities were watching currency fluctuations closely. "What is damaging for the economy is the volatility of the currency markets."
Safe-haven demand boosted the dollar during the bleakest days of the financial crisis last year, but the euro rose 7% last month and is up 5.5% this quarter.
0:00 /1:04Recession easing in U.K.
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An index that measures the dollar against six major currencies is down 6% in the second quarter, reversing a 5% rise in the first three months of 2009.
"We wouldn't be surprised if the weekend meeting concluded with the finance ministers singing the merits of a strong dollar, partly to shore up any lingering worries over demand for U.S. assets ... but also to provide (euro zone) economies some support," strategists at Calyon wrote in a research note.
Some analysts, though, said the dollar's rally may gather steam. Matt Esteve, a strategist at Washington-based Tempus Consulting, said investors see the United States as likely to emerge from recession before the euro zone and are starting to reward the dollar for this.
Indeed, the dollar extended gains after a survey showed U.S. consumer sentiment rose to a nine-month high in June while inflation expectations ticked higher.
Last week, better-than-expected U.S. employment data even prompted markets to bet the Federal Reserve would hike rates by year end, though Esteve said that's unlikely before 2010.
"The theme emerging is that the U.S. is best positioned for economic recovery," Esteve said.

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Forex Market Update: U.S. Dollar Advances Across the Board as Risk Appetite Wanes

EUR/USD consolidated around 1.4100 much of the Asian session, before slumping to session lows of 1.4069, with the stronger dollar led by the commodity block with both AUD and CAD coming under pressure before EUR and GBP began to lose ground. On AUD, EUR/AUD buying and AUD/NZD selling weighed on the currency. Also seen bearish for AUD and CAD were the comments from the chairman of the China Banking Regulatory Commission, asking whether positive signs in the economy are for real, noting that the incongruity between the Chinese stock market gains while corporate profits are falling. Despite EUR gains, the economic outlook for the Eurozone remains grim with German Chancellor Merkel stating that that she does not expect a speedy economic recovery and that the crisis is not over with a long and difficult road ahead. Reports from both the ECB and IFW released on Thursday do not anticipate a recovery until mid-2010. And while the IMF raised their global growth forecast on Thursday, the World Bank lowered their estimate to -3% from -1.75% for this year. Offers on EUR/USD are reported at 1.4180 and 1.4200 and as high as 1.4260 with buyers reported at 1.4050, 1.400 and 1.3900.

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Australian unemployment rate up

Australian unemployment has surged to a seven-year high as the global downturn continued to hit companies.
The unemployment rate jumped to 5.7% in May, after an unexpected fall to a revised 5.5% in April.
"We've always said we were not immune from the global recession," said Employment Minister Julia Gillard.
But the number of people employed fell by just 1,700 from April, far less than the drop of 30,000 that many economists had been predicting.
While unemployment measures the number of people looking for jobs, the employment rate is based on surveys from employers and reflects net hirings and dismissals..
Avoiding recession
Recent data has convinced many observers that the worst of the slump may be over for Australia.
Total employment in Australia has fallen by 9,400 so far in 2009, compared with a drop of 2.9 million in the US. The US unemployment rate is now at a 25-year high of 9.4%.
On Wednesday, a survey showed Australian consumers swung to optimism for the first time in 17 months.
The Australian government said earlier this month that it had unexpectedly avoided falling into recession. The economy grew by 0.4% in the first three months of 2009.
Australian Prime Minister Kevin Rudd said the country was now the only advanced economy not in recession.

