Lonely Analyst Warns of 2015 Bank Crisis Amid `Upbeat' Davos

As politicians, executives and financiers networked at parties and panels last week in Davos, Switzerland, Barrie Wilkinson was in a nearby hotel, warning that a 2015 financial catastrophe may be looming. 

“The fundamentals haven’t been addressed at all,” Wilkinson, a London-based partner at consulting firm Oliver Wyman, said in an interview at the Hotel Morosani Schweizerhof. “The things that caused the previous crisis -- loose monetary policy and trade imbalances -- they’re actually bigger now than they were then.” 

In the caste system of the World Economic Forum’s annual event in the Swiss ski resort, Wilkinson was at a bottom rung, with an identification badge that denied him access to most sessions and soirees. His message clashed with the optimistic tone of many at the center of the meeting, who were eager to emphasize the progress made after two years of hand-wringing in the wake of the 2008 financial crisis. 

“The systemic reforms that have been accomplished are significant,” Canadian Finance Minister Jim Flaherty said as he left a private meeting with finance company chief executive officers on Jan. 29. “We need to communicate better that financial institutions globally are operating on a very different basis today, that they are operating with higher capital and are better regulated.” 

‘An Avoidable History’ 

Wilkinson’s report, titled “The Financial Crisis of 2015: An Avoidable History,” isn’t so sanguine. The 24-page study describes how banks, unwilling to accept the lower returns on equity, or ROEs, that result from higher capital requirements, may fuel a new bubble by chasing high returns in commodities or emerging markets. Regulators, by focusing their restraints on banks, may drive risk-taking into unregulated funds that also pose danger to the system. 

The report urges bank executives and shareholders to accept that returns of the past are unsustainable and that they need to do a better job of monitoring risks, especially in areas that produce unusually high profits.

“Banks need to be less leveraged,” said Wilkinson, 38, who has an engineering degree from the University of Cambridge’s Trinity College and has worked since 1993 at Oliver Wyman, where he focuses on risk management. “The true test for me of whether they’ve deleveraged is if the industrywide ROEs come down. If they don’t, I’m very suspicious that there are hidden risks in the system.”

UBS Advice 

Oliver Wyman, a subsidiary of New York-based Marsh & McLennan Cos., played a role in the last financial crisis. The firm’s strategy consultants advised UBS AG’s fixed-income unit, which was lagging other divisions in early 2007, to invest in U.S. mortgage securities and collateralized debt obligations to boost returns, according to a review submitted by UBS to Switzerland’s federal banking commission in April 2008. Those investments helped fuel almost $58 billion in losses and writedowns at the Zurich-based bank. 

After the 2008 crisis, governments and central banks spent unprecedented amounts of taxpayer money to bail out the financial system. Part of Wilkinson’s concern is that if the system is allowed to return to its old boom-bust habits, debt- strapped governments may not be able to handle the fallout of another crisis, either financially or politically. 

“If there is another banking crisis, the Western governments are just in no shape to stabilize the system, they’ve expended their entire arsenal on the last round of fiscal injections,” Wilkinson said.

‘Incipient Sovereign Crisis’ 

The same theme pervaded a World Economic Forum dinner on Jan. 28 that discussed what would happen if a big bank were allowed to fail. The group, which included Nomura Holdings Inc. Chief Operating Officer Takumi Shibata, 58, former Italian Finance Minister Domenico Siniscalco, 56, and ING Groep NV CEO Jan Hommen, concluded that governments have no choice but to come to the rescue of any failing multinational megabank because there is no system to handle a controlled failure. 

If a government was unable to save such a bank, the contagion and damage could be severe.“I came into this dinner somewhat pessimistic and worried about the assignment we are here to discuss,” Simon Johnson, a professor at the Massachusetts Institute of Technology’s Sloan School of Management and a Bloomberg News columnist, said halfway through the evening. “I am now terrified. There is an incipient sovereign crisis here mixed in with the bank crisis.” 

Dimon, Dell 

Financiers at Davos this year weren’t talking much about future returns on equity or potential bubbles. Instead they were holding parties and meeting clients. JPMorgan Chase & Co. CEO Jamie Dimon, 54, hosted guests including Bank of Canada Governor Mark Carney and Dell Inc. founder Michael Dell, 45, at a reception one night. He was out late the next night with hedge- fund manager Louis Bacon, 54, and other guests at a party hosted by Google Inc. 

