Massive US farm bill faces Bush veto, may impact WTO talks

massive US farm bill packed with consequences for global trade is moving through the Democratic-controlled Congress in the face of a veto threat by President George W. Bush.

The House of Representatives is poised to vote on the multibillion-dollar five-year plan that provides the safety net for farmers and ranchers, governing the amount of subsidies and aid available and a raft of other provisions, such as nutrition and conservation programs.

Bush's Republican administration has been threatening to veto the legislation, partly over what it says are high subsidies, a major stumbling block in the Doha Round of global trade negotiations.

Some observers suggest the threat may be difficult to deliver on, considering the already heated political maneuvering for the 2008 presidential race.

Still, the veto threat was renewed Wednesday after a House panel signaled it wanted to raise taxes on some foreign-owned companies with US subsidiaries in order to partly fund government nutrition programs.

The proposed tax hikes, anathema to Republicans, drew blistering fire.

"I find it unacceptable to raise taxes to pay for a farm bill that contains virtually no reform," Agriculture Secretary Mike Johanns said.

"Myself and the president's entire team of senior advisers will recommend that he veto this bill if it is adopted in its current form. We are unanimous on this point."

The estimated 286-billion-dollar measure was approved last week by the House Agriculture Committee after wrangling to get bipartisan support.

Agriculture Committee chairman Collin Peterson said the bill delivers "significant reform" and strikes "the balance necessary" to ensure that farmers' "safety net is still strong and secure."

The pressure is on to approve the 2007-2012 measure as the current bill expires on September 30, the end of the government's fiscal year.

The bill was taken up by the House late Thursday, but it was not clear when it would come to a vote. Congress adjourns on August 3 for its summer recess and reconvenes in September.

If approved by the House, the legislation must be reconciled with a Senate counterpart before the measure is presented to the president for signing.

Among the most difficult issues to resolve is farm subsidies, which prompted a revolt among 22 developing countries, stalling the Doha Round of World Trade Organization negotiations.

Under the current farm bill, government subsidies are paid to farmers with incomes of up to 2.5 million dollars per year.

The House bill would cut that cap to one million dollars annually and eliminate limits on some loans.

The Bush administration says the subsidy reduction falls far short. It had sought an income cap of 200,000 dollars, averaged over three years. Republicans argue that the House bill would deprive about 7,000 farmers of subsidies, compared with the 38,000 that would be affected by their proposal.

"The House bill actually takes a step backward, creating farm policy that is less responsive to the free market, and it paints an even larger bull's eye on the backs of American farmers when it comes to international trade," said Johanns.

The Bush administration is under fierce pressure to help unblock the WTO Doha Round, launched in the Qatari capital nearly six years ago and aimed at lowering trade barriers and encouraging development.

Developing nation critics of farm subsidies say they allow developed countries to dump excess production on world markets at an unfairly low cost, depriving many developing and poor countries of strengthening their own farm-sector exports.

The United States and the European Union, also known for lavish farm subsidies, have given a lukewarm response to the latest WTO proposals to cut farm subsidies.

"We would underscore that, while we have indicated that we are prepared to offer more on OTDS (Overall Trade Distorting Support), our ability to make further cuts depends upon securing significant real increases in market access," the US ambassador to the WTO, Peter Allgeier, said Thursday.

Daily Report: Focus on New Homes Sales and Durables, Kiwi Tumbles after RBNZ Hike

Dollar is generally firm and sets to continue the current recovery as markets are turning focus to today’s new home sales and durable goods orders data. As pointed out before, the greenback was in extremely oversold condition and the current correction is inevitable. Even if today’s data disappoints, reaction could be muted as the more important Q2 GDP is on the card for release tomorrow. Though, Euro should also be provided some support by stronger than expected M3 growth which reaccelerated to Mar’s peak of 10.9%. Germany Ifo dropped to 106.4, slightly below expectation of 106.5 but remains health.

