November 25, 2009

Top Stories: Commodities

Nov. 25 (Bloomberg) -- The following are the day's top stories on currencies:
Dollar Weakens on Global Optimism; Aussie Gains on RBA's `Upswing' Remarks
The dollar fell against higher- yielding currencies and slipped to a two-week low against the euro as renewed signs the global economy is recovering encouraged investors to buy riskier assets. The U.S. currency weakened beyond $1.50 per euro after a Japanese report showed the nation's exports dropped at the slowest pace in a year as government spending worldwide boosted demand. Australia's dollar jumped as Reserve Bank of Australia Deputy Governor Ric Battellino said the economy has entered a ``new upswing,'' fueling speculation the central bank will raise rates for a third month in December.
``Japan's trade data clearly indicates that overseas demand is recovering,'' said Tomohiro Nishida, a foreign-currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan's seventh-largest banking group. ``The bullish remarks from the RBA also added to the revival of risk demand.'' The dollar depreciated to $1.5018 per euro as of 8:10 a.m. in London, from
$1.4968 in New York yesterday, after dropping to $1.5024, the weakest since Nov. 11. The greenback slid to 92.78 cents per Australian dollar, from 91.92 cents, and declined to 73.21 cents against the New Zealand dollar, from 72.58 cents. The U.S. currency was at 88.28 yen, from 88.50 yen, after touching 88.20 yen, the lowest since Oct. 8.
Fed Officials Say Zero Interest Rates May Be Fueling Undue Risk in Markets
Federal Reserve policy makers said for the first time that their decision to cut interest rates to zero may be fueling undue financial-market speculation even as they called the dollar's decline ``orderly.'' The Federal Open Market Committee said its policy of keeping rates low might cause ``excessive risk-taking'' or an ``unanchoring of inflation expectations,''
according to minutes of its Nov. 3-4 meeting released yesterday. Central bankers also said further dollar depreciation that might ``put significant upward pressure on inflation would bear close watching.'' The dollar weakened as investors wagered the central bank will tolerate further declines in a currency that has slid more than 6 percent against the yen in three months. Policy makers are wary of fueling a third asset-price bubble in about a decade as they hold the benchmark interest rate near a record low to revive growth, economists said. ``Financial markets have been doing much better than people might have expected,'' said Marvin Goodfriend, a former policy adviser at the Richmond Fed who is now a professor at Carnegie Mellon University in Pittsburgh.
``The Fed is saying to markets, `Don't overdo it.'''
Consumer Spending, Income in U.S. Probably Rose at Start of Fourth Quarter
Consumer spending probably rebounded in October, an indication that mounting unemployment has yet to stifle Americans' willingness to buy. Purchases increased 0.5 percent after dropping by the same amount in September, according to the median estimate of 75 economists surveyed by Bloomberg News. Other figures may show orders for durable goods and home sales climbed. Uneven gains in spending signal consumers are unlikely to provide sustained support to the U.S. economy as it emerges from the worst recession since the 1930s. A jobless rate that is projected to exceed 10 percent through the first half of next year means households will contribute less to growth. ``Consumers have only minimally loosened their purse strings over the past several months,'' said Chris Low, chief economist at FTN Financial in New York. ``But the economy is very much on track.''
IMF Secures $600 Billion Credit Line to Assist Nations in Financial Crises
The International Monetary Fund said it will have access to a credit line of up to $600 billion to make loans during financial crises after contributing countries agreed to fold commitments into one pool. The agreement, yet to be approved by the IMF board, adds as many as 13 members from the current 26 to the so-called New Arrangements to Borrow, including emerging nations China, Russia, Brazil and India, the IMF said in an e-mailed statement. The decision ``marks an important moment for multilateralism and the fund, which will help the IMF's effectiveness in its response to crises,'' Managing Director Dominique Strauss-Kahn said in yesterday's statement. The deal goes beyond a pledge by leaders of the Group of 20 nations to contribute up to $500 billion to a credit arrangement that's currently worth $54 billion, the IMF said. The worst financial crisis since the Great Depression prompted more nations to seek aid from the fund, created after World War II to help ensure the stability of the global monetary system.
Company Profits in U.S. Stage Lopsided Gain as Financial Firms Pull Ahead
Profits at U.S. companies climbed in the third quarter by the most in five years as earnings at banks surged. Corporate profits rose 11 percent from the prior three months to $1.36 trillion, the biggest gain since the first quarter of 2004, the Commerce Department reported yesterday in Washington.
