Oil Trades at Two-Week Low on Isaac; Gasoline at Four-Month High

Oil traded near the lowest level in two weeks on speculation Tropical Storm Isaac’s impact on output in the Gulf of Mexico will be limited. Gasoline was near a four- month high amid a fire at Venezuela’s biggest refinery.
West Texas Intermediate futures were little changed in New York after dropping a third day yesterday, the longest losing streak since June. Isaac was near hurricane strength as it headed for the Gulf coast, according to the National Hurricane Center. Storage tanks burned for a fourth day at Venezuela’s 645,000 barrels-a-day Amuay plant, where an Aug. 25 gas explosion killed 48 people. Oil has pared gains before a U.S. Federal Reserve symposium in Jackson Hole, Wyoming, on Aug. 31.
“It seems likely now that Isaac won’t be doing any lasting damage to oil facilities in the Gulf,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “Buyers seem reluctant to take prices too much higher from here until they get further detail” on what the Fed might do to boost economic growth, he said.
Oil for October delivery was at $95.35 a barrel, down 12 cents, in electronic trading on the New York Mercantile Exchange at 4:46 p.m. Sydney time. The contract yesterday fell 68 cents, or 0.7 percent, to $95.47, the lowest close since Aug. 15. Prices are 3.5 percent lower this year.
Brent oil for October settlement was at $112.27 a barrel, up 1 cent, on the London-based ICE Futures Europe exchange. The European benchmark grade’s premium to WTI was at $16.92, from $16.79 yesterday.

Gulf Output

Isaac’s center was about 145 miles (235 kilometers) southeast of the mouth of the Mississippi River with top winds of 70 miles per hour, the National Hurricane Center said in an advisory at 2 a.m. in Miami. That’s 4 mph less than hurricane intensity. It was moving northwest at 12 mph and is forecast to strengthen before approaching southeastern Louisiana and Mississippi today, the center said.
The storm halted about 78 percent of oil output and 48 percent of natural-gas production in the Gulf and forced evacuations from 346 production platforms and 41 rigs, the Bureau of Safety and Environmental Enforcement said yesterday. Four refineries in Louisiana were shut, idling combined capacity of 832,700 barrels a day, or 4.8 percent of the U.S. total, and at least four are running at reduced rates.
The region accounts for 23 percent of U.S. oil output and 7 percent of natural gas production, according to the U.S. Energy Department in Washington.

Refinery Closures

Valero Energy Corp. (VLO) is shutting the St. Charles and Meraux refineries in Louisiana, Bill Day, a company spokesman in San Antonio, said by e-mail. Phillips 66 is temporarily shutting down its 247,000 barrel-a-day Alliance refinery at Belle Chasse, Louisiana, the company said in a statement on its website. Exxon Mobil Corp. began closing operations at the Chalmette plant near New Orleans, the company said on a community hotline.
Marathon Petroleum Corp.’s Garyville refinery in Louisiana is operating at reduced rates, Shane Pochard, communications manager for the company, said in an e-mail. Motiva Enterprises LLC’s Norco and Covent refineries in Louisiana are also running at lower rates, the company said on its website, as is Exxon Mobil’s Baton Rouge plant.
In Venezuela, firefighters have put out one of the three blazes at the Amuay refinery and extinguished about 75 percent of another, President Hugo Chavez said on his Twitter account today. There is no structural damage to the processing units at the facility about 240 miles west of Caracas, according to Oil Minister Rafael Ramirez.

Gasoline Premium

Venezuela has 4 million barrels of inventories of gasoline and other petroleum products and continues to produce 735,000 barrels of gasoline a day at plants, including nearby Cardon, according to Ramirez. Amuay will be restarted within two days after all the fires have been extinguished, he said.
Gasoline for September delivery advanced as much as 0.2 percent to $3.1621 a gallon on the New York Mercantile Exchange today after climbing 2.5 percent to $3.1548 yesterday, the highest settlement since April 30. The premium of the motor fuel to WTI gained as much as 1 percent to $28.71 a barrel, the widest gap in a week, after increasing 9 percent yesterday.
U.S. crude stockpiles probably shrank 2 million barrels last week, according to a Bloomberg News survey before an Energy Department report tomorrow. That would be the fifth weekly drop, the longest run of declines since July 2011. The decrease would leave inventories at the lowest level since March 23.

Fuel Supplies

Gasoline supplies may have fallen 1.4 million barrels, according to the median estimate of 11 analysts in the Bloomberg survey. Distillate stockpiles, a category that includes diesel and heating oil, probably rose 400,000 barrels.
The American Petroleum Institute will release separate inventory data today. The API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.
Oil in New York has technical support around $94.05 a barrel along the bottom of a short-term uptrend channel on the daily chart, according to data compiled by Bloomberg. This channel started from the June 28 drop to $77.28, the 2012 intraday low. Crude’s moving average convergence-divergence indicator yesterday fell below its signal line, indicating a loss of momentum. Investors tend to sell contracts on a so- called MACD crossover.
Federal Reserve Chairman Ben S. Bernanke will speak at the Kansas City Fed’s annual symposium in Jackson Hole, where he may shed light on the likelihood of a third round of asset purchases. The central bank bought $2.3 trillion of debt since 2008 in two previous rounds of quantitative easing.

Source: Bloomberg

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Gasoline Jumps on Supply Threats as S&P 500 Advances

Gasoline climbed to the highest in four months after a refinery explosion in Venezuela killed 39 people and Tropical Storm Isaac shut rigs in the Gulf of Mexico. Apple Inc. (AAPL) rallied after winning a patent lawsuit, helping push U.S. technology stocks higher.
Gasoline futures jumped 1.3 percent to $3.1193 a gallon at 9:58 a.m. in New York and climbed as high as $3.2050. The Nasdaq 100 Index rose as much as 0.5 percent to above its highest closing level in 12 years as Apple increased 2 percent following its $1 billion victory over Samsung Electronics Co., which plunged the most in almost four years. The Standard & Poor’s 500 Index fluctuated near 1,411. The Stoxx Europe 600 Index (SXXP) added 0.2 percent and the euro rose versus 10 of 16 major peers. Spain’s 10-year bonds halted a three-day drop.

 

Fire rises over Amuay refinery near Punto Fijo, Venezuela on Saturday. Photographer: Daniela Primera/Associated Press

Aug. 27 (Bloomberg) -- Eugen Weinberg, head of commodities research at Commerzbank AG, talks about the outlook for oil, precious metals and agricultural commodities. He speaks from Frankfurt with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)

 

Soybeans are harvested near Rojas, Argentina. Photographer: Diego Giudice/Bloomberg

About 24 percent of U.S. oil production and 8.2 percent of natural gas output from the Gulf of Mexico has been halted as Isaac strengthened. Venezuela’s Amuay plant, the country’s largest refinery, was shut as firefighters tackled flames following the Aug. 25 blast. German business confidence fell for a fourth straight month, adding to signs Europe’s debt crisis is damping growth.
“Gasoline is high because details about the Venezuelan refinery outage are unknown,” Alexander Poegl, an analyst at JBC Energy GmbH in Vienna, said by phone today. “Gasoline and oil prices are reacting to Tropical Storm Isaac, which is shutting in oil output and refineries as it strengthens into a hurricane.”
The S&P GSCI Index of commodities rose for the first time in three days. November-delivery soybeans rallied to a record as the worst U.S. drought in half a century hurt production in the world’s largest grower, while export demand increased. Corn and wheat were little changed after rallying earlier.

Apple Victory

The S&P 500 on Aug. 24 snapped a six-week rally, its longest since January 2011. Apple rose today after a U.S. jury on Aug. 24 found that Samsung Electronics Co. infringed on six of its mobile-device patents. Samsung tumbled almost 7.5 percent in South Korea, its biggest drop since 2008.
Hertz Global Holdings Inc. surged 12 percent. After more than half a decade of trying, Hertz struck a deal to buy Dollar Thrifty Automotive Group Inc. for about $2.6 billion in cash and secure its place as the No. 2 player in the U.S. car-rental market. Dollar Thrifty climbed 7.4 percent.
The volume of shares changing hands on the benchmark Stoxx 600 was 60 percent lower than the average of the last 30 days because the U.K. market was closed for a public holiday. Q-Cells SE (QCE) surged 15 percent after South Korea’s Hanwha Group signed a deal to acquire the insolvent German producer of solar cells.

