Belgian Consumer Confidence Remains Stable In June

6/19/2007 10:50:17 AM Belgian Consumer Confidence Indicator stabilized at a high level in June, the National Bank of Belgium said Tuesday. The indicator stood at a reading of one in June, compared with the reading two in the previous two months and equaling the reading of February 2007.

The consumer confidence indicator is composed of four sub-indices. The indicator for the expectation in the next twelve months for the economic situation in Belgium stood at a reading of three, equal to the reading of October 2006.. This compares to reading of two in the previous month.

The indicator for expectation in the next twelve months for unemployment remained unchanged at a reading of twelve. The financial situation in the next twelve months indicator dropped a point to reach a reading of four. The saving capacity of households in the next twelve months slipped two points to a reading of eleven.



Sweden Economy Forecast To Grow 3.6% In 2007, Inflation Not To Exceed 2% Until 2009 - NIER

6/19/2007 10:36:04 AM Swedish economy is expected to grow 3.6% in 2007, the National Institute of Economic Research- NIER, said Tuesday. The institute sees GDP growth of 3.7% for 2008, which is expected to slow to 3.0% in 2009. The economy is expected to grow at a working day adjusted 3.7% in 2007. According to the forecast, the working day adjusted economic growth is set to decelerate to 3.5% in 2008 and 3.0% in 2009.

In the previous report published in March, the GDP was forecast to grow 3.9% in 2007, followed by 3.4% growth in 2008.

The report noted that the economic growth lost momentum in the first quarter of this year due to weaker than expected exports and household consumption. The NIER considers the first quarter's weaker exports and household consumption as temporary.

The institute expects employment to rise by 184,000 persons in the 2006-2009 period. The unemployment rate is seen at 4.7% this year, dropping to 4.0% in 2008 and further to 3.6% in 2009. Resource utilization on the labor market is expected to rise. The unemployment rate had been estimated at 4.3% in 2008, while employment was expected to rise by 148,000 persons, in the earlier report.

Further, the institute expects annual wages to increase between 3.2% and 4.5% in most of the principal areas. Wage increase according to the Short-Term Wage and Salary Statistics is seen at 4.3% in 2007 and increased 4.7% in 2008 in business sector. The report said “higher wage increases will limit profits and add to inflationary pressure.” The earlier report had estimated a wage growth of 4.1% in 2007, and 4.5% in 2008.

The institute said that inflation was not likely to exceed 2% until 2009. Inflation will be curbed by tax changes in the next year. The NIER expects Riksbank to raise the repo rate gradually to 4.50% in 2008 and 4.75% in 2009. The institute sees inflation slightly above the central bank target in 2009 and 2010.

General government finances are strong in relation to the set target. The NIER advised against expansionary measures in the budget this autumn.

LIKE-MINDED FILM COMPANY

“I had an idea,” he told me. “It started when I was hearing people who are no longer in their 20s or 30s. Or even 40s. They complained their greatest pastime in the old days was the movies. Now, they say, they don’t go. Why? Because there’s little for them to see. They hate all this violence with close-ups of heads being blown off. They hate the fast and furious special effects stuff. They hate graphic spitty sexy scenes where you actually see up, down and in everything. They’ve already been there. They know what’s there. They don’t need movies made for 14-year-olds.”

Yeah, so?

“So I’ve put together a whole group who are the A-1 in the business. Top actors like Robert Duvall want in on this. We’re getting those names who know great old-fashioned storytelling directing, and those names who’ve written the best screenplays of our time. I’ve made a list and I’m gathering great people who are 65-70 but don’t anymore have the opportunity to sell their ideas in today’s industry.

“We’ll deliver product that targets the baby boomers. This is a huge market comprised of men and women who are now feeling out of it. And it happens that this group has today’s biggest disposable income.”

Roll the dice.

CNN cutting Paula Zahn loose? Plop ping in NBC’s Campbell Brown? Re member, kiddies, mother told you all that first . . . Vanessa Redgrave, often called one of our greatest living actresses, on if she ever blows lines onstage: “Oh, Lord, yes. I know what I’m supposed to be saying, but sometimes my brain is off. What I do is substitute one verb for another or stick in my own words. It’s not what the playwright had in mind, but it gets me through.” . . . All these scandals with all these baseball players has caused the sport to institute rigorous examinations. I happen to know that several of the athletes have already tested positive for I.Q. >PAGE 1>

Newspaper and magazine share tips

The Daily Telepgraph

shares have soared in the past six months - when Questor advised investors to take profits - despite a lack of bidders for the first time in three years. The rise is linked to a focused strategy from chief executive Clara Furse of building on the LSE’s strengths. It is paying off, both financially and strategically. Yesterday’s unveiling of its new trading system - TradElect - is a good example of what Furse has been trying to achieve. The culmination of four years of investment, it is basically a severe upgrade to the LSE’s technology platform. The LSE is clearly capable of continuing to evolve and grow without a foreign suitor taking control. The share price reflects that, and the earnings growth that goes hand-in-hand with it.
Verdict: Hold

, formerly known as AIT, whose ex-bosses got mauled by the City watchdog for making misleading statements, has had a turnaround. Portrait’s ‘customer interaction’ software helps companies to organise their sales and service functions across multiple functions. That means everything from call centres, branch outlets and the internet to interactive TV and mobile. It has been using small-scale acquisitions to accelerate growth. It is already highly cash generative but its cash profile will remain suppressed until 2010 when a 4.3m loan is paid off. Revenues are lumpy and there may be bumps along the way, so this is one for the brave. But, at 20 times Panmure Gordon’s forecasts for 2008, falling to 11 for 2009, the shares merit consideration.
Verdict: Speculative Buy

———————-

The Times

saw its shares rose nearly 13% to a record high yesterday following the announcement that it had struck oil in Ghana. It is the largest offshore discovery in the company’s 22-year history and confirms Tullow’s status as Britain’s biggest oil and gas independent. It’s .3bn market value makes it 1bn bigger than and a sure-fire contender for the FTSE 100. But was it an overreaction? The 51p added to the shares was only slightly more than the 45p a share that, at yesterday’s first estimate of 300 million barrels, the find has added to Tullow’s . Further drilling could easily push the find towards 600 million barrels. Perhaps more important, Tullow has a 49% stake in an adjacent block in Ghana’s Tano basin. The deepwater nature of the Ghana find means it will be five years before it becomes meaningful. And at 460p, half of Tullow’s stockmarket value is now pegged on exploration, which leaves little room for disappointment. But with Tullow drilling an unprecedented 40 wells over the next 12 months, half of which may be deemed major, sentiment is likely to remain behind it.
Verdict: Hold

Housing construction down in May

WASHINGTON (AP) - Construction of new homes fell in May as the nation's homebuilders were battered by the crisis in subprime lending and rising mortgage rates.