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Greater oil demand seen for 2009

Oil prices have surged since hitting a low of $32 a barrel in December



Demand for oil this year will be more than previously expected, according to the International Energy Agency (IEA).
The IEA said in its monthly survey that oil consumption would now drop by 2.9% to 83.3 million barrels a day.
The body had expected a 3% annual decline this year, the biggest drop since 1981.
The higher forecast, the first increase in the IEA's expectations in 10 months, may add to signs that the worst of the global recession is over.
"These revisions do not necessarily imply the beginnings of a global economic recovery, and may only signal the bottoming out of the recession," the IEA said.
The report came as oil prices rose above $72 a barrel, close to an eight-month high.
US light sweet crude rose as much as 1.4% to $72.05, before falling back slightly. London Brent crude rose 0.7% to $71.32.
The price of oil has more than doubled this year.
It touched lows of about $32 a barrel in December, but is still nowhere near the all-time high of $147 reached in July last year.
On Tuesday, the US Energy Department's Energy Information Administration predicted that oil prices would average $67 a barrel in the second half of 2009. A month ago, its forecast was $55

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Pound hits 2009 high against euro

Sterling has reached its highest level against the euro since the start of the year after data suggested the UK recession may be over.
One pound was worth 1.1758 euros in early afternoon trading, having closed the previous day at 1.1672 euros.
On Wednesday the National Institute of Economic and Social Research estimated that the economy grew in April and May.
The pound was also boosted by data showing industrial output rose in April - the first monthly rise in 14 months.
In addition, the pound's rise was aided by a survey on attitudes to inflation by the Bank of England, which showed inflation expectations for the coming year rose to 2.4% in May from 2.1% in February, the first rise since August.
Sterling was also up against the dollar, rising one cent to $1.6429.
The pound had fallen against both the euro and the dollar last week and at the beginning of this week amid concerns about possible challenges to the leadership of Gordon Brown.
However, in the past couple of days the political situation appears to have stabilised.

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Dollar On Pause Ahead of Retail Sales

The dollar was steady versus other majors Thursday morning in New York ahead of the the release of pivotal retail sales and jobless claims data.
Its been a choppy week for the dollar, which has shown signs of stabilizing after coming under intense pressure last month. With traders on the fence about the Federal Reserve's stance on interest rates, the dollar has managed to avoid setting new multi-month lows.
Today's retail sales data will be the primary focus, with traders looking for indications that the consumer can help lead the economy out of the doldrums.
Retail sales for May are expected to rise to 0.5 percent from last month's negative 0.4 percent. The Commerce Department report will be especially closely watched, as traders will look to see if improved consumer sentiment has translated to spending.
Trading is also likely to be driven by the Labor Department's jobless claims data for the week ended June 6th. Economists expect first time claims to come in at 625,000 compared to 621,000 the previous week.
The dollar held its ground versus the euro, staying near 1.4000. Against the sterling, the buck edged to a weekly low of 1.6491. With the modest loss, the dollar inched closer to a 6-month low of 1.6662 from earlier in June.
The dollar continued to consolidate its recent gains versus the yen, staying near 98.30. Earlier in the week, the dollar hit a monthly high of 98.87.
Petro-linked currencies could be in play after the the International Energy Agency raised global oil demand estimate for 2009 by 120,000 barrels a day, following a stronger-than-expected first quarter OECD data. Crude rose above $72 on the news. The dollar was holding near C$1.1000 versus the loonie, after seeing big losses over the course of May.

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Jobless Claims Decrease Last Week

The number of people filing first-time unemployment claims dropped last week to the lowest level in more than four months, reinforcing hope that the labor market has begun to stabilize.
Still, while layoffs appear to be slowing down, there are signs that people who have lost their jobs are having problems finding new ones. The government's unemployment roll once again set a new record high, rising above 6.8 million.
The U.S. Labor Department revealed Thursday that initial jobless claims, a closely-watched gauge of layoffs, came in at 601,000 for the week ended at June 6th. This was down 24,000 from the previous week's revised level of 625,000.
The result marked the lowest total for initial jobless claims since the week of January 24th.
Claims have been edging lower since hitting a cycle high of 674,000 in late March. Since then, the statistic has only risen twice over the past 10 weeks, though the totals have remained well in the range that economists consider recessionary.
The 4-week moving average for initial claims, a statistic that flattens out week-to-week fluctuations in the data, dipped to 621,750.
Continuing claims, which measures people receiving ongoing unemployment help, pushed further higher, setting yet another record by rising 59,000 to 6.816 million.
A report that came out last Thursday initially showed a drop in continuing claims, but revised information contained in this week's report changed that to a rise of 6,000. So with the revised data and the new reading, continuing claims have been up for 21 consecutive weeks.
The drop in jobless claims further encourages the hope that the labor market has been stabilizing lately.
Chris Low, chief economist at FTN Financial, said of the data, "Claims continue to suggest recovery is imminent." He also noted that "claims are the best leading indicator of recovery there is."Last Friday, the government said that the economy lost 345,000 in May - significantly less than the 520,000 that economists were predicting. Still the unemployment rate jumped more than expected, rising to 9.4 percent after coming in at 8.9 percent in the previous month.

