Japanese Yen Rises as Credit-Loss Concern Curbs Carry Trades
By Agnes Lovasz and Stanley White
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"Sept. 9 (Bloomberg) -- The yen rose against the euro for a second day and advanced versus the dollar on speculation credit- market losses will widen, prompting investors to pare holdings of higher-yielding assets funded with Japan's currency."
"The yen also traded near a two-year high against the Australian and New Zealand dollars, two favorites of so-called carry trades, amid concern the U.S. government's takeover of mortgage lenders Fannie Mae and Freddie Mac won't halt subprime losses. The U.S. dollar declined versus the euro and the pound."
"``Investors have second thoughts on whether everything's fine now and if we're are on a steady path of recovery from the credit crunch and the economic slowdown,'' said Lee Ferridge, a foreign-exchange strategist in London at State Street Global Markets, a unit of the world's largest money manager for institutions. ``Skepticism and risk aversion is a central theme. We'll see high-yielders suffer and the yen come back.''"
"The yen rose to 152.84 per euro at 10:15 a.m. in London, from 152.96 yesterday in New York. Against the dollar, the yen gained to 107.83 from 108.28. The euro rose to $1.4174 after falling earlier to $1.4047, the lowest since Oct. 9, from $1.4128. The yen may gain to 150 per euro in the coming days, Ferridge forecasts."
"The Japanese currency climbed to 87.38 versus the Australian dollar, from 88.39 yesterday. It also advanced to 72.35, from 72.71 per New Zealand dollar."
Wells Fargo
"In a carry trade, investors get funds in a country with low borrowing costs and invest in one with higher interest rates. The risk is that currency market moves erase those profits. Benchmark rates are 0.5 percent in Japan, 7 percent in Australia and 8 percent in New Zealand."
"Wells Fargo & Co., the biggest bank on the U.S. West Coast, said yesterday it may have to write down most of its $480 million stakes in Fannie Mae and Freddie Mac. Lehman Brothers Holdings Inc. fell almost 13 percent yesterday after analysts at Merrill Lynch & Co. and Oppenheimer & Co. predicted larger writedowns."
"The pound rose from near a 2 1/2-year low versus the dollar even after the Royal Institution of Chartered Surveyors said U.K. home prices dropped in August as a squeeze on mortgage lending pushed sales to a record low. Britain's currency has fallen 25 of the past 28 days. It was at $1.7619, from $1.7581. The pound fell versus the euro to 80.45 pence from 80.37 pence."
The dollar wakened for the first time in three days against the yen on speculation U.S. consumer spending will falter as the housing market weakens. Treasury 10-year notes gained yesterday amid speculation the government's rescue of the mortgage financing firms won't reverse the U.S. economic slowdown.
`Not All Roses'
"Pending sales of previously owned U.S. homes probably fell 1.5 percent in July after rising 5.3 percent in the previous month, according to a Bloomberg News survey of economists before the National Association of Realtors releases the data at 10 a.m. in Washington."
"U.S. retail sales excluding cars and trucks probably dropped 0.2 percent in August, the first decline since February, according to a separate survey, after a 0.4 percent gain in July. The Commerce Department will release the data on Sept. 12."
"``You can't say it's all roses for the U.S. dollar,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``There's a very high chance it will continue to fall. The macroeconomic outlook is awful and that won't change anytime soon.''"
"The dollar may drop to 107.40 yen today, he said."
RBS Cuts Forecast
"The euro rose from an 11-month low against the dollar even as a German report showed the nation's trade surplus shrank in July, adding to signs that Europe's largest economy is cooling."
"``A narrowing in the trade surplus would be negative for growth because exports are not really improving,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. The euro may still fall to $1.4050 and 150 yen today, Lee said."
"Germany's trade surplus narrowed to 13.9 billion euros ($20 billion) in July from 19.7 billion euros in June, the Federal Statistics Office said in Wiesbaden today."
"The euro is likely to ``test'' so-called support at $1.3840 against the dollar this week, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing charts that predict price movements."
"Support at $1.3840 is a 50 percent retracement of the euro's rise from the November 2005 low of $1.1640 to the all- time high of $1.6038 in July, based on a series of numbers known as the Fibonacci sequence. The support level also lies on an ascending trend line that began in February 2002, Ng said."