Siniscalco, who now leads Morgan Stanley in Italy, said he had about 35 meetings in Davos this year compared with 15 last year. The co-head of investment banking at one firm was overheard telling someone on his mobile phone that he’d lined up five mandates. 

“In Davos, there’s a lot of optimism here, and I’m quite surprised by it, especially from corporate CEOs,” said Tarun Jotwani, CEO of Europe, the Middle East and Africa and global head of fixed income at Nomura. “It is against a backdrop of potentially the biggest macroeconomic public-finance mismatches that I’ve ever seen in my career.” 

Pushing Risk-Taking 

When bankers weren’t trying to win business, they were worrying about governments’ fiscal policy in the U.S. and Western Europe or reiterating the role that finance plays in economic growth. And they echoed one element of Wilkinson’s report -- the part that said a focus on bank rules could push risk-taking into hedge funds or other types of financial companies that don’t fall under the regulations. 

While German Chancellor Angela Merkel said on Jan. 28 that too little had been done to prevent another financial crisis, politicians focused mostly on defending their efforts to restore growth, curb inflation and deal with the debts of European countries such as Greece and Ireland. As French Finance Minister Christine Lagarde told a panel on Jan. 29, “the euro zone has turned the corner” and “we learned from our mistakes and we learned from the crisis.” 

Closed-Door Meeting 

U.S. Treasury Secretary Timothy F. Geithner, Bundesbank President Axel Weber and Spain’s finance minister, Elena Salgado, also spoke to a private gathering of some of the world’s top investors, including hedge-fund and private equity fund managers, according to two people who attended the meeting. The officials sought to assure the money managers that their policies would lead to growth and prevent a crisis in Europe. 

When bank CEOs including Bank of America Corp.’s Brian Moynihan, Deutsche Bank AG’s Josef Ackermann and Barclays Plc’s Robert Diamond held a closed-door meeting with politicians and central bankers on Jan. 29, the tone was conciliatory. 

The main topics were the need to improve international coordination and to better oversee the non-bank parts of the financial system, said Howard Davies, chairman of the London School of Economics and a former chairman of the U.K.’s Financial Services Authority. 

“There was a very positive mood about what had been done so far,” said Davies, who is also a board member of New York- based Morgan Stanley and London-based insurance company Prudential Plc. “It was quite an upbeat session.” 

Source: Bloomberg By Christine Harper 

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British Pound Faces Contradictory 2011

The last few years have been volatile for the British Pound. In 2007, it touched a 26-year high against the US Dollar, before falling to a 24-year low a little more than one year later. During the throes of the credit crisis, analysts predicted that it would drop all the way to parity. Alas, it has since managed to claw back a substantial portion of its losses, and finished 2010 close to where it started.

           

At the moment, however, there are two contradictory forces tugging at the Pound, which could send up upwards against the Euro but lower against the US Dollar. The first is the sovereign debt crisis in the EU, which flared up dramatically in 2010 and currently threatens to crippled the Euro. I will offer more commentary on this issue in a later post; for now, I just want to point out its role in supporting the Pound. While the Dollar is the Euro’s chief rival, many traders have turned to the Pound (and the Swiss Franc) because of their regional proximity. “As long as the euro-zone debt crisis is in the focus of the market, it will be the main driver of euro-pound,” summarized one strategist.

The second force (or set of forces) is propelling the Pound in the opposite direction. Basically, the UK economy remains depressed. Thanks to an unexpected contraction in the fourth quarter, GDP growth in 2010 was an exceptionally modest 1.7%. This was hardly enough to compensate for the average annual growth of .1%/year from 2006 to 2009, and send the Pound tumbling. Forecasts for 2011 and 2012 have since been revised downward to about 2%.

In order to spur Britain’s export sector, the Bank of England has deliberately acted to hold down the Pound, which it has managed to achieve through a combination of quantitative easing and low interest rates. “For a long time that’s what we were targeting, and we managed to get it down by about 25 percent — the exchange rate, that’s had a huge benefit to the U.K. economy,” a former member of the monetary policy committee recently admitted.