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Crude Oil Extends Best Close Since October After IEA Report

Crude oil added to its best close since October as the International Energy Agency raised its demand expectations for the year. A weaker dollar also boosted the precious metal's hedge appeal.
Light sweet crude oil for July delivery settled at $72.68 per barrel, up $1.35 for the day, extending its highest close since October. Earlier in the day, oil reached as high as $73.23.
This morning, the IEA announced it raised its 2009 demand estimate to 83.3 million barrels per day, up 120,000 barrels from last month's forecast.
Tomorrow, the Organization of Petroleum Exporting Countries is expected to announce its Monthly Oil Market Report.
Earlier this week, the Energy Information Administration boosted its expectations for the price of West Texas Intermediate crude oil to an average of $67 per barrel for the second half of 2009. This is up about $16 compared with the first half of the year.
EIA data released Wednesday showed U.S. commercial crude oil inventories decreased by 4.4 million barrels in the week ended June 5. Total motor gasoline inventories decreased by 1.6 million barrels last week.
The dollar saw weakness against its major rivals on Thursday in New York. The buck turned to the downside against the euro and crossed the 1.4000 mark again. The buck also fell against the sterling and tested a seven-month low.
In economic news on Thursday, the U.S. Labor Department revealed that initial jobless claims came in at 601,000 for the week ended at June 6, down down 24,000 from last week.
Meanwhile, a Commerce Department report showed that retail sales rose 0.5 percent in May following a revised 0.2 percent decrease in April. Economists had expected sales to increased by 0.5 percent.
Later in the morning, a Commerce Department report showed that business inventories fell 1.1 percent in April following a revised 1.3 percent decrease in March. Economists had expected the drop in inventories to match the 1.0 percent decrease originally reported for the previous month.

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For Latvia, it has been a pretty dramatic fall from grace.

Until recently, the tiny Baltic state was a star performer in Eastern Europe.
Its picturesque capital was a destination for tourists, it attracted floods of capital from Swedish banks and its growth rate was high.
Fast forward a few years and it is a very different picture. The economy is forecast to shrink 18% this year, unemployment is rising and the lat, its currency, is in danger of devaluation.
The government has denied it will devalue the lat, but if it does, fears exist that it will have an impact far beyond the borders of this tiny state, home to just over two million people.

Seeds of destruction
Latvia is, to a large degree, a victim of the global financial crisis, but the seeds of its downfall were planted well before the current slowdown.
Not that long ago, "the Baltics were star performers in Eastern Europe," said Ed Parker at Fitch Ratings.
When Latvia joined the EU, expectations were high that the country could soon join the euro and living conditions would improve. It fixed the lat to the euro, allowing it to move within a small band.
A small and open country, Latvia quickly attracted investment. The big Swedish banks established subsidiaries and an influx of foreign capital helped sustain a real estate boom.
Rising domestic consumption, a thriving property market and capital inflows all helped spur growth.

Latvian Prime Minister Valdis Dombrovskis(l), has tried to reassure investors
But says Fitch's Parker, "one of the problems was that a lot of this foreign capital was directed to real estate development and mortgages rather than building an export oriented manufacturing base".