"Royal Bank of Scotland Group Plc cut its forecasts for the euro versus the dollar today. The single currency will end the year at $1.40 before weakening to $1.35 by the end of the first quarter of 2009, it said. The bank's previous predictions were $1.50 and $1.45, respectively."
To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net
"Last Updated: September 9, 2008 05:33 EDT"
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"Banco do Brasil, Lan, Mexichem, Pampa: Latin Equity Preview "
By William Freebairn and Paulo Winterstein
"Sept. 10 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil."
"The MSCI Latin America Index fell 5.1 percent yesterday to 3,368.57."
Argentina
"Pampa Holdings SA (PAMP AR): Argentina's biggest electricity holding company plans to buy up to $30 million of its own shares. Pampa will pay between 1.1 peso and 1.7 peso a share over four months, it wrote in a statement yesterday. Pampa fell 4.3 percent to 1.35 peso, extending a loss this year to 44 percent."
Brazil
"Banco do Brasil SA (BBAS3 BS) and Uniao de Bancos Brasileiros SA (UBBR11 BS): Banco do Brasil, Latin America's biggest bank by assets, and Unibanco, Brazil's third-largest non- government bank, are Deutsche Bank AG's top picks among Brazilian banks on their cheaper prices and earnings growth. Banco do Brasil trades at a price 8 times estimated 2009 earnings, and Unibanco trades at 7.5 times estimated earnings, compared with more than 9 times estimated profit for Banco Itau Holding Financeira SA and Banco Bradesco SA, analyst Mario Pierry wrote in a note yesterday. Banco do Brasil fell 2.1 percent to 21.49 reais. Unibanco fell 3.3 percent to 18.29 reais."
"Klabin SA (KLBN4 BS): Corrugated paper sales in August likely rose 1 percent from the year-ago period, the Brazilian Corrugated Paper Association said in a preview, Fator Corretora strategist Lika Takahashi wrote in a note yesterday. Klabin rose 1.6 percent to 4.38 reais."
Chile
"Lan Airlines SA (LAN CC): Chile's biggest air carrier said its passenger traffic rose 16 percent and capacity increased 15 percent in August. As a result, the airline's so-called load factor rose 0.9 of a percentage point to 78.7 percent, Lan wrote in a statement distributed yesterday by Business Wire. Lan rose 0.3 percent to 6,300 pesos."
"Sociedad Quimica y Minera de Chile SA (SQM/B CC): Chile's biggest fertilizer producer is unaware of any special circumstances to explain the fall in its share price, the Santiago-based company wrote in a statement yesterday, responding to a stock exchange query. SQM tumbled 8.2 percent to 14,878 pesos, extending the longest losing streak in two years."
Mexico
"Grupo Televisa SAB (TLEVICPO MM): Mexico's biggest broadcaster may increase 2009 revenue 15 percent from a year earlier even as the U.S. and Mexican economies slow, Bank of Nova Scotia said in a research note sent to clients yesterday. Shares may trade at 63.03 pesos in 12 months, analyst Raul Ochoa said, keeping his ``neutral'' rating on the stock. Televisa fell 1.1 percent to 49.58 pesos."
"Mexichem SAB (MEXCHEM* MM): Latin America's biggest maker of plastic pipe used in construction may begin a promotional effort to sell new shares at the end of September, IXE Grupo Financiero said in a research report yesterday. The plan to sell $300 million to $500 million in new shares may dilute the value of existing holders by as little as 8 percent, IXE said. Mexichem fell 1.6 percent to 23.68 pesos."
To contact the reporter on this story: William Freebairn in Mexico City at wfreebairn@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
"Last Updated: September 10, 2008 00:00 EDT"
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Russia's Economy Expanded at Slower Pace in the Second Quarter
By Maria Levitov
Sept. 10 (Bloomberg) -- Russia's economy expanded at a slower pace in the second quarter as high borrowing costs crimped industrial output and the strong ruble hurt domestic producers.
"Gross domestic product grew 7.5 percent, compared with 8.5 percent in the previous three-month period, the Moscow-based Federal Statistics Service reported in an e-mailed statement. The figure is not seasonally adjusted. The median forecast of 10 economists surveyed by Bloomberg was for growth of 7.6 percent. The economy grew 8.1 percent in the second quarter of 2007."