       
An unintended byproduct of this policy has been price inflation. At 3.75%, the inflation rate is among the highest in the industrialized world, and certainly the highest among G4 currencies. At the very least, the Bank of England will have to suspend any aspirations to match the Fed in printing more currency and expanding its QE program. It will probably also have no choice but to raise interest rates, which it might otherwise not have done until the economy is on more solid footing. The markets are currently projecting an initial rate hike of 25 basis points in the third quarter, and for the benchmark rate to exceed 1.5% by the end of the year, compared to .5% currently.

It’s difficult to say how the currency markets will make sense of this. Given that real interest rates will remain negative (due to inflation), it seems unlikely that any yield-seeking investors will suddenly start targeting the British Pound. In addition, given that the risk of ‘stagflation’ in the UK is now real and that the government is set to assume a record amount of new debt over the next few years, risk-averse investors will probably stay away. According to the latest Commitment of Traders report, speculators are already starting to establish bearish positions against the US Dollar.

While the Pound looks vulnerable, the big unknown is ultimately the EU fiscal crisis. If one of the peripheral members leaves the Euro, as some commentators predict will finally happen, then all bets (for the Pound, etc.) are off.

Source: ForexBlog by Adam Kritzer

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U.S. Jobless Claims Rose Last Week More than Forecast

More Americans than forecast filed first-time claims for unemployment insurance payments last week, indicating it will take time for the labor market to mend. 

Applications for jobless benefits increased by 51,000 to 454,000 in the week ended Jan. 22, Labor Department figures showed today. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls rose, while those collecting extended payments fell. 

A Labor Department official said snow in four southern states in previous weeks created a backlog of claims that were processed last week. While the economy has improved, it hasn’t been enough to reduce an unemployment rate that Federal Reserve policy makers said yesterday is too high and requires pressing ahead with a $600 billion stimulus plan. 

“If claims drift higher, we’re just going to have to wait and see, tread water,” Julia Coronado, chief economist for North America at BNP Paribas in New York, said. “We’re creating enough jobs to keep the unemployment rate roughly steady and at a pace to keep the economy on track, but it’s not necessarily a picture of rapid improvement.” 

Estimates in the Bloomberg News survey of 52 economists ranged from 375,000 to 428,000, after the Labor Department initially reported claims fell to 404,000 the prior week. 

Futures on the Standard & Poor’s 500 Index expiring in March fell 0.2 percent to 1,291.70 at 8:47 a.m. in New York. The yield on the 10-year Treasury note, which moves inversely to price, rose to 3.44 percent from 3.42 percent late yesterday. 

Winter Effects 

The Labor Department official said winter weather in Alabama, Georgia, North Carolina and South Carolina in previous weeks kept people from filing claims. Those unemployed Americans ended up filing last week, boosting the claims number. 

“In addition to seasonal volatility, we have this extra effect in the numbers,” the Labor Department official said as the figures were released. 

The four-week moving average, a less-volatile measure, rose to 428,750 from 413,000. The number of people continuing to collect jobless benefits increased by 94,000 in the week ended Jan. 15 to 3.99 million. Economists forecast the number would increase to 3.87 million. 

The continuing claims figure does not include the number of workers receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 98,000 to 4.62 million in the week ended Jan. 8. 

President Barack Obama in December signed into law an $858 billion bill extending for two years tax cuts for all income levels. The measure also continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes for workers by two percentage points this year. 

Democrats, Republicans 

“These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private- sector jobs created last year,” Obama said this week during the State of the Union address. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.2 percent in the week ended Jan. 15, today’s report showed. Fifty states and territories reported a decrease in claims, while three had an increase. These data are reported with a one-week lag. 

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates. 

Economic expansion in the U.S. is “continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions,” the Federal Open Market Committee said yesterday in its statement after a two-day meeting in Washington. 

Unemployment is too high to be consistent in the long run with policy makers’ congressional mandate of full employment, the Fed said, repeating that progress toward its objectives has been “disappointingly slow.” 

