Wednesday June 24, 2009

LONDON: Sterling edged lower against the dollar and fell more sharply versus the euro on Tuesday with the market taking its cue from equity markets to gauge risk appetite. Early losses in UK share prices pushed the pound to a low of around $1.6210. But the British currency pared some losses as share prices recovered. Sterling also lost traction against the dollar after US data showed sales of previously owned homes in the United States rose at a slower-than-expected pace in May.

Sales rose 2.4 percent to an annual rate of 4.77 million units from a downwardly revised 4.66 million pace in April, below forecasts for a 4.81 million-unit pace. "The overall climate (for sterling) remains defensive," said Asraf Laidi, chief market strategist at CMC Markets. By 1442 GMT, sterling was down 0.3 percent at $1.6283, after hitting a session low of $1.6211, according to Reuters data. The euro was up 1.3 percent at 85.93 pence, having fallen to around 84.00 pence on Monday, its lowest level since early December.

The single currency also rose 1.0 percent against the dollar. "There is some uncertainty about the nature of recovery in the UK economy, so we are seeing some near-term headwinds for sterling," said Phyllis Papadavid, currency strategist at Societe Generale in London. But she said the pound would still be attractive over the medium-term as sentiment and economic data improved.

Sterling was well-supported at a key technical level around $1.6180, technical analysts said. Figures from the British Bankers' Association showed the number of mortgages approved for house purchase rose 15.8 percent on a year earlier in May, ending months of annual declines.


(Reuters)

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Wednesday June 24, 2009

NEW YORK: The three-month rate banks charge each other for dollars fell to a record low on Tuesday as the Federal Reserve's rate-setting group prepared to begin its scheduled meeting. Expectations of a rate-friendly outlook from the Fed's Open Market Committee, and less anxiety over the record $104 billion in US government debt supply for sale this week, lowered the short-term costs and risk premiums on dollars.

"The Fed trumps supply concerns for now unless the demand is really awful," said Eric Lascelles, chief economics and rates strategist with TD Securities in Toronto. The FOMC will begin to meet on Tuesday and conclude on Wednesday afternoon when it is expected to release a policy statement immediately after. Adding to the downward pressure on dollar rates was the European Central Bank's launch of its one-year funding operation aimed to increase liquidity in the Euro zone banking system, analysts said.

The London interbank offered rates on three-month dollars fell to a record low of 0.6075 percent, surpassing the prior low of 0.60875 percent set last week. At the same time, the three-month Libor on euros slipped to 1.21063 percent, the lowest since the common currency was launched in 1999. Traders are betting the FOMC will leave its target rate range alone at zero to 0.25 percentage point as an economic recovery will likely be sluggish.

They are also speculating whether the FOMC will signal it could expand its $300 billion Treasury purchase program to counter the recent rise in mortgage rates and other longer-term borrowing costs. "People are scaling back their expectations of a rapid recovery," TD's Lascelles said. The European Central Bank's one-year funding operation could exert downward pressure on US rates going out to 12 months, analysts said.

The results of the ECB 12-month refinancing operations are due at 0920 GMT on Wednesday. A poll conducted by Reuters on Tuesday showed money market traders expect the ECB will allot a median 300 billion euros at the refi auction, which will be effective in bringing down short-term rates. Strong demand for this new type of ECB quarterly funding will likely curb the rates Euro zone banks would pay to borrow longer-term dollars in US money markets.

This could mean lower euro and dollar Libor, and lower yields on 6-month to 12-month US commercial paper, as money market investors bid on fewer of these securities issued by Euro zone banks, said Alex Roever, short-term interest rate strategist at J.P. Morgan Securities.


(Reuters)

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Wednesday June 24, 2009

NEW YORK: Investors' appetite for risk fell on Monday, driving up the safe-haven US dollar and yen and dragging down riskier higher-yielding currencies after an outlook by the World Bank stirred worries about global growth. The euro came under added pressure and dropped near $1.38 as a closely watched business climate survey in Germany, the euro zone's largest economy, painted a mixed picture about Germany.

The World Bank said on Monday that prospects for the global economy remain "unusually uncertain," and it cut its 2009 growth forecasts for most economies. The US and Japanese currencies have tended to rise on extreme risk aversion in recent months.

"Risk aversion has resurfaced as market participants take profits on riskier exposures," said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston. There are "renewed concerns about the extent of the ongoing global recession and the sustainability of the 'green shoots' of recovery."

In late afternoon in New York, the euro was down 0.6 percent at $1.3857 after hitting a session low of $1.3827, according to Reuters data. On electronic trading platform EBS, the low was 1.3826. Data showed the German Ifo business climate index rose to 85.9 in June from 84.3 the previous month, beating forecasts of 85.2. The current conditions index, however, fell to 82.4 from 82.5, versus a forecast of 83.1.

Traders also cited concerns about Germany's widening budget shortfall as an excuse to sell euros. Germany will raise its net new borrowing target in 2010 to a record level that may exceed 100 billion euros ($139 billion) as the country attempts to battle the financial crisis.