"``A higher cost of credit slowed investment growth as the global credit crunch began to affect Russia,'' said Vladimir Osakovsky, an economist at UniCredit SpA in Moscow, before the release. ``An influx of imports also hit producers'' because the strong ruble made it harder for them to compete, he said."
"Growth may slip to 7.8 percent this year from 8.1 percent in 2007, according to the Economy Ministry, as accelerating inflation saps domestic demand and erodes gains in average wages. Industrial output rose in June at the slowest pace in 5 1/2 years and a gauge of manufacturing output compiled by VTB Bank Europe declined in each of the three months of the second quarter."
"The ruble gained 5.22 percent against the dollar this year through July 1, according to Bloomberg data. Foreign direct investment totaled $11.1 billion in the first half, a 30 percent decline from last year, according to the statistics office."
`Dangerous' Inflation Signs
"Accelerating consumer and producer-price inflation alongside slowing real income and investment growth are ``dangerous'' signs of an economic slowdown, said Petr Aven, the president of Russia's Alfa Bank."
"Producer-price growth surged an annual 33.7 percent in July and the inflation rate rose to 15 percent in August, close to a five-year high. Real wage growth declined from an average rate of 16.2 percent last year to 12.8 percent this year."
"``This could be a change of trend,'' Aven told an investment conference yesterday."
"Still, growth ``is still high,'' UniCredit's Osakovsky said, and the recent decline of the ruble will help domestic producers."
"Russia's central bank sold foreign currency last week to prop up the ruble, which was slumping because of investors pulling money out after the conflict with Georgia, the dollar's rally and a drop in commodities prices. Net capital outflow reached $4.6 billion in August, according to the central bank's preliminary estimates."
To contact the reporter on this story: Maria Levitov in Moscow at mlevitov@bloomberg.net
"Last Updated: September 10, 2008 02:00 EDT"
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"Canada Stocks Extend Slump as Potash, Canadian Oil Sands Drop "
By John Kipphoff
"Sept. 9 (Bloomberg) -- Canadian stocks fell the most since January, led by Potash Corp. of Saskatchewan Inc., as investors fled commodity producers on concern the stronger U.S. dollar and a slowing global economy have ended oil and metals' rally."
"Potash led a group of mining companies to a 16-month low, while Canadian Oil Sands Trust paced energy shares' biggest decline since 2001. Raw-materials and energy stocks had pushed Canada's Standard & Poor's/TSX Composite Index to a peak in June."
"``The cycle right now is going against commodities,'' said Martin Anstee, a fund manager at Stone Asset Management in Toronto, which oversees about $845 million. ``It's been pretty dreadful for anything resource-based. The selling is indiscriminate. Slower economic growth and the rising U.S. dollar are bad for commodities.''"
"The S&P/TSX declined 3.9 percent to 12,146.76 in Toronto, the most since Jan. 21. Canada's main equity benchmark, which derives more than three-quarters of its value from energy, materials and financial stocks, has lost $142.1 billion (C$152.24 billion) of its value in six trading days this month."
"The S&P/TSX had annual returns of 23 percent in U.S. dollars in the six years through August, three times as much as the U.S.'s S&P 500. The Canadian index has tumbled more than 19 percent from its June record as commodity prices slumped and financial companies' worldwide credit losses topped $500 billion."
"Potash Corp. dropped 7.5 percent to C$150.27. The world's largest fertilizer maker is still up 63 percent in a year even after slipping C$94 below its June 17 record. Barrick Gold Corp., the world's largest bullion mining company, fell 9.8 percent to C$28.01, the steepest decline since September 2002."
Mining Selloff
"Teck Cominco Ltd. slid 11 percent to C$34.31, its worst drop in six years. Canada's biggest diversified mining company was cut to ``sector perform'' from ``outperform'' by National Bank Financial analyst Ian Howat in Toronto. The 10 biggest percentage decliners in the S&P/TSX today were mining and exploration companies."