The labor market gradually improved at the end of last year, with unemployment falling to 9.4 percent in December from 9.8 percent a month earlier, according to Labor Department figures released Jan. 7. The country added 103,000 jobs in December, fewer than economists forecast in a Bloomberg survey. 

Company Workforce 

Some companies have been shifting the composition of their workforce to meet consumer demand, which probably grew 4 percent in the final three months of last year, according to the median estimate of economists surveyed by Bloomberg before the Commerce Department’s first estimate of fourth-quarter growth tomorrow. 

Lowe’s Cos., the second-biggest U.S. home-improvement retailer, said this week it plans to eliminate 1,700 middle- management jobs in stores as profit growth trails that of larger Home Depot Inc. At the same time, Mooresville, North Carolina- based Lowe’s plans to add 8,000 to 10,000 weekend sales positions to improve staffing at the chain’s busiest time of the week. 

General Motors Co., the largest U.S. automaker, will add a third shift and about 750 jobs to its assembly plant in Flint, Michigan, to meet rising demand for pickups, according to a Jan. 24 statement. The hiring will start in the second quarter, and the additional shift will begin in the third quarter, Detroit- based GM said. 

“Adding a third shift is a response to customer demand for heavy-duty pickups, which most people use to tow, haul and plow,” Mark Reuss, president of GM North America, said in the statement. “Equally importantly, it brings jobs and a needed economic boost to the Flint area.” 

Source: Bloomber By Alex Kowalski 

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Economy Probably Sped Up as U.S. Consumer Spending Rose Most in Four Years

The economy in the U.S. probably grew at a faster pace in the fourth quarter, driven by the biggest gain in consumer spending in four years, economists projected a report this week will show.

Gross domestic product rose at a 3.5 percent annual pace, up from a 2.6 percent rate in the previous three months, according to the median estimate of 67 economists surveyed by Bloomberg News before a Jan. 28 Commerce Department report. Other data may show business investment remained a pillar of the economic rebound, while home prices decreased. Ford Motor Co. and Apple Inc. are among companies benefiting from the pickup in household spending that is forecast to extend into 2011 as tax cuts put more money in Americans’ pockets. Federal Reserve policy makers, when they meet this week, may say the improvement in growth isn’t enough to derail a plan to pump more money into financial markets.

“We’ll see a very solid quarter from the consumer,” said Josh Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “Companies have a lot of cash and they are seeing final demand picking up, so we look forward to another solid year in capital spending.”

The GDP estimate is the first of three for the quarter, with the other releases scheduled in February and March when more information becomes available. Consumer spending, which accounts for about 70 percent of the economy, increased at a 4 percent annual pace, the best showing since the last quarter of 2006, according to the survey median.

Holiday Sales

U.S. retailers’ 2010 holiday sales jumped 5.5 percent for the best performance in five years as shoppers snapped up clothing and jewelry at Macy’s Inc., Tiffany & Co. and other stores, said MasterCard Advisors’ SpendingPulse last month.

Apple posted record quarterly sales as the company sold 7.33 million iPad tablet computers in the first holiday season for the device, the company said last week.

As spending picks up, Ford is among companies planning to increase payrolls this year, pointing to gains in employment that may further accelerate the recovery.

The Dearborn, Michigan-based automaker plans to hire more than 7,000 workers in the next two years, including engineers with expertise in battery-powered cars, Mark Truby, a company spokesman, said in an interview in Detroit on Jan. 10.

President Barack Obama’s extension last month of Bush-era tax cuts, renewal of emergency jobless benefits for the long- term unemployed and cuts to payroll taxes of 2 percentage points prompted economists such as Richard Berner at Morgan Stanley to raise forecasts for this quarter and for 2011.

Investment, Exports

The measures also allowed firms to depreciate 100 percent of capital expenditures over the course of 2011. Together with rising exports to China and other markets, that will help sustain equipment demand, which has fueled the factory-led recovery from the recession that ended in June 2009.

Orders for durable goods rose 1.5 percent in December after a 0.3 percent decline the prior month, economists forecast the Commerce Department will report Jan. 27.

The U.S. administration highlighted export deals with China worth $45 billion during talks with visiting President Hu Jintao last week, including purchases of General Electric Co. locomotives. Other agreements were announced with Caterpillar Inc., Cummins Inc., Westinghouse Electric Corp., Honeywell International Inc. and Alcoa Inc.