Overnight, RBNZ raised OCR again by 25bps to 8.25%. In the accompanying statement, Governor Bollard pointed to the recent strength in the economy and growing capacity constraints to justify today’s move. Also, he once again mentioned the overvalued Kiwi currency. Conditionally, RBNZ believed that this would be the last rate hike in their cycle if no surprises come in with the next round of data. Kiwi tumbled after the news as markets believe that RBNZ will at least be on hold to assess the impact of the prior successive rate hikes before making another move. EUR/USD

Daily Pivots: (S1) 1.3667; (P) 1.3749; (R1) 1.3803; «www.actionforex.com»

EUR/USD’s correction from 1.3851 is still in progress today. Outlook remains unchanged. A short term top is likely in place at 1.3851, with bearish divergence condition in 4 hours MACD and RSI, and after failing to sustain above 1.3822 projection target. Intraday bias is currently still on the downside and further decline should be seen towards support zone of 1.3567 to 1.3658, with 38.2% retracement of 1.3262 to 1.3851 at 1.3626. On the upside, above 1.3711 will turn intraday outlook consolidative first and could probably bring recovery to 4 hours 55 EMA (now at 1.3770). But sustained break of 1.3851 is needed to confirm recent rally has resumed. Otherwise, risk remains on the downside.

In the bigger picture, the current development dampened the original view that rise from 1.3262 is the last advance in a five wave structure that started at 1.2483. Firstly, the current momentum of the rise from 1.3262 is seen stronger than the prior rally from 1.2865 to 1.3681. Secondly, the falling trend line in both daily MACD and RSI were broken, negating the bearish divergence conditions. In other words, the underlying bullishness in EUR/USD could be much stronger than we originally thought.

Focus remains on 1.3822 resistance. Sustained trading above this level will add much weight to the case that whole medium term rally from 1.1639 is indeed resumption of multi-year up trend from 0.8223 (00 low). That is, further rise should be seen in medium term towards 95 high of 1.4523 with much chance to extend further to 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004.

On the downside, as long as 1.3481 cluster support (61.8% retracement of 1.3262 to 1.3851 at 1.3487) holds, any pull back will still be treated as correction to rally from 1.3262 only and another rise is still in expected after completion. However, break will put 1.3262 low into focus. And break will indicate that medium term rally from 1.1639 has likely completed after being limited by 1.3822 resistance as originally expected.

GBP/USD

Daily Pivots: (S1) 2.0470; (P) 2.0550; (R1) 2.0615; «www.actionforex.com»

Cable’s correction from 2.0652 is still in progress and continues to press 4 hours 55 EMA (now at 2.0485). As discussed before, a short term top is in likely place at 2.0652, with bearish divergence condition in 4 hours MACD and RSI. Intraday bias is still on the downside and further decline is expected to be seen to short term rising trend line (now at 2.0400). On the upside, above 2.0652 will indicate an intraday low is formed. But sustained break of 2.0677 fibo resistance is needed to confirm recent rally has resumed. Otherwise, risk remains on the downside.

In the bigger picture, the sustained break of 2.0207 projection target confirms underlying upside momentum is still strong. Also, it added much credence to the case that whole up trend from 1.7047 is resumption of multi-year up trend from 1.3680. In such case, further rally should then be seen to 61.8% projection of 1.3680 (01 low) to 1.9554 (05 high) from 1.7047 (05 low) at 2.0677 first. Sustained trading above 2.0677 will target 2.1 psychological resistance.

On the downside, in case of a pull back, downside should be contained by support zone between 2.0056 and 2.0206 and bring another rally. Break of 2.0056 will suggest that lengthier consolidation will come first with the prospect of another test the medium term rising trend line (now at 1.9823) But medium term outlook will be neutral at worst at long as 1.9621 support remains intact.

USD/CHF

Daily Pivots: (S1) 1.2048; (P) 1.2107; (R1) 1.2192; «www.actionforex.com».

USD/CHF’s correction from 1.1960 is still in progress today. Intraday bias remains on the upside as long as 1.2114 minor support holds and further rebound should still be seen. On the downside, below 1.2114 will turn intraday outlook consolidative fist. Also, since a short term bottom is in place at 1.1960 with bullish convergence conditions in 4 hours MACD and RSI, firm break of 1.1960 is needed to confirm fall from 1.2467 has resumed. Otherwise, consolidation could still extend further.