Housing, which is struggling through its biggest downturn in 16 years, is expected to continue to face troubles in the months ahead before starting to stage a sustained rebound in 2008.

The Commerce Department reported Tuesday that construction of new homes and apartments dropped by 2.1 percent last month to a seasonally adjusted annual rate of 1.474 million units, 24.2 percent below the level of a year ago.

The May decline was in line with expectations and reflected weakness in the South and West, which offset construction gains in the Northeast and Midwest.

Permits, considered a good barometer of future activity, rose by 3 percent in May but that followed a huge 7.1 percent plunge in April. The strength last month came from a rebound in permits for apartment construction, which can be volatile. Applications for single-family homes fell by 1.8 percent and have been down four of the past five months.

"The downward trend remains firmly in place and there is no prospect of any near-term relief, given the huge inventory overhang in the new home market," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Home builders, struggling to reduce record levels of unsold homes, are slashing prices and offering a variety of sales incentives, such as kitchen upgrades and free decks, to do so.

However, they are facing new problems with the recent spike in mortgage delinquencies, which means that more homes are being dumped on the market, and a steady rise in mortgage rates over the past month, with Freddie Mac's national survey for 30-year mortgages hitting an 11-month high of 6.74 percent last week.

The National Association of Home Builders reported that its survey of builder sentiment sank in June to the lowest level in 16 years, a reading of 28, down from 30 in May. The three major components of the index -- sales, sales expectations and buyer traffic -- all posted declines. It was the lowest showing since February 1991, a period that covered the last major housing recession.

"The tightening in lending standards is having quite an impact," said David Seiders, chief economist for the home builders. He predicted that home sales would likely fall further in coming months with a sustained rebound not occurring until 2008.

Seiders said he looked for construction of new homes and apartments to decline by 22 percent this year after having fallen by 13 percent in 2006.

It had appeared that the slump in housing was hitting bottom at the end of last year, but there has been a renewed drop in recent months triggered by problems in the mortgage industry. The level of late payments and foreclosures on subprime mortgages hit record highs in the first three months of the year, according to a survey by the Mortgage Bankers Association.

The percentage of payments that were 30 or more days days past due for subprime mortgages -- loans made to borrowers with weak credit histories -- rose to a record 15.75 percent in the January-March quarter.

Housing had enjoyed a five-year boom fueled by the lowest mortgage rates in four decades and soaring home prices that drove investors to get into the market. That boom ended in 2006 and since that time sales of both new and existing homes have been falling and home prices in the hottest markets are down as well.

Construction of single-family homes dropped 3.4 percent last month while construction of apartments rose by 3.1 percent.

By region of the country, construction activity fell by 19.7 percent in the West and 1.6 percent in the South. Construction was up 15.7 percent in the Northeast and 15.5 percent in the Midwest.

The steep slump in housing has weighed on the overall economy, dragging growth down to a barely discernible rate of 0.6 percent in the first three months of this year.

Analysts believe growth in the current quarter has rebounded to a more respectable rate of 3 percent or even better, despite the ongoing problems in housing.

Ecuador to join OPEC in near future - secretary-general al-Badri

VIENNA (Thomson Financial) - OPEC Secretary-General Abdullah al-Badri said Tuesday that he expected Ecuador to soon join the Organization of Petroleum Exporting Countries, after Quito officially requested to become a member.

"We received an official letter from Ecuador last week. I am expecting Ecuador will be a member of OPEC in the near future," Badri said in an interview with Agence France-Presse at the organisation's headquarters in Vienna.

Ultimately however, "it is a decision of the conference" of member states, which will take place in September in the Austrian capital, he added.

Asked whether he thought the cartel would again welcome Ecuador, previously a member of OPEC from 1973 to 1992, into its ranks, Badri said: "I hope so."

Ecuador would thereby become the organisation's 13th member, alongside Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE and Venezuela.

Sudan has also been considered for membership but has not yet made a formal request to join the organisation, Badri added.

tf.TFN-Europe_newsdesk@thomson.com

The U.S. dollar is confirming short term strengthThe U.S. dollar is confirming short term strength

After a dull first quarter, the economy in the United States might again move up in the second half of the year. The U.S. dollar, in the meantime, has moved below important technical levels against the Euro currency, thus confirming short term strength.

In the United States rates should remain on hold for sometime

Following the manufacturing Institute for Supply Management (ISM) index, which increased slightly in May to 55.00 from 54.7 the prior month, the non-manufacturing ISM index rose to its highest level in 13 months. The move to 59.7 from April’s 56.00 was much stronger than market forecast expecting a small decline to 55.8 and it testifies that the economy is improving after a weaker first quarter. A reading above 50.00 indicates an expansionary economic environment. In effect, productivity in the Unites States has drifted lower, moving at a 1% pace in the first three months of 2007, compared to 2.1% in the fourth quarter of 2006. Numbers are below the previously estimated (1.7%) to show a milder growth, but could again expand in the coming months. Non-manufacturing ISM gains were in fact broad based and evenly distributed to most of the index components. As an example, in May, the employment index increased for the second straight month to 54.9 from April’s 51.9. The new orders index rose to 57.4 from 55.5 and the new export orders index climbed by an additional 10.5 points, after jumping 7 points in April. Finally, the prices paid components moved to highest level since August 2006.


Angelo Airaghi is a Commodity Trading Advisor, registered with the National Futures Association and the Commodity Futures Trading Commission. He has been an active professional since 1990 working for major international financial companies. In the past 10 years, Angelo Airaghi has been an analyst and commentator for national and international media.

US Dollar, Treasury Yields May Suffer If Dismal Housing Data Prevails

NAHB Housing Market Index (JUN) (17:00 GMT; 13:00 EST)
Expected: 30
Previous: 30

How Will The Markets React?