“We want to sell you all kinds of stuff,” Obama said to Hu during a joint news conference Jan. 20 at the White House. “We want to sell you planes, we want to sell you cars, we want to sell you software.”

Industrial Stocks

Shares of machinery makers have outpaced the broader market since the Fed announced another round of unconventional easing on Nov. 3. The Standard & Poor’s Supercomposite Machinery Index has climbed 14 percent compared with a 7.5 percent increase for the S&P 500 Index.

Fed policy makers, in two days of meetings beginning Jan. 25, are likely to say the economy has picked up, while reiterating a plan to buy $600 billion in assets through June to spur growth further and cut unemployment.

Housing continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through November fell 1.7 percent, the biggest decline since December 2009, according to the Bloomberg survey. The S&P/Case-Shiller index is due Jan. 25.

Sales of new homes, due Jan. 26 from the Commerce Department, rose 3.5 percent to a 300,000 annual pace in December, according to economists surveyed by Bloomberg News. That’s still close to the record low of 274,000 reached in August.

Home Sales

Pending home sales, or contract signings for existing homes, rose 0.9 percent in December, after a 3.5 percent gain the prior month, economists forecast the National Association of Realtors will report on Jan. 27.

Rising fuel prices, falling home values, and higher stock values are providing cross currents for measures of consumer attitudes.

The Thomson Reuters/University of Michigan’s final sentiment index for January, due Jan. 28, is projected to fall to 73 from 74.5 at the end of December, according to economists surveyed. The New York-based Conference Board on Jan. 25 may show its confidence gauge climbed to 54.2 from 52.5 last month.

Source: Bloomber By Bob Willis

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Commodity Currencies Drop on Speculation China Will Cool Growth; Yen Gains

The Australian and New Zealand dollars declined against most of their major peers as speculation that China will take more measures to cool growth dented demand for higher-yielding currencies. The U.S. currency and the yen strengthened as equity losses boosted demand for a refuge. Data showed China’s economic growth accelerated, adding to pressure for monetary tightening. The euro gained against the pound and the yen as statistics showed German producer prices climbed at the fastest pace in seven months. The dollar pared gains against the common currency before data that economists predict will show U.S. continuing jobless claims increased and home-sales growth slowed. 

“Today’s move away from risks appears to be linked with fears of further Chinese policy tightening,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The risk-off environment threatens to pressure the commodities currencies.” Australia’s currency fell 0.5 percent to 99.57 U.S. cents as of 9:45 a.m. in London, after strengthening 1.2 percent over the previous three days. It depreciated against 13 of its 16 major counterparts as the MSCI Asia Pacific Index of shares fell 1.5 percent, ending a two-day gain. 

Europe’s Stoxx 600 index fell 0.3 percent today, following declines by Asian and U.S. equities. Chinese Growth The U.S. dollar rose 0.2 percent to 82.18 yen and was little changed against the euro at $1.3468. The euro was at 110.69 yen from 110.49 yen. The yen climbed 0.3 percent to 81.83 per Australian dollar.

China’s economic growth quickened to an annual rate of 9.8 percent in the fourth quarter, up from 9.6 percent in the prior three months, the statistics bureau said in Beijing. Consumer prices rose 4.6 percent in December from a year earlier, compared with 5.1 percent the previous month. 

The People’s Bank of China will increase the key one-year lending rate to 6.81 percent from 5.81 percent this year and let the yuan strengthen about 6 percent against the dollar, Nomura Holdings Inc. forecast this week. New Zealand’s dollar retreated from near the strongest this year. The government said consumer prices rose 2.3 percent in the fourth quarter from the previous three months, when they advanced 1.1 percent. Economists surveyed by Bloomberg forecast 2.4 percent growth. 

“It looks like a risk-off day and the U.S. dollar should rally across the board,” said Tim Kelleher, vice-president of institutional banking and markets in Auckland at Commonwealth Bank of Australia, the nation’s largest lender. “There’s no change in rate expectations in New Zealand, and the currency is drifting off.” New Zealand’s dollar slid to 76.41 U.S. cents from 76.88 cents yesterday, when it climbed 77.87 cents, the highest level since Dec. 31. 

