Japan stocks fall on yen, pre-election caution

TOKYO -- Japanese stocks cooled off Tuesday, as exporters fell on a stronger yen and investors sold to take profits ahead of this weekend's parliamentary elections.

The benchmark Nikkei 225 stock average fell 83.69 points, or 0.8 percent, to 10,497.36 after soaring 3.4 percent on Monday. The broader Topix index declined 0.5 percent to 965.11.Analysts and recent polls predict that Japan's ruling party will lose its long-running grip on power in lower house elections Sunday. Japan's finance minister - and a senior party member - echoed the political realities facing the Liberal Democrats.

"A huge wave of the (opposition Democratic Party of Japan) is sweeping over Tokyo," Kaoru Yosano said Tuesday. "It looks like they could control the parliament under a one-party dictatorship."

Sentiment also waned on sharp declines in China, where the country's main index sank 2.6 percent as players turned cautious after recent gains and looked for more signs of economic recovery.The dollar slipped into the upper 93-yen territory at one point Tuesday, sending exporters including electronics makers lower. Exporters frown at a climbing yen because it makes their products more expensive in overseas markets and reduces the value of overseas profits when repatriated to Japan. link....

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FOREX-Euro slides, dollar, yen gain as stocks struggle

The euro fell on Tuesday while the yen and the dollar rose as a retreat in European shares from a 10-month high the previous day curbed demand for currencies considered to be high-risk.

European shares fell 0.5 percent .FTEU3, pulling away from their highest level since October hit on Monday, and Chinese shares shed 2.6 percent, prompting traders to sell the euro and sterling.

"Today is a risk-off day as equities are coming off and the dollar is trading a bit stronger," said Carl Hammer, currency strategist at SEB in Stockholm.

But he said the broad trend for elevated risk demand remained intact.

By 0749 GMT, the euro EUR= traded 0.2 percent lower at $1.4269, having slipped to the day's low of $1.4254 according to Reuters data, in early European trade.

Traders said Asian names were seen selling the euro against the dollar.

Investors awaited speeches from Swiss National Bank officials later in the day to see if they would reiterate their position to combat excessive strength in the Swiss franc. Swiss authorities have been intervening in the currency market since March.

The dollar index .DXY was little changed but the U.S. currency fell as low as 93.80 yen in early trade, as the yen was the main beneficiary of the pullback in risk demand.

In early European trade, the pair traded at 94.12 yen, down 0.4 percent on the day.

The dollar showed little reaction to news that U.S. President Barack Obama would reappoint Federal Reserve Chairman Ben Bernanke for a second term on Tuesday. [ID:nN24151253]

"I don't think there will be any major impact, but it should be positive for markets such as the stock and bond markets in the sense that an element of uncertainty has been removed," said Takahide Nagasaki, chief FX strategist at Daiwa Securities SMBC in Tokyo. link.....

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OIL FUTURES: Crude Up On Econ Growth Optimism, Asian Equities

Crude oil futures in Asia continued to consolidate on Friday's gains alongside regional stock markets on renewed optimism about the global economic recovery.

Light, sweet crude futures for October delivery traded at $74.17 a barrel at 0623 GMT, up 28 cents in the Globex electronic session. October Brent crude on London's ICE Futures exchange rose 37 cents to $74.56 a barrel.

A threat by Nigeria's main militant group to resume attacks on oil installations is also lending support to crude, but given high global oil stockpiles, the issue may not be as big as in recent years, analysts said.

Nymex crude settled at a 10-month high Friday after bettter-than-expected U.S. housing sales data fueled expectations of a faster economic recovery in the world's largest energy consumer.

"That sentiment is still resonating and people are reviving up their outlook for economic growth," said Ben Westmore, commodities economist at National Australia Bank.

Crude is likely to trade around these levels until U.S. inventories data Wednesday, with strong resistance at $75 a barrel, analysts said.