US dollar and Treasury yield gains have slowed quite a bit now that weaker-than-expected core CPI figures have hit the markets, as there is far less support for the Federal Reserve’s overtly hawkish stance. Furthermore, conditions in the housing sector appear to be worsening, which hurts the case for a rebound in expansion later in the year as Fed Chairman Bernanke forecasts. In fact, RealtyTrac indicated that foreclosures surged a whopping 90 percent in May from a year earlier, while the Mortgage Bankers Associated reported a pick up in subprime mortgage delinquencies. Given the sheer amount of negative reports regarding the sector, homebuilders are not likely to be entirely optimistic regarding demand for homes, creating significant downside risks for the NAHB housing market index due to be released on Monday afternoon. Estimates are for a steady reading, which would not make many waves in US markets, but if we see a very disappointing figure, US dollar and Treasury yield declines could ensue while limiting support for the S&P 500.

Bonds – US 10-Year Treasury Note Futures

US 10-Year Treasury futures saw a healthy bounce on Friday as softer-than-expected core CPI diminished prospects for a Federal Reserve Rate hike later in the year. However, resistance at 104.25/30 has limited further gains, but the release of US housing data could jumpstart price action once again next week. The NAHB index is anticipated to hold steady, but given the dismal news we’ve seen from the housing sector lately, there is significant downside risk for the release. An unexpected plunge could continue to hurt prospects for policy tightening by the Fed and perhaps even lead the markets to consider the possibility of rate cuts once again, which would subsequently propel Treasury futures through near term resistance at 105.01 towards more lofty targets of 106.00.

US 10-Year Treasury Note Futures (Daily Chart)


FX – USD/JPY

The US dollar faltered against most of the majors on Friday amidst the release of softer-than-expected core CPI, however, USDJPY continued to prosper after the Bank of Japan left rates on hold and signaled a more extended pause on monetary policy action. In fact, the pair has been reaching new 4 ½ year highs as the carry trade remains the preferred position of the markets. While a break of 124.00 almost appears unavoidable, the release of the NAHB housing market index could slow the ascent. The figure is anticipated to hold steady, but there is substantial risk of a decline given the widespread weakness throughout the sector. A major disappoint could lead USDJPY down towards the 123.00 level, but it would take a major event (very hawkish BOJ commentary, Chinese trade/yuan news) to take it much further. On the other hand, a steady NAHB reading or an improvement would support further gains for the pair to the 124.00 level.

USD/JPY (Daily Chart)

Equities – S&P 500 Index

US stocks rallied on Friday after core consumer prices rose less than forecast, easing concern that interest rates will increase. The S&P 500 added 0.7 percent to close at 1532.89, with utilities leading the index as the yield on the benchmark 10-year Treasury note fell about 6 basis points. Exelon, the largest operator of US nuclear power plants, added $1.69 to $74.48 while PPL Corp., owner of Pennsylvania's second-biggest utility, rose $2.01 to $46.72 after its board authorized a $750 million share buyback.

With the S&P 500 so close to resistance at 1,540.00, the index may have difficulty working higher, especially if the NAHB housing index takes a hit and highlights the weakness of the housing sector. While the housing indicator isn’t necessarily market moving enough to lead to a large pick up or decline in the S&P, a surprising figure could exacerbate price action. However, estimates are for a steady reading, and a result in line with expectations is not likely to even cause a ripple in the index as equity news will prevail.

S&P 500 Index (Daily Chart)

UK rates set to rise again as inflationary pressures mount - CBILONDON (Thomson Financial) - Another Bank of England interest rate hike is more likely

LONDON (Thomson Financial) - Another Bank of England interest rate hike is more likely than not as inflationary pressures in the UK economy have increased over the last three months, the country's biggest business lobby group said today.

In its quarterly assessment of the UK economy, the Confederation of British Industry said rates are likely to rise to 5.75 pct this autumn to bring CPI inflation back below the 2.0 pct target by the end of 2008. The CBI reckons inflation will end 2007 at 2.2 pct, slightly higher than previously forecast.

'Though not a foregone conclusion, a further interest rate rise now seems more likely than not this autumn and we have built this into our forecast,' said Ian McCafferty, the CBI's chief economic adviser.

'Recent oil price rises, unexpected and sharp increases in food costs, higher-than-expected import prices and businesses rebuilding profit margins after last year's squeeze have all added to inflationary pressures,' he added.

Sterling markets are currently predicting that the BoE will raise its key repo rate to 6.00 pct by the end of year as it seeks to rein in inflationary expectations and clamp down on pricing pressures among firms.

McCafferty said the quarter point hike is likely to be reversed by the end of 2008 as higher borrowing costs mean slightly weaker economic growth.

On growth, the CBI kept its forecast for 2007 unchanged at 2.9 pct but has cut next year's prediction to 2.4 pct from 2.6 pct.

'The economy will still enjoy above trend growth this year, with consumer spending remaining robust until the full effect of higher rates is felt later this year,' said McCafferty.

Elsewhere, the CBI said continued strong economic growth internationally, combined with a slight depreciation in the pound, will help exporters in 2008. As a result, the CBI expects net trade to become a positive contributor to GDP for the first time since 2005.

Meanwhile, it reckons unemployment will continue to fall, from 1.68 mln in 2006 to 1.65 mln this year and 1.60 mln in 2008.

Australian Dollar Breaks 0.8400 On Commodity Price Gains

Despite a sparse economic calendar, the combination of a pick up in commodity prices and soft US inflation data helped spur a strong Australian dollar rally to break 0.8400 and propel more mild gains for the New Zealand dollar above 0.7500. The Canadian dollar, on the other hand, was not as fortunate.

Even as oil prices edged back above $68/bbl on concerns that refineries would not be able to meet demand, the currency gradually gave up its gains to push USDCAD back up towards 1.0680 as Canadian bond yields followed US Treasury yields lower. Loonie’s rally could reignite next week, though, with both CPI and retail sales scheduled to be released. If the data signals that inflation remains hot and consumption is keeping pace, USDCAD could go for another test of 1.0600 as traders ante up in anticipation of a July 10th hike by the Bank of Canada.

US Senate Takes Aim At Chinese Yuan: Is This The Beginning?