Source:Bloomberg By Anchalee Worrachate 

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Aud/Usd: Coming Weakness (Elliott Wave)

Aud/Usd reversed very nicely from the 1.0070 resistance region, exactly after the market tested 61.8% Fibonacci retracement area. Upward bounce from 0.9802 was clearly made in three wave formation, and current sharp 140 pips of decline suggests that top of a black wave 2/B is in. 

As such, traders should now focus on more bears ahead, towards and below 0.9800 region, since we are expecting an impulsive decline down into a wave 3/C leg. Once 0.9802 region is out, losses may easily accelerate down to 0.9640 region, where a distance of wave 3/C equals to wave 1/A .

Wave count and expectations remains valid as long as the market trades below 1.0070.

The main driver of Aud/Usd weakness from 1.0070 region are lower commodity prices and sell-off seen yesterday on the US stock market. On the chart below you can see a very tight correlation between the S&P futures and Aud/Usd, since the market reversed from the recent highs.

After the yesterday’s weakness on the stock market, further decline in the near-term will likely follow, a move that should drive the Aud/Usd even lower!

 Source: forex crunch by Gregor Horvat

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Australia's Dollar Trades Near Two-Week High on Chinese Growth Prospects

The Australian dollar rose for a third day to a two-week high on speculation a report tomorrow will show China’s economy expanded more than 9 percent, indicating steps to curb inflation aren’t derailing growth.

New Zealand’s currency reached its strongest in two weeks after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole milk powder prices rose to a seven-month high. The two South Pacific currencies were also boosted as Asian stocks advanced and commodities rose yesterday, increasing demand for higher-yielding assets.

The China “number should give the markets confidence,” said Jim Vrondas, a manager at online foreign-exchange dealer OzForex Ltd. in Sydney. “The Chinese data should be relatively positive for the Aussie in the short term.” Australia’s currency rose to $1.0033 as of 1:48 p.m. in Sydney from 99.94 cents in New York yesterday, after earlier rising to $1.0036, the strongest level since Jan. 5. The currency was at 82.43 yen from 82.51 yen.

New Zealand’s dollar climbed 0.5 percent to 77.54 U.S. cents and earlier touched 77.58 cents, the highest since Jan. 3. The currency was at 63.70 yen from 63.73 yen. Chinese reports tomorrow will show inflation cooled to 4.6 percent in December from 5.1 percent, while the economy grew 9.4 percent in the fourth quarter bringing full-year growth to 10.2 percent, according to Bloomberg surveys.

‘Signs of Weakness’

The Shanghai Composite Index has fallen 3.2 percent this year amid concern China will extend monetary policy tightening to keep price pressures under control, risking slower growth. The central bank lifted reserve requirements for the fourth time in three months on Jan. 14. China may see “significantly lower, if more sustainable” growth in the next four years as its economy shifts from “export and investment-driven growth to a more balanced pattern,” Yu Yongding, former adviser to the Chinese central bank, wrote in the Financial Times. China must be prepared to make “short-term sacrifices,” such as asset price adjustments and job cuts to guarantee long-term stability, he wrote.

“Any signs of weakness in the Chinese numbers and a commodity currency like the Australian dollar will probably feel the effects more than others,” said Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney. Data that comes in “too low will have growth-impact concerns but too high will fuel interest-rate concerns -- so it’s a case of striking a happy median.” The Australian dollar weakened earlier after an industry report showed consumer confidence fell the most in seven months in January on concern about the economic impact of flooding in the state of Queensland. Westpac Banking Corp. and the Melbourne Institute said their sentiment index decreased 5.7 percent to 104.6 this month, according to a survey released today.

N.Z. Inflation

New Zealand’s currency was bolstered after Fonterra said prices for whole-milk powder for March delivery gained 1.5 percent, rising for a fourth straight auction. The currency may also be bought before a report tomorrow that economists said will show inflation accelerated. Consumer prices in New Zealand rose 2.4 percent in the fourth quarter from the previous three months, when they gained 1.1 percent, according to a Bloomberg News survey before the report. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.91 percent from 3.90 yesterday.