Domestically, earnings at financial institutions jumped by $97 billion, or 36 percent, while those at other companies climbed by $12.9 billion, or 2 percent. Firms from Goldman Sachs Group Inc. to Morgan Stanley boosted results last quarter through trading as financial markets continued to rebound from the declines that followed the collapse of Lehman Brothers Holdings Inc. last year. Other companies prospered by cutting costs, indicating they will not be quick to boost payrolls. ``The weakness in the non-financials tells you how limited this recovery is at this point,'' said Joel Naroff, chief economist at Naroff Economic Advisors Inc. in Holland, Pennsylvania.
``Businesses are going to be very cautious in increasing the cost side, and the biggest part of the cost side is labor. They aren't going to rush out and hire.''
Lehman Creditors Want Data on Barclays Brokerage Deal From U.K.'s FSA. PwC
Lehman Brothers Holdings Inc. creditors want the U.K.'s Financial Services Authority and PricewaterhouseCoopers International Ltd. to turn over information about Barclays Plc and the bank's purchase of Lehman's North American brokerage business last year. The official committee of Lehman's unsecured creditors asked U.S. Bankruptcy Judge James Peck to seek ``judicial assistance'' from the U.K. High Court of Justice to get the documents. Lehman's creditors claim Barclays got a $5 billion discount when it bought Lehman and are seeking to recover assets. Earlier this month, Lehman and James Giddens, the trustee liquidating Lehman's brokerage on behalf of the U.S. Securities Investor Protection Corp., sued Barclays in U.S. Bankruptcy Court in New York, seeking the return of what they said was a $5 billion windfall. The Lehman executives who negotiated the deal on its behalf, and were in line to receive job offers from Barclays once the deal was complete, knew the deal had a built-in discount, the company has said.
Stuyvesant Tenants May Seek to Wrest Control of $16 Million From Tishman
Tenants of Stuyvesant Town and Peter Cooper Village, the Manhattan apartment complexes facing default by landlords Tishman Speyer Properties LP and BlackRock Realty, may seek control of an account holding disputed rent payments. A portion of the rents has been going into escrow since March, pending resolution of a lawsuit, lawyers for the tenants said yesterday in a statement. They may ask for control of the money, which will total $16 million by January. ``If necessary, plaintiffs'
counsel will be making an application to the court asking it to issue an order to set January 2010 rents, and to turn over to plaintiffs' counsel the escrow account,'' lawyers from Wolf Haldenstein Adler Freeman & Herz LLP and Bernstein Liebhard LLP said in a statement. Tishman and its partners are on the verge of defaulting on $3 billion in loans against the 80-acre apartment developments, the largest residential community in Manhattan. A New York court ruled last month that some rent increases were illegal because the apartments were under a rent stabilization program and the property was built with and subsidized by tax breaks.
Dubai Credit Risk Rises for First Time Since June as $9 Billion Debt Due
Investor confidence in Dubai is falling for the first time in five months after the emirate didn't disclose how it will pay more than $9 billion of debt coming due. Credit-default swaps that insure bondholders in case the Persian Gulf emirate ruled by Sheikh Mohammed Bin Rashid Al Maktoum misses debt payments rose 20 basis points this month to 318, the first increase since June, according to prices on Bloomberg from CMA Datavision. Dubai and its companies owe $4.3 billion next month and another $4.9 billion in the first quarter of 2010, Deutsche Bank AG data show. While the rate to protect against default has fallen 67 percent since February, concerns are mounting again because the government hasn't said how it will pay. Last week Sheikh Mohammed swept aside four aides who helped lead the expansion in banking, real estate and transportation that saddled the emirate with $80 billion in debt. ``Something needs to be done now,'' said Abbas Hasan, the Dubai-based co-head of corporate investment banking at Mashreqbank PSC, the United Arab Emirates' third-biggest bank by revenue. ``If nothing happens in the next week or so, then there will be little choice but to draw from the central bank.''
RBS, U.K. Banks Look to Supreme Court to Overturn Ruling on Fee Regulation
Royal Bank of Scotland Group Plc, HSBC Holdings Plc and six other lenders are counting on Britain's highest court to overturn a ruling that may allow a regulator to oversee fees charged on bounced checks. The U.K. Supreme Court in London is scheduled to rule today on whether the Office of Fair Trading can proceed with a trial challenging the amounts banks charge when customers exceed limits on checking accounts. Banks'
profit margins are under pressure as they face increased competition for customer accounts to fund lending, after wholesale credit markets seized last year. The U.K. Treasury said Nov. 3 that RBS, Britain's biggest government- controlled bank, and Lloyds Banking Group Plc will ensure consumer account fees are ``transparent and fair'' in return for taxpayer support. ``If the OFT wins this week, it will then decide whether individual current account terms are in fact unfair,''
Ed Crosse, a finance litigation partner at U.K. law firm Osborne Clarke said. ``If the banks still have the appetite to challenge those decisions, they will need to do so in court and the matter could go all the way to the Supreme Court again.''