Written by Richard Lee, Currency Analyst

Well it’s out the first step has been taken by US legislators in initiating what could be an all trade confrontation between the world’s largest and the world’s fastest growing economies. Released shortly after the US Treasuries exchange policy evaluation, US legislators made it clear that flexibility must be the number one priority of Chinese policy makers.

The new bill, should it become US law would enable the US Treasury to coordinate intervention in the currency markets if there is fixed proof that the country’s currency is “fundamentally undervalued”. Although targeting every global participant, the central theme is clearly China and its rather rigid currency regime. Including potential participation from the International Monetary Fund and World Trade Organization, does the bill really turn heads in Beijing?

Not Likely…
Although the bill does reek of protectionism, the piece of legislation itself is visibly less harmful than the Graham-Schumer bill from last year. Dismissed on the advice of then newly initiated Treasury Secretary Paulson, the Graham Schumer initiative aimed at implementing tariffs of up to 27.5 percent of all Chinese imported goods. This time around, with the approval stamp of Democratic representatives Charles Schumer of New York and Max Baucus of Montana, as well as Republicans Lindsey Graham of South Carolina and Charles Grassley of Iowa, the bill looks to take the route of American currency intervention in the markets, something that hasn’t happened for approximately 7 years. However, the actual intervention, under the auspices of the legislation, would take a considerable amount of time from start to finish. In order for intervention to take place:

• The US Treasury Department’s twice a year report would identify "misaligned currencies" and not just currency manipulators. This is a shift from requiring that the Treasury find evidence that the country is deliberately trying to get a trade advantage.

• Should the valuation be “misaligned” the US Trade Representative would have one year to officials file complaint with WTO officials.

• Once filed, the complaint would then reach the US Treasury, which would consult with the Federal Reserve and other global central banks in considering the possibility of intervening in the foreign exchange markets. Thus punishing the guilty country.

The lag time in the actual order of events would take a minimum of a year to implement, a considerable amount of time for any economy to set wrongs right. As a result, similar to previous WTO sanctions by the US, the results would take far longer than desired by officials and affording the punishable party ample time to correct any iniquities.

China And The US Need Each Other
Markets are already seeing nascent animosity as China countered today’s legislative announcement. Although recognizing that the US has “legitimate” concerns with the enormity of China’s trade surplus, Chinese Ambassador Zhou Wenzhong stated that legislative action “will hurt opportunities for healthy business activity between China and the United States. The sentiment was backed by protests from China’s Ministry of Foreign Affairs. According to the ministry’s spokesman Qin Gang, “the US Congress believes it (yuan) is too low….but whose standard is this? Ultimately, China’s renminbi exchange rate must suit Chinese realities.” All bite, the comments leave one essential fact out, interdependence is a necessity. China’s reliance on the US, and vice versa, will continue to curb efforts of a blown out trade war. Although policy makers won’t admit it, China continues its attempts to tap the world’s richest economy in the US, it’s largest overseas market. The notion has sparked not only acquisitions of key manufacturing companies, like Lenovo for retail laptop creation, but also plans to expand domestic consumer automobile manufacturing. On the other hand, Chinese officials have just expanded the potential influence of American companies, allowing more access to financial services and expanded air travel ventures for US based firms. Should a trade war ensue, however, efforts will be lost by both parties as protectionism is sure to keep viable markets in both countries off limits.

On the investment front, China cannot stop buying US dollars. Their current bond market is one tenth the size of the US bond market. The average bond market valuation currently stands at approximately 95 percent of overall GDP while China ‘s market only represents 30 percent to GDP. With the US dollar likely to comprise a big portion of its managed float, as much as China tries to diversify, some of their money will still be used to buy US dollars and US treasuries. Comparatively, this also means that China’s bond market has plenty of growth potential. Expect US investors to aggressively try to get a piece of that pie.

Only When The US Slaps Big Sanctions On Steel, Should FX Traders Be Worried
Only if the US decides to impose clear cut tariffs on imported Chinese goods, should FX traders be worried because this will force Chinese officials to think up retaliatory sanctions on its own swath of US imports. Mainly in focus would be China’s steel exports. Now considered the world’s largest producer of the steel and coiled steel products, China would see its global market share decrease in the unlikely event. The situation would couple well with already considered sanctions by the EU as policy makers there look to protect their own industrial producers of the base metal. As mentioned before, China could counter by hastening the pace at which US dollar reallocation takes place. Already amassing an FX reserve of $1.2 trillion, standing as the world’s fourth largest, China could essentially begin unloading a good majority of its $400 billion dollar position in the market. The move would crimp dollar demand and ultimately add an unnecessary weight to the underlying currency. Although good for American exporters, as a depreciated dollar would add to the overall competitiveness of the sector, the massive depreciation would have longer term negative effects on China. Much of Chinese growth is dependent on US demand. If the US economy slows as China’s dumping of US treasuries drives up yield, demand for Chinese goods will falter as well.

Conclusion
Ultimately, today’s legislative creation looks to be another appeasement to American industry leaders. Although the bill does force Beijing to reconsider its current foreign exchange regime, the level of aggression is unlikely to spark any retaliatory measures by Chinese officials in the near term. As a result, unless hard fines and tariffs are placed on Chinese goods, continued talks will emerge in helping both parties work towards a more amiable currency valuation. The result will be a strained, but continuing two way trade relationship.

DJ FOREX VIEW: Dollar Perhaps Undeserving Of Recent Rally

NEW YORK (Dow Jones)--The dollar is surging amid rising yields in U.S. bonds and reduced odds of interest rate cuts by the Federal Reserve, but concerns are emerging that the rally might be built on a foundation of sand. *

While higher yields in bonds make them more attractive to investors, the bond market turmoil could also be a sign of a growing disenchantment among foreign investors with U.S. assets - with worrisome consequences for the greenback.

"While the dollar has survived and even benefited from the higher yields associated with lower Treasury prices, we seriously doubt it would be able to withstand large losses in U.S. financial assets more broadly (i.e. stocks and bonds)," said Robert Lynch, currency strategist at HSBC in New York.

As to the market's conviction that there will be no Fed rate cuts this year - with some even pondering the possibility of a hike - recent comments by Fed Chairman Ben Bernanke could easily be interpreted to suggest that cuts are still in the realm of the possible.