Australian bond futures fell, with the 10-year contract for March delivery at 94.37 on the Sydney Futures Exchange from 94.455 yesterday. The implied yield on the futures rose 8.5 basis points to 5.63 percent.

Source: Bloomber.By Candice Zachariahs

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Dollar Declines Toward Five-Week Low Before Housing Report; Won Advances

The dollar fell toward a five-week low against the euro on speculation a sluggish recovery in housing and labor markets will deter the Federal Reserve from raising interest rates. The U.S. currency dropped to the lowest in two weeks versus the yen before reports that economists said will show housing starts fell and continuing jobless claims increased. South Korea’s won advanced for a second day as the central bank said it may raise its forecast for economic growth. The yuan traded near a 17-year high against the dollar before Chinese President Hu Jintao meets with President Barack Obama today.

“Housing and employment have been lagging the pace of U.S. recovery,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Weaker-than-estimated housing data may put the dollar under selling pressure.” The dollar fell to $1.3439 per euro as of 1:27 p.m. in Tokyo from $1.3387 in New York yesterday, when it declined to $1.3466, the weakest since Dec. 14. The U.S. currency declined to 82.29 yen from 82.56 yen, after dropping to 82.13, the lowest since Jan. 5. The yen traded at 110.58 per euro from 110.52.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell to 78.600, the lowest since Nov. 22, before trading at 78.692.

Housing Starts

U.S. housing starts declined 0.9 percent to a 550,000 annual rate last month, according to a Bloomberg survey before today’s Commerce Department report. The number of people continuing to receive jobless benefits rose to 3.99 million in the week ended Jan. 8 from 3.88 million the previous week, another survey showed before the data tomorrow. The Federal Open Market Committee will keep interest rates unchanged at its next meeting on Jan. 25-26, according to all 87 economists surveyed by Bloomberg.

There’s a 60 percent chance U.S. policy makers will hold the benchmark where it is or lower it by December, according to futures on the Chicago Board of Trade. The probability was 40 percent a month ago. The rate has been at a range of zero to 0.25 percent since December 2008. U.S. Treasury Secretary Timothy F. Geithner said China should understand that the yuan currency is a “big issue.” Geithner, speaking in a radio interview broadcast yesterday, said a stronger yuan is in China’s interest and a rising currency would help the nation manage inflation.

‘Weaken the Dollar’

“The U.S. is expected to keep pushing China to strengthen its currency,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “It will likely weaken the dollar.” The yuan were at 6.5840 per dollar from 6.5829 yesterday, when it advanced to 6.5824, the strongest level since China unified official and market exchange rates at the end of 1993. The won gained as central bank Governor Kim Choong Soo said the Bank of Korea may upgrade its gross domestic product expansion estimate of 4.5 percent for this year.

The currency was also boosted as the Kospi stock index rose 0.7 percent after International Business Machines Corp. and Apple Inc. reported results that beat estimates. “The Korean won was strong in the offshore market so that continued into the spot this morning,” said Kim Sung Soon, a currency dealer at Industrial Bank of Korea in Seoul. The won rose 0.4 percent to 1,112.35 per dollar.

‘Negative Factors’

Demand for the euro was tempered on speculation European policy makers will delay efforts to provide more funds for debt- strapped countries. German Finance Minister Wolfgang Schaeuble said there is no urgent need to act, eyeing a late-March deadline to strengthen the 750 billion-euro ($1 trillion) rescue fund, hammer out a permanent anti-crisis tool and tighten fiscal rules for the euro area. European Union financial chiefs ended a two-day meeting in Brussels yesterday.

“The euro has been bought on expectations for rescue efforts, and it gets sold when officials can’t get their act together,” said Kazuya Yashiro, a currency analyst at Himawari Securities, Inc. in Tokyo. “Sentiment remains heavy on the euro due to the debt crisis, which produces only negative factors.” The euro has dropped 0.4 percent over the past month in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has lost 0.2 percent, while the dollar is down 2.5 percent.