"[This was] in contrast to countries like Poland, where a lot of [foreign direct investment] FDI was used to set up manufacturing plants. A lot of the development [in Latvia] went into the real estate sector."
At the same time, its fast growth and a fixed exchange rate pushed prices higher. Latvia became an expensive place to do business.
"This excessive optimism plus the entry and aggressive lending policies of foreign banks, led to a huge credit boom and huge current account deficit," said Fitch's Parker.
When the capital stopped flooding in, as the credit crunch forced banks to tighten lending, the economy froze.
These figures make grim reading . The economy is forecast to shrink by up to 18% this year, the latest budget proposes a 40% cut in spending and pay cuts of 20% for state workers.
Last December, Latvia sealed a 7.5bn euro bailout from the IMF and the EU. If it is to continue to draw down on this money, it needs to make further cuts, likely to be painful for Latvians, already adjusting to a new economic reality.
When a government bond auction failed, fears rose that the government may have to devalue its currency, possibly abandoning its peg with the euro.
Could it spread
A devaluation would have serious consequences for Estonia and Lithuania, its two biggest trading partners.
"The moment you devalue Latvia, their products become more competitive at the expense of Lithuania and Estonia. These two countries are Latvia's two biggest trading partners," said Barclay Capital's Christian Keller.
For banks which have invested in Latvia, a devaluation also has serious consequences.
"If we look at the Swedish bank exposure, it is relatively large," said Mr Keller.
"Swedish banks have six per cent of their assets in the Baltics. If you take the stress-test of Riksbank, forty per cent of the losses they estimate are coming from the Baltics.
"There is a disproportionate impact from the Baltics on Swedish banks' financial performance."
More worryingly for some analysts is psychological contagion - where investors look at countries which have common characteristics and wonder if they have similar problems.
This means that if other countries with currency pegs - countries such as Lithuania, Estonia and Bulgaria - may come under pressure to abandon them.
If Latvia doesn't devalue, its alternative is to struggle to maintain the current peg and impose large wage cuts to try to restore competitiveness.

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Dollar Climbs on Interest Rates Raise Speculations

June 8th, 2009

The dollar gained versus the main currencies as speculations that the U. S. Government will raise its interest rates by the end of the year, consequently causing a bearish day in equities markets around the world.

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Eur/usd - jun 4

Eur/usd - 1.4166...Despite y'day's selloff fm 1.4339 to 1.4109 after traders unwound their long positions vs dlr n yen, euro has rebounded after finding buying interest abv a rumoured option barrier at 1.4100. A mixture of offers n stops is tipped at 1.4200/10 with more selling interest likely to emerge at 1.4230. Stops are now noted at 1.4120 n 1.4090/00 with bids found further out at 1.4050/60...

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Usd/jpy - 96.18...Dlr rose to 96.37 earlier in part due to comments fm the Fitch ratings agency

who said that there was no evidence that China was diversifying away fm U.S. debt. Offers at 96.40 are in focus with more selling interest tipped further out at 96.90/00. On the downside, bids fm various accounts (incl. Japanese investors) are seen fm 95.80 down to 95.60 with stops likely to emerge below latter lvl...

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Gbp/usd - 1.6231...Cable declined to 1.6210 (

on active cross selling vs yen n euro in part due to speculation that PM Gordon Brown wud be forced to step down as a result of the expenses claims scandal. A mixture of bids n stops at 1.6190/00 is in focus with more bids likely to emerge at 1.6150/60 (for profit taking purposes). On the upside, fresh offers

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Sale-and-rent-back is regulated

Sale-and-rent-back schemes which target people in danger of repossession will be regulated by the Financial Services Authority (FSA) from 1 July.