"Canadian Oil Sands, the world's biggest producer of crude from tar sands, dropped the most in 4 1/2 years, sliding 11 percent to C$40. Rival Suncor Energy Inc. fell 7.1 percent to C$45.67. EnCana Corp., the nation's biggest energy company by market value, slipped 5.5 percent to C$67.13. Canadian Natural Resources Ltd. declined 6.6 percent to C$74.69. Uex Corp., owner of the Shea Creek uranium project in northern Canada, plunged 18 percent to C$2.10."
"A measure of energy shares retreated 6.1 percent today, its biggest drop since Nov. 15, 2001. A gauge of raw-materials shares fell 8.2 percent to the lowest since March 30, 2007."
Oil Supplies
"Oil fell 2.9 percent to $103.26 a barrel in New York and Brent in London touched $98.94, after Saudi Arabia's oil minister said supplies are sufficient to meet demand."
"Agricultural commodities and metals prices also slid after the U.S. dollar rose to the highest in 11 months against the euro, reducing their appeal as a hedge against weakness in the currency. The World Bank forecast global growth at 2.7 percent this year, down from 3.7 percent in 2007."
"The ``dominant investment thesis of the past year'' of buying commodities and short-selling financial shares is over, UBS AG chief economist Larry Hatheway and global equity strategist Jeffrey Palma wrote in a report dated Sept. 8."
"Investors should add to cash holdings, sell energy stocks and buy shares of food, tobacco and cosmetic companies as the U.S. dollar strengthens, commodity prices fall and global growth slows, UBS's Hatheway and Palma said. They raised their rating on so- called consumer staples companies to ``overweight,'' cut energy producers to ``underweight'' and lowered industrial shares to ``neutral.''"
"Saputo Inc., the country's biggest cheese processor, rose 6.6 percent to C$27.60, the most in two months. An index of so-called ``consumer staples'' stocks added 1.2 percent."
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
"Last Updated: September 9, 2008 17:40 EDT"
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French July Trade Deficit Shrinks From Record in Previous Month
By Sandrine Rastello and Francois de Beaupuy
Sept. 10 (Bloomberg) -- France's tradedeficit narrowed in July from a record as slowing economic growth led to a decline in imports of goods such as oil and cars.
"The trade shortfall shrank to 4.83 billion euros ($6.8 billion) from $5.36 billion euros in June, the largest ever, the Trade Ministry said in Paris today. Economists had expected a deficit of 5 billion euros, according to the median of 11 forecasts in a Bloomberg News survey."
"The trade balance may worsen because French exporters, who have been facing the consequences of a euro that traded as high as $1.6038 in July, are now grappling with an economic slowdown in the euro region, where they do most of their business. The French economy contracted 0.3 percent in the second quarter, with trade shedding 0.5 percentage points from growth."
"``The good news should be tempered,'' Cedric Thellier, an economist at Natixis in Paris told Bloomberg Television. ``One- third of France's exports go to Germany, Italy and other European countries that are also facing a major economic slowdown.''"
"Exports rose to 34.97 billion euros from 34.86 billion euros in July, while the slowdown in Europe's third-largest economy meant imports fell to 39.8 billion euros from 40.22 billion euros. Imports of oil products and cars fell."
"``There's a weakness of French trade and the euro's depreciation over the past weeks is not going to have a positive effect before the end of the year,'' said Gilles Moec an economist at Bank of America in London. ``French exporters are not well positioned on markets that pull growth, such as Asia's emerging economies or eastern Europe.''"
Airbus SAS said it sold 27 airplanes in July for 1.19 billion euros.
To contact the reporters on this story: Sandrine Rastello in Paris at srastello@bloomberg.net;
"Last Updated: September 10, 2008 03:05 EDT"
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Japan Wholesale Inflation Eases as Oil Prices Drop (Update1)
By Mayumi Otsuma
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"Sept. 10 (Bloomberg) -- Japan's wholesale inflation rate slowed for the first time in 11 months as oil and commodity costs fell, signaling price pressures are starting to ease in the world's second-largest economy."
"Prices companies pay for energy and raw materials rose 7.2 percent from a year earlier after gaining 7.3 percent in July, the Bank of Japan said in Tokyo today. From July, producer prices fell 0.1 percent, the first drop since September 2007."
Cooling wholesale inflation provides relief for companies whose earnings have been hurt by a surge in energy and commodity costs. Oil has declined 29 percent since reaching a record in July and wheat fell to a one-year low today.