Source: Bloomber.By Yoshiaki Nohara and Monami Yui

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Euro Weakens on Debt Crisis Concern as Finance Ministers Prepare to Meet

The euro fell against the dollar, snapping a five-day gain, on concern the region’s debt crisis will worsen even as European finance ministers meet today to hammer out a new strategy to stem the contagion. The single currency weakened against 15 of its 16 major counterparts after Bank of Japan Governor Masaaki Shirakawa said European financial markets remain unstable because of concern about the long-running crisis. Thailand’s baht dropped the most in a week on speculation the central bank will limit its appreciation to safeguard the economic recovery. Australia’s dollar declined toward a six-week low versus New Zealand’s on concern record flooding will curtail economic growth.

“The debt problem is not going to go away,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “I don’t think finance ministers will lead to a big overhaul of their financing facility. We have pretty hard conviction that the euro is still a sell.” The euro declined to $1.3340 as of 12:23 p.m. in Tokyo from $1.3388 in New York on Jan. 14, when it climbed to $1.3457, the highest level since Dec. 14. The single currency slid to 110.58 yen from 110.94 yen. The dollar traded 82.90 yen from 82.87 yen.

Greek Rating

Greece lost its last investment-grade ranking on Jan. 14 when Fitch Ratings cut its debt ranking one level to BB+, or junk. The reduction was foreshadowed last month and puts the rating at the same level as at Moody’s Investors Service and Standard & Poor’s. “Financial markets in Europe continue to be volatile because of concern about sovereign-debt risk,” Shirakawa said at a quarterly meeting of the BOJ’s branch managers today in Tokyo. At the same time, “global financial markets on the whole have maintained stability,” he said.

European finance chiefs commence work today on a new debt- crisis-fighting strategy with Germany easing its opposition to an expanded arsenal and Portugal saying it will get by without an aid package. Germany is seeking a March deadline for increasing the 440 billion-euro ($587 billion) rescue fund, drawing up a permanent aid facility and rewriting the euro- zone’s budget-deficit rules. Ireland’s banks are calling on the nation’s central bank for emergency loans as their collateral to borrow from the European Central Bank is low, the Telegraph reported, citing government data.

The latest data show Anglo Irish Bank Corp. and other lenders had borrowed 51 billion euros from the Irish central bank by the end of December, under a program listed in the balance sheet as “other assets,” the newspaper reported.

‘Unsafe Countries’

“What has to happen in Europe is that the richer, stronger countries will have to lend more to the unsafe countries,” said Nobel-prize winning economist Robert Mundell in a Bloomberg Television interview. “What’s very important is that most people think there’s going to be a restructuring in some of these countries.”

The euro also fell on speculation its 3.7 percent gain versus the dollar last week was excessive.

“Positions have been unwound a lot, and I find it hard for the euro to extend gains versus the dollar from here,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “The market has been focusing on the euro rather than on the dollar.” The euro has gained 1.9 percent over the past week in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has lost 1.6 percent, and the dollar is down 1.4 percent.

Baht Weakens

The Thai baht extended two weeks of losses after central bank Deputy Governor Atchana Waiquamdee said last week policy makers will consider imposing capital controls if inflows begin to hurt the economy.

Official data on Jan. 14 showed foreign-exchange reserves rose for a sixth week in the period ended Jan. 7, suggesting the monetary authority may have bought dollars.

“While the global economic picture remains uncertain, the authorities may not want to allow the baht’s appreciation,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “Concern about intervention is lingering in the market, encouraging some selling of the baht.” The baht dropped 0.4 percent to 30.58 per dollar, after sliding 1.6 percent over the past two weeks. Australia’s dollar fell for a third day versus New Zealand’s after flooding in the state of Queensland devastated homes, destroyed crops and closed mines in the past six weeks. Heavy rainfall moving south and overloading river systems is threatening more towns and may add to a bill already running into billions of dollars.

“The focus in Australia is still on the flooding and what that means for growth and inflation pressures,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “Last week’s marked loss in Aussie-kiwi may continue.” Australia’s dollar dropped to NZ$1.2853 from NZ$1.2906 last week, after earlier touching NZ$1.2840, the lowest since Dec. 2. The currency fell 0.1 percent to 98.78 U.S. cents.

Source: Bloomber By Yoshiaki Nohara and Ron Harui

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