Last year the Office of Fair Trading (OFT) found they could cause "serious harm" to vulnerable homeowners.
Some homeowners have found themselves being evicted soon after selling their homes cheaply to new landlords, despite assurances to the contrary.
The FSA said sale-and-rent-back firms must treat their clients fairly.
"We know that some consumers enter into sale and rent back arrangements without understanding the costs and risks involved," said Ed Harley, FSA head of mortgage policy.
"This can be a source of real distress for people in already difficult circumstances.
"Firms entering our regime will need to run their business in a way that means customers are treated fairly," he added.

'Fit and proper'
The FSA's new rules mean that firms in this line of business will have to tell customers how long they can stay in their properties before they enter a deal.
A more comprehensive regulatory regime will be introduced in June 2010.
Firms who are involved in buying homes and them letting them to their former owners will have to be run by people who are, in the FSA's view, "fit and proper".
They will also have to apply for authorisation to carry on this line of business.
Last year, an OFT investigation found there were about 1,000 firms offering sale-and-rent-back schemes.
In January, it told 16 companies offering these deals to substantiate the claims they were making in their adverts.
The OFT said the doubtful claims in the advertisements included suggestions that customers could stay in properties after they were sold, by renting them back for as long as they wished, at fair market rates.
Clients were also told that they could buy back properties at an agreed point in the future, and in the meantime would have flexible rental terms with periods of low rent.
Andrea Rozario, director general of the equity release trade body Safe Home Income Plans (SHIP), said: "This is a natural step to protect consumers as economic conditions worsen and more people need to release equity from their homes."

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Interest rates set to remain held

The Bank of England's interest rate setters are expected to keep the cost of borrowing unchanged at 0.5% for the third month in a row.
The European Central Bank is also likely to keep its own rate unchanged at 1% following last month's cut.
What may be of more interest is what either bank says about its other policies for getting money circulating.
Last month, the Bank of England announced it would be injecting an extra £50bn into the economy.
But the members of its Monetary Policy Committee (MPC) may feel that it is not yet time to extend the programme of quantitative easing.

Purchasing managers' indexes in the past few days have suggested the recovery may be coming faster than expected.
The pound has hit a seven-month high against the US dollar, which may suggest that traders think that UK rates could begin to rise again sooner rather than later.
However, John Higgins, market economist at Capital Economics, said that the cost of borrowing was likely to remain at the current level until the end of 2010.
"Amid all the excitement about the green shoots of economic recovery, markets have not altered their expectations for the path of monetary policy much in recent months," he said.
Future problems?
The Bank of England is due to complete its £125bn spending on quantitative easing in July.

The Treasury has said it can spend up to £150bn, so if the MPC members want to extend the programme significantly, they might decide to ask for permission to do so this month instead of waiting until July.
Under the quantitative easing programme, the Bank of England prints money and uses it to buy government and corporate bonds to increase the amount of money in circulation and stimulate economic activity.
The European Central Bank announced last month that it would also be buying bonds - about £60bn of them - and more details of that programme are expected later.
On Tuesday, German Chancellor Angela Merkel made a speech supporting the ECB's more conservative approach, suggesting that other central banks taking a more aggressive approach were storing up problems for the future.
"The independence of the European Central Bank must be preserved and the things that the other central banks are doing now must be reversed," she said.

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yen is weakening against counterparts

Early on Wednesday during European Deals, the Japenese unit tumbled to new multi-month lows against the European currency, the British Pound and the Swiss Franc as a rise in stock Prices prompted investors to buy higher-yielding assets with money borrowed from Japan. The yen also lost ground against its US counterpart.
The Nikkei 225 Average opened higher by 20 points at 9,724 compared to its previous close at 9,704, mirroring the gains on Wall Street. The index traded in a narrow range between 9718 and 9774 amid alternate bouts of buying and selling before finally closing at 9,742, a gain of 37.36 points, or 0.38%. The broader Topix Index of all first section issues edged up 0.94 points or 0.10% to close at 915.
During early deals on Wednesday the Japanese yen edged down versus the US dollar, falling to a low of 96.40 at about 4:45 am ET, with 97.0 seen as the next downside target level. Late Tuesday in New York USD/JPY rally was worth as much as 95.77.
The Japanese unit also showed weakness against the European and Swiss rivals, moving down to 138.01 and 90.79, respectively, by about 2:50 am ET Wednesday, setting the lowest points for the yen since mid-October. That may be compared to Tuesday’s close at 136.98 and 90.23. On the downside, yen was likely to slip to 147.5 against euro and to 93.1 versus franc.