"Germany is the financial anchor of the euro zone. If there are fiscal problems in Germany, all the other states in the euro zone just crumble by the wayside," said Boris Schlossberg, director of currency research at GFT Forex in New York. "That's why the market is reacting so negatively." Against the yen, the euro fell 1 percent to 132.93 yen, while the dollar dropped 0.3 percent to 95.93 yen, according to EBS.

The euro had briefly recovered some losses after European Central Bank President Jean-Claude Trichet said on Monday that he continues to see an economic recovery next year. Speaking in Madrid, he said policymakers must remain alert despite initial signs of a slowing in the pace of economic decline.

Moves in the foreign-exchange market were limited, with investors awaiting the US Federal Reserve's policy-setting Open Market Committee meeting on Tuesday and Wednesday. The Australian dollar fell 2.1 percent to $0.7871 while the New Zealand dollar was down 2 percent at $0.6301, according to Reuters data. Sterling fell 0.9 percent to $1.6343, after going as low as $1.6320. A record $104 billion in US Treasury debt is to be auctioned in the United States this week, giving investors one more factor to consider. Short term interest rates fell on Monday.


(Reuters)

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Wednesday June 24, 2009

KARACHI: The rupee improved with slight gains against dollar on the interbank market on Tuesday, rising three paisa for buying at 81.32 and five paisa for selling at 81.35, money experts said. The rupee may move both ways in the coming days despite the rising demand for dollars, they added.

On the second day of Asian trade dollar extended losses against yen Tuesday to hit its lowest point this month, as investors continued to cut bets on riskier assets and bought back yen against other major currencies. The dollar fell as low as 94.98 yen on trading platform EBS, its lowest since June 1, before trading at 95.06 yen, down 0.8 percent on the day.

Open Market Rates: The rupee extended its decline against dollar for the second day as it shed 10 paisa against dollar for buying at 81.40 and 40 paisa for selling at 81.90, they said. The rupee, however, maintained its firmness against euro, rising 90 paisa for buying at Rs 111.60 and it also rose by 80 paisa for selling at Rs 112.10, they said.

Open Buying Rs 81.40
Open Selling Rs 81.90

Interbank Closing Rates: Interbank Closing Rates For Dollar On Tuesday.

Buying Rs 81.32
Selling Rs 81.35

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Wednesday June 24, 2009

MOSCOW: The Russian economy may contract by up to nine percent in 2009 if stimulus funds fail to reach their recipients, First Deputy Prime Minister Igor Shuvalov told Reuters in the gloomiest economic prediction for Russia to date. Economists polled by Reuters see the economy contracting by 4.9 percent in 2009 while the World Bank on Monday said the contraction may reach 7.5 percent.

Government officials earlier said they saw gross domestic product (GDP) falling between six and eight percent. "Maybe eight to nine percent. Maybe. But this is a pessimistic scenario in case we are not be able to spend budget funds on different investment projects planned for 2009," Shuvalov told Reuters financial television on Tuesday.

"It is too early to draw conclusions about how effective our anti-crisis policy was. We can draw conclusions when Russia returns to sustainable growth. We hope this period will come in the end of 2009 or in 2010," he said.

Despite the economic contraction, Shuvalov said he saw no depreciation risks for the rouble and that the government was more concerned about the risk of the currency appreciating too much, which could hurt the economy further, if the price of its oil exports strengthens further.

"We are afraid of a significant rise in energy prices because it will naturally have an impact on the rouble. The rouble will strengthen which is not very good for Russian industry," Shuvalov said. After devaluing the rouble by a third earlier this year, Russia's central bank has set a wide trading band of between 26 and 41 roubles to a dollar/euro basket, intervening in the market to iron out what it sees as excessive exchange rate volatility.

Shuvalov said the government wants to set strict limits on budget spending in 2010 based on a conservative oil price forecast to avoid a repetition of 2009 when the budget was first based on an overly optimistic forecast of $95 per barrel. "The main thing now is not to make any decisions (regarding fiscal spending plans based on a certain price of oil) ahead of time ... We need to make decisions based on what we have," Shuvalov said.


(Reuters)

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Wednesday June 24, 2009

BEIJING: The Chinese economy is headed in the right direction, but the foundations of the recovery are not yet solid, Su Ning, a vice-governor of the People's Bank of China, said on Tuesday. Speaking at a mergers and acquisitions conference, Su said he hoped China would be the first major economy to emerge from the global crisis. "The overall situation is stabilising and moving in the right direction," he said.

But he cautioned that the pick-up was still not firmly anchored and expressed particular concern about the "grim" international environment for Chinese exporters as the two-year-old financial crisis continues to take a toll on global growth. The World Bank also cited poor prospects for exports - and for private investment - when it cautioned last week that a rapid, broad-based recovery was unlikely even as it marked up its forecast for 2009 GDP growth to 7.2 percent from 6.5 percent.