"The crude market's proximity to a shelf of summer highs that have been established around the $75.00-$75.25 area is worthy of attention, since a close above this level could easily ignite another flurry of fund buying interest," wrote Jim Ritterbusch, president of trading advisory firm Ritterbusch & Associates.

The next U.S. inventory data is of particular importance to traders because of the "unusual" drop that fueled a rally last week, said Yusuke Seta at Newedge Japan. "But there's still a glut in the market. Crude oil (stocks) might show a build of about a million barrels this week," Seta said.

Despite weak fundamentals, oil will continue to be buoyed by stock markets, Seta said, adding that "as long as stock indices don't crash, oil prices will be supported."

Nymex reformulated gasoline blendstock for September, the benchmark gasoline contract, rose 219 points to 201.75 cents a gallon, while September heating oil traded at 191.77 cents, 128 points higher.

ICE gasoil for September changed hands at $608.25 a metric ton, up $6.50 from Friday's settlement. link.....

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American revamps bag fee policy

American Airlines Inc. is raising baggage fees for certain international fliers.

A new policy of checking in one bag for free and paying $50 to check in a second piece of luggage impacts certain travelers who are flying to particular locations in Europe, India and the United States.

Fort Worth, Texas-based AMR Corp. (NYSE: AMR) said the new policy impacts certain types of economy-class tickets purchased on or after Sept. 14. The changes will affect passengers on transatlantic flights from or through India, Belgium, France, Germany, Ireland, Spain and Switzerland.

American Airlines Inc., a subsidiary of AMR Corp., said certain members of the American AAdvantage program and oneWorld Alliance Emerald, Sapphire or Ruby members will not have to pay for a second bag.

Active U.S. military also are exempt, as well a passengers booked in first and business class cabins. link....

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GETTING PERSONAL:Birkenfeld Gets First Jail Term In UBS Case

Former UBS AG (UBS) banker Bradley Birkenfeld appears to be headed to jail. For a long time.

A Florida judge has sentenced Birkenfeld to 40 months incarceration, the Department of Justice said Friday, in the first sentencing of the UBS tax case.

While the terms struck some as harsh, given that Birkenfeld helped the government peer into the hidden world of offshore accounts, others say it is fitting justice.

Forty months "doesn't seem that bad to me," says George Clarke, a member of the white-collar and internal investigations and tax practice at law firm Miller & Chevalier. After all, Clarke adds, Birkenfeld "helped taxpayers evade a substantial amount of tax."

It wasn't immediately clear whether the former banker will be able to appeal in the case.

Because Birkenfeld was a key collaborator with the government, there were expectations in some quarters that he would get off more lightly.

Considering that the former banker "blew open the entire UBS operation for the IRS, his sentence seems harsh," says Kenneth Rubinstein, a senior partner at law firm Rubinstein & Rubinstein in New York.

Cases like UBS' can generally be made only through the help of informants or whistleblowers, "and one can only wonder if future potential cooperators will think twice," because of the Birkenfeld sentence, says Scott D. Michel, an attorney at Caplin & Drysdale in Washington, D.C.

The sentence, adds Michel, "is extraordinary" in its harshness.

Birkenfeld worked as a private banker in Geneva for UBS. While there, he helped a U.S. billionaire real estate developer evade $7.2 million in taxes by helping conceal $200 million of assets in Switzerland and Liechtenstein.

Birkenfeld routinely traveled to the U.S. to help other wealthy Americans conceal assets offshore, enabling them to evade taxes on income generated by money in their accounts. He admitted that he and others advised U.S. clients to put cash and valuables in Swiss safety deposit boxes, and buy jewels, artwork and other luxury items while overseas with Swiss account money.

Others are likely to go to jail in the UBS case.

An IRS voluntary disclosure program offering leniency has drawn hordes of people with accounts who know that, if they don't report them and the IRS targets them, they could go to jail.