Yes, Bernanke said inflation is still a risk and said economic growth would rise moderately, which does not suggest conditions for rate cuts. But in nearly the same breath, he also said housing - perhaps the economy's main problem - will be weaker than previously thought and said core inflation is ebbing. This could brew up a perfect storm for rate cuts, and housing market lobbyists may very well start clamoring for them.

  Dollar Gains Twice From Lower Odds Of Rate Cuts

For sure, there's more than higher bond yields backing the dollar's recent gains. The dollar had already begun to rise in early May, long before the bond market ran into a wall of selling. Throughout May, the dollar was inching higher with each better-than-expected U.S. economic report on everything from hiring and manufacturing to inflation and trade.

This improved data slowly shifted currency analysts away from their expectations that the Fed would cut interest rates this year to kick-start the economy.

U.S. bond markets were slower to catch on to the data shift - not until last week did they add it up and in dramatic fashion price out the odds of any 2007 Fed rate cut, pushing yields on the 10-year Treasury note to as high as 5.31%, a five-year high.

The drama caused by the surge in bond yields spooked U.S. stock markets, resulting in the sharpest pullback in equities during the past three months.

Amid soaring rates, the dollar's rally got a second lease of life, confounding those who had been calling for a reversal in the greenback's fortunes. Wednesday, it reached a fresh two-month high against the euro, at $1.3264, and a five-year high against the yen, at Y122.48.

Contrast that with late April, when the euro hit a record high of $1.3682 - and analysts were forecasting a run to $1.40.

Suddenly, $1.30 seems more likely - but don't bet on it.

  Homeowners Hate Higher Yields

Even as economists on Wall Street are pushing out rate cut expectations into 2008, contrarians such as Mark Meadows, currency strategist at Tempus Consulting in Washington, continue to maintain that cuts are possible this year - given the challenges the U.S. consumer is facing.

"The strength of the U.S. economy has continued to depend on the consumer, who has remained resilient despite falling home prices (and) high oil prices," he said in a research note.

But, he added: "Because of these (and other) mounting pressures, it becomes a question of when, and not necessarily if, the U.S. consumer will begin to react negatively to these factors."

The rise in market rates could also end up hurting the consumer - as the 10-year Treasury yield is the benchmark rate for fixed-rate mortgages, while mortgages with adjustable rates are tied to a broader range of market rates.

And with the housing market clearly still struggling - home foreclosures in May jumped 19%, according to RealtyTrac, an online marketplace for foreclosed properties - rising mortgage rates will hurt even more.

"At the end of day, higher bond yields will undermine the housing market," said Hans Redeker, head of global foreign exchange strategy at BNP Paribas in London. "If you're are a homeowner who is stressed out and looking to refinance, you will hate these higher bond yields."

  It's Still About Housing

Bernanke's warnings last week that the housing market is still in pretty deep trouble serves to underline that view.

His comments on housing, combined with soothing words on inflation, indicates for Tempus Consulting's Meadows, for one, that there's room for an ease if the consumer starts to wobble seriously. He dismisses the continued inflation warnings as routine tough talking from central banks.

After all, lower interest rates, a potential cure for many economic maladies, are the quintessential solution to a housing slump.

And if the Fed does cut rates in 2007, you can bet that the $1.40 for the euro could be reached after all.

(Dan Molinski covers foreign exchange markets for Dow Jones Newswires in New York. He was previously a correspondent for Dow Jones in Bogota.)

-By Dan Molinski

European govt bonds up after in-line euro zone CPI data

LONDON (Thomson Financial) - European government bonds rose following in-line consumer price data for the euro zone which showed inflation remaining below 2 pct.

The euro zone's harmonised index of consumer prices rose a final 1.9 pct year-on-year in May, unchanged from the provisional estimate and in line with expectations.

"Inflation ... currently remains pretty well behaved, while the European Central Bank should also be pretty pleased to see that wage growth across the euro zone was limited to 2.3 pct year-on-year in the first quarter," said Howard Archer of Global Insight.

Controlled wage growth indicates that tightening labour markets have, so far at least, not pushed up pay markedly in the area.

Also providing some optimism was core inflation -- which excludes energy, food, alcohol and tobacco -- where growth remained stable, up 1.9 pct year-on-year in May, unchanged from the April rate of increase.

Orlando Green of Calyon said that while the stable core inflation figures does not change opinion that a rate hike from the ECB in September still looks inevitable, "it is not so plain sailing" what will happen beyond that.

The market is widely expecting the ECB to hike its key repo rate by a further 25 basis points to 4.25 pct in September, having raised it to 4.00 pct from 3.75 last week.

However, some analysts are already suggesting there could be further increases to 4.50 pct by early 2008, particularly after the ECB earlier reiterated its president Jean-Claude Trichet's comments in a monthly bulletin that monetary policy is still on the accommodative side.

In the UK, gilts were also up, tracking their European counterparts as they reversed recent heavy losses.

Official figures released earlier today showed retail sales in the UK rose by 0.4 pct in May from April, reversing the previous month's 0.1 pct decline and beating expectations for a more modest rise of 0.3 pct.

However, analysts said the Bank of England is likely to be pleased that the retail sales deflator rose at a reduced rate of 0.5 pct year-on-year in May, down from a more than 8-year high of 1.0 pct in April.

Also released today, the Bank of England's inflation attitudes survey showed inflation expectations have stabilised at 2.7 pct, but remain at elevated levels.

The figures will do nothing, however, to alter market expectations that the central bank will raise interest rates by another quarter point to 5.75 pct in the coming months, possibly as soon as next month.

At Yield Change on

1250 BST pct previous close

Sept euribor future (Liffe) 95.645 up 0.005

Dec euribor future (Liffe) 95.46 up 0.015

GERMANY

Sept bund future (Eurex) 110.24 up 0.02

3.75 pct Jul 2017 govt bond 96.96 4.63 up 0.04

FRANCE

3.75 pct Apr 2017 govt bond 92.82 4.67 up 0.05

ITALY

4.00 pct Feb 2017 govt bond 94.00 4.85 down 0.03

UK

Sept gilt future 103.91 up 0.14

4.00 pct Sept 2016 govt bond 89.56 5.45 up 0.14

Sept short sterling future 93.94 up 0.02

Dec short sterling future 93.82 up 0.03

chinny.li@thomson.com

cml/jkm/ejp

British Pound May Target 2.00 Once Again If Inflation Fails To Soften

How Will The Markets React?