A clutch of banks, including Standard Chartered, Barclays Capital and Royal Bank of Canada, have also raised their forecasts for China's gross domestic product growth in the past week following statistics for May that, except for trade, were generally robust.

The May data showed the economy benefiting from a 4 trillion yuan ($585 billion) government stimulus package as well as a loose monetary policy that has led to a burst of money and credit growth. In the first five months of the year, banks extended a record 5.84 trillion yuan in loans, exceeding the minimum target set by the government of 5 trillion yuan for all of 2009.


(Reuters)

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Wednesday June 24, 2009

NEW DELHI: A patchy start to India's annual monsoon has raised doubts about a nascent economic upturn, as the poor rainfall in June could hurt growth, push up food prices and prompt more government spending to support farmers. The monsoon, crucial to a farm sector that accounts for about a sixth of economic output, has stalled after an early start.

In the week ended June 17, rains were 51 percent below normal, the Meteorological Department said last week. "Delay in monsoon will play the spoilsport and may hit GDP by at least 1 to 1.5 percentage points," V.K. Sharma, head of research at Anagram Stock Broking in Ahmedabad. "And a monsoon failure might see the government take more social security measures, which will widen the deficit."

Recent data on growth, factory output and manufacturing have fanned hopes that the domestic-demand-driven economy, battling a widening fiscal deficit, may be on the mend. The World Bank on Monday said India would grow 5.1 percent in 2009. While above the bank's earlier forecast, it is still below 6.7 percent in 2008/09 and more than 9 percent growth in previous years.

The June-September monsoon rains are a major influence on the economy, as two-thirds of Indians depend on agriculture and large areas of the vast south Asian country suffer from a lack of modern irrigation facilities. The monsoon is crucial for summer-sown crops such as rice, soybean, sugarcane and cotton, and as temperatures rise across the country, Indians are getting desperate for rains.

The farm minister in central Chhattisgarh state held a prayer ceremony hoping the region would get rains soon, and media reported farmers in the western city of Nagpur organised a wedding of two frogs to please the rain gods. Media reports also say several states are drawing up plans to counter the impact of paltry rains.

But Montek Singh Ahluwalia, a key official in Prime Minister Manmohan Singh's government, said on Tuesday delayed monsoon rains may not impact the economy much. Forecasting the monsoon is one of the most important events in the country: while weather officials use scientific skills and data to track the rain, holy men and astrologers rely on traditional knowledge to make predictions.

"It appears El Nino has influenced the monsoon progress," a weather office official, who did not wish to be named as he is not authorised to talk to the press, told Reuters. When El Nino, a weather condition marked by warming of the eastern equatorial Pacific Ocean waters, hits the monsoon it can cause a lack of rains and even drought.

The weather office will review the monsoon's progress on June 25, when it is expected to outline the impact of El Nino. A delay in monsoon rains is bad news for policy makers, who were upbeat about the prospects of the farm sector, seen as a key motor for national demand in the economy.

The farm sector accounts for nearly 17 percent of India's gross domestic product and provides a livelihood for most of the 1.1 billion population. Poor monsoon rains could dent rural demand, hurt corporate profitability and undermine sentiment in financial markets.

Companies such as Maruti Suzuki India, Hero Honda Motors, and Hindustan Unilever drew strength from a robust rural market during the economic slowdown. Robust monsoon rains often leads to bumper harvests, which in turn raises farm incomes and increases demand for goods ranging from television to cars and lends support to factory output.

Some economists said it was too early to write off the monsoon, but the delay would cause some stress. "The delay is not a good signal. Food prices are already high and any delay could push food prices higher. Food price inflation could emerge as a concern," said D.K. Joshi, principal economist at credit ratings agency Crisil.


(Reuters)

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Wednesday June 24, 2009

MANILA: The Philippines' Finance Secretary on Tuesday rejected forecasts by the World Bank that Manila would fall into a recession this year. "We're focused and I think we can hit 0.8 percent (gross domestic product growth)," Margarito Teves told reporters. "The likely scenario is 0.8 percent growth," he said, adding that this was already a conservative projection.

Reacting to reports that the World Bank had projected a 0.5 percent contraction this year, Teves said: "They are probably cautious." Earlier this month, the International Monetary Fund had forecast the Philippine economy would shrink by 1.0 percent this year. Teves conceded that while a recession was "possible," all indicators pointed towards modest growth, adding that Manila would continue with its increased spending to stimulate the economy.

But he said both sectors would do better than the Bank expected. The Philippines relies heavily on the remittances of about nine million Filipinos working overseas but there are fears many of them will lose their jobs due to the global financial crisis.

But Teves said at worst remittances would remain flat as many Filipinos continued to find jobs abroad, while earlier this month, the central bank said the amount sent home in the first four months rose 2.6 percent year on year. Total exports in the first four months of the year plunged 36.4 percent from a year earlier to 10.727 billion dollars.


(AFP)

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