The guidelines on prison time for tax evasion are harsh: Six months to a year for those who cheat the government out of just $5,000, for example. It is usually worse when an offshore account is involved: Punishment in such cases is often bumped up two notches on federal sentencing guidelines.

The government will more likely go after the big game, those who cheated it out of the large sums that suggest a concerted effort at evasion.

According to baseline sentencing guidelines, someone who evaded between $200,000 and $400,000 could get a prison term of between 27 and 33 months as a first-time offender, and use of an offshore account could lengthen that time.

Though federal sentencing guidelines aren't mandatory in these cases, most judges will follow them. Exceptions can be made if the government urges leniency for someone who has cooperated in investigating others, or the case presents other special circumstances. link.....

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Lowe's net, forecast fall short as store openings get trimmed

Lowe's shares surrendered 10% to close at $20.47. In a broadly lower market for equities, shares of larger rival and Dow Jones Industrial Average component Home Depot Inc. /quotes/comstock/13*!hd/quotes/nls/hd (HD 26.37, +0.26, +0.10%) , scheduled to report financial results on Tuesday, dropped 3.8%.

"Nobody thinks it's going to take a turn for worse," said analyst Joe Feldman of Telsey Advisory Group in an interview. "There's just no pick-up yet for spending. Foreclosure rates continued to accelerate and housing prices year over year are still down. Home Depot may give similar cautious outlooks."

'The decision to cut bait on several projects is an acknowledgement of the challenging environment that is likely to persist for some time.'

Lowe's net income dropped to $759 million, or 51 cents a share, for the three months ended July 31, from $938 million, or 63 cents, in the year-earlier second quarter.

Sales fell 4.6% to $13.84 billion from the prior year's $14.51 billion. On a same-store basis, quarterly sales declined 9.5%, missing management's previous projection of a decline of 4% to 8%, the Mooresville, N.C.-based company said.

Most analysts had expected those sales, a key retail performance metric because it excludes results from new and closed locations, to decline between 6% and 7%.

Spending on home-improvement projects "remained weak in the quarter but even in this weak environment we were disappointed with the magnitude of erosion," said Chief Executive Robert Niblock on a conference call, adding that comparable sales for items costing more than $500 dropped 16% while those for items less than $50 were "slightly positive."

"Consumers are only taking on home-improvement projects that they feel are absolutely necessary and are postponing discretionary projects until clarity about the future returns," he added link....

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Bank of America’s Krawcheck Vows to Maintain Merrill’s Culture

Sallie Krawcheck, the former Citigroup Inc. executive named last week to head Bank of America Corp.’s wealth-management business, said she wants to build on Merrill Lynch & Co.’s history rather than tear it down.

“What I’m not going to do is turn this into a place I’ve been before,” she said in an Aug. 7 video message to the brokerage’s 15,000 financial advisers. “Those are great institutions, but this is a fantastic, fantastic business.” Krawcheck said she doesn’t like hearing that the merger “means the end of the Merrill Lynch culture.”

Bank of America Chief Executive Officer Kenneth Lewis rebuilt Merrill’s management since the Jan. 1 purchase, replacing more than three dozen senior executives and investment bankers. Merrill CEO John Thain, President Greg Fleming and brokerage chief Robert McCann left within days of the takeover, prompting speculation that many of the New York-based firm’s 15,000 brokers would also depart.

Krawcheck, 44, is among at least five executives in the running to succeed Lewis, 62, as head of the Charlotte, North Carolina-based bank, which ranks first in the U.S. by assets and deposits. She takes over from Dan Sontag, who is leaving after 31 years at Merrill. Krawcheck said she joined the bank because of opportunities to be an industry leader.

“It is the competitor that really no one can match and the company that has the best opportunity to open the gap with others,” Krawcheck said. The video was verified by spokeswoman Jessica Oppenheim.

Wealth Management Redux

Krawcheck joined Citigroup from Sanford C. Bernstein & Co. in October 2002 as head of Smith Barney. After rising to chief financial officer, she returned in 2007 to her previous role overseeing wealth management-businesses, including Smith Barney.