"``Japan's wholesale price increases are peaking, in line with an easing of global inflation, and we'll probably see a further slowdown next month,'' said Azusa Kato, an economist at BNP Paribas SA in Tokyo. ``That's very positive news for Japanese businesses.''"
The yen traded at 107.24 per dollar as of 12:33 p.m. in Tokyo from 107.11 before the report. Last month's year-on-year gain in producer prices matched economists' estimates and July's increase was the steepest since January 1981.
"China's consumer-price inflation cooled to 4.9 percent last month, the slowest pace since June 2007, the country's statistics bureau said today. South Korean wholesale inflation eased for the first time in a year in August, a report showed yesterday."
Cutting Prices
"Nippon Oil Corp. and Japan Energy Corp. cut wholesale gasoline prices this month to reflect oil's recent decline. Retail prices fell to 176.2 yen a liter ($6.12 a gallon) in the last week of August, 4.8 percent lower than the record marked at the start of the month."
"While crude has dropped from a record $147 a barrel since July 11, it's still up 34 percent from a year ago, increasing the import bill for Japan, which gets virtually all of its oil from abroad. The current account surplus narrowed 17.3 percent in July, a fifth monthly contraction, the Finance Ministry said today."
"``Accelerating cost gains will gradually fade, and the focus is shifting to when and how much price gains will moderate,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Prices may cool should oil continue to drop and the yen keep strengthening against the dollar, he said."
"Fuel, Yen"
"A 5 yen per liter drop in petroleum products in a month would lower wholesale prices by 0.31 percentage point and a 10 percent advance in the yen against the dollar would push prices down by 0.5 percentage point, Morita estimates. The yen has gained 1.8 percent in the past month against the dollar."
"The Bank of Japan's overseas commodity index, which includes oil, steel, copper and wheat, rose 42 percent in August from a year before, slower than a 52 percent increase in July."
"Companies continue to foist expenses onto customers to protect profits even as commodity prices decline. Durable goods makers, which have managed to absorb costs by increasing productivity so far, are starting to charge more."
"Toyota Motor Corp. raised prices of hybrid Prius cars and some commercial vehicles on Sept. 1, its first increase in Japan in 16 years. Mitsubishi Electric Co. last month announced a plan to boost prices of air conditioners and refrigerators."
"``There are still some companies that are behind in reflecting higher energy and raw-material costs in the prices of their products,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. ``Cost-push inflation will probably remain for some time.''"
"Profits of Japanese manufacturers contracted 11.7 percent in the second quarter while their sales rose 1.4 percent, a Finance Ministry survey showed last week."
"``Sales are going up, but costs are going up faster because of commodity prices, and profits are going down at an accelerating pace,'' said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo."
"Still, he added, ``sometime in the second half of this year, certainly in the second half of the fiscal year, you should start to see a drop in input costs dominating the process.''"
To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net
"Last Updated: September 9, 2008 23:39 EDT"
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"Oil Rebounds on OPEC; Gold, Wheat Head Lower on Slowing Growth "
By Gavin Evans
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"Sept. 10 (Bloomberg) -- Oil jumped more than $1 a barrel in New York, bucking a declining trend in commodities, after the Organization of Petroleum Exporting Countries agreed to reduce output to match existing quotas."
"Oil advanced from a five-month low after OPEC President Chakib Khelil said the group will lower production by about 520,000 barrels a day. Gold, copper and wheat extended declines on reduced inflation concern and as world equity markets slumped on gloomy growth prospects in Europe and the U.S."
"``This is a broad commodity sell-off,'' said Mark Pervan, commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``It's the dollar driving it really,'' but that's primarily fueled by ``disappointing economic data.''"
"The Standard & Poor's GSCI index of 24 commodities dropped 2.3 percent yesterday to its lowest since Feb. 15. Gasoline and orange juice plunged as Hurricane Ike weakened after crossing Cuba, posing less of a threat to gulf-coast refineries and orchards in Florida."
"Crude-oil for October delivery gained 59 cents, or 0.6 percent, to $103.85 a barrel in after-hours trading on the New York Mercantile Exchange at 10:53 a.m. in Singapore. Oil fell to $101.74 yesterday, the lowest since April 2, and a 31 percent decline from its July record."