In the bigger picture, USD/CHF has likely completed a medium term triangle consolidation already, which started at 1.1919 with five waves to 1.2467. Firm break of 1.1993 will confirm this case. 1.1878 (06 low) will be the initial target. And since, in such case, fall from 1.2467 is viewed as resumption of medium term down trend from 1.3283, further weakness should be seen to 100% projection of 1.3283 to 1.1919 from 1.2768 at 1.1404, with much chance to extend to retest 1.1288 (04 low).

On the upside, break of 1.2232 resistance will mess up the short term picture a little bit. In such case, chance is swung to the case that the triangle consolidation indeed started at 1.1878. In other words, the overall outlook didn’t change and just that another rally should be seen before completion. Hence, even in such case, upside should be limited below 1.2467 high and bring another medium term decline.

USD/JPY

Daily Pivots: (S1) 119.99; (P) 120.31; (R1) 120.81; «www.actionforex.com»

4 hours MACD’s cross above signal line suggest that a short term low is possibly in place at 119.76. But still, break above 190.95 resistance is needed to confirm. Otherwise, intraday bias remains on the downside and further decline is still in favor towards 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57).

On the upside, above 120.95 will indicate a short term bottom is formed and turn into consolidation. But a break above 120.60 resistance is still needed to indicate fall from 124.13 has completed. Otherwise, risk remains on the downside after finishing recovery.

In the bigger picture, rise from 115.13 has made a top at 124.13 and turned into consolidation since then. But still, rally from 108.99, which is treated as resumption of whole up trend from 101.66, is in progress. Even in case of a deeper correction, downside is expected to be contained by 118.35/57 cluster support zone (38.2% retracement of 108.99 to 124.13 at 118.35 and 61.8% retracement of 115.13 to 124.13 at 118.57) and bring rally resumption. Next medium term upside target will be resistance zone of 100% projection of 101.65 to 121.38 from 108.99 at 128.72 and 100% projection of 108.99 to 122.17 from 115.13 at 128.31.

However, break of 118.35/57 cluster support argue that rise from 108.99 has possibly completed and put 115.13 low into focus.

EUR/JPY

Daily Pivots: (S1) 164.57; (P) 165.44; (R1) 166.18; «www.actionforex.com»

EUR/JPY turns sideway after reaching as low as 164.70. At this point, correction 168.93 is still in progress and intraday bias remains on the downside as long as 166.18 minor resistance holds. Next downside target will be 164.23 cluster support (61.8% retracement of 161.49 to 168.95 at 164.34). On the upside, above 166.19 will indicate a temporary low is formed and bring consolidation, probably with recovery to 4 hours 55 EMA (now at . But break of 167.32 resistance is needed to indicate fall from 168.93 has completed. Otherwise, risk remains on the downside even in case of recovery.

In the bigger picture, break of the short term rising trend line suggest that rally from 150.75 has possibly completed with bearish divergence condition in daily MACD and RSI. Deeper correction could not be seen to 161.49 support first. And break will confirm that a medium term top is in place at 168.93 and bring deeper correction, possibly with a retest of medium term trend line support (now at 155.67

However, with medium term trend line remains intact, whole medium term rally from 130.60 is still treated as in progress and the interpretation remains unchanged. First wave up ended at 143.60, subsequent correction ended at 137.167. The third wave up ended at 159.63 while fourth wave correction has ended at 150.75. Rise from there represents the final advance in this structure. With 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64 taken out decisively, next medium term upside target will be 100% projection of 137.16 to 159.63 from 150.75 at 173.22.

WTO floats ways to save global trade pact

MEDIATORS at the World Trade Organisation made a bid to salvage a global free trade deal today by proposing compromises to overcome impasses in the key areas of agriculture and industrial goods.

The proposals are seen as possibly the last chance to save the so-called Doha round, which has lurched from crisis to crisis since it was launched in Qatar in 2001 to help lift millions of people out of poverty.

In an attempt to break the deadlock, diplomats chairing the WTO negotiations floated detailed texts spelling out ranges of cuts for farm subsidies and a formula for import tariff cuts for agricultural and industrial goods.

"Some of those narrow ranges or target numbers or technical draft text will be very painful, for sure. But that pain will be required to get agreement," said New Zealand's ambassador to the WTO, Crawford Falconer, who chairs the agriculture negotiations.