Krawcheck said she’ll spend her first 60 days meeting with employees and reviewing business plans. Krawcheck had lunch today with former CEO David Komansky at San Pietro, an Italian restaurant on East 54th Street in Manhattan, Oppenheim said. Komansky joined Merrill as a broker in 1969 and was CEO from 1996 to 2002.

Lewis moved investment banking and wealth management head Brian Moynihan to run consumer banking. Tom Montag was named head of corporate and investment banking.

The bank has said it retained more than 90 percent of its top-producing brokers since the acquisition, while average broker production remains higher than industry averages.

Broker recruiters including Darin Manis of RJ & McKay say some veteran Merrill brokers remain worried that Bank of America will impose a more hierarchical, cost-conscious culture at the securities firm. “Merrill will remain a strong firm, but much of its prestige has been depleted,” Manis said during an interview last week.

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Stanley Ho Hospitalized in Hong Kong; SJM Shares Fall

Hong Kong billionaire Stanley Ho is hospitalized in Hong Kong, a hospital official said following a report the 87-year-old was in intensive care. Shares of his casino operator SJM Holdings Ltd. fell as much as 6.7 percent.

Hong Kong Adventist Hospital marketing officer Christine Chow said by telephone today that Ho had been admitted and was still in the hospital. Chow declined to disclose further details, citing patient privacy.

SJM, which operates casinos and hotels in Macau, finished the morning session at HK$3.14 per share, down 4.8 percent. The Apple Daily newspaper reported today that Ho, SJM’s chairman, had undergone brain surgery after a fall and was in intensive care.

The benchmark Hang Seng Index was little changed at the midday break, up 0.03 percent at 20,813.77.

Ho was in stable condition in the hospital after an operation last week to remove a blood clot in his brain, Apple Daily said. Janet Wong, Stanley Ho’s press secretary, couldn’t immediately be reached for comment on her office and mobile phone numbers.

“Any report of this type concerning senior management at a company will introduce uncertainty,” said JPMorgan Chase & Co. analyst Billy Ng. Reports on Ho’s surgery have affected trading of SJM shares today, he said.

The long-term effects of the injury aren’t certain, the Hong Kong-based Apple Daily said.

Ho is also chairman of Shun Tak Holdings Ltd., the Macau transport company and developer. A phone call to his office at Shun Tak was answered by a recorded message earlier today. Shun Tak shares fell 0.7 percent to HK$6.01.

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Yen, Dollar Gain on Signs Global Banking Recovery to Be Delayed

The yen and the dollar strengthened against the euro as stocks snapped the longest rally in two years on concern the recovery of the global banking industry may be delayed, boosting demand for the currencies as a refuge.

Japan’s currency rose the most versus South Africa’s rand and the British pound after U.S. commercial lender CIT Group Inc. said its “existing liquidity” was not enough to repay maturing notes. The pound dropped after an industry group said the U.K. house-price slump will persist, backing the case for the central bank to keep borrowing costs at a record low.

“The currency markets are being driven by risk sentiment and what’s going on in with stocks,” said Jeremy Stretch, a senior strategist at Rabobank International in London. “There’s a case to argue that the recovery isn’t as well underpinned as some had hoped. There are a number of economic aftershocks out there to come.”

The yen strengthened to 132.70 per euro as of 8:52 a.m. in London, from 133.36 in New York yesterday, when it gained 0.5 percent. Japan’s currency climbed to 93.57 versus the dollar, from 93.74. The dollar rose to $1.4183 per euro, from $1.4226.

The pound dropped to $1.6333, from $1.6459 yesterday, and weakened to 152.85 yen, from 154.32 yen. The rand declined to 11.961 yen, from 12.011 yen.

CIT Concern

The dollar strengthened against 13 of the 16 most-traded currencies after CIT said yesterday it expected to post a loss of more than $1.5 billion for the second quarter, renewing concern the lender may have to file for bankruptcy.