"``Some markets were particularly fully priced, particularly oil and some of the base metals,'' ANZ's Pervan said. While buying from China and India will sustain demand, ``we still think there's another 10 to 15 percent downside in some of these markets,'' he said."
Equity Slump
The Standard & Poor's 500 Index yesterday dropped the most since February 2007 on the prospect of further losses in the U.S. banking industry.
The euro fell to an 11-month low against the dollar and European stocks dropped after EU Commissioner Joaquin Almunia said the union will cut its economic-growth forecast this week as consumer confidence wanes.
"Gold for December delivery fell 2 percent to $776.20 an ounce on the Comex division of Nymex at 10:56 a.m. in Singapore. It earlier reached $766.80, the lowest for a most active contract since Oct. 25."
"Bullion for immediate delivery was at $772.04 an ounce, after earlier falling to $763.20, also the lowest since October."
"Copper for December delivery fell for a fifth day, down 0.4 percent, to $3.0755 a pound on Comex. It earlier reached $3.04, the lowest for a most-active contract since Jan. 22."
Index Investors
"Corn for December delivery fell for a second day, down 2.75 cents, or 0.5 percent, to $5.4175 bushel on the Chicago Board of Trade. Wheat for December delivery fell for a fourth day, down 0.1 percent to $7.30 a bushel."
"``Commodities are more a bet on global growth,'' John Reade, head of metals strategy at UBS AG in London, said yesterday. ``Lowered allocations to commodities from index investors may be taking place for cyclical reasons.''"
To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net
"Last Updated: September 9, 2008 23:06 EDT"
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Yuan Is Little Changed as Easing Prices May Allow Slower Gains
By Bob Chen and Jiang Jianguo
Sept. 10 (Bloomberg) -- The yuan was little changed after gaining yesterday on speculation cooling inflation will give China's central bank more leeway to slow the currency's appreciation and boost export growth. Bonds advanced.
"The appreciation in the currency, which is Asia's best performer this year, has stalled this quarter after a 4.2 percent rise in the first three months and 2.3 percent in the second quarter. Consumer prices climbed 4.9 percent in August from a year ago, the slowest pace since June 2007, China's statistics bureau said today. Currency gains hurt exporters by making their products more expensive and reducing demand in overseas markets."
"``Inflation coming off will ease the pressure on China to appreciate the yuan,'' said Daniel Soh, an economist at Forecast Pte in Singapore. ``China is concerned about a spike in the unemployment rate in the export sector.''"
"The currency traded at 6.8392 a dollar as of 1:07 p.m. in Shanghai, versus 6.8381 yesterday, according to the China Foreign Exchange Trade System."
"In a sign of weaker growth ahead, China's passenger-car sales fell in August for the first time in more than three years, the China Association of Automobile Manufacturers said yesterday."
Focus on Growth
"China's trade surplus unexpectedly widened in August to $28.69 billion from $25.28 billion the previous month, a government report showed today. Economists in a Bloomberg News survey had forecast the surplus would shrink to $23.55 billion. Exports growth in August slowed less than expected while imports growth weakened more than expected."
"``The Chinese government has already shifted its focus on growth,'' said Jerry Yoshikoshi, a market analyst with Sumitomo Mitsui Banking Corp. in Singapore. ``We'll continue to see a slower appreciation or flat movement in the yuan.''"
"China's economy expanded 10.1 percent in the three months ended June 30 from a year earlier, slowing for a fourth straight quarter as exports cooled. Weaker overseas demand, rising costs and a strengthening currency have put pressure on exporters of shoes, toys and clothes."
Non-deliverable forwards contracts indicate the yuan will gain 1 percent to 6.774 per dollar in the next six months. Forwards are agreements in which assets are bought and sold at current prices for future delivery.
Low Yields
"Government bonds rose, pushing 10-year yields to the lowest in more than two months, as inflation slowed."
"The yield on the 4.07 percent note due March 2018 fell 1 basis point to 4.09 percent, the lowest since July 1, according to the China Interbank Bond Market. The price rose 0.08 per 100 yuan face amount to 99.85. A basis point is 0.01 percentage point."
"``This is good news for the bond market,'' said Nie Shuguang, a fixed-income trader at Industrial Bank Co. in Shanghai. Inflation erodes the fixed payments from debt."