Against the British pound, the Japanese currency slid to 160.51 at 3:20 am ET Wednesday, setting the lowest point for the yen since November 5, 2008, with 176.5 seen as the near term support. GBP/JPY rally closed Tuesday’s New York deals at the level of 158.77.

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NZ dollar slides to 2-day low against euro, yen and greenback

The New Zealand dollar lost further ground against its major counterparts in early trading on Wednesday. The kiwi dropped to a 2-day low of 0.644 against the US dollar, 61.79 versus the Japanese yen and 2.2063 against the euro around 7:25 am ET. The New Zealand currency closed yesterday's deals at 0.6569 against the buck, 62.92 versus the yen and 2.1798 per euro.

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Stocks Looking To Grind Out Gains Wednesday; Bernanke On Capital Hill

US stocks were poised for a lackluster start Wednesday morning in New York following modest gains in the previous session. The markets were in wait and see mode ahead of comments from Fed Chairman Ben Bernanke and a key reading on private sector payrolls. As of 6 am ET, the Dow Futures were down...

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More US banks seek to raise funds

JPMorgan Chase and American Express have become the latest US banks to announce share issues as they aim to raise funds to repay the government.
JPMorgan said it planned to raise $5bn (£3bn) to help repay the $25bn it was awarded from the Troubled Asset Relief Program (Tarp) rescue plan for lenders.
At the same time, American Express said it hoped to raise $500m to start to repay the $3.4bn it has received.
The largest 19 US banks have been given $229bn under the Tarp scheme so far.
This is out of the total $700bn that was available at the launch of the programme.
Industry-wide moves
JPMorgan Chase and American Express' announcements follow similar share issue plans to start repaying the government announced by BB&T, US Bancorp, Capital One Financial and Bank of New York Mellon.
Meanwhile, Goldman Sachs this week sold $1.9bn worth of shares in Chinese bank Industrial and Commercial Bank of China.
All these banks last month passed the so called "stress tests" held by the Treasury Department and Federal Reserve, which determined that they do not require any more Tarp funds to improve their capital base.
By contrast, 10 of the 19 largest US banks that have gained Tarp funding failed the tests, including Bank of America, Citigroup, Morgan Stanley and Wells Fargo.
These have also announced share issues, but in their case it is to strengthen their finances rather than pay back the government.
The Fed has ruled that banks must prove they have sufficient financial reserves before they can start to repay their Tarp funds.

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Oil prices reach seven month-high

Oil prices jumped more than 3% on Monday to a nearly seven-month high above $68 a barrel.
US light sweet crude settled $2.27 higher at $68.58 while Brent crude rose by $2.45 to $67.97.
Gains in global stock markets and data showing modest growth in Chinese manufacturing appeared to be driving up prices, continuing a recent rally.
Oil prices climbed by 30% in May, which was the largest gain in a single month since 1999.
But oil is still trading well below the record high of $147 a barrel seen last July.

Warning

Some analysts fear that the oil market may be moving ahead of reality, and warn that prices could fall as investors face up to the reality of a glut of supplies and weak global demand.
"Most of the commodity markets, the base metals as well as oil, have moved to factor in economic recovery," said David Moore, commodity strategist at Commonwealth Bank of Australia.
"There is a risk that if economic data does not continue to support this view of the world that markets become disappointed with the pace of economic recovery, leading to price setbacks."
Last week, ministers from the Opec group of oil-producing countries said that they would keep output unchanged, with the Saudi oil minister Ali al-Naimi predicting prices will reach $75 this year.