Under his plan, the United States would have to cut a ceiling for farm subsidies to between $US13 billion ($14.96 billion) and $US16.4 billion ($18.87 billion) a year, lower than its offer so far of $US17 billion ($19.56 billion).

The European Union would have to cut its highest tariffs on farm imports by 73 per cent, more than its offer of 60 per cent.

Don Stephenson, Canada's ambassador to the WTO and chairman of the industrial goods talks, said countries needed to "search for balance" between their competing interests.

"This text is a bridging exercise," he told a Geneva news conference after proposing that developing nations should accept deeper cuts to manufacturing tariffs than their recent offers.

Developing countries would have tariffs for industrial goods below 12 per cent on average and only a handful would have them above 15 per cent, although the poorest countries would be permitted to maintain higher average duties.

Developed countries should cut tariffs to below three per cent on average with "peaks", or individually high duties, under 10 per cent, Mr Stephenson said.

Trade diplomats say reactions from WTO countries to the proposals will determine whether the Doha round can be wrapped up in 2007. WTO chief Pascal Lamy has warned that without a deal this year, the talks could be put on ice for several years.

The EU welcomed the proposals as "a useful step forward" but warned it had "important concerns and other significant issues in the negotiations that are not included in these texts".

The United States, India and Brazil, other core members of the WTO, said it was too early to comment although Washington said it hoped the new texts could pave the way for a deal.

Disputes over farm and industrial goods have dogged the Doha round negotiations for years.

The talks were suspended last July for six months after some countries resisted exposing sensitive industries such as rice, dairy, clothing and car parts, to more foreign competition.

Hopes for a Doha deal, which would also include trade in services, took another hit in June when a meeting between the EU, the United States, India and Brazil collapsed acrimoniously.

If the chairs' proposals are well-received, diplomats say trade ministers could be called to Geneva this fall for another try at concluding the deal which the World Bank says could add $US96 billion ($110.47 billion) annually to the global economy.

"This deal is still doable," Mr Stephenson said. "This deal is still within the members' grasp if they want it."

Wells Fargo Q2 Profit Up On 13% Revenue Growth - Update [WFC]

7/17/2007 1:01:33 PM Banking and financial products and service provider Wells Fargo & Co. (WFC) announced Tuesday morning a 9% rise in net income for the second quarter fuelled by 13% top line growth as average total loans witnessed 11% upside helped by both commercial and consumer loan growth apart from favorable operating leverage and stable credit quality. The company's earnings result was in line with Street expectations.

Second Quarter Results

The San Francisco, California-based Wells Fargo reported net income of $2.28 billion, up 9% from $1.09 billion and earnings rose 10% to $0.67 per share from $0.61 in the same quarter last year. Twenty-three analysts, on average, polled by First Call/Thomson Financial estimated the company to earn $0.67 per share. Sequentially, net income rose marginally from $2.24 billion or $0.66 per share in the first quarter.

Latest quarter revenues increased 13% to $9.89 billion from $ 8.79 billion in the previous year quarter. Twelve Wall Street analysts expected the company to generate revenues of $9.64 billion. Compared to the first quarter, revenues rose from $9.44 billion in the current quarter. The company attributed the revenue upside to double-digit growth in consumer and business lending and deposits apart from a robust growth in all of its diverse, fee-based products and services.

Total interest income grew 6% to $8.57 billion from $8.08 billion, while net interest income after provision for bad loans slipped 2% to $4.48 billion from $4.55 billion in the preceding year second quarter. Total non-interest income surged 23% to $4.7 billion from $3.81 billion in the comparable 2006 period.

Average loans expanded 11% to $332 billion from $300.4 billion backed by average commercial and commercial real estate loan growth of 12% and average consumer loans upside of 10%. Similarly, average core deposits grew 14% to $300.5 billion from $264.1 billion in the year earlier quarter. Wells Fargo said that it could either lift or maintain operating margins with net interest margin of 4.89% compared to 4.76%.