Credit-default swaps protecting against a CIT default for five years climbed 6.5 percentage points to 47 percent, according to broker Phoenix Partners Group. The cost implies that traders have priced in an almost 95 percent chance that the lender will default within the next five years.

“Worries over a possible insolvency of CIT appear to be returning,” said Akifumi Uchida, a Tokyo-based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “This is a minus for sentiment and may cause buying of the yen versus the dollar and the dollar against European currencies.”

The yen gained versus all the most-active currencies after Britain’s Daily Telegraph reported that Barclays Plc will need another 12.8 billion pounds ($20.9 billion) and Royal Bank of Scotland Group Plc will require an additional 8.5 billion pounds to expand under new regulatory rules. The U.K. newspaper cited an analyst at JPMorgan Securities Ltd.

‘Not Fully Over’

“The Telegraph story came as a reminder that the financial crisis is not fully over,” said Shuzo Kakuta, senior foreign exchange advisor at Tokyo Tomin Bank Ltd. “This kind of topic is positive for the yen both against the dollar and cross- currencies” such as the Australian dollar.

The Australian and New Zealand dollars dropped for the first time in three days against the greenback after Federal Reserve Chairman Ben S. Bernanke said financial markets remained “stressed,” encouraging demand for safer assets.

Household spending is an “important” risk to the outlook because of continued job losses and declines in home values, Bernanke said yesterday on the first day of a two-day congressional testimony in Washington.

“A bit of risk aversion is creeping back into the market,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. Bernanke “was more dovish on the economy and on the economic recovery and a little bit of risk has been taken off the table which is weakening the Aussie.”

Australia’s dollar fell 0.6 percent to 76.24 yen and slipped 0.5 percent to 81.43 U.S. cents. New Zealand’s dollar weakened 0.6 percent to 61.33 yen and declined 0.4 percent to 65.52 cents.

Pound Tumbles

The pound dropped against all of the 16 major currencies after the National Institute of Economic and Social Research said today that home values will resume their decline because recent gains were driven by a lack of available homes.

The institute also predicted gross domestic product will keep falling until the final quarter of this year. It forecast GDP will shrink 0.4 percent in the second quarter. The median estimate of economists in a Bloomberg News survey is for a 0.3 percent drop. The Office for National Statistics will release the data on July 24.

“All of this is not good news for Britain,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This is leading to selling of the pound.”

Gains in the Japanese and U.S. currencies were tempered on speculation an advance in Asian stocks will spur investors to increase holdings of higher-yielding assets. The MSCI World Index of shares fell 0.3 percent.

“Rising equities are likely to lead to selling of the yen,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The stock markets are considered to be a barometer of risk appetite.” link.....

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When Goldman Sachs wins – You lose

The taxpayers of the US are the losers with Goldman Sachs (GS) employees the winners in this game called “Last Man Standing”. With most of their competitors being either bought out under duress or allowed to go bankrupt they have been left holding the bag. Even a leprechaun could not have been as lucky as to finding a bag so full of gold.

Nomi Prins, a former managing director for Goldman Sachs in New York, was interviewed by Juan Gonzalez for “Democracy Now!” right after the record profits at GS was announced.

Nomi Prins said that GS paid back the $10 billion Troubled Asset Relief Program (TARP) money in order to avoid the type of media scrutiny AIG received after they announced their employee bonus payouts earlier this year. She went on to explain in the interview:

“The bigger amount of money that has gone to Goldman has come through $12.9 billion from the AIG bailout that went straight to Goldman, its biggest counterpart; $28 billion worth of FDIC-backed guaranteed debt, meaning the FDIC put up a program last fall, and it said, “For banks that deal with consumers”—not banks that deal with multibillion-dollar companies or investors, but people—“we will provide guarantees for debt,” which means that those companies can raise debt to help consumers cheaply. Goldman said, “Alright, fine, we’ll take some of that.” And they took $28 billion worth of that, and they have up to $35 billion that they can take under the FDIC program that was never meant for a company like Goldman Sachs.