Nokia Rallies

Nokia Oyj (NOK1V) rallied 6.7 percent, the biggest gain in the Stoxx 600, following the Samsung ruling. The U.S. may ban sales of some Samsung handsets, potentially benefiting Nokia devices that run Microsoft Corp.’s Windows operating system.
The MSCI Emerging Markets (MXEF) Index fell 0.4 percent. The Shanghai Composite Index retreated 1.7 percent as a report showed Chinese industrial company profits slipped in July. Russia’s Micex Index and India’s Sensex lost at leasth 0.6 percent.
The euro strengthened 0.1 percent against the dollar and yen as German Finance Minister Wolfgang Schaeuble prepared to meet his French counterpart to discuss Europe’s debt crisis. The shared currency climbed even after the Ifo institute in Munich said its business climate index dropped for a fourth straight month in August to its lowest reading since March 2010.
The Australian dollar touched a one-month low against the U.S. currency after a report showed profits for industrial companies in China, Australia’s biggest trading partner, fell 5.4 percent in July from a year earlier. The currency weakened as much as 0.3 percent to $1.0372.

Bernanke Watch

Treasuries extended gains from last week on speculation Federal Reserve Chairman Ben S. Bernanke will outline the case for further central bank action to support the economy at this week’s meeting of policy makers at Jackson Hole, Wyoming. The yield on the 10-year bond fell one basis point to 1.68 percent.
Bernanke “might fuel hopes that down the road, we could still see monetary stimulus from the Fed,” Vasu Menon, head of content and research for wealth management at Oversea-Chinese Banking Corp. in Singapore, said in a Bloomberg Television interview.
Bernanke -- returning this week to the scene of a 2010 speech that foreshadowed a second round of quantitative easing - - probably will disappoint investors looking for him to signal new stimulus, economists said.

Jackson Hole

Bernanke probably won’t use his Aug. 31 speech to suggest a third round of bond buying is at hand, according to economists including Michael Feroli at JPMorgan Chase & Co. and James O’Sullivan from High Frequency Economics. Members of the Federal Open Market Committee -- who meet next on Sept. 12-13 --are closely monitoring unemployment and other data and have been divided about whether to spur expansion. The U.S. economy also remains beholden to political decisions made in Washington and in Europe, which is struggling to contain its debt crisis.
The yield on Spain’s 10-year bonds fell three basis points to 6.39 percent, outperforming similar-maturity German bunds, which were little changed.
Gold for immediate delivery advanced as much as 0.4 percent to a four-month high of $1,676.90 an ounce before erasing gains. Spot silver climbed 0.2 percent, a sixth straight advance that was its longest streak since January. Copper futures in New York were down 0.2 percent. The London Metal Exchange was closed because of the U.K. holiday.

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Aussie Dollar Touches Month-Low on Global Growth Concerns

Australia’s dollar touched its lowest level in a month, extending a two-week decline, as concern global growth is waning curbed demand for higher- yielding assets.
The so-called Aussie slid versus most of its 16 major counterparts after a report showed profits for industrial companies in China, Australia’s biggest trading partner, fell 5.4 percent in July from a year earlier. Australia’s currency and its New Zealand counterpart weakened before a report today that may show German business confidence fell to a two-year low, adding to signs Europe’s debt crisis is damping the region’s prospects for growth.
“There’s only so far the Aussie can rally when concerns for the global economy remain significant,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “Those concerns have only been further fueled by what’s been happening in China.”
Australia’s currency dropped 0.2 percent to $1.0383 as of 4:27 p.m. in Sydney after touching $1.0372, the lowest since July 26. The Aussie fell 0.2 percent to $1.0403 in the five days ended Aug. 24. It lost 0.1 percent to 81.74 yen.
The New Zealand dollar, nicknamed the kiwi, declined 0.1 percent to 81.04 U.S. cents after rising 0.5 percent to 81.12 last week. It traded at 63.81 yen from 63.83.
Ten-year note yields in Australia dropped three basis points, or 0.03 percentage point, to 3.21 percent. The rate on 15-year securities fell to as low as 3.47 percent, sliding below the 3.5 percent overnight cash rate target for the first time since Aug. 10, according to data compiled by Bloomberg.
New Zealand’s swap rate, a fixed payment made to receive floating rates, dropped two basis points to 2.70 percent.

Profits Drop

The decline in Chinese industrial profits last month was the fourth straight drop, according to data released today from the National Bureau of Statistics.
On an inspection of Guangdong province, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the official Xinhua News Agency reported Aug. 25.
BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said on the Australian Broadcasting Corp.’s Inside Business program yesterday.
The Munich-based Ifo institute’s business climate index for Germany probably slid to 102.7 in this month, according to the median estimate of economists in a Bloomberg News survey before today’s report. That would be the least since March 2010 and compares with a reading of 103.3 in July.

Aussie Longs

Futures traders increased their bets that the Australian dollar will rise against the greenback, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers on a gain in the Aussie compared with those on a drop was 86,882 on Aug. 21, up from so- called net longs of 66,679 a week earlier.
The most recent figure was the highest since April 2011, when net longs climbed to a record, according to data compiled by Bloomberg going back to 1993.
Demand for Australian and New Zealand’s currencies was supported after Federal Reserve Chairman Ben S. Bernanke said “there is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery.”
Bernanke made the remarks in a letter dated Aug. 22 to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee. The note was in response to an Aug. 1 letter from Issa asking questions about monetary policy.

Jackson Hole

The U.S. central bank chairman will speak at the Kansas City Fed’s annual economic symposium in Jackson Hole on Aug. 31. Minutes of the Fed’s latest policy meeting released last week showed officials remained supportive of a third round of asset purchases under quantitative easing, or QE. Policy makers will next meet on Sept. 12-13.
“The reason why the Aussie has been so well-supported is precisely because the U.S. dollar has been weak on expectations for the Fed to ease monetary policy,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “It should underpin the Aussie dollar for a while, at the very least up until Jackson Hole.”

Source: Bloomberg.

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Gold Set for Best Year Since 2010 as Stimulus Bets Stoke Demand

Gold is poised to climb the most in two years as prospects for additional stimulus by governments from the U.S. to China to revive economic growth stoke demand for the precious metal as a bet against inflation.
Bullion for immediate delivery may reach $1,800 an ounce by the year-end, extending gains this year to 15 percent, according to the median forecast in a Bloomberg survey of 15 traders and analysts at a conference in Hyderabad in South India on Aug. 25. That would be the most since a 30 percent surge in 2010, data compiled by Bloomberg show.

 

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so-called quantitative easing, or QE3. Photographer: Kerem Uzel/Bloomberg

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so- called quantitative easing, or QE3. Investment holdings have expanded to a record on demand for a hedge against inflation.
“The euro zone has been quiet of late, but that doesn’t mean the problems have disappeared,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc. (INTL), who expects gold to rally to $1,975 by year-end. “The U.S. economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market.”
Fed Chairman Ben S. Bernanke said last week there’s “scope for further action” from the U.S. central bank. He is scheduled to speak later this week at the Fed’s annual symposium in Jackson Hole, Wyoming. China’s Premier Wen Jiabao has urged additional steps to support exports and help meet economic targets as evidence mounts the slowdown is deepening.

Europe Strains

Gold for immediate delivery rose as much as 0.4 percent to $1,676.90 an ounce today, the highest since April 13, and traded at $1,674.60 an ounce at 9:49 a.m. in Mumbai. Prices gained 3.4 percent last week, the most since the week ended Jan. 27. Spot gold reached a record $1,921.15 on Sept. 6.
“Europe’s financial situation is straining at the seams and with no fix forthcoming, demand for safe havens is likely to remain strong,” said Bimal Das, director at ScotiaMocatta, the metals trading unit of Bank of Nova Scotia.
The European leaders are preparing for a critical month in the three-year-old crisis that will involve the formulation of a European Central Bank bond-buying plan, a progress report by Greece’s international creditors and a looming German court decision on bailout funding on Sept. 12.
“More cash is coming into the market from investors,” said Philip Klapwijk, the global head of metals analytics at Thomson Reuters GFMS Ltd. “We expect there to be QE3 by September and gold will move substantially higher. The ETF demand has picked up and will continue to grow as prices rise.”

Soros, Paulson

Holdings in gold-backed exchange-traded products, or ETPs, rose 0.1 percent to 2,448.64 metric tons on Aug. 24, data tracked by Bloomberg show. Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust (GLD), the biggest gold-backed ETP, in the second quarter, U.S. Securities and Exchange Commission filings showed Aug. 14.
Central banks will purchase close to 500 tons this year after becoming net buyers in 2009, according to the producer- funded World Gold Council. Central banks added 254.2 tons to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves.
“There is official interest in gold and central banks are buying, from Russia to Korea,” said Jeremy East, global head of metals trading at Standard Chartered Plc. “Central bank purchases are not driven by price but by asset allocation.”

Indian Imports

Gold imports by India, the biggest buyer, may decline by 250 tons to 350 tons this year as record prices in rupees cut into demand, East said. Consumption rose to a record 963.1 tons last year, driving bullion imports to the highest ever at 958 tons, according to the gold council.
“The Indian currency has weakened and could weaken further, so demand may not come in,” East said. The Indian rupee declined to a record of 57.3275 per dollar on June 22, making imports costlier.
Bullion for October delivery gained as much as 0.4 percent to an all-time high of 31,084 rupees ($559) per 10 grams on the Multi Commodity Exchange of India Ltd. today. Prices have climbed 14 percent this year.
GFMS is owned by Thomson Reuters Corp. and Bloomberg competes with Thomson Reuters in selling financial and legal information and trading systems.

Source: Bloomberg

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Egyptian Shares Rise to Highest Since March as Tensions Ease

Egypt’s stocks climbed to the highest level in more than five months after a protest against the president and the Muslim Brotherhood failed to rally mass support and the constitution neared completion.
The benchmark EGX 30 Index advanced 0.7 percent to 5,253.41 at 12:44 p.m. in Cairo, the highest intraday level since March 13. In the Persian Gulf, Abu Dhabi’s ADX General Index rose for an 11th day, the longest winning streak in almost six months, gaining 0.2 percent. Dubai’s DFM General Index decreased 1 percent. The Bloomberg GCC 200 Index was little changed at 1:45 p.m. in Riyadh.
Protests that were planned for over the weekend in Cairo and Alexandria against President Mohamed Mursi and his allies were largely peaceful. A draft of the constitution will be ready to be put to a referendum by late September and Egyptians will go to the polls to vote for parliament members within two months after its approval, Prime Minister Hisham Qandil said yesterday.
“It is clear now that the majority of Egyptians are willing to give Mursi the benefit of the doubt until the end of” his first 100 days in office, Wafik Dawood, director of institutional sales at Cairo-based Mega Investments Securities, said by phone. “At that point the real opposition is going to show up. Not the few thousands that showed up over the weekend.”

Loan Talks

Mursi consolidated power this month by forcing into retirement the country’s top two generals, a move that wasn’t contested by the military. The North African nation also restarted loan talks with the International Monetary Fund as it seeks to end more than 18 months of political and economic unrest.
Commercial International Bank Egypt SAE (COMI), the country’s biggest publicly traded lender, gained 1.2 percent to 29.2 Egyptian pounds, heading for the highest close in more than a month. The bank was removed from Standard and Poor’s negative watch and had its B credit rating affirmed.
Dubai’s DP World (DPW) lost 1.5 percent, the most in almost two weeks, to 10.2 dirhams. The world’s third-largest ports operator had its contract canceled by Yemen’s Gulf of Aden Ports, according to the country’s state news agency.
Saudi Arabia’s Tadawul All Share Index and Kuwait’s SE Price Index fell 0.2 percent while Oman’s MSM30 Index declined less than 0.1 percent. Qatar’s QE Index added 0.1 percent.
In Israel, the benchmark TA-25 Index (SASEIDX) advanced 0.2 percent and the yield on the nation’s benchmark 5.5 percent bonds maturing in January 2022 climbed 1 basis point to 4.14 percent.

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Kloppers Sees Long-Term Price Decline for BHP’s Commodities

BHP Billiton Ltd. (BHP), the world’s biggest mining company, expects “long-term” price declines for its commodities as slower economic expansion in China weighs on demand, Chief Executive Officer Marius Kloppers said.
“We go through a pretty rigorous process to pick those long-term prices,” Kloppers told the Inside Business program on the Australian Broadcasting Corp. “They are, by and large, lower. Some products are going to more attractive than others.”

 

Marius Kloppers, chief executive officer of BHP Billiton Ltd., poses for a photograph during a media event in London, U.K., on Wednesday, Aug. 22, 2012.. Photographer: Simon Dawson/Bloomberg

BHP last week put on hold approvals for about $68 billion of projects, including the Olympic Dam expansion in South Australia after second-half profit slumped. Kloppers said on today’s program he’s seeking to control costs and won’t allocate new capital to industries such as aluminum and nickel as Melbourne-based BHP narrows its exploration focus.
Australia’s economy has been bolstered in recent years by the biggest resources bonanza since a gold rush in the 1850s on Chinese-led demand for iron ore, coal and natural gas. Mining investment will peak within two years, Reserve Bank of Australia Governor Glenn Stevens said Aug. 24 in semiannual testimony at parliament in Canberra, a day after Resources Minister Martin Ferguson said the boom was over.
BHP, which this month wrote down the value of Western Australia nickel operations and U.S. shale gas assets by $3.3 billion, is now only exploring for oil, gas and copper, Kloppers said on the program.
Along with coal and iron ore, those five products are the primary profit drivers at BHP, he said. Potash, a form of potassium used to strengthen roots and help plants resist drought, may join that group as BHP develops its Canadian projects, he said.

Falling Stock

Shares of BHP have fallen 3.9 percent this year, trailing the 7.2 percent gain by Australia’s benchmark S&P/ASX 200 index.
Prices will decline in the long term, “across the product suite,” Kloppers said. “That is what we have assumed in our planning processes for the last couple of years and we see no reason to change that.”
As China’s economic growth slows, demand for BHP’s products will rise at a slower pace, Kloppers said.
China, the world’s second-largest economy, expanded 7.6 percent in the second quarter, the slowest pace in three years. Brazil’s Vale SA, the biggest iron-ore producer, said this month that China’s “golden years” are gone.

‘Attractive Opportunities’

Still, Kloppers said there are “attractive opportunities” for BHP and the Australian company plans to increase capital expenditure this year compared with last year.
BHP should be able to sell its commodities in greater quantities even as prices fall, he said.
Volumes across the group should increase about 10 percent in each of the next two years, he told the program. BHP plans to expand the capacity of its Queensland coal business 50 percent in the next two years and the output of the Escondida copper mine, the world’s largest, by the same amount, he said.
BHP quit titanium minerals in February after agreeing to sell its stake in Richards Bay Minerals to Rio Tinto Group. Kloppers said in February that BHP was “inching closer” to a similar decision on the diamond industry.
“We will only exit if we get value for the assets,” he said on the Inside Business program. “What we’ve done up until now is just to say, ‘We will not spend new capital on those projects and that is pretty much the case for aluminum. It is also the case for nickel.”

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Colombia Cuts Rate to 4.75% and Steps Up Dollar Purchases

Colombia reduced borrowing costs for a second straight month after inflation slowed to the target rate, while also announcing that the central bank will buy $700 million by the end of September to help stem a rally by the country’s currency.
The seven-member board, led by bank chief Jose Dario Uribe, voted to cut the overnight lending rate by a quarter point to 4.75 percent, as forecast by 29 of 33 analysts surveyed by Bloomberg. The others had expected rates to be left unchanged. Uribe said that the decision was unanimous.

 

Today’s meeting was the last for outgoing Finance Minister Juan Carlos Echeverry, who resigned yesterday citing personal reasons. Photographer: Alejandra Parra/Bloomberg

“According to the evaluation of risks, the Board considered it appropriate to reduce the interest rate intervention,” policy makers said in their statement posted on the central bank’s website.
The central bank last month cut its key rate for the first time since 2010, and signaled a “change in monetary stance,” arguing in the minutes that slower inflation allows them to maximize “employment and product growth.” Inflation slowed to 3.03 percent in July, down from 3.73 percent at the start of the year. The central bank targets inflation of 3 percent, plus or minus one percentage point.

Peso

“Additionally, in order to provide more permanent liquidity to the economy, the Board decided that, in the remainder of August and September, will buy $700 million through the mechanism of daily auctions of at least $20 million,” policy makers said in their statement.
The peso has rallied 6.8 percent in 2012, the biggest gain of the world’s 31 most-traded currencies tracked by Bloomberg after the Hungarian forint and the Chilean peso, on the strength of sustained foreign investment into the Andean nation’s oil and mining projects.
The increased dollar purchases, combined with purchases of dollars by the Treasury, “has the potential to tame the peso’s rally in the next months,” said Daniel Velandia, the head analyst at Correval SA brokerage in Bogota.
“It will be on average $8 million more daily than what they were buying,” Velandia said. “It’s a clear step toward more intervention in the market.”
The measure could prevent the peso from appreciating above 1,800 per dollar for the rest of the year, Velandia said. The currency weakened 0.3 percent to 1814.55 per dollar today from 1809.35 yesterday.
The Treasury began its own program of foreign currency intervention this month to help Colombian exporters.

‘Fundamental Reason’

The central bank last month cut its forecast for 2012 economic growth to a range of 3 percent to 5 percent, from 4 percent to 6 percent, and predicted expansion of 2 percent to 5 percent next year.
In an interview last week, central bank board member Cesar Vallejo said the “key” determinant of interest rate moves is whether gross domestic product is growing faster or slower than its long-term potential rate. Uribe said last month that the economy’s long-term potential growth rate is 4 percent to 5 percent.
The “fundamental reason” for the rate cuts is the global slowdown, said Andres Langebaek, senior economist at Banco Davivienda SA (PFDAVVND), the analyst with the best record of forecasting the central bank’s move in Bloomberg surveys.
“There are serious problems for a rapid recovery in the world economy,” Langebaek said in a phone interview before the rate decision. “In these circumstances our growth could be quite weak in the second half of the year.”

September, Cardenas

Langebaek forecasts that the central bank will cut the benchmark rate to 4.5 percent at its September meeting, then hold it at that level for the remainder of the year.
Today’s meeting was the last for outgoing Finance Minister Juan Carlos Echeverry, who resigned yesterday citing personal reasons.
He will be replaced by Berkeley-trained economist Mauricio Cardenas, who currently serves as mines and energy minister.
In a radio interview this morning, Echeverry said he would argue for increased dollar purchases at today’s meeting. Echeverry said last week that he was “generally not on the winning side” at the bank’s board meetings.

Source: Bloomberg

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Reviving Gold Standard Studied in Republican Platform

A Republican Party call to study whether to return the U.S. dollar to the gold standard drew skepticism from economists and industry experts.
The proposal is included in a draft platform to be submitted for approval to the Republican National Convention, which is scheduled to start Aug. 27 in Tampa, Florida. The draft calls for a commission to study “possible ways to set a fixed value for the dollar,” similar to one in the early 1980s that studied “the feasibility of a metallic basis for U.S. currency.”

That commission, appointed early in Ronald Reagan’s presidency, “advised against such a move,” the draft said. Industry experts such as Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank in San Francisco, said the U.S. isn’t likely to return to the gold standard, which President Richard Nixon abandoned in the 1970s.
“I just don’t see it being a discussion that has any legs or probability,” said Davidson, who helps oversee $169 billion. “We all want to go back to the good old days, but when there was a gold standard economic ups and downs were quite common.”
The platform statement said that, three decades after the Reagan study, the U.S. should reconsider the “feasibility of a metallic basis” for the dollar “as we face the task of cleaning up the wreckage” of President Barack Obama’s policies.
The statement was included along with a provision that advocates an annual audit of the Federal Reserve Board and the 12 regional reserve banks, including monetary policy decisions.

Ron Paul

Both reflect campaign themes adopted by Texas Representative Ron Paul, who ran against Republican candidate Mitt Romney in the party’s presidential primaries. Paul’s supporters have been threatening to instigate a floor fight if the platform wasn’t amended to reflect their views.
Romney said on Aug. 20 that “the Federal Reserve should be accountable” so he “would like to see the Fed audited” in a way that preserves its independence. He hasn’t endorsed legislation the House passed last month to have the Government Accountability Office, a watchdog of Congress, audit the Fed, including monetary policy deliberations.
Gold capped the biggest weekly gain since January amid speculation that the Fed will take additional steps to spur the economy, boosting demand for the metal as an inflation hedge.
The Fed has the ability to take further steps “to ease financial conditions and strengthen the recovery,” Chairman Ben S. Bernanke said in a letter to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee. The Aug. 22 letter was released to Bloomberg News yesterday.

Bullion, Equities

Gold futures for December delivery rose 10 cents to settle at $1,672.90 an ounce at 1:43 p.m. in New York yesterday, adding 3.3 percent for the week. Gold is up 6.8 percent this year compared with a 12 percent rally for the Standard & Poor’s 500 Index. Bernanke’s comments drove the benchmark for American equities up 0.7 percent to 1,411.13 yesterday.
The gold standard is unlikely to return because of a lack of international agreement on the matter and insufficient supply, according to the industry-funded World Gold Council.
“The inability to achieve widespread international agreement on the standard” makes a return unlikely as well as determining “what price to return to it at,” David Schraeder, a spokesman for the New York-based group said in an e-mail. He also cited growth of gold supplies that “may not necessarily match the appropriate growth in the monetary base.”

Romney Interview

Romney distanced himself from a return to a gold standard in a CNBC interview in January.
“I know that in the past when we had a gold standard, the idea that somehow it was detached from or free from any interference by Congress was simply wrong because even with the gold standard someone has to decide what is the conversion rate between gold and the dollar,” Romney said.
The draft language pleased anti-tax Tea Party movement supporters who attended the platform hearings, and talk about a convention showdown has quieted among Paul’s supporters.
“We like the idea of looking at monetary policy and looking at what we call sound money,” said Russ Walker, an Oregon delegate and a vice president of FreedomWorks, a Washington-based Tea Party umbrella group.
John Taylor, one of 576 economists backing Romney, said “there are better ways” to achieve economic stability than the gold standard. Pegging the dollar to “a broad price index” would be preferable because it would be “more robust,” Taylor, a former Treasury undersecretary and a Stanford University economics professor, said yesterday in an interview on Bloomberg Radio’s “The Hayes Advantage” with Kathleen Hays and Vonnie Quinn.

Tampa Panel

Republican panel leaders avoided endorsing a return to the gold standard at an Aug. 21 press conference in Tampa after the platform hearings were completed.
The gold-standard study was included “so we have some language for evaluation to make sure that we have a good, sound monetary policy,” said North Dakota Senator John Hoeven, a co- chairman of the platform panel.
The proposal “is primarily symbolic to demonstrate the desire of the Republican Party to be more fiscally responsible,” said Philip Orlando, who helps manage $360 billion as chief equity market strategist at Federated Investors Inc. (FII) in New York.
Orlando said it represents a Republican attempt to “demonstrate to the electorate that we’re the party that’s concerned about trying to restore fiscal prudence.”

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Euro Advances Most in Six Months as Fed Signals More Stimulus

The euro had its largest weekly gain against the dollar in six months as the Federal Reserve signaled it’s increasing likely to try to stimulate economic growth and amid growing optimism Europe’s leaders will contain its crisis.
The 17-nation shared currency gained for a second week as German Chancellor Angela Merkel said she wants Greece to stay in the monetary union and that her nation is ready to help the Greek government take the needed steps to resolve its economic woes. The euro on Friday snapped four days of gains after European Central Bank President Mario Draghi’s plan to buy government bonds was said to be held up pending a German court ruling. Fed Chairman Ben S. Bernanke is to speak on Aug. 31 in Jackson Hole, Wyoming, where he may clarify his thinking on the need for stimulus.
“The Fed’s dovish tone definitely put people on watch,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc in Stamford Connecticut, said in a telephone interview yesterday. “That meeting took place before the latest payroll data, before the latest consumer spending data. People said, well, we have to take that into consideration. It definitely puts more onus on the Jackson Hole speech.”
The euro rose 1.4 percent this week to $1.2512, its largest weekly gain since the five days ended Feb. 24. The shared currency climbed to $1.2590 Aug. 23, the strongest since July 4. The euro gained 0.3 percent to 98.44 yen, the second weekly advance. The dollar weakened 1.1 percent to 78.67 yen.

Fed Minutes

The Federal Open Market Committee said “additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the policy makers’ July 31-Aug. 1 gathering released Aug. 22 in Washington.
Employers added 163,000 workers last month, the biggest gain since February, according to the Labor Department jobs report issued earlier this month. Americans’ paychecks in the first half of 2012 grew at the fastest pace in five years, according to calculations by UniCredit Group in New York, based on data from the Commerce Department, pointing to an improvement in purchasing power that may help propel the economic expansion.
Fed officials next meet on Sept. 12-13. Bernanke signaled a second round of bond buying by the Fed at Jackson Hole in 2010.
“Bernanke is likely to come off as more able and ready to act than Draghi,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million. “But, at this point, I would argue the Fed policy transmission mechanism is in the repair shop and movement from the ECB has more fundamental weight.”

‘Mildly Optimistic’

Draghi announced on Aug. 2 that the central bank may intervene in the secondary market to reduce bond yields. Central bankers may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said.
With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public.
“The market continues to digest those early August announcements from the ECB,” Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, said in a telephone interview. “It may have shifted sentiment from skeptical to mildly optimistic.”

Greece, Spain

Merkel said Germany is ready to help Prime Minister Antonis Samaras’s government as it takes the necessary steps to resolve his country’s economic woes.
“I want Greece to stay in the euro zone and that’s what I’m working for,” Merkel told reporters in Berlin yesterday at a joint press conference with Samaras. “I am deeply convinced that the new government under the leadership of Prime Minister Samaras will do what it takes to solve the problem in Greece.”
Spanish Prime Minister Mariano Rajoy will hold a working lunch with Merkel on Sept. 6 as the ECB governing council meets to work on the details of a mechanism to lower borrowing costs for peripheral euro members.
“Right now I don’t think anybody is going to be doing much of anything going into Jackson Hole,” said Kim of RBS. “September will hopefully bring a little more clarity on things.”
The euro gained 0.8 percent on the week, the biggest increase along with the Swiss franc and Norway’s kroner among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The U.S. dollar fell 0.8 percent and the yen added 0.4 percent. Canada’s dollar dropped 1.2 percent to lead decliners.

Net Shorts

Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 123,932 on Aug. 21, compared with net shorts of 137,810 a week earlier.
Australia’s dollar fell against 12 of its 16 major peers for the week as Reserve Bank Governor Glenn Stevens said the nation’s resource investment boom will peak “within the next year or two” and a report showed China’s manufacturing may contract at a faster pace.
“Australia’s dollar has really been underperforming today after weak Chinese data,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said Aug. 23 in a telephone interview. “It’s looking a bit heavy here.”

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New Zealand Dollar Rises as Fed’s Evans Urges Easing

The New Zealand dollar rose to a two-week high after Federal Reserve Bank of Chicago President Charles Evans said easier monetary policy is needed to support global growth.
The so-called kiwi appreciated against 15 of its 16 major counterparts as Asian stocks advanced, boosting the allure of higher-yielding currencies. The Australian dollar pared an earlier gain after a private report showed China’s manufacturing may contract at a faster pace this month, fanning concern that demand for commodity exports will decrease.
“The Australian and New Zealand dollars are being bought because of speculation of additional monetary easing in the U.S.,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “These currencies are preferred investment destinations on the back of a potential flood of greenbacks.”
The New Zealand dollar touched 81.87 U.S. cents, the highest since Aug. 7, before trading at 81.66, as of 4:26 p.m. in Sydney, 0.3 percent stronger than the close in New York yesterday. Australia’s currency rose 0.1 percent to $1.0511 after earlier climbing as high as $1.0545. The so-called Aussie traded at 82.49 yen from 82.55, while the kiwi advanced 0.2 percent to 64.09 yen.
“I don’t need to see any more data to know that I think we should have more accommodation,” Evans told reporters today in Beijing, referring to the U.S.

Fed Minutes

His comments came after the minutes of the Fed’s July 31- Aug. 1 meeting released yesterday said “many members judged that additional monetary accommodation would likely be warranted fairly soon” unless there is a substantial and sustainable improvement in the economy. Central bank officials next meet on Sept. 12-13.
Ten-year Treasury yields fell 11 basis points yesterday, the most since May 30, to 1.69 percent.
The rate on similar-maturity government debt in Australia dropped nine basis points to 3.29 percent today. The MSCI Asia Pacific Index (MXAP) of shares advanced 1 percent, boosting demand for higher-yielding currencies.
A purchasing managers’ index for China’s manufacturing was at 47.8 in August on a preliminary basis, a report from HSBC Holdings Plc and Markit Economics showed today. If confirmed, it would be the lowest since November and extend to 10 months the longest run of readings below the expansion-contraction dividing line of 50 in the index’s eight-year history.

China’s Manufacturing

“The Aussie came under pressure after the weaker number,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank, referring to the Chinese manufacturing report. Deteriorating economic figures will “increase speculation of further pressure on Chinese authorities to ease monetary policy.”
China’s central bank governor Zhou Xiaochuan yesterday said further interest-rate adjustments can’t be ruled out. The country is Australia’s largest trading partner and New Zealand’s second-biggest export destination.
The Aussie declined to as low as NZ$1.2858 today, the weakest since Aug. 8. Minutes of the Reserve Bank of Australia’s Aug. 7 meeting said on Aug. 21 that the nation’s currency “had remained at a relatively high level, notwithstanding the weakening in the global outlook and decline in many commodity prices.”
The minutes suggest “the RBA could potentially ease rates further” if persistent Aussie strength hurts the economy, said ABN Amro’s Teo. “Market participants are hesitant to add long positions in the Aussie.”

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Gold Rallies to a 16-Week High as Fed May Add Stimulus

Gold advanced to the highest level in 16 weeks after breaking above the 200-day moving average as the Federal Reserve signaled that it may add stimulus and investment holdings rose to a record. Platinum extended a rally.
Minutes from the Federal Open Market Committee’s July 31- Aug. 1 meeting showed that “many members” believed more monetary accommodation would be needed unless the recovery picks up. Assets in gold-backed exchange-traded products expanded to 2,442.26 metric tons, data tracked by Bloomberg showed. The 200- day average is an important technical level and the climb above it may have spurred more buying, Commerzbank AG said today.

“Investment demand is in the driver seat and the technicals are looking very positive,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold is again in the investor focus now that we have potential trigger events coming up, which could indicate more global monetary stimulus.”
December-delivery bullion climbed 1.5 percent to $1,665 an ounce by 6:47 a.m. on the Comex in New York. Futures rallied to $1,669.50 earlier today, the most expensive since May 1. Gold rose 0.5 percent to $1,662.95 in London.
London-traded bullion closed at $1,654.65 yesterday, above the 200-day moving average for the first time since March, signaling more gains. Gold in New York closed below the 200-day moving average yesterday and traded above it today. The 200-day moving average is currently at $1,650.35.

‘Bull’ Mode

“The gold market now seems to be in bull mode and any friendly news is gratefully received,” David Govett, global head of precious metals at Marex Spectron Group Ltd., said in a report today. “It is election year and the pressure is on for a short-term fix, making the possibility ever more likely,” he wrote, referring to further so-called quantitative easing in the U.S.
Platinum for October delivery advanced as much as 2.4 percent to $1,563.60 an ounce, the highest level for a most active contract since May 3, before trading at $1,543.60. Prices are up for a sixth day, the best run since the period to Oct. 28, after violence in South Africa, the biggest supplier.
Worker discontent at Lonmin Plc (LMI)’s Marikana complex in South Africa that led to 44 deaths spread to Royal Bafokeng Platinum Ltd. (RBP), whose operations were disrupted by miners yesterday demanding higher wages. Anglo American Plc (AAL)’s platinum unit, the world’s largest producer, said workers made demands directly to the company on Aug. 17.
Silver for December delivery climbed 2.4 percent to $30.355 an ounce, after earlier reaching $30.625 an ounce, the highest level since May 3. Palladium for September delivery gained 0.6 percent to $632.60 an ounce.

Source: Bloomberg.

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TSE Wins Bid for Osaka as Japan Plots Market Renaissance

Tokyo Stock Exchange Group Inc. won control of its Osaka rival, succeeding where more than $30 billion of other exchange merger bids have failed, as the country seeks to reassert its role as a financial hub for Asia.
The operator of the world’s third-largest cash equity market by value said in a statement that it received offers to sell 80 percent of Osaka Securities Exchange Co.’s shares, more than the 67 percent it sought in a tender offer that closed yesterday. The offer price of 480,000 yen per share represents a premium of 9.7 percent to Osaka bourse’s closing price today of 437,500 yen. The bid values the smaller company at 129.6 billion yen ($1.65 billion).

 

The Tokyo Stock Exchange (TSE) in Tokyo, left, and the Osaka Securities Exchange (OSE) in Osaka, Japan. Photographers: Tomohiro Ohsumi (TSE) and Tetsuya Yamada (OSE) /Bloomberg

Effective control of Osaka Securities means the Tokyo bourse won’t need the support of any other shareholders to approve the deal. While regulators have blocked more than $30 billion in other mergers since 2010, the marriage of Japan’s two largest equity-trading venues is part of a national plan to consolidate the country’s fragmented exchange industry amid competition from China and other emerging markets.
“The government wanted to make the exchange into one and strengthen it to become a global player,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo, which oversees about $6.7 billion. “The exchanges shared the sense of crisis. Japan’s position is declining, especially in Asia. It’s pointless to be fighting over market share when the nation’s market value and trading volume are deteriorating.”

Equity Slump

Japan’s reputation as a financial hub has been battered as more than two decades of equity losses and economic stagnation have combined with corporate governance scandals. Poor management at Tokyo Electric Power Co. was blamed in part for last year’s nuclear disaster, while senior board members of Olympus Corp. were found to have hidden losses through inflated fees after they fired whistle-blowing president Michael Woodford in October.
The Nikkei 225 Stock Average (NKY) has lost more than 75 percent of its value since peaking in 1989. China surpassed Japan as the world’s No. 2 economy in 2010, and the combined value of equity markets in the mainland cities of Shanghai and Shenzhen has at times exceeded that of Japan’s.
In 2010, Japan’s government said it wanted to create a “comprehensive” exchange that combined the country’s nine bourses into a single entity handling stocks, commodities and other securities. The country’s Financial Services Agency was involved in discussions between TSE and Osaka before the deal was announced, two people with direct knowledge of the talks said in March.

More Attractive

“Japan’s financial industry has taken its first step in matching up to Europe, North America and Asia,” said Tatsushi Maeno, head of investment at PineBridge Investments Japan Co. in Tokyo. “Unless Japan’s economy strengthens, the company won’t be too useful as an exchange. Japanese companies need to become more attractive as well.”
The 133-year-old Tokyo exchange, home to Toyota Motor Corp. and Canon Inc., accounted for 88 percent of Japan’s cash equity trading in the first seven months of this year, according to data compiled by Bloomberg. Osaka, which was established in 1878 and has its roots in a futures exchange for rice during Japan’s Edo period, is the only domestic venue for futures on the Nikkei 225 Stock Average.
“The days when we were competing with TSE in ‘‘a small glass’’ are over,” Osaka President Michio Yoneda said in a statement. “The world exchange industry got into the age of global market competition, and each market is competing for investors cross borders. We throw off the cloak of OSE or TSE and create the all-Japan exchange.”

‘Japan Exchange’

Tokyo is assured of being able to move the merger process to the next step, which is a share swap that values the Tokyo venue at about 1.7 times its smaller partner, said Jonathan Foster, Singapore-based director of Global Special Situations at Religare Capital Markets Ltd. An extraordinary shareholders meeting to approve the deal is expected to take place this fall, according to the statement from the TSE. The agreement to create what is tentatively called the Japan Exchange Group will close in January, Tokyo said.
“This is a big step towards the creation of Japan Exchange Group,” TSE President Atsushi Saito said in today’s statement. “In order to become Asia’s No. 1 bourse, it’s important that the Japan Exchange Group becomes the engine of Japan’s economy and become Asia’s financial hub by bringing in global investments.”

Source: Bloomberg.

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Tata Steel Said to Plan $4.7 Billion Bank Loan: Corporate India

Tata Steel Ltd. (TATA), India’s biggest producer of the alloy, plans to raise about 260 billion rupees ($4.7 billion) in loans to fund its first new mill in a century, two people with direct knowledge of the deal said.
The company may pay an interest rate of about 11.25 percent, said the people, who asked not to be identified because the process is private. The syndicated project-finance loan may be for a period of more than 8 years and will be disbursed in phases, the people said.

 

Ratan Tata, chairman of Tata Group. Photographer: Dhiraj Singh/Bloomberg

Tata Steel, led by Ratan Tata, is tapping credit at home amid a deepening debt crisis in Europe, where it has 66 percent of its capacity. Average borrowing costs on dollar bonds of Indian companies are 5.2 percent, HSBC Holdings Plc indexes show. The expense rises to about 12 percent after firms hedge against currency fluctuations, according to data compiled by Bloomberg.
“Tata Steel may find that the domestic market is giving them more value for a loan of this size and tenor,” Paritosh Kashyap, executive vice president at Kotak Mahindra Bank Ltd. (KMB) in Mumbai said in a phone interview yesterday. “The domestic market is deep enough to help absorb this borrowing.”
The cost to buy six-month forward dollar contracts to guard against currency risk rose 11 basis points to 6.86 percent today, data show. India’s rupee has dropped 18 percent in the past year making it the worst performing among 11 Asian currencies tracked by Bloomberg. It rose 0.1 percent to 55.5250 to a dollar today.
Charudatta Deshpande, spokesman at Tata Steel, declined to comment on the fundraising plan.

Europe Rating Cut

Moody’s Investors Service cut the credit rating for Tata Steel’s European operations deeper into junk this month, while Standard & Poor’s lowered the outlook to negative. Crisil, the Indian unit of S&P, rates the parent’s rupee-denominated debt AA, the third-highest investment grade rating.
The company’s shares, which have risen 17 percent this year, rose 0.1 percent to 392.55 rupees at the close in Mumbai. The benchmark BSE India Sensitive Index fell 0.2 percent.
Yields on Tata Steel’s 2 percent rupee-denominated notes maturing in April 2022 fell to 10.21 percent from 10.24 percent yesterday, according to prices from the Fixed Income Money Market & Derivatives Association of India, or Fimmda. Hindalco (HNDL) Industries Ltd.’s 9.55 percent similar-maturity rupee notes yield 9.7 percent, Fimmda prices show.
Mumbai-based Hindalco, India’s second-largest aluminum producer, plans to sign an agreement to borrow 100 billion rupees as early as next month, according to two people familiar with the matter. The interest rate for the 12 1/2-year term facility, which will finance its green field project in Odisha state, is about 11.25 percent, one of the people had said.

Tata Group Founder

Tata Steel formerly known as the Tata Iron & Steel Co. was conceived by Jamsetji Nusserwanji Tata, founder of the group, and began production in February 1912 in Jamshedpur. The company is expanding capacity at its existing plant in the city by 43 percent to 9.7 million metric tons, according to Tata Steel’s annual report.
The company, based in Mumbai, has started construction of the factory in Kalinganagar in the eastern state of Odisha and has not raised any debt for the project yet, Koushik Chatterjee, group chief financial officer said in an analyst conference call on Aug. 14. The plant will be built in phases and will have a capacity of 6 million tons, he said.
The company’s Indian unit is among the most profitable in the world so “capacity addition in India will improve earnings,” said Ravindra Deshpande, an analyst at Elara Securities Ltd. The debt they take to expand will “probably put short-term pressure on the company’s finances.”

Net Debt

The company had a net debt of $9.71 billion as of June 30, according to a company release on Aug. 13. Tata Steel has cash and equivalents of 122 billion rupees, according to data compiled by Bloomberg. The company yesterday said it will pay convertible bond holders $471.2 million on Sept. 5.
The final loan amount will depend on Tata Steel’s decision on the second phase of the Kalinganagar expansion, one person said. The first phase of 3 million tons is scheduled to start in 2014 and Tata will add another unit of similar size once the first phase is ready, according to the annual report.
Steel consumption in India, the world’s third-largest producer of the alloy, will increase at least an average 9 percent annually in the five years ending March 2017, based on an estimated 8 percent rate of economic growth, according to a November report prepared by the steel ministry. India’s gross domestic product expanded 5.3 percent in the three months through March, the least since 2003.

Steel Demand

The nation’s consumption of the alloy rose 7.7 percent in the four months ending July 31, according to initial data from the ministry’s joint plant committee.
In contrast, falling prices of the alloy prompted ArcelorMittal (MT), the world’s largest steelmaker to shutter or idle plants in Europe. Demand for steel may worsen in the region as government spending slows, Tim Cahill, an analyst at J&E Davy Holdings Ltd. in Dublin said on July 30.
The European Union produced 14.73 million tons of steel in June, the lowest for that month since 2009. Moody’s on Aug. 8, cut its rating of Tata’s European unit saying further signs of weakness in the region’s steel industry will lead to slower recovery in Tata’s operating and financial profile.
At home, demand for steel may surge as Prime Minister Manmohan Singh seeks to invest $1 trillion in five years to build power plants, roads, ports and bridges in a nation where the state of infrastructure is ranked below Kazakhstan and Guatemala by the World Economic Forum.
“The expansion by Tata Steel is perfectly right,” said Elara’s Deshpande. “It would be a short-term view not to invest because of the current market scenario.”
Source: Bloomberg

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U.S. Stock Futures Decline as Japan Trade Deficit Widens

U.S. stock futures fell, indicating that the Standard & Poor’s Index will extend yesterday’s drop as Japan posted a wider-than-expected trade deficit and investors awaited the minutes of the last Federal Reserve meeting and data on house purchases.
Dell Inc. (DELL) sank 4.6 percent in German trading after the computer-maker late yesterday cut this year’s profit forecast, as personal-computer sales shrink. Bank of America Corp. (BAC) lost 1.1 percent. Clearwire Corp. (CLWR) may fall after the stock was downgraded by RBC Capital Markets.
S&P futures expiring in September retreated 0.3 percent to 1,408.1 at 7:21 a.m. in New York. U.S. stocks fell yesterday, with the S&P failing to remain above a four-year high, as a slump in technology shares overshadowed optimism euro-area leaders will make progress in resolving the region’s crisis. Contracts on the Dow Jones Industrial Average slipped 30 points, or 0.2 percent, to 13,169 today.
“The market is currently in need of a positive catalyst to push higher, without which it will begin to question whether the recent optimism was justified,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers in London, wrote in an e-mail. “The Japanese trade deficit numbers have not helped sentiment.”

Japanese Deficit

Japan’s trade deficit was 517.4 billion yen ($6.5 billion) in July as Europe’s sovereign-debt crisis and a slowdown in China dragged down exports, data released by the Finance Ministry showed. That compares with a revised 60.3 billion yen surplus in June and the median forecast of a 270 billion yen deficit in a Bloomberg News survey of 28 analysts.
In the U.S., a report today may show that sales of existing properties rose to a 4.51 million annual pace in July from a 4.37 million pace in June, economists predicted. A release tomorrow will show purchases of new houses climbed to a 365,000 rate last month from a 350,000 pace in June, according to the median forecast of economists surveyed by Bloomberg.
A Commerce Department report on Aug. 24 may show that durable-goods orders increased 2.5 percent, the most this year, economists projected.
Federal Reserve Bank of Chicago President Charles Evans said today that a weakening in global trade is “awful.”
The U.S. central bank will consider circumstances in the economy and financial stability to decide whether it needs to step up monetary easing, Evans told reporters in Beijing. He declined to elaborate ahead of a scheduled press briefing tomorrow at the U.S. Embassy in China’s capital.

Dell Slides

Dell fell 4.6 percent to $11.77 as the world’s third- largest maker of personal computers forecast third-quarter revenue that missed analysts’ estimates and cut its profit outlook by 20 percent. Competition from Apple Inc.’s iPad and an anemic global economic recovery is dragging down PC demand.
Bank of America, the second-biggest U.S. lender, declined 1.1 percent to $8.10 in German trading.
Clearwire, the unprofitable company attempting to build a wireless network across the U.S, may fall after the stock was downgraded to underperform from sector perform, meaning investors should sell the shares, at RBC Capital Markets by equity analyst Jonathan Atkin.

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Dollar, Yen Gain as Japan’s Trade Gap Widens Before Fed

The dollar and yen strengthened after Japan reported a wider-than-estimated trade deficit in July, underlining the fragility of the global economy and boosting demand for safer assets.
The U.S. currency rose the most against the South African rand and South Korean won after Federal Reserve Bank of Chicago President Charles Evans described a weakening in global trade as “awful.” The euro pared losses against the dollar as Luxembourg Prime Minister Jean-Claude Juncker travels to Greece to discuss the nation’s austerity plans. Australia’s dollar fell as stock declines sapped demand for for higher-yielding assets.
“We’ve had the disappointing Japanese trade data and the dollar is a bit stronger,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The Fed minutes will be closely watched. The dollar will come down if they signal that they will take action.”
The U.S. currency rose 0.2 percent to $1.2446 per euro at 7:22 a.m. New York time after falling to $1.2488 yesterday, the weakest level since July 5. The yen climbed 0.3 percent to 98.60 per euro. The dollar was little changed at 79.29 yen.
The greenback appreciated 0.5 percent against the rand and 0.4 percent versus the so-called Aussie. The Dollar Index, which IntercontinentalExchange Inc. (ICE) uses to track the U.S. currency against those of six major trading partners, gained 0.2 percent to 82.018.

Japan Deficit

Japan’s trade deficit was 517.4 billion yen last month, following a revised 60.3 billion yen surplus in June, the Finance Ministry said in Tokyo. The median forecast in a Bloomberg News survey of economists was for a shortfall of 270 billion yen. Exports fell 8.1 percent from a year earlier, compared with an estimated 2.9 percent decline.
Purchasing managers reports tomorrow are forecast to show contraction in German and French manufacturing, with the measure for the euro-area as a whole also predicted to shrink, according to surveys conducted by Bloomberg News.
The dollar has advanced 7.2 percent in the past 12 months, the best performance of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 1.8 percent, and the euro weakened 8.2 percent.
The euro trimmed declines today on speculation Germany will support Greece as it struggles to contain its debt crisis. A senior lawmaker with German Chancellor Angela Merkel’s party, Norbert Barthle, said concessions were possible for Greece as long as Prime Minister Antonis Samaras shows a willingness to meet the main targets set out in his country’s bailout program.

‘More Air’

“All we want is a little more air to breathe to get the economy going and increase government revenue,” Samaras was quoted as saying in an interview with Germany’s Bild newspaper today. “More time doesn’t necessarily mean more money.”
The Greek leader will meet Juncker in Athens today and then travel to Berlin and Paris on Aug. 24 and 25.
“The focus is on Greece,” said Valentin Marinov, head of G-10 currency strategy at Citigroup Inc. (C) in London. The euro’s resilience “reflects optimism that a workable solution may be found to its problems.”
The Fed is scheduled to release the minutes of its July 31- Aug. 1 policy meeting today, at which officials refrained from adding new stimulus measures that tend to debase the greenback.
The U.S. central bank bought $2.3 trillion of mortgage and Treasury debt between 2008 and 2011 in two rounds of quantitative easing to cap borrowing costs. Policy makers have held the Fed’s key rate in a range of zero to 0.25 percent since 2008 and plan to keep it there at least through late 2014.
The Dollar Index may find so-called support at around 81.5 ending recent declines, according to Derek Mumford, a director in Sydney at Rochford Capital, a currency risk-management company. “That will contain any sell off at the moment,” he said. Support refers to an area on a chart where orders to buy may be clustered.
Australia’s currency declined 0.5 percent to $1.0439, and dropped 0.5 percent to 82.72 yen.

Source: Bloomberg
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Gold to Rally as Central Banks, Investors Buy, Coutts Says

Gold will extend a bull run as emerging-market central banks and investors accumulate the metal to protect against weakening currencies, according to Coutts & Co., the private-banking division of Royal Bank of Scotland Plc.
“The reason we’re positive on gold is that major currencies around the world lack credibility,” Gary Dugan, chief investment officer for Asia and the Middle East, said in an interview in Singapore today, without giving a price forecast.
Investment holdings expanded to an all-time high this week amid concern that fresh stimulus from central banks including the U.S. Federal Reserve will weaken currencies and may reignite inflation. Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust, the biggest gold- backed exchange-traded product, in the second quarter.
“The natural buyers of today are emerging-market central banks, and over and above that, it’s going to be further investment demand,” said Dugan. “People continue to naturally gravitate to gold.”
Gold for immediate delivery, which traded at $1,640.75 an ounce at 6:57 p.m. in Singapore, has rallied for 11 years and reached a record $1,921.15 on Sept. 6. Holdings in ETPs including the SPDR jumped to a record 2,437.495 metric tons yesterday, according to data compiled by Bloomberg.
Central banks will purchase close to 500 tons this year after becoming net buyers in 2009, according to the producer- funded World Gold Council. Central banks added 254.2 tons to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves.

Global Slowdown

Still, the global economic slowdown, driven by the debt crisis in Europe, hurt demand in the second quarter, with consumption declining 7.1 percent, the London-based council said on Aug. 16. Imports by India, last year’s biggest buyer, slid 56 percent to 131 tons in the second quarter, the council said.
Sales of American Eagle gold coins by the U.S. Mint dropped 49 percent to 30,500 ounces last month, the lowest level since April. The mint sold 18,000 ounces so far in August, data on its website showed on Aug. 20.
“Do I want to go with Japan, Europe or the U.S., where debt to GDP is over 100 percent?” said Dugan. That “seems crazy because you’re going to get loads of these currencies being issued to you. Unfortunately, the reserve currencies that are coming on, like the renminbi, which was a one-way bet for three or four years, has become less of a one-way bet.”
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Asian Currencies Decline on Signs Europe Crisis Hurting Exports

India’s rupee led declines in Asian currencies on concern Europe’s debt crisis will hurt global growth and the region’s exports.
The Bloomberg-JPMorgan Asia Dollar Index fell for a fifth day after India, Indonesia, South Korea and Taiwan reported this month that overseas sales shrank. Thailand’s shipments dropped 2.7 percent in July after a 4.24 percent slide in June, a Bloomberg survey of economists showed before an official report next week. Figures released this week showed euro-zone gross domestic product contracted 0.4 percent in the second quarter.
“If you look at the economic data from the euro zone, they have been still sliding, and so, we are still going to see some weakness in Asian exports in coming months,” said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl. (KBANK)
The rupee weakened 0.4 percent from Aug. 14 to 55.8750 per dollar as of 2:28 p.m. in Mumbai, according to data compiled by Bloomberg. South Korea’s won fell 0.4 percent to 1,134.15 from Aug. 14. Financial markets in the two countries were closed yesterday for public holidays. Taiwan’s dollar declined 0.1 percent to NT$30.020 and the Philippine peso depreciated to 42.285 from 42.270 yesterday.
The Asia Dollar Index, which tracks the region’s most active currencies, has retreated 0.5 percent from an almost three-month high of 115.73 reached on Aug. 9.
The rupee fell to the lowest level in almost two weeks on concern the nation’s current-account deficit will widen from a record as exports contract.

India Inflation

Merchandise shipments declined 14.8 percent in July, the biggest drop in 35 months, while imports slid 7.6 percent, Director General of Foreign Trade Anup Pujari said on Aug. 14. That left a trade deficit of $15.5 billion. The rupee also weakened on concern the fastest inflation among the largest emerging markets leaves little room for policy measures to stimulate growth, according to Edelweiss Financial Advisors Ltd.
The shortfall in India’s current account, the broadest measure of trade, widened to a record 4.2 percent of gross domestic product in the year through March 2012 from 2.7 percent in the previous 12 months, according to the central bank.
“A widening trade deficit highlighted the woes facing the local currency,” analysts at Edelweiss, including Mumbai-based Vinay Khattar, wrote in a research report today. “The current- account deficit remains a particular source of concern.”

Yuan Fixing

China’s yuan dropped for a second day as the central bank weakened its daily fixing to the lowest level since November to help exporters. The currency fell 0.05 percent to 6.3658 per dollar in Shanghai.
The People’s Bank of China reduced the reference rate by 0.02 percent to 6.3495 per dollar, the least since Nov. 29, after the Dollar Index climbed 0.2 percent yesterday. Premier Wen Jiabao said there’s “growing room for monetary-policy operations,” during a two-day visit to the eastern province of Zhejiang, according to a report on state television.
“China will keep the yuan weaker to alleviate pressure on exporters,” said Daniel Chan, executive vice president at Glory Sky Global Markets Ltd. in Hong Kong. “There’s no surprise in what Wen said. More aggressive easing is just a matter of timing and investors are waiting for genuine actions.”
The Philippine peso touched a seven-week low of 42.43 per dollar on signs the government favors a weaker currency and after growth in remittances slowed.

Slowing Remittances

Funds sent home by Filipinos living abroad rose 4.2 percent in June from a year earlier, the least in 15 months, the central bank reported yesterday. The government said this week it’s looking at raising money in a way that won’t fuel gains in the currency that would hurt exporters. Overseas sales and remittances account for about 30 percent of the $225 billion economy.
“The market is cognizant that the bias of the monetary authority is for the peso to move in line with regional currencies,” said Roland Avante, president of Philippine Business Bank in Manila.
Elsewhere, Thailand’s baht was little changed against the dollar at 31.54. Malaysia’s ringgit advanced 0.1 percent to 3.1294 and Indonesia’s rupiah added 0.1 percent to 9,503.

Source: Bloomberg
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Oil Gains as Supplies Decline More Than Expected

Oil traded near the highest close since May after U.S. stockpiles dropped to the lowest in four months and China signaled it may take more steps to boost growth in the world’s second-biggest economy.
Futures were little changed after climbing 1 percent yesterday. Inventories shrank 3.7 million barrels and total oil use reached the highest level in nine months last week, the Department of Energy said in a report. Slowing inflation gives China more room to adjust monetary policy, Chinese Premier Wen Jiabao said, according to state radio. Israel’s ambassador to the U.S. said his country would be willing to strike Iran’s nuclear facilities.
“The key thing is the U.S. inventory report and some expectations in the market for stimulus in China, Europe and the U.S.,” said Victor Shum, the managing director of IHS Consulting in Singapore. “Also adding support to prices are comments from Israel that they will strike Iran.”
Oil for September delivery fell 26 cents to $94.07 a barrel in electronic trading on the New York Mercantile Exchange at 3:11 p.m. in Singapore. It earlier rose as much as 28 cents, or 0.3 percent. Yesterday’s settlement at $94.33 was the highest since May 14. Prices are down 4.8 percent this year.
Brent crude for September settlement, which expires today, fell 16 cents to $116.09 after climbing 2 percent yesterday on the London-based ICE Futures Europe exchange. The more actively traded October contract was at $114.12. Brent’s premium to WTI was $21.98 a barrel after closing yesterday at $21.92, the highest since October.

Inventory Drawdown

Oil inventories dropped to 366.2 million barrels, a four- month low. Analysts surveyed by Bloomberg had forecast a decline of 1.5 million. Petroleum consumption jumped 5.7 percent to 20 million barrels a day, the most since Nov. 4, led by a 5.3 percent gain in gasoline demand.
Gasoline stockpiles fell 2.37 million barrels to 203.7 million. Distillate supplies, which include heating oil and diesel, rose 677,000 to 124.2 million. The refinery utilization rate was unchanged at 92.6 percent.
“One of the drivers would have been the continued drawdown in U.S. inventories,” said David Lennox, a resource analyst at Fat Prophets in Sydney. Data from China showing easing inflation, meanwhile, “does give them the opportunity to stimulate their internal demand and that would have potential to push up oil prices.”
Israel would be willing to strike Iran, even if doing so only delayed its ability to produce nuclear weapons for a few years, Israeli Ambassador to the U.S. Michael Oren said yesterday. The country’s leaders have stressed this month that time is running out for a diplomatic solution to the nuclear program that it regards as an existential threat.

Middle East

Concern that Middle East tension will disrupt supplies from a region responsible for about one-third of the world’s crude production helped oil advance 7.1 percent in August.
Tropical Depression Eight churned in the North Atlantic about 550 miles (885 kilometers) east-southeast of Bermuda, where it’s currently no threat to land, according to the U.S. National Hurricane Center in Miami.
The system has top winds of 35 miles per hour, below the 39 miles per hour threshold required to be classified as a tropical storm. It’s moving north-northwest at 17 mph, the agency said in an advisory shortly before 11 p.m. New York time yesterday.
Six named storms have formed this year including Hurricane Ernesto, which struck Mexico last week, killing at least two people and causing widespread flooding. The Atlantic season runs from June 1 to Nov. 30 and U.S. forecasters expect 12 to 17 storms to form in the basin.

Source: Bloomberg
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