Total non-performing assets were $2.72 billion or 0.79% of loans versus $1.92 billion or 0.64% of loans recorded in the second quarter of 2006 and $2.69 billion or 0.82% of loans registered in the first quarter. The company attributed the improvement in non-performing assets to slender commercial increase as a result of portfolio growth and seasoning and almost no consumer increases as it concentrated on loan resolution and asset sales.

Wells Fargo said that credit quality was in line with its expectations. The company added that home equity losses were at higher levels due to real estate values remaining weak during the second quarter with no signs of reversal of trend in the second half of 2007.

Segment-wise, Community Banking contributed revenues of $6.33 billion, up 11% from $5.72 billion with average loans of $186.6 billion compared to $173.9 billion. Average deposits rose 8% to $259.9 billion from $232 billion. But the alarming factor was the sharp rise in provision for credit losses of $353 million compared to $187 million in the prior year quarter. Still, the division posted 14% rise in net income to $1.55 billion helped by fee revenue growth in retail banking and investment income.

Another segment, wholesale banking earned net income of $570 million, up 13% from $506 million. Total revenues advanced 20% to $2.15 billion from $1.79 billion in the comparable 2006 period as loan recorded 16% upside due to double-digit increase in all of its wholesale lending units. Wells Fargo added that robust loan and deposit coupled with higher fee income contributed to the division's higher profitability.

Wells Fargo financial unit produced net income of $156 million, down 31% from $226 million in the corresponding period last year. Total revenues, however, rose 10% to $1.41 billion from $1.28 billion in the same period a year ago. The company said that it closed shutters of about 5% of its customer stores to cut down excess infrastructure cost and redundancies.

Commenting on the results, the company's president and chief executive officer John stumpf said, “We continue to earn more business from current customers and invest in future growth through internal investments and acquisitions. Our time-tested vision and business model have delivered double-digit annual compound growth in revenue, earnings per share and total stockholder return for the past five, ten, 15 and 20 years. The vast majority of this growth has come from earning more business from our current customers, but we've also been a disciplined, effective acquirer, which brings us more new customers and the opportunity to satisfy all their financial needs.”

Year-To-Date Results

For the six-month period, Wells Fargo revealed net income of $4.52 billion or $1.33 per share, up 10% from $4.11 billion or $1.21 per share in the corresponding period last year.

Total revenues for the same period advanced 11% to $19.33 billion from $17.34 billion in the previous year six-month period.

Competitors

Among others in the industry, Bank of America Corp. (BAC) is scheduled to announce its second quarter numbers on July 19. Street analysts have consensus earnings target of $1.20 per share on revenues of $18.58 billion.

Another peer, U.S. Bancorp (USB) earlier in the day reported second quarter net income of $1.16 billion or $0.65 per share compared to $1.2 billion or $0.66 per share in the corresponding quarter in the previous year.

Total net revenues grew 1.5% to $3.51 billion, from $3.45 billion in the prior year quarter. Net interest income slackened to $1.65 billion from $1.69 billion, while non-interest income rose to $1.86 billion from $1.76 billion in last year.

Washington Mutual Corp. (WM), in the same industry, is slated to reveal its second quarter results on July 18. Wall Street analysts, on average, are looking for earnings of $0.89 per share on revenues of $3.69 billion.

Stock Movement

Shares of Wells Fargo reached a year high of $36.99 and a low of $33.01. During the day, the stock ranged between $35.40 and $35.98. Currently, shares of the company are trading $0.28 or 0.79% up to trade at $35.73 on a volume of 6.12 million shares.

CURRENCIES: Dollar Rises Vs. Yen On Core PPI, Sterling Hits New 26-year Peak

The dollar rose against the yen Tuesday after U.S. government reports showed core inflation at the wholesale level rose more than forecast last month while monthly capital flows to the U.S. jumped in May.

The British pound rallied to a new 26-year peak against the dollar after a report showed U.K. inflation didn't cool as much as forecast last month, reinforcing expectations that the Bank of England will continuing hiking interest rates.

"The take away from today's deluge of U.S. data is that the recent decline in the dollar owes more to positioning than real money flows," said Michael Woolfolk, senior currency strategist at The Bank of New York. "However, players appear cautious of buying dollars ahead of [Fed Chairman Ben] Bernanke's congressional testimony tomorrow."