Only UK equity markets saw noticeable price action on Monday as the sell-off in 10-year Gilts and the British pound finally took a break. However, with market-moving data on tap on Tuesday, traders could be in for a wild day. UK inflation reports are anticipated to show that price pressures continued to ease back during the month of May, with CPI estimated to hit 2.6 percent and RPI forecasted to slip to 4.3 percent. Nevertheless, even those figures are lofty, especially as the Bank of England’s official inflation target is well below at 2.0 percent. Furthermore, BOE Governor Mervyn King recently expressed an even more hawkish tone during a speech given in Wales, in which he said that the BOE “may need to take further action” on inflation as expectations have “drifted up.” As a result, CPI figures confirming King’s commentary will really ramp up speculation of a July hike by the central bank. On the other hand, if inflation reports actually hit the tape at softer-than-expected levels, the BOE will be more likely to continue watching pricing and capacity data in order to assess whether policy tightening will be necessary in August.

Bonds – 10-Year Long Gilt Futures

Gilt futures edged higher today, showing a mild recovery from the steep drops we’ve seen over the past few weeks. However, with the Bank of England widely perceived as maintaining a hawkish stance, Gilt bulls have been reluctant to extend the bounce and there is still a long way to go before this is anything more than just a brief correction. On the intraday charts, the 50.0% fib of 104.08 – 104.65 at 104.36 has served as decent support, with Long Gilt Futures wrapping up the session at 104.45. However, given the tightening bias of the BOE, the release of UK inflation data could reignite the steep descent if CPI remains elevated. On the other hand, if markets find that price pressures have let up more than anticipated, Gilts could make a stealthy advance towards 105.00, as yields would be inclined to plummet on the drop in rate hike expectations.






FX – GBP/USD

On Tuesday, GBPUSD could be in for a bounce based on both technical and fundamental factors. Looking at the daily charts, last week’s plunge was stopped short at seven month trendline support and the 50.0% fib of 1.9183-2.0131 at 1.9657. Should GBPUSD hold up against support, price could bounce up towards 1.9775 with the help of strong economic data. While inflation reports are anticipated to ease back, CPI and PPI are also projected to remain elevated and could underpin the case for a July or August hike, depending on how strong price pressures remain, especially after BOE Governor Mervyn King said that the central bank “may need to take further action” on inflation. On the other hand, if we see that CPI falls closer to the 2.0 percent target than markets are expecting, GBPUSD could break down through support to target 1.9500. There are other major UK releases due out this week, and on Wednesday, signs of further tightening in the labor market will feed into concerns of mounting wage pressures. Furthermore, Retail Sales are forecasted to rebound on Friday, signaling that consumption remains healthy despite higher interest rates. However, with BRC Retail Sales for the same month indicating a sharp slowdown, there are major downside risks for this particular release. Nevertheless, should speculation about the BOE’s future policy action remain the dominant theme in British pound trade, GBPUSD gains may resume.





Equities – FTSE 100 Index

Equities in the UK rallied as the benchmark FTSE 100 Index gained 1 percent to 6567.5 in London, with all but 10 stocks rising. Rio Tinto, the world's third-largest mining company, climbed 2.6 percent to 3,592 pence as base metals such as copper advanced in London and New York. Similarly, BHP Billiton, the world's biggest mining company, surged 2.8 percent to 1,303 pence. The gains were only exacerbated after UBS AG said mergers and acquisitions in the mining industry will likely accelerate.

Whether the FTSE 100 continues to ascend towards its June 5th highs of 6,686.60 will depend greatly on the outcome of inflation figures on Tuesday. Both CPI and RPI are estimated to ease back, which could remove some of the BOE’s hawkish bias and leave equity traders more optimistic that rates will not be raised again in the short-term. However, should the inflation reports prove that price pressures are stronger than expected, the FTSE 100 could easily sell-off towards the 6,500 level, especially after BOE Governor Mervyn King said that the central bank “may need to take further action” on inflation.

Cleric slams G8 leaders over promises on aid for Africa

Anglican Archbishop Njongonkulu Ndungane says G8 leaders are making "hot air" promises when it comes to giving substantial aid for Africa.

Ndungane, speaking yesterday at a media briefing of the African Monitor, an advocacy organisation of which he is the founder and president, said the G8 summit held in Germany last week had disappointing outcomes for Africa.

He said G8 leaders' promise this year to increase spending to combat HIV, TB and malaria to $60-billion (about R432-billion) was - except for the US - the same amount to which they had already previously committed themselves.

Ndungane said the fight against these diseases was hampered by the fact that no time-frame was attached for when these funds would be disbursed.

"Without any concrete plan of action, this promise (for aid) is simply hot air," he said.

He added that he was "puzzled" by how the G8 handled some climate-change issues.

"On the one hand, the USA is prepared to spend billions … on HIV in Africa, and on the other, they refuse to deal responsibly with climate change, which will also kill hundreds of Africans through droughts, floods and accelerated poverty," Ndungane said.

He said the G8's failure to commit to fair trade and opening market agreements "casts doubts about the seriousness of the G8 to contribute effectively to the development agenda in Africa". - Sapa

Default 64.3 million pension accounts remain offline in Japan

According to news reports, Health,Labor and Welfare Minister Mr.Yanagisawa acknowledged in the Diet last week that the Social Insurance Agency has not entered 14.3 million pension accounts into its computer system.
The discovery came amid heavy criticism against the government and the agency over 50 million pension accounts whose rightful beneficiaries are not known.
This week social insurance offices all over Japan are inundated with telephone calls from many assured persons.
The Japanese government and the ruling bloc hammered out a plan to check all of the 50 million pension accounts whose owners are unknown by May 2008. The 14.3 million accounts may deal a blow to the ruling coalition and its plan to clean up the pension system mess created by mismanagement and errors, a key issue in the July Upper House election.