In addition, there is a ton of money, there are trillions of dollars at the Fed, not all of that went to Goldman, but that has secretly gone to a number of banks in the system, of which Goldman is one, for which the Fed refuses to disclose any information or any detail, which also goes into this. So when Goldman says—has the nerve to say, feels entitled to say—that it’s going to pay its bankers record bonuses after the travesty that it and other banks have created in the markets, it is on the back of federal subsidies that effectively come from our pockets.” link....

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Sensex up nearly 150 pts @ 14:45 hrs

After a sharp upmove on the back of some hectic buying in several blue chip stocks, the Sensex has drifted down a bit once again with investors looking to exit a few counters at higher levels. At 14,191.79, around 60 points down from a high of 14,251.88, the Sensex is still up with a sharp gain of 148.39 points or 1.06%. The Nifty index of the National Stock Exchange is up by 39.20 points or 0.94% at 4204.90.

FMCG and automobile stocks remain the prominent gainers. Capital goods stocks have rallied after showing signs of weakness. Power, bank and information technology stocks are off their highs.

PSU stocks have declined sharply. Metal, realty and oil stocks are also seen struggling today. Pharma stocks exhibit a mixed trend. Buying remains highly stock specific in midcap and smallcap segments.

FMCG heavyweight ITC is up nearly 7% on sustained buying at the counter. Jaiprakash Associates has rallied 6.5% to Rs 205.50. Automobile stocks Hero Honda, Mahindra & Mahindra and Maruti Suzuki are up by 5% - 5.8% now.

Bharti Airtel has gained over 4.5%. Grasim Industries, ACC, Larsen & Toubro, ICICI Bank and Wipro are up by 2.5% - 4.5%. BHEL, Tata Consultancy Services and Sun Pharmaceuticals are also up with strong gains. Reliance Infrastructure and HDFC Bank have gained modest ground in the positive territory.

Gujarat Petronet, Voltas, IVRCL Infrastructure, Marico, M&M Financial Services, Exide Industries, Biocon, Century Textiles, Torrent Power, RECL, GAIL India, United Spirits, Ambuja Cements, Jubilant Organosys and Godrej Consumer Products have posted impressive gains. link.....

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Japan's GDP shrinks at fastest pace since 1955

TOKYO -- Japan's economy contracted at the fastest pace since 1955 as exports plunged and companies slashed production.

Japan's real gross domestic product, or the total value of the country's goods and services, shrank at an annual pace of 15.2 per cent in the January-March period, the government said Wednesday.

The result represents the steepest decline since Japan began compiling GDP statistics more than five decades ago. It also marks the fourth straight quarter of decline after the GDP fell a revised 14.4 per cent in the October-December period.

Economists polled by The Associated Press had expected an average 15.8 per cent drop.

On a quarterly basis, GDP fell four per cent from the previous three-month period, according to the Cabinet Office's preliminary data.

Japan's first quarter results were markedly worse than other major economies, outpacing the euro zone's 2.5 per cent quarterly decline and a 1.6 per cent contraction in the United States.

The world's second biggest economy had relied heavily on the rest of the world to buy its cars and gadgets to drive economic growth. Like its Asian neighbours, it has been pummelled by the unprecedented collapse in global demand triggered last year by the U.S. financial crisis.

Japan's exports plummeted a record 26 per cent in the first quarter from the fourth quarter, the government said.

In response, major exporters such as Toyota Motor Corp. and Sony Corp. have moved quickly to adjust by reducing shifts, suspending factory lines and announcing thousands of job cuts over the past few months. Japan's jobless rate jumped to 4.8 per cent in March, marking the highest level in more than four years.

Capital expenditure -- business investment in factories and equipment -- fell 10.4 per cent from the previous quarter, while consumer spending slipped 1.1 per cent.

Unlike previous downturns, consