a-record-low

Pound Drops on Speculation Bank of England Favors Declines to Buoy Economy

September 26, 2009

By Anna Rascouet and Morwenna Coniam Sept. 26 (Bloomberg) — The pound fell to its lowest level in almost six months against the euro on speculation the Bank of England favors a weaker currency to help revive the economy. The British currency also dropped below $1.60 for the first time since July 8 after the Newcastle Journal cited Bank of England Governor Mervyn King as saying the pound’s weakness was “helpful.” Policy makers said there may be “false dawns” in the recovery, according to the minutes of their most recent meeting released this week. There’s “growing concern over the financial position of the U.K.,” said Lee Hardman , a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “Added to the negative pound sentiment this week were the comments from King that the bank favors the weaker pound as a means to rebalance the economy.” The pound dropped 1.5 percent to trade at 91.89 pence per euro as of 5:05 p.m. in London yesterday, and weakened to 92.19 earlier, the first time since April 1 that it depreciated to more than 92 pence. It fell 1.8 percent to $1.5973, after reaching $1.5918, its lowest level since June 8. The Bank of England’s nine-member Monetary Policy Committee was unanimous in leaving the its asset-purchase program at 175 billion pounds ($279 billion) at its Sept. 10 meeting, the minutes showed on Sept. 23. King had pushed at the August meeting for an increase to 200 billion pounds but was outvoted. The central bank began the so-called quantitative-easing policy in March in an effort to lower borrowing costs as the U.K. grappled with its worst recession since World War II. ‘Not Attractive Investment’ “The U.K. is pretty well set for a recovery but the banking sector is not in good shape and it will take a long time before the balance sheets of the banks are fully repaired and the ability to provide credit to the economy to finance expansion will be returned to normal,” the Newcastle Journal cited him as saying in a Sept. 24 interview. The pound’s drop is “very helpful” in rebalancing the economy, King said. “A currency which the country’s own central bank likes to see weak obviously is not an attractive investment,” analysts including Lutz Karpowitz at Commerzbank AG in Frankfurt wrote in a research note. “If King keeps digging then he is clearly signaling that he does not care about this loss of trust.” U.K. government bonds rose, with the 10-year gilt yield falling 13 basis points last week to 3.62 percent. The 4.5 percent security due March 2019 climbed 1.05, or 10.50 pounds per 1,000-pound face amount, to 107.08. The yield on the two- year note also slid 13 basis points, to 0.74 percent. Pace of Recovery Central banks around the world signaled this week that the economic recovery may not be robust enough to justify the withdrawal of stimulus measures. The Federal Reserve said on Sept. 23 it pushed back the end-date of its asset-purchase program to March from December and kept its target interest rate at a record low. Bank of England policy maker Kate Barker said the same day that a hurried increase in interest rates may deter banks from lending and hurt the economic recovery. The pound may fall to $1.54 by the end of the year should the central bank remain indifferent to the currency’s decline, according to BNP Paribas SA. “The Bank of England appears unconcerned by the currency weakness at this stage,” analysts including Ian Stannard in London wrote in a report yesterday. “We maintain our bearish sterling view, expecting the currency to be the weakest among the majors.” Citigroup Versus Goldman Sterling lost almost 7 percent against the euro since June, after climbing 12 percent in the first half. BNP Paribas said last week the pound may reach parity with the euro in the first quarter. Citigroup Inc. said on Sept. 25 it may fall to the lowest level against the Norwegian krone since 1977. By contrast, Goldman Sachs Group Inc. said Sept. 22 investors should sell the euro versus the pound at 90.80 pence. The short-sterling interest-rate futures contract expiring in December was little changed at 0.52 percent this week. The Bank of England cut its benchmark rate to an all-time low of 0.5 percent on March 5. “Tight fiscal policies and easy money is about as negative a policy mix as it is possible to get for the currency and we expect sterling to exceed parity with the euro,” a team of Citigroup analysts including Michael Hart in London wrote in a research note Sept. 21. To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.net ; Morwenna Coniam in London at mconiam@bloomberg.net

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Euro Falls From One-Year High Versus Dollar Before Meeting of G-20 Leaders

September 23, 2009

By Yasuhiko Seki and Ye Xie Sept. 24 (Bloomberg) — The euro fell from a one-year high versus the U.S. dollar amid speculation that global policy makers will discuss the rapid appreciation of the 16-nation currency at the forthcoming meeting of the Group of 20 leaders. The euro strengthened after Reuters cited a French government official as saying France is concerned about the increasing strength of the euro and intends to press fellow G-20 members to set a timeframe for a discussion on exchange rates. The dollar rose against all 16 most-active currencies following the Federal Reserve’s decision to slow its purchases of mortgage-backed securities and housing agency debt. “The market is becoming sensitive to comments from monetary authorities as the G-20 meeting approaches,” said Kosei Fujita , a foreign-currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “As comments from French government officials added to concerns, people are inclined to close long positions on the euro and other higher-yielding currencies.” A long position is a bet that an asset will rise. The European currency traded at $1.4717 at 8:08 a.m. in Tokyo from $1.4735 yesterday in New York where it touched $1.4844, the weakest level since September 2008. It traded at 134.61 yen from 134.52 yen in New York. The dollar was at 91.46 yen from 91.29 yen yesterday. The French government is seeking a “framework” for discussions, Reuters quoted the official as saying. G-20 leaders will meet in Pittsburgh this week to discuss the latest developments of the global economy and financial markets. FOMC The U.S. currency advanced after the Federal Open Market Committee said in its statement at the conclusion of a two-day meeting yesterday that it will “gradually slow” the pace of its $1.45 trillion in asset purchases and close the program at the end of the first quarter of 2010. The buying was previously scheduled to cease by the end of this year. Fed officials left the target rate for overnight loans between banks at a record low of between zero and 0.25 percent. Yesterday’s decision was unanimous. The Dollar Index , which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and yen, rose 0.4 percent to 76.404. The gauge dropped 15 percent from its 2009 high of 89.624 reached in March on speculation investors sold the dollar to buy higher-yielding assets. Interest-rate futures contracts on the Chicago Board of Trade showed a 43 percent chance the central bank would keep the fed funds target unchanged through March, up from 27 percent odds a month ago. The central bank will hold the benchmark lending rate steady through the end of the first quarter, according to the median forecast of 65 economists surveyed by Bloomberg. The dollar will strengthen to $1.45 per euro and 97 yen by the end of the year, according to economists in a separate survey. To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net ; Ye Xie in New York at yxie6@bloomberg.net .

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Ma Sacrifices Taiwan’s Premier as Typhoon Fallout Grabs Focus From China

September 7, 2009

By Tim Culpan and Janet Ong Sept. 8 (Bloomberg) — Taiwan President Ma Ying-jeou sacrificed his premier in a surprise ouster designed to contain anger at the government’s mishandling of a deadly typhoon and its priority of improving ties with China. “Ma is now in damage control,” said Lo Chih-cheng , a professor at Soochow University in Taipei. “The only way to get out of trouble is to get rid of his premier.” Ruling Kuomintang Vice Chairman and Secretary-General Wu Den-yih will take over from Liu Chao-shiuan , while the party’s rising star, Eric Chu, also a vice chairman, will become Wu’s deputy, presidential spokesman Wang Yu-chi said last night. Ma’s popularity fell to a record low after Typhoon Morakot, which struck Aug. 6 to 9, killed more than 600 people and brought criticism for his administration’s handling of recovery efforts. Fulfilling election promises to strengthen ties with China had helped Ma’s approval climb and the stock market soar. “Ma now needs a politician and Wu is just the right person,” said Cheng Cheng-mount , chief Taiwan economist at Citigroup Inc. in Taipei. “Wu is a senior party member while Chu is up-and-coming and is being groomed for bigger things.” Taiwan’s stocks posted the biggest single-day gain in 18 years on April 30, the day after the government eased a six- decade ban on Chinese investment in the island. Previous limits on flights, travel and trade with rival China were relaxed during Ma’s first year, as he looked to the mainland to boost the local economy. The benchmark Taiex index added 1 percent to close at 7,224.59 yesterday, the highest since Aug. 14 last year. The measure’s 57 percent gain this year outpaces a 28 percent advance in the MSCI Asia-Pacific index as of 8:30 p.m. yesterday. Approval Rating Taiwan’s exports dropped 24.6 percent in August, better than the 29.8 percent median of 11 economist estimates, as demand from China offset the slowing global economy. His China and economic policies helped Ma maintain an approval rating of 52 percent in May, a year after taking office, despite the economy having posted a record 10.13 percent drop in gross domestic product during the first quarter, according to a survey by the United Daily News . Ma’s approval dropped to a record low of 29 percent after the typhoon claimed so many lives, according to an Aug. 18 survey of 919 adults conducted by the United Daily. The poll had a margin of error of 3.29 percentage points. About 46 percent of respondents said they didn’t have confidence in his administration’s relief and rebuilding efforts in the aftermath of the storm. Criticism of Ma and Liu mounted after survivors said rescue helicopters were too slow arriving, while victims blamed the government for not doing enough to prevent the disaster. Bow of Apology “The central government didn’t grasp the severity of the disaster and didn’t integrate material and human resources for relief work, missing the golden 72-hour period,” opposition Democratic Progressive Party Chairwoman Tsai Ing-wen said in an e-mailed statement Aug. 19. After giving a deep bow of apology on national television, Ma on Aug. 18 announced an investigation into his administration’s efforts, promising a Cabinet shake-up after the probe was completed. The entire Cabinet will resign on Sept. 10, Liu said yesterday. “People have a strong feeling about Ma’s problematic China policy,” said Soochow’s Lo. “All the solutions he’s got to fix Taiwan’s problems depend on China’s cooperation.” Taiwan and China on July 4 last year commenced non-stop charter flights between the two sides, fulfilling Ma’s campaign promise to open up transport links. “Increasing efforts by Taiwan’s government to eliminate transportation, investment, and trade barriers with mainland China will link many of Taiwan’s top corporations more closely to China’s rapid economic growth,” Standard & Poor’s Ratings Services said in an Aug. 25 statement. Former Reporter Wu, 61, is a former reporter who went on to be a Taipei City councilman and mayor of Kaohsiung, Taiwan’s second-largest city. He is currently a legislator and current party secretary- general. Chu, 48, is due to end eight years as Taoyuan County Magistrate early next year after previously being a legislator. The New York University graduate sat on the budget and finance committees of the legislature and has previously served as an investigation commissioner in Taiwan. “The appointments of Wu and Chu are apparently political considerations,” said Ernest Chiang , who manages $61 million in funds for IBT Asset Management Co. in Taipei. “Chu is a popular rising star, while Ma’s approval rating is low. Naming Wu is for smoother coordination between the party and the government.” To contact the reporters on this story: Tim Culpan in Taipei at tculpan1@bloomberg.net ; Janet Ong at jong3@bloomberg.net

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Taiwan’s Prime Minister Resigns, Takes Responsibility for Typhoon Response

September 7, 2009

By Janet Ong and Tim Culpan Sept. 7 (Bloomberg) — Taiwan’s Prime Minister Liu Chao- shiuan resigned to take responsibility for the government’s poor handling of a typhoon last month that killed more than 600 people and caused NT$110 billion ($3.3 billion) of damage. “I am the leader and I will bear the responsibility,” Liu said at a press briefing in Taipei today, adding that President Ma Ying-jeou had accepted his resignation. “I apologized to the president as a lot of things could have been done better.” Liu and the entire Cabinet will resign Sept. 10. Ministers traditionally quit in Taiwan with a departing premier and some may be reappointed. Typhoon Morakot was the deadliest storm to hit the island in 50 years and dumped record rainfall on Taiwan, destroying bridges and roads. Ma ordered an investigation into his administration’s efforts to help victims of Morakot to fend off criticism the response to the Aug. 6-9 storms was too slow. A poll showed his support falling to a record low because of the death toll. Most of the victims were in the south, the heartland of the opposition Democratic Progressive Party , which controls local governments in most southern counties. The Cabinet last week approved a four-year NT$120 billion reconstruction budget. Taiwan’s economy contracted 7.54 percent in the second quarter. Support for Ma dropped to 29 percent from 66 percent when he took office in May last year and 52 percent at his one-year anniversary, according to a survey conducted by the United Daily News. About 46 percent of respondents said they didn’t have confidence in his administration’s relief and rebuilding efforts in the aftermath of the storm. To contact the reporter on this story: Janet Ong at jong3@bloomberg.net Tim Culpan in Taipei at tculpan1@bloomberg.net

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Taiwan’s Prime Minister Resigns, Takes Responsibility for Typhoon Response

September 7, 2009

By Janet Ong and Tim Culpan Sept. 7 (Bloomberg) — Taiwan’s Prime Minister Liu Chao- shiuan resigned to take responsibility for the government’s poor handling of a typhoon last month that killed more than 600 people and caused NT$110 billion ($3.3 billion) of damage. “I am the leader and I will bear the responsibility,” Liu said at a press briefing in Taipei today, adding that President Ma Ying-jeou had accepted his resignation. “I apologized to the president as a lot of things could have been done better.” Liu and the entire Cabinet will resign Sept. 10. Ministers traditionally quit in Taiwan with a departing premier and some may be reappointed. Typhoon Morakot was the deadliest storm to hit the island in 50 years and dumped record rainfall on Taiwan, destroying bridges and roads. Ma ordered an investigation into his administration’s efforts to help victims of Morakot to fend off criticism the response to the Aug. 6-9 storms was too slow. A poll showed his support falling to a record low because of the death toll. Most of the victims were in the south, the heartland of the opposition Democratic Progressive Party , which controls local governments in most southern counties. The Cabinet last week approved a four-year NT$120 billion reconstruction budget. Taiwan’s economy contracted 7.54 percent in the second quarter. Support for Ma dropped to 29 percent from 66 percent when he took office in May last year and 52 percent at his one-year anniversary, according to a survey conducted by the United Daily News. About 46 percent of respondents said they didn’t have confidence in his administration’s relief and rebuilding efforts in the aftermath of the storm. To contact the reporter on this story: Janet Ong at jong3@bloomberg.net Tim Culpan in Taipei at tculpan1@bloomberg.net

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U.S. Recovery Leaving Workers Jobless May Stoke Company Profits

September 4, 2009

Sept. 4 (Bloomberg) — Employers kept Americans’ working hours near a record low in August, indicating that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

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U.S. Recovery Leaving Workers Jobless May Stoke Company Profits

September 4, 2009

Sept. 4 (Bloomberg) — Employers kept Americans’ working hours near a record low in August, indicating that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

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U.S. Recovery Leaving Workers Jobless May Stoke Company Profits

September 4, 2009

Sept. 4 (Bloomberg) — Employers kept Americans’ working hours near a record low in August, indicating that economic growth is poised to reward companies with added profits while postponing any recovery in the job market.

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Trichet Says ECB May Not Raise Interest Rates When Exiting Other Measures

September 4, 2009

By Gabi Thesing Sept. 4 (Bloomberg) — European Central Bank President Jean-Claude Trichet said the bank won’t necessarily raise interest rates when the time comes for it to start withdrawing other emergency stimulus measures. “The term ‘exit strategy’ should be understood as the framework and set of principles guiding our approach to unwinding the various non-standard measures,” Trichet said at an event in Frankfurt today. “It does not include considerations about interest policy.” The comments suggest the ECB is prepared to leave its benchmark rate at a record low of 1 percent for an extended period to nurture an economic recovery in the euro region. Trichet also said the ECB would only scale back its emergency lending to banks when credit starts to flow normally through the economy and inflation risks emerge. “Stressing the importance of the exit strategy should not be confused with its implementation,” he said. “Notwithstanding some recent signs of improvement in the economic outlook, it is premature to declare the financial crisis over. From today’s perspective, the need for enhanced credit support remains.” Trichet is trying to ensure that when the ECB starts unwinding some of its non-conventional measures next year, investors don’t interpret that as a signal rate increases are imminent, said Ken Wattret , chief euro-area economist at BNP Paribas SA in London. “The last thing they need right now is an expectation of a rate increase, with a very high risk that the current economic momentum may tail off by next spring,” he said. Recession Over? The economy of the 16-nation euro region probably expanded this quarter, bringing an end to its worst recession since World War II. It contracted just 0.1 percent in the second quarter after Germany and France, the two largest economies in the region, unexpectedly returned to growth. The ECB yesterday raised its economic forecasts for the euro region to predict growth of about 0.2 percent in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago. Still, rising unemployment and the expiry of government stimulus packages may damp economic growth next year. Trichet said yesterday the euro region’s recovery from recession will be “bumpy” and “rather uneven.” To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net

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Trichet Says ECB May Not Raise Interest Rates When Exiting Other Measures

September 4, 2009

By Gabi Thesing Sept. 4 (Bloomberg) — European Central Bank President Jean-Claude Trichet said the bank won’t necessarily raise interest rates when the time comes for it to start withdrawing other emergency stimulus measures. “The term ‘exit strategy’ should be understood as the framework and set of principles guiding our approach to unwinding the various non-standard measures,” Trichet said at an event in Frankfurt today. “It does not include considerations about interest policy.” The comments suggest the ECB is prepared to leave its benchmark rate at a record low of 1 percent for an extended period to nurture an economic recovery in the euro region. Trichet also said the ECB would only scale back its emergency lending to banks when credit starts to flow normally through the economy and inflation risks emerge. “Stressing the importance of the exit strategy should not be confused with its implementation,” he said. “Notwithstanding some recent signs of improvement in the economic outlook, it is premature to declare the financial crisis over. From today’s perspective, the need for enhanced credit support remains.” Trichet is trying to ensure that when the ECB starts unwinding some of its non-conventional measures next year, investors don’t interpret that as a signal rate increases are imminent, said Ken Wattret , chief euro-area economist at BNP Paribas SA in London. “The last thing they need right now is an expectation of a rate increase, with a very high risk that the current economic momentum may tail off by next spring,” he said. Recession Over? The economy of the 16-nation euro region probably expanded this quarter, bringing an end to its worst recession since World War II. It contracted just 0.1 percent in the second quarter after Germany and France, the two largest economies in the region, unexpectedly returned to growth. The ECB yesterday raised its economic forecasts for the euro region to predict growth of about 0.2 percent in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago. Still, rising unemployment and the expiry of government stimulus packages may damp economic growth next year. Trichet said yesterday the euro region’s recovery from recession will be “bumpy” and “rather uneven.” To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net

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Trichet Predicts `Uneven’ Recovery, Signals No Rush to Withdraw Stimulus

September 3, 2009

By Gabi Thesing and Jana Randow Sept. 3 (Bloomberg) — European Central Bank President Jean-Claude Trichet said the euro region’s recovery from recession will be “bumpy” and signaled officials are in no rush to withdraw emergency stimulus measures. While latest data suggest “the significant contraction in economic activity has come to an end,” the recovery “is expected to be rather uneven,” Trichet said at a press conference in Frankfurt today after the ECB kept its benchmark interest rate at a record low of 1 percent. “It isn’t time to exit” policies designed to boost growth, he said. The ECB is wary of nipping the euro-region recovery in the bud by tightening policy too soon as rising unemployment and the expiry of government rescue packages may damp expansion next year. The bank today raised its forecast for economic growth. At the same time, Trichet said the ECB won’t increase the rate it charges banks on 12-month funds at its next tender, which should “promote the extension of credit to the euro-area economy and, therefore, further underpin its recovery.” “The key message from today’s decision is that rates are on hold for an extended period, and that the ECB is in no hurry to remove the monetary stimulus that it has put in place,” said Colin Ellis , an economist at Daiwa Securities SMBC in London. “Trichet sought to play down any prospect of a swift economic recovery.” The euro fell almost a cent after Trichet’s comments to $1.4245. ‘Bumpy Road’ In the U.S., the Federal Reserve signaled in minutes published yesterday that it’s already trying to prepare investors for an end to some of its asset purchases. Trichet will discuss exit strategies and prospects for the global economy when he meets with officials from the Group of 20 nations in London from tomorrow. “Uncertainty is very high,” Trichet said. “It’s a bumpy road we have ahead of us. Prudence and caution are still of the essence.” The ECB today raised its economic forecasts for the 16- nation euro region to predict growth of about 0.2 in 2010 instead of a 0.3 percent contraction. In 2009, the economy will shrink about 4.1 percent, less than the 4.6 percent contraction predicted three months ago. The ECB expects inflation to average 0.4 percent this year and 1.2 percent in 2010, up from 0.3 percent and 1 percent forecast in June. That is still below the bank’s goal of keeping annual price gains just below 2 percent. ‘Subdued’ Inflation Euro-region consumer prices have posted annual declines for three straight months. Trichet said while “inflation rates are projected to return to positive territory again within the coming months,” price developments will “remain subdued” amid “ongoing sluggish demand.” With a global recovery bolstering demand for European exports, economists nevertheless predict the economy will expand this quarter. European economic confidence increased twice as much as economists forecast in August, and the region’s manufacturing and service industries almost ceased contracting. L’Oreal SA, the world’s largest cosmetics maker, said on Aug. 27 that sales improved in July and will keep recuperating gradually in the second half of the year. Voestalpine AG, Austria’s biggest steel company, said on Aug. 28 it’s ending shortened working hours for staff at its Linz plant after demand for flat steel rebounded “significantly.” “The green shoots have to be seen in a relative context,” ECB Executive Board member Juergen Stark told a conference in Frankfurt today. “Still, there are signs that we’re moving past the low point. The free-fall of economic activity seems to be stopped and for 2010 we can expect a gradual recovery.” To contact the reporters on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net ; Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Loans to European Companies, Individuals Expand at Slowest Pace on Record

August 27, 2009

By Jana Randow Aug. 27 (Bloomberg) — Loans to households and companies in Europe grew at the slowest pace on record in July after the worst recession since World War II curbed demand for debt and banks tightened credit standards. Loans to the private sector rose 0.6 percent from a year earlier, the slowest growth since records began in 1991, after increasing an annual 1.5 percent in June, the European Central Bank said today. On the month, loans fell 0.4 percent, the biggest decline ever recorded. M3 money-supply growth, which the ECB uses as a gauge of future inflation, slowed to 3 percent from 3.6 percent. The global recession has made banks more reluctant to lend and eroded company and household demand for credit. The ECB, which kept its benchmark interest rate at a record low of 1 percent this month, is buying covered bonds and flooding banks with cash in an effort to revive lending. The euro-region economy barely contracted in the second quarter as Germany and France unexpectedly emerged from recession. “The decline in new loans is primarily demand-driven and reflects, until recently, terrible economic conditions,” said Michael Schubert , an economist at Commerzbank AG in Frankfurt. “While demand will improve in the coming months, credit supply may worsen further. We won’t see a sustainable recovery in loan issuance before next year.” European banks tightened credit standards for companies and households again in the second quarter, albeit less aggressively than in the first, according to a survey published by the ECB on July 29. Policy makers have urged banks to clean up their balance sheets and step up lending after the collapse of Lehman Brothers Holdings Inc. last year exacerbated the global slump. In the three months through July, annual M3 growth slowed to 3.4 percent from 4.1 percent in the three months through June, the ECB said. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money- market holdings. Demand for the most liquid assets rose. The annual rate of M1 money-supply growth increased to 12.2 percent in July from 9.4 percent in June. To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Wholesale Prices Fell In July, Showed Biggest Drop In 60 Years Over Last Year

August 18, 2009

WASHINGTON — Wholesale prices dropped sharply in July, and over the past 12 months fell by the largest amount in more than six decades of record-keeping. The Labor Department said Tuesday that wholesale prices dropped 0.9 percent last month. That’s triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 percent. Core inflation, which excludes energy and food, also was well-behaved. It dropped 0.1 percent in July, better than 0.1 percent gain economists expected. With inflation under control, some may worry about a dangerous bout of falling prices that can also drive wages down, but most economists said deflation remains a remote threat. The last period of deflation in the U.S. occurred in the 1930s during the Great Depression. “Deflation-worriers will find some cause for concern in the general picture, though the broad pattern remains one of gently oscillating monthly price changes, rather than sustained tip into decline,” Pierre Ellis, senior economist at Decision Economics, wrote in a note to clients. Meanwhile, housing starts and applications for future projects both dipped unexpectedly last month, a sign that the building industry’s recovery from the prolonged housing slump is likely to be bumpy and gradual. The Commerce Department said new construction fell 1 percent in July to a seasonally adjusted annual rate of 581,000 units. Economists expected a pace of 600,000 units. Applications for building permits, an indicator of future activity, fell 1.8 percent to an annual rate of 560,000 units, also below economists’ estimates of 580,000 units. The declines in the Producer Price Index showed wholesale inflation pressures were even more subdued than prices at the consumer level. The government last week reported that the Consumer Price Index was unchanged in July and over the past 12 months fell 2.1 percent, the biggest decline in nearly 60 years. For July, wholesale energy prices fell 2.4 percent after having surged 6.6 percent in June. Gasoline dropped 10.2 percent and home heating oil plunged 11.9 percent. Food prices at the wholesale level fell 1.5 percent last month, reversing a 1.1 percent rise in June. A big drop in vegetable prices led the overall decline, but beef and egg prices also fell. The 6.8 percent decline in wholesale prices over the past year was the biggest since the government began keeping such records in 1947. It surpassed the 5.2 percent drop in the period ending in August 1949. The 0.1 percent drop in core inflation left those prices rising 2.6 percent over the past 12 months. In July, prices for passenger cars fell 1.7 percent, the biggest decline in nearly three years. On Wall Street, stocks rose a bit in morning trading following gains in overseas markets driven by upbeat economic news from Germany, Europe’s largest economy. The Dow Jones industrial average added about 60 points and broader indices also rose. The 1.8 percent gain in wholesale prices in June was the biggest one-month increase since November 2007. But economists said it represented a temporary burst and was not the beginning of a dangerous bout of spiraling prices. Economists believe energy prices, which had propelled much of the gain, will level out and that the weak economy will keep the lid on overall inflation. Crude oil prices topped $72 a barrel in June but were trading below $67 per barrel Tuesday. After hitting a record at $147 per barrel in July 2008, oil prices slid for most of the rest of 2008, a decline that trimmed earnings at oil companies. Many major oil companies, including Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell and French petroleum giant Total SA, recently reported second-quarter profit declines of more than 50 percent. The Federal Reserve believes inflation will remain subdued for some time as the country struggles to emerge from the worst recession since World War II. The Fed last week they planned to keep a key bank lending rate at a record low near zero for an “extended period,” despite seeing signs that the economic downturn was “leveling out.”

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Israeli Economy Returns to Growth, Expanding 1% in Quarter, Led by Exports

August 16, 2009

By Jonathan Ferziger Aug. 16 (Bloomberg) — Israel’s economy returned to growth in the three months through June, after contracting for two quarters, as exports and consumer spending increased. The economy expanded an annualized 1 percent, according to preliminary data, after shrinking a revised 3.2 percent in the previous quarter, the Jerusalem-based Central Bureau of Statistics reported on its Web site today. The bureau had earlier reported a 3.7 percent contraction in the first three months of the year. The growth is “one more encouraging sign among a series of positive signs that we’ve received in recent weeks that show there is stability in the economy,” Finance Minister Yuval Steinitz said. “At the same time, it’s too early to declare an end to the crisis and emergence from the recession.” Bank of Israel Governor Stanley Fischer has already begun to reverse monetary easing, announcing on July 27 that he would halt bond purchases and on Aug. 10 that he would end set purchases of foreign currency. Fischer had pushed the key interest rate to a record low of 0.5 percent and purchased foreign currency and government bonds to bolster the economy to curb the impact of the global recession. “The recovery seems to be coming faster than we expected,” Jonathan Katz , an economist for HSBC Holdings Plc in Tel Aviv, said. “People are spending again.” Interest Rates Fischer may begin raising interest rates at the bank’s Aug. 24 meeting on monetary policy, Katz said. “It’s time to tighten the reins again and keep inflation under control,” Katz said. Exports, which account for about 45 percent of GDP, increased an annualized 5.8 percent in the second quarter, the bureau said. Consumer spending rose 4.4 percent while GDP in the business sector grew 0.7 percent, the statistics bureau said. The quarterly figures were adjusted to reflect what the rate would be for a full year. Before today’s figures were released, Fischer was expected to leave the benchmark interest rate unchanged next week, according to four of six economists surveyed by Bloomberg. The other two forecast an increase to 0.75 percent. The Bank of Israel had predicted that gross domestic product will shrink 1.5 percent this year, the biggest annual drop in Israel’s 61-year history. Prime Minister Benjamin Netanyahu, who entered office on March 31, pushed a two-year budget through parliament last month that includes spending to spur growth and help companies hurt by the credit crunch. Israel’s TA-25 Index , a benchmark of Tel Aviv’s biggest stocks, has surged by some 46 percent in 2009. To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net

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India Plans to Cut Corporate Rates, Raise Collections in Tax-Law Overhaul