In addition, Japan brings in the health-insurance system and the elderly care(nursing-care) insurance system that covers all of Japanese citizens. Therefore Japanese citizens must pay the pension premium, health insurance expense from 20 years old and pay the premium for nursing-care insurance from 40 years old. Moreover, we must pay high tax.
Japanese society is almost mono-racial society and is based on mutual trust. Although we really love Japan and have patriotic conservatism, if we take a deep interest in the future, we cannot help but be worried over our old age in Japan. We think that we need to save the money and invest abroad...

Default Will The Canadian Dollar Approach Parity Or Break Trend Next Week?

New Housing Price Index (APR) (12:30 GMT)
Capacity Utilization Rate (1Q) (12:30 GMT)
Expected: 0.3%
Expected: 83.3%
Previous: 0.3%
Previous: 82.5%



How Will The Markets React?
The Canadian markets were in for a wild ride Friday. A global rush of risk aversion and a full economic calendar stoked volatility but did little for providing any definite direction for the markets going into the week. Looking over the charts, it was clear fundamental traders started stirring in the overnight, leading both government bonds and equities to gap lower on the open. Shading action for the Canadian session before local traders even came to their screens, the Asian and European markets were extending their three-day losses and in turn fueling fears that risky and mature trades like long equities and long carry were a thing of the past. When Canada?s fully stocked economic calendar finally came online, the first indicator effectively dulled action for the rest of the day. Statistics Canada?s labor indicators for May crossed the wires largely in line with expectations. Employers took on 9,300 new workers - restoring a seven-month positive trend that was put off by April?s contraction. Though there was a lot of stock behind an employment surprise, the later reported housing starts and trade figures helped to restore confidence in the Canadian economy. The physical trade report printed a sixteen-month high, C$5.8 billion surplus despite the national currency?s steady march to new highs. The other report to cross the wires was the better-than-expected housing starts number for May. Accelerating nearly 18,000 to a 229,700-annual pace, the starts number helps set the scene for next Monday?s report. The New Housing Price Index for April is balancing on expectations of a repeat 0.3 percent increase. This opens the door for a sharp reaction after a surprise. The related building permits gauge for the same period is guiding expectations to a slight decline since residential filings cooled 1.4 percent following a record jump in March. Recently, the BoC said it expects homebuilding to detract from growth in 2007, shaving 0.1 percent points from GDP. This could jeopardize rate hike.
Bonds - 10-Year Canadian Government Bond Futures
Canadian government bond yields were able to finish the day off in positive territory, though an early morning rebound erased a lot of the gains early. Initially, the market opened with a clear agenda - extending Thursday?s sharp sell off. In fact, futures on the ten-year bond opened 72 points below the previous day?s close. The low was quickly put into place though, when a supportive economic calendar helped to soothe the rapid rally in yields. Looking ahead to Monday, the direction and intensity for price action will hinge on any lingering sentiment of risk aversion. Should fears not carry over the weekend; the market will then turn to the docket?s housing data. Should housing prices contribute to inflation, it would offer another boost to hike expectations that have grown in recent weeks.







FX - USD/CAD
This week will serve as a major test for USDCAD, as thin data flow could leave Loonie to flounder. New Housing Prices are estimated to grow 0.3 percent once again in the month of April, though USDCAD reaction will be mild given the release?s low market-moving status. At the same time, the Capacity Utilization Rate is predicted to edge higher. Thought to be a leading indicator of inflation, the announcement may give Loonie a brief boost - albeit a small one. Nevertheless, regardless of the scheduled releases this week, markets have little reason to sell-off the Canadian dollar considering that oil prices remain lofty, CPI is still above 2.0 percent, and exports are holding up well. All of these factors underpin the case for a hike by the Bank of Canada in July, and with the US Fed likely to remain on hold throughout the year, shifting interest rate differential are slowly working in the favor of Loonie. As a result, markets should remain cautious of trying to capture a turn in USDCAD, as there is little fundamental basis for a full turnaround and the pair could indeed continue to plow down through 1.0550.







Equities - S&P/TSX Composite Index
Canadian stocks rose for the first time in four days, helping to pare its biggest weekly loss in three months, which was originally touched off by concerns that inflation will lead the Bank of Canada to raise interest rates. The S&P/TSX added __ percent close out the week at 13,796.95. Financial shares rose after leading the S&P/TSX Composite Index lower all week, with Royal Bank of Canada, the country's largest lender by assets, up C$0.91 cents to C$56.80 while Bank of Montreal, the fourth-biggest, rose C$0.99 cents to C$69.59. Meanwhile, commodity producers made a comeback even as copper and crude oil prices dropped. Teck Cominco, a miner of zinc and copper, rose C$0.93 cents to C$45.41 after plunging 1.8 percent earlier in the session while Petro-Canada, the nation's third-biggest oil and gas producer, rose C$0.95 cents to C$53.96.
Canadian equity price action will likely remain contingent upon global stock market trends along with commodity prices, though major surprises in economic releases for the country could have an impact. Traders should be aware that New Housing Prices and the Capacity Utilization Rate for the first quarter are both scheduled to hit the tape Monday morning. The housing data is estimated to add to inflation concerns as it may to show that prices continue to rise throughout the sector, especially in the Alberta region where Canadians have moved to en masse to work on oil-sands projects. Meanwhile, an anticipated pick up in the Capacity Utilization Rate could also add to price worries and further underpin the case for a hike by the Bank of Canada in July. While this is all bearish for the S&P/TSX, the data will only really weigh on the index if equity prices are already soft and aren?t likely to turn share prices lower on their own.

__________________
Analysis by DailyFX

UK quarterly GDP growth 0.8 pct in 3 months to May - NIESR

LONDON (Thomson Financial) - The UK's economic growth accelerated during the three months to May compared with the previous three months, a leading economic think-tank said.

The National Institute of Economic and Social Research (NIESR) estimates GDP growth over the period at 0.8 pct from the previous three months. In the three months to April, the growth rate was estimated at 0.7 pct.

"The underlying message is that the economy continues to grow at faster than its trend rate," the NIESR said in its monthly report for GDP estimates.

It noted these figures are not greatly affected by the most recent increases in borrowing costs, and that interest rates have only recently moved into a neutral range.

"Nevertheless it is likely that the Monetary Policy Committee will be looking for evidence of easing in the pace of economic growth and in its absence will face pressure for further interest rate increases," it said.

carlo.piovano@thomson.com

Euro Fell on ECB Trichet Comments

by Yan Xu

Advertisement

The euro fell below 1.35 against the dollar after ECB President Trichet talked down the possibilities of further rate hikes in 2008.