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Europe Roundup - Eurozone Jobless Rate Climbs To Near Decade High

Tuesday, official statistics showed that unemployment in the Eurozone rose to its highest level in nearly ten years in April as the global economic downturn left several Europeans without work.
In other important news from the region, the Swiss economy contracted the most since 1992 as sluggish global demand continued to hurt the country's exports.
Eurozone
The Luxembourg-based statistical office Eurostat said the seasonally adjusted jobless rate rose to 9.2% in April from 8.9% recorded in March. This is the highest rate since September 1999 and a touch higher than the 9.1% expected. The number of unemployed persons increased by 396,000 to 14.58 million in April from 14.18 million in March.
The jobless rate for the EU27 stood at 8.6% in April, the highest since January 2006 and up from 8.4% in March. The rate was 6.8% in April 2008.
Elsewhere, a report by Spain's labor ministry said the number of unemployed persons decreased by 24,741 to 3.6 million in May from the preceding month, representing the first decline in 14 months.
The French statistical office INSEE announced that industrial producer prices for the domestic market declined 6.4% year-over-year in April, compared with a 5.5% fall in the previous month. The April producer prices came in line with economists' expectations.
The Statistical Service of the Republic of Cyprus revealed that the general government deficit stood at 0.8% of GDP in the first quarter, compared to a surplus, which was 0.5% of GDP in the previous year.
Irish consumer confidence dropped in May to 45.5 from 46.8 in April, results of a survey conducted by KBC Bank Ireland and the Economic and Social Research Institute showed
Rest of Europe
U.K.'s Select Committee on Economic Affairs of the House of Lords urged the government to return the responsibility for macro-prudential supervision to the Bank of England as the current tripartite framework of regulation and supervision failed to mitigate the financial crisis.
On the data front, the Bank of England said the number of loans approved for house purchases in the U.K. increased to 43,201 in April from 40,038 in March. The April level was higher than the previous six months average of 33,845 and 41,000 expected by economists.
Further, the British central bank upwardly revised UK's M4 money supply growth for April to 0.2% from 0.1% reported initially. In March, money supply had grown 0.3%.
The Confederation of British Industry said shortage of trade credit insurance remains a worry. However, deterioration in credit conditions slowed further over the last three months and expects it to stabilize in the months ahead, a survey by the industry lobby found.
Data released by the State Secretariat for Economic Affairs or SECO showed that the Swiss gross domestic product or GDP fell 0.8% sequentially in the first quarter following a downwardly revised 0.6% contraction in the fourth quarter. That was the worst performance since the final quarter of 1992. Meanwhile, economists had forecast the economy to shrink 1.5%. GDP declined for the third straight quarter, while two consecutive quarters of negative GDP defines a recession.
The Credit Suisse said the SVME purchasing managers' index for Switzerland rose to 39.8 in May from 34.7 in April, the strongest increase since September 2005. Economists had forecast a reading of 36.5.
The number of Norwegian business leaders expecting their companies' profitability to increase over the next 12 months increased in the second quarter compared to the first quarter, results of a quarterly survey carried out by the Perduco for the Norges Bank showed.
Norway's consumer confidence index rose to minus 3.7 in the second quarter from a revised minus 8.3 in the first quarter, the Saving Banks Association said. Economists had expected the index to rise to minus 5 from the initial first quarter reading of minus 11.1.
Statistics Norway said the twelve-month growth in the C2 credit indicator was 8% in April, down from 8.8% in March.
The Financial Stability Report from the Riksbank said the loan losses of major Swedish banks would increase over the coming years and the loan losses in 2009 and 2010 would total SEK 170 billion.
Statistics Denmark said the retail sales volume fell a seasonally adjusted 0.6% month-on-month in April, after a 0.1% rise in the previous month.
Romania's National Institute of Statistics said in a report that the producer price index or PPI rose 2.5% year-over-year in April, slower than the 3.9% increase in the previous month

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