In New York trading, the euro stood at $1.3781, compared with $1.3772 late Monday. The euro hit a record high at $1.3813 last Friday. The dollar was quoted at 122.26 yen, compared with 121.86 yen.

The British pound was quoted at $2.0458, compared with $2.0369. Sterling had earlier risen to $2.0474, a fresh 26-year high. The dollar also changed hands at 1.2031 Swiss francs, compared with 1.2030 francs.

The euro was at 168.65 yen, compared with 167.81 yen.

The yen came under selling pressure, as a rally in U.S. stocks, which propelled the Dow Jones Industrial Average past the 14,000 level for the first time, encouraged carry trades. Carry trades refer to the practice of borrowing low-yielding currencies and reinvesting in higher-return currencies and assets.

U.S. data

Wholesale prices fell 0.2% in June as food and energy prices declined after four months of hefty increases, the Labor Department reported Tuesday. The producer price index fell for the first time since January, against economists' expectations for a 0.2% increase in prices for goods at the wholesale level.

Excluding volatile food and energy prices, the core PPI rose 0.3%, a tenth higher than the 0.2% gain expected. It's the biggest gain since February.

The dollar extended its gains against the yen after the Treasury Department said monthly capital flows to the U.S. rose to $105.9 billion in May, up from a revised $97.8 billion in April. Net foreign purchases of long-term U.S. securities, meanwhile, climbed to $163.5 billion from $97.4 billion.

Separately, the Federal Reserve said U.S. industrial production rose 0.5% in June, while capacity utilization rose to 81.7% from 81.4%. Economists were expecting production to rise 0.6% and capacity utilization to rise to 81.6%.

Bernanke, CPI awaited

The Labor Department will release the consumer price index for June on Wednesday morning. With gasoline prices falling during the month, economists surveyed by MarketWatch are looking for the CPI to show a very tame 0.1% increase. Excluding food and energy prices, the core CPI should increase a moderate 0.2% for June, they say.

Two days of congressional testimony by Fed chief Ben Bernanke will likely be the most significant event of a busy week for economic news, but analysts don't expect much change in the central bank's approach to growth, inflation and interest rates in his semiannual testimony for Wednesday and Thursday.

Bernanke will likely repeat the Fed's mantra that inflation risks are elevated, while growth can be expected to strengthen slightly, but remain semi-soft. The bottom line will likely be to cement expectations that the Fed won't change interest rates in either direction for quite a while.

Dollar sentiment

The dollar posted a loss of more than 1% against the euro and the yen last week after Wall Street's two largest rating agencies signaled that problems in the subprime market aren't going away and will probably get worse.

There's "continued uncertainty regarding the housing market," said Gareth Sylvester, currency strategist with HIFX.

"We're looking for a neutral policy from the Fed...and with the market focusing primarily on yields, the yield advantage continues to move away from the U.S. dollar" in favor of the pound, the Australian and New Zealand dollars, he said.

Bank of New York's Woolfolk said the market remains short dollars and is "likely to increase these positions if core CPI show further improvement tomorrow or Bernanke indicates price pressures are subsiding in line with the Fed's expectations."

U.K. inflation

U.K. consumer level inflation fell in June to 2.4% from 2.5% in May, the National Statistics Office said Tuesday, citing the impact from falling average gas and electricity bills. But that was higher than the 2.3% forecast by economists and the statistics office noted rising gasoline prices and sea fares.

The Bank of England targets inflation at 2%.

Core CPI, which excludes food, energy, tobacco and alcohol prices, rose to a 10-year high of 2%.

"With core CPI reaching its highest level in 10 years, the news will only serve to stiffen BoE's already hawkish posture as U.K. monetary officials make every effort to contain persistent price pressures in the system," said Boris Schlossberg, senior currency strategist at DailyFX.com.

"Unless U.K. consumption falls precipitously in the next few months, the BoE is very likely to push short term rates to 6% in order to diffuse further inflation expectations," he said, in a note to clients.

The euro showed little reaction after a report showed the German ZEW indicator of economic expectations fell to 10.4 in July, from a reading of 20.3 a month ago. Analysts had been forecasting a reading of around 19.5.

(END) Dow Jones Newswires