August 12, 2009

By Kartik Goyal Aug. 12 (Bloomberg) — India’s government proposed reducing corporate tax rates to a record low while broadening the tax base to fund an expanding budget deficit in the biggest change to tax laws in almost five decades. Finance Minister Pranab Mukherjee proposes to reduce tax rates for companies including Reliance Industries Ltd., the nation’s biggest by market value, to 25 percent from about 30 percent, according to a statement in New Delhi. Taxes on equities trading in Asia’s second-biggest emerging market may be abolished. Mukherjee would pay for that by reining in widespread tax evasion that leaves the government reliant on only 27 million people who pay taxes out of a population of 1.2 billion, the world’s second-largest. Better compliance would also raise more revenue to help plug a budget deficit that is expected to widen to a 16-year high of 6.8 percent of gross domestic product in the current year. “The changes will definitely help bring in more people under the tax net,” said N.R. Bhanumurthy , an economist at the Institute of Economic Growth in New Delhi. “Higher revenue is the most important need of the hour and may help the government fight the challenges ahead.” The government plans to spend 10.2 trillion rupees ($211 billion) in the current year. The finance minister yesterday raised the direct tax collection target to 4 trillion rupees for the year to March 31, from an earlier forecast of 3.7 trillion rupees, saying the government needs more money to fight the “impact on finances due to unanticipated drought.” Lowest Rate Ever The proposed 25 percent tax rate for companies would be the lowest ever for India, Vikas Vasal, executive director of KPMG India Pvt., said by telephone. That would bring India’s tax rate in line with that of China, the largest emerging economy, and would compare with 35 percent in Pakistan and the Philippines, and 30 percent in Thailand, according to 2008 data compiled by KPMG LLP. Curbing tax evasion would also allow the government to lower individual tax bills. Incomes of up to 1 million rupees would be taxed at the minimum rate of 10 percent under the proposed rules. Now, the minimum rate applies only to incomes of 300,000 rupees and below. Tax evaders may face prison terms up to seven years and fines to ensure compliance. “The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base,” Mukherjee said today. “The attempt is to simplify the language to enable better comprehension and remove ambiguity to foster voluntary compliance.” The proposed changes, which need to be approved by parliament, may become effective from 2011, Revenue Secretary P.V. Bhide told reporters in New Delhi. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net .

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India Plans to Cut Corporate Rates, Raise Collections in Tax-Law Overhaul

August 12, 2009

By Kartik Goyal Aug. 12 (Bloomberg) — India’s government proposed reducing corporate tax rates to a record low while broadening the tax base to fund an expanding budget deficit in the biggest change to tax laws in almost five decades. Finance Minister Pranab Mukherjee proposes to reduce tax rates for companies including Reliance Industries Ltd., the nation’s biggest by market value, to 25 percent from about 30 percent, according to a statement in New Delhi. Taxes on equities trading in Asia’s second-biggest emerging market may be abolished. Mukherjee would pay for that by reining in widespread tax evasion that leaves the government reliant on only 27 million people who pay taxes out of a population of 1.2 billion, the world’s second-largest. Better compliance would also raise more revenue to help plug a budget deficit that is expected to widen to a 16-year high of 6.8 percent of gross domestic product in the current year. “The changes will definitely help bring in more people under the tax net,” said N.R. Bhanumurthy , an economist at the Institute of Economic Growth in New Delhi. “Higher revenue is the most important need of the hour and may help the government fight the challenges ahead.” The government plans to spend 10.2 trillion rupees ($211 billion) in the current year. The finance minister yesterday raised the direct tax collection target to 4 trillion rupees for the year to March 31, from an earlier forecast of 3.7 trillion rupees, saying the government needs more money to fight the “impact on finances due to unanticipated drought.” Lowest Rate Ever The proposed 25 percent tax rate for companies would be the lowest ever for India, Vikas Vasal, executive director of KPMG India Pvt., said by telephone. That would bring India’s tax rate in line with that of China, the largest emerging economy, and would compare with 35 percent in Pakistan and the Philippines, and 30 percent in Thailand, according to 2008 data compiled by KPMG LLP. Curbing tax evasion would also allow the government to lower individual tax bills. Incomes of up to 1 million rupees would be taxed at the minimum rate of 10 percent under the proposed rules. Now, the minimum rate applies only to incomes of 300,000 rupees and below. Tax evaders may face prison terms up to seven years and fines to ensure compliance. “The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base,” Mukherjee said today. “The attempt is to simplify the language to enable better comprehension and remove ambiguity to foster voluntary compliance.” The proposed changes, which need to be approved by parliament, may become effective from 2011, Revenue Secretary P.V. Bhide told reporters in New Delhi. To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net .