"Food prices rose 10.3 percent in August from a year earlier after gaining 14.4 percent in July, the statistics bureau said. Non-food prices increased 2.1 percent, the same as the gain in July. Food costs account for about a third of China's consumer price index."
"China Development Bank sold 30 billion yuan ($4.39 billion) of 10-year bonds at a 4.28 percent yield today, less than the 4.5 percent some traders had estimated, Nie said. Investors have the option to sell the securities back to the bank at face value after three years. The lender increased the offer size by 50 percent from 20 billion yuan."
To contact the reporters on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net; Jiang Jianguo in Shanghai at jjiang@bloomberg.net
"Last Updated: September 10, 2008 01:18 EDT"
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Brazil May Lift Rate to Two-Year High as Prices Threaten Target
By Joshua Goodman and Andre Soliani
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"Sept. 10 (Bloomberg) -- Brazil's central bank probably will raise its interest rate to the highest in two years today, betting that falling commodity prices and slowing economic growth won't be enough to rein in inflation."
"Policy makers led by President Henrique Meirelles will lift the overnight rate to 13.75 percent from 13 percent, the fourth increase since April, according to 40 of 41 economists surveyed by Bloomberg. One analyst forecast the bank will raise the so- called Selic rate to 13.5 percent."
"While Brazil's fastest economic expansion since 1995 is showing signs of moderating, inflation still threatens to exceed the upper limit of the central bank's target range and policy makers are concerned rising domestic demand and credit growth will further stoke price increases."
"``When you look at core inflation, excluding food, the situation remains risky,'' Arthur Carvalho, chief economist for Ativa Corretora in Rio de Janeiro, said in an interview. ``Policy makers are playing tough to make sure the market understands they're serious about bringing down inflation.''"
Inflation as measured by the benchmark IPCA index eased to 6.17 percent last month from a three-year high of 6.37 percent in July after food and beverage costs fell for the first time in more than two years. Price increases this year have exceeded the central bank's 4.5 percent target with a leeway of plus or minus 2 percentage points.
World's Highest Rate
"Today's increase in the Selic to 13.75 percent would rank Brazil's real interest rate as the highest among 54 countries tracked by Bloomberg. Brazil's real rate, which is the benchmark rate minus inflation, stands at 6.83 percent, the second-highest after Turkey's 7.55 percent."
"Policy makers, after raising rates by a more-than-expected 0.75 percentage point on July 23, promised they would act in a ``timely fashion'' to bring inflation back to their target. The central bank also expressed concern that demand growth continues to outpace supply."
"The central bank will raise the benchmark rate further to 14.75 percent by year-end, according to a central bank weekly survey."
The rate increases are beginning to cool the economy and a separate report today may show quarterly economic growth eased for a second straight time through June 30.
`Excessive'
"Vehicle sales grew 4 percent in August from a year ago, the slowest pace in almost two years, after car loan costs jumped, the industry association said Sept. 4."
"Gross domestic product growth in the second quarter may have also slowed to 5.5 percent, from 5.8 percent in the first quarter, according to the median estimate in a Bloomberg survey of 33 economists. The GDP report will be released today at 8 a.m. New York time."
"Carlos Thadeu de Freitas, who served as central bank director between 1988 and 1989, said the rate increases may hurt growth unnecessarily. He said ``market paranoia,'' in a country that as recently as 1994 experienced annual inflation of 5,000 percent, was forcing Meirelles' hand."
"``To maintain its credibility, the central bank wants to be consistent with its last outlook and give the market what it's looking for,'' said Thadeu de Freitas, now chief economist with Brazil's National Confederation of Commerce. ``This could prove excessive when new credit concessions are already slowing.''"
"A sharp drop in prices for major commodity exports like soy, beef and orange juice may also be easing pressure on the central bank, said Alfredo Coutino, a Latin America economist at Moody's Economy.com in West Chester, Pennsylvania."
Currency Decline
"Since the central bank's last meeting, the Reuters/Jeffries CRB Index of 19 raw materials has fallen 12.7 percent. Commodities make up about two-thirds of Brazil's exports, according to the Brazilian Foreign Trade Association in Rio de Janeiro."
"``There's no justification for further tightening when you already have some of the highest rates in the world,'' Coutino said."