ECB Is Said to Debate Putting Adjustable Interest Rate on 12-Month Loans
European Central Bank officials are debating whether to put an adjustable interest rate on December's 12-month loans, with some saying it risks being interpreted as a signal they will tighten monetary policy in 2010, according to people familiar with the discussions. As the ECB moves closer to withdrawing emergency support for the economy, officials are examining whether to make the rate on next month's loans track any increase in the bank's key rate. While a final decision hasn't been made, the 22-member Governing Council is leaning toward sticking with a fixed rate of 1 percent, said the people, who declined to be identified because the discussions are private.
The ECB is offering banks unlimited funds for 12 months as part of its strategy to get them lending again. Some officials fear putting a floating rate on the loans would prematurely fuel expectations that the ECB will lift its benchmark rate from 1 percent next year, which could in turn raise the cost of money on markets and propel the euro higher. The risk of lending at a fixed rate is that it may undermine the effect of any increase in the benchmark should the ECB deem it necessary. Altering the rate ``is always going to be interpreted as a signal for future monetary policy,'' said Laurent Bilke, an economist at Nomura International in London who used to work at the ECB. ``The only way to avoid that problem is to continue as they have been doing.''
U.K. Economy Probably Shrank 0.3% in Third Quarter After Revised Estimate
The U.K. economy shrank less than previously estimated in the third quarter as the longest recession on record eased, a survey of economists shows. Gross domestic product probably fell 0.3 percent from the second quarter, less than the 0.4 percent drop reported on Oct. 23, according to the median of 28 economists' forecasts in a Bloomberg News survey. The Office for National Statistics will release its second estimate at 9:30 a.m. today in London. ``The shrinkage looks a bit overdone,'' said Alan Clarke, an economist at BNP Paribas SA in London. ``Other surveys are showing output isn't nearly as downbeat. I wouldn't be surprised to see it eventually put close to zero.'' The Bank of England this month expanded its bond purchase plan by 25 billion pounds ($41 billion) after the economy's third-quarter contraction took policy makers and economists by surprise. Governor Mervyn King said yesterday the bank has been encouraged by signs of a recovery even if it isn't ``particularly strong.''
Australian Dollar Rises as RBA's Battellino Sees `New Upswing' for Economy
The Australian dollar rose after central bank Deputy Governor Ric Battellino said the economy has entered a ``new upswing,'' fueling speculation policy makers will raise interest rates for a record third month next week. New Zealand's currency also advanced as data showing Japan's exports improved last month supported gains in regional stocks and other high-yielding assets. There's a 77 percent chance the Reserve Bank of Australia will increase borrowing costs when it meets on Dec. 1, according to a Credit Suisse AG index based on interest-rate swaps. ``The idea that the central bank can say the economy has entered a new upswing which could last for a few more years is pretty optimistic,'' said Robert Rennie, head of currency research at Westpac Banking Corp. in Sydney.
``There's a fairly strong and consistent message coming from the RBA. We expect them to raise 25 basis points next week.''
Australia's currency strengthened 0.7 percent to 92.58 U.S.
cents as of 4:36 p.m. in Sydney from 91.92 cents in New York yesterday. It gained 0.5 percent to 81.76 yen from 81.34 yen.
Asian Currencies Rise, Led by Rupiah, After Japan Export Decline Abates
Asian currencies strengthened, led by Indonesia's rupiah, after a Japanese report showing the smallest decline in exports in a year added to evidence regional economies are recovering from a slump. Malaysia's ringgit advanced after the central bank held its benchmark interest rate at a record low to spur spending. South Korea's won was little changed near a 14-month high after Finance Minister Yoon Jeung Hyun said a stronger currency may hurt the profitability of the nation's companies, fueling speculation the central bank will intervene to curb appreciation. ``Japan, like Korea and Taiwan, is very leveraged to what's happening in China,'' said Patrick Bennett, a foreign-exchange strategist at Societe Generale SA in Hong Kong. ``The Bank of Korea has already stated the firmer currency is mitigating inflationary pressure, so our opinion is it will allow a moderately stronger currency as a counter to raising rates early in the recovery cycle.'' The rupiah rose
0.6 percent to 9,458 per dollar as of 10:06 a.m. in Jakarta, according to data compiled by Bloomberg. The ringgit climbed
0.3 percent to 3.3791 and Taiwan's dollar firmed 0.1 percent to NT$32.258. The won added 0.1 percent to 1,156.25, taking its gain for the past three months to 8 percent.

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