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Trichet Says Rising Joblessness May Damp Recovery in 16-Nation Euro Region

August 6, 2009

By Francine Lacqua and Jana Randow Aug. 6 (Bloomberg) — European Central Bank President Jean- Claude Trichet said higher unemployment might damp an economic recovery in the 16-nation euro region. “We will have to accept that unemployment will have to augment, maybe significantly, and that will have a bearing on the evolution of growth,” Trichet said in an interview with Bloomberg Television today after the ECB left interest rates unchanged at a record low of 1 percent. “We have to remain ourselves very cautious and also very prudent.” The euro region’s jobless rate rose to a decade-high of 9.4 percent in June as companies shed jobs amid the worst recession since World War II. That comes after European economic confidence rose to an eight-month high in July and a contraction across the region’s manufacturing and service industries slows. While the ECB currently predicts the economy will contract about 4.6 percent this year and 0.3 percent in 2010, Trichet didn’t exclude the bank may raise its forecasts next month. Some economists expect the economy to return to growth this quarter. “I exclude nothing,” Trichet said when asked about the chances of growth in Europe this year. “We have to take into account all the signs that the contraction is slowing down. But at the same time we have to remain prudent.” Trichet said interest rates are “currently appropriate” and refused to say whether they have reached their lowest level. “There is no news there, we did not discuss it” today, he said. To contact the reporters on this story: Francine Lacqua in Frankfurt at flacqua@bloomberg.net ; Jana Randow in Frankfurt at jrandow@bloomberg.net .

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Worker Compensation Grows by Lowest Amount On Record

July 31, 2009

(AP): Employment compensation for U.S. workers has grown over the past 12 months by the lowest amount on record, reflecting the severe recession that has gripped the country. The Labor Department said Friday that employment costs rose by 1.8 percent for the 12 months ending in June, the smallest annual gain on records that go back to 1982. The department said that for the April-June quarter, its Employment Cost Index rose by just 0.4 percent, just slightly above the 0.3 percent rise in the first quarter, which had been the smallest quarterly gain on record.

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Worker Compensation Grows by Lowest Amount On Record

July 31, 2009

(AP): Employment compensation for U.S. workers has grown over the past 12 months by the lowest amount on record, reflecting the severe recession that has gripped the country. The Labor Department said Friday that employment costs rose by 1.8 percent for the 12 months ending in June, the smallest annual gain on records that go back to 1982.

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Japan’s Jobless Rate Rises to Six-Year High, Prices Drop at Record Pace

July 30, 2009

By Toru Fujioka and Mayumi Otsuma July 31 (Bloomberg) — Japan’s unemployment rate rose to a six-year high in June, undermining the outlook for consumer spending just as exports start to improve. The jobless rate advanced to 5.4 percent from 5.2 percent in May, the statistics bureau said today in Tokyo, higher than the 5.3 percent median forecast of economists surveyed. Consumer prices excluding fresh food, the central bank’s preferred gauge, fell a record 1.7 percent in June, a separate report showed

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Stocks in U.S. Retreat on Consumer Confidence, Earnings Reports; Oil Drops

July 28, 2009

By Lynn Thomasson July 28 (Bloomberg) — U.S. stocks fell and the Standard & Poor’s 500 Index retreated from an eight-month high as consumer confidence trailed projections and companies from Office Depot Inc. to Coach Inc.

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Confidence Among U.S. Consumers Falls More Than Estimated Amid Job Losses

July 28, 2009

By Shobhana Chandra July 28 (Bloomberg) — Confidence among U.S. consumers fell more than forecast in July, reinforcing concern that mounting joblessness will hurt households.

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U.S. Consumer Confidence Falls More Than Forecast Amid Rising Joblessness

July 28, 2009

By Shobhana Chandra July 28 (Bloomberg) — Confidence among U.S. consumers fell more than forecast in July, reinforcing concern that mounting joblessness will hurt households. The Conference Board’s confidence index dropped to 46.6, a second consecutive decline, following a reading of 49.3 in June, a report from the New York-based group showed today. The figure reached a record low of 25.3 in February.

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Bank of Israel May Hold Interest Rate at Record Low as Economy Contracts

July 25, 2009

By Alisa Odenheimer July 26 (Bloomberg) — The Bank of Israel will probably hold its benchmark interest rate at a record low tomorrow as the economy contracts and unemployment climbs, a survey showed. The rate will remain at 0.5 percent for a fifth month, according to eight of the nine economists surveyed by Bloomberg. One economist predicted it would rise to 0.75 percent. The Jerusalem-based central bank will announce its decision at 5:30 p.m

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U.S. Mortgage Rates Rise to 5.2% in First Gain in Four Weeks, Freddie Says

July 23, 2009

By Brian Louis July 23 (Bloomberg) — Mortgage rates in the U.S.

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U.S. Mortgage Rates Rise to 5.2% in First Gain in Four Weeks, Freddie Says

July 23, 2009

By Brian Louis July 23 (Bloomberg) — Mortgage rates in the U.S. rose for the first time in four weeks, a sign the federal government’s effort to lower borrowing costs is losing momentum. The average 30-year rate increased to 5.2 percent from 5.14 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement.

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Wells Fargo Says Bad Mortgage Loans Increased Last Quarter; Shares Decline

July 22, 2009

By Ari Levy July 22 (Bloomberg) — Wells Fargo & Co. , the biggest U.S.

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