"Meirelles should follow the lead of Mexican central bank Governor Guillermo Ortiz, Coutino said. After raising the Mexican overnight rate on Aug. 15 to 8.25 percent, Ortiz signaled inflation pressures may be easing, reducing the need for further tightening."
Brazil's real fell to the lowest in seven months yesterday after Finance Minister Guido Mantega said the currency would continue to weaken on reduced foreign investments and a narrowing trade surplus. The benchmark Bovespa stock index dropped to the lowest in a year after commodity prices declined.
"Mantega, who criticized central bank rate increases in the past, said this week in Brasilia that economic expansion wasn't stoking inflation, adding supply ``was growing in line with demand.''"
"One reason for caution is that some industries remain heated. Manufacturers operated at 83.5 percent capacity in July, a record, the National Industrial Confederation said Sept. 3. Industrial output grew 8.5 percent that month, more than economists expected, according to a Sept. 2 government report."
To contact the reporters on this story: Andre Soliani in Brasilia at at soliani@bloomberg.netJoshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net
"Last Updated: September 9, 2008 23:00 EDT"
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Japan Current-Account Surplus Narrows on Import Bill (Update1)
By Keiko Ujikane
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"Sept. 10 (Bloomberg) -- Japan's current-account surplus narrowed for a fifth month in July as higher oil prices pushed the import bill to a record, blunting a rebound in exports."
"The surplus shrank 17.3 percent to 1.53 trillion yen ($14.3 billion) from a year earlier, the Ministry of Finance said in Tokyo today. The median estimate of 26 economists surveyed by Bloomberg News was for the gap to narrow to 1.31 trillion yen."
"Crude oil has fallen 29 percent since reaching a record $147 a barrel on July 11, providing some relief to companies facing weakening sales at home and abroad. While demand from Asia helped export growth pick up in July, that may not last as slowdowns in the U.S. and Europe infect the rest of the world."
"``The slowing trend for exports will probably continue as demand in the U.S. and Europe remains sluggish,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. ``The deteriorating terms of trade remains a drag on profits, deterring business investment and consumer spending.''"
The yen traded at 107.24 per dollar as of 10:24 a.m. in Tokyo from 107.11 before the report was published.
"Wholesale inflation slowed for the first time in 11 months in August, reflecting the drop in oil and commodity prices, the Bank of Japan said today. Prices companies pay for energy and raw materials climbed 7.2 percent from a year earlier after rising 7.3 percent in July, the fastest pace since January 1981."
Spending Less
"Falling sales and earnings prompted companies to reduce spending on factories and equipment for a fifth quarter in the three months ended June 30, the Finance Ministry said last week. Profits fell 5.2 percent, the fourth consecutive decline."
"The world's second-largest economy probably shrank last quarter at a faster pace than the government initially reported, economists predict revised figures will show on Sept. 12."
"Gross domestic product fell at an annual 3 percent pace in the three months ended June, according to the median estimate of 25 economists surveyed by Bloomberg News, more than the 2.4 percent reported last month. That would be the sharpest contraction since 2001, when Japan suffered its last recession."
"Imports climbed 18.9 percent to a record 7.06 trillion yen in July from a year earlier, today's report showed. Japan gets virtually all of its oil from abroad. Exports rose 8.7 percent to 7.29 trillion yen, after falling 1.5 percent the previous month, the first decline since November 2003."
"China replaced the U.S. as Japan's biggest customer in July, a separate ministry report showed last month. Exports to China climbed 16.5 percent and shipments to the U.S. declined 11.4 percent. Today's trade figures don't include regional breakdowns."
Stagnation Spreading
"``The economic stagnation in the U.S. is spreading to Europe as well as emerging nations such as China,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``Should a slowdown in those emerging markets become more notable, that would have a bigger adverse impact on Japanese exporters.''"
The narrowing of the surplus was limited by returns on investments made overseas.
"The income surplus, the difference between money earned abroad and payments made to foreign investors in Japan, gained 9.6 percent to 1.66 trillion yen from a year earlier."
"The current account tracks the flow of goods, services and investment income between Japan and its trading partners. It includes trade not shown in the customs-cleared balance."
To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net
"Last Updated: September 9, 2008 21:36 EDT"
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