The European Central Bank lifted interest rates from 3.75% to 4.00% as expected on its monetary policy meeting ended today. Trichet said on the post meeting conference that in medium term risks to prices are on the upside, reinforcing the expectations for two more rate increased this year. He added that the inflation is likely to fall in coming months and risks significantly towards end year. He also pointed out that inflation projections for the year 2008 remain unchanged, leading investors price down the likelihood of rate hikes in 2008 to 60% from 80% a day ago.

The dollar was supported after robust US data confirmed the view that the nation¡¯s economy is still in good shape. US productivity index fell from 1.7% to 1.0% in the first quarter. The labor cost rose from 0.6% to 1.8% in the first quarter, above the estimate of 1.2%.

UPDATE: CEOs' Energy Plan Calls For Efficiency, More Supply

Wed, Jun 6 2007, 21:55 GMT
http://www.djnewswires.com/eu

UPDATE: CEOs' Energy Plan Calls For Efficiency, More Supply

By Rex Nutting

WASHINGTON (Dow Jones) -- Chief executive officers of major U.S. corporations called Wednesday for a new energy policy based on increasing supply from domestic sources and reducing demand through greater efficiencies.

The heart of the plan is to set a goal of reducing energy intensity of the economy by 40%, using existing technologies. At the same time, the CEOs want increased diversity of energy sources and an expansion of domestic energy production.

Energy security is the major goal of the plan presented by the Business Roundtable, a group that represents the CEOs of 160 companies with 10 million employees and $4.5 trillion in annual sales. The plan would also reduce harmful environmental impacts, including global warming, the CEOs said.

"We cannot afford to ignore any pathway that will contribute to stable, clean and affordable energy supplies," said Michael Morris, CEO of American Electric Power Inc. (AEP) , who served as chairman of the energy task force for the Business Roundtable.

"Let's do what's achievable," Morris said. The goal of increasing the energy efficiency of the economy by 40% doesn't rely on the development of new technologies, or a shift away from the gasoline combustion engine, or a massive commitment to renewable energy sources, they said.

Instead, the CEOs envision an energy future that isn't too different from present. They see a role for coal, including coal-to-liquid technologies. Nuclear energy has a place, as do biofuels such as ethanol. They think the idea of complete energy independence is ludicrous.

The main role for government in the new energy future is to get out of the way. The approval process for new power plants and refineries must be streamlined, they said.

The Environmental Protection Agency needs to speed up its new source review of upgraded power plants, said George Nolen, CEO of Siemens AG's American operations. Siemens (SI) is one of the largest producers of electric generating equipment.

"The report is geared to market-based solutions," said David O'Reilly, CEO of Chevron Corp. (CVX) , who complained of constraints on development of the nation's oil and gas reserves offshore, in Alaska and in the Rockies. Chevron is one of the largest energy companies in the world.

Government mandates, such as requiring a certain level of production for ethanol, "would be counter-productive," O'Reilly said.

Buildings consume 40% of the energy used in the United States, said Michael Thaman, chairman of Owens Corning Inc. (OC) , a major producer of building products. While retrofitting existing structures to make them more energy efficient might not make economic sense, there's no reason to put up new buildings that aren't efficient, he said.

(END) Dow Jones Newswires

June 06, 2007 17:55 ET (21:55 GMT)

Harper too busy to meet Bono on aid for Africa during G8 summit in Germany

By ALEXANDER PANETTA

KUHLUNGSBORN, Germany (CP) - Rock star Bono has been refused a meeting with Prime Minister Stephen Harper this week to discuss aid for Africa, sources close to the Irish singer said Wednesday.

"They made several requests," said the source, who has close ties to Bono's development work.

The U2 singer regularly discusses aid issues with world leaders.

He has already met the summit host, German Chancellor Angela Merkel, as well as U.S. President George W. Bush - who also met music producer Bob Geldof and Senegalese singer Youssou N'Dour. "Hanging out with good company, aren't I?" Bush remarked before retiring for the night.

But a spokeswoman for Harper said the prime minister is too busy to meet with Bono at the summit. She said the prime minister would be happy to speak with him at some later date.

"He's really busy, packed for time. He's meeting with world leaders and that's what the G8's all about," said Harper spokeswoman Sandra Buckler.

"Obviously the prime minister has a very full agenda for the next two days but after the G8 I see no problem with them having a chat."

She noted that the prime minister has spoken to Bono in the past.

Development groups say G8 countries are falling woefully short of the pledge they made in 2005 to increase foreign aid by $50 billion by the end of the decade.

Geldof called Canada a main culprit in trying to block the G8 leaders from making another specific aid pledge to Africa this week.

But the Canadian government has countered that it is leading the entire G8 in keeping promises made at the 2005 summit in Scotland and in 2002 at Kananaskis, Alta.

The group promised in 2002 to double aid by the end of the decade, and promised in 2005 to boost aid by $50 billion. Based on Canada's economic size, the non-government agency Oxfam calculates this country's share of the 2005 pledge to be about $2 billion.

"We are on track to meeting our commitment for doubling our aid to Africa," Buckler said.

"And we are doing it ahead of the rest of the G8."

Harper has promised that Canada's aid budget will reach the international average of donor countries as a percentage of GDP, and continue an eight-per-cent annual increase started under the Liberals.

He also recently pledged more than $100 million in conjunction with Microsoft founder Bill Gates to help find an AIDS vaccine.

But Oxfam says that even though Canada has raised its aid budget to $4 billion, it still lies about $1 billion shy of the target it set in 2005, and is much farther from achieving the international objective that Canada spearheaded in the 1960s.

The country remains less than half way to reaching an aid budget of 0.7 per cent of GDP, established as the international objective under a drive led by the late Lester Pearson.

Activists say that as one of the richest countries in the world, with arguably the healthiest public finances in the G8, Canada has no excuse for falling so short of that target.

Oxfam Canada spokesman Mark Fried is at the summit and says Canada isn't doing as badly as fellow G8 members like Italy and Germany, whose recent efforts he describes as "nothing" and "pitiful."

"But even if they meet the (G8) targets they'd still come up woefully short," Fried said.

"This is the bare minimum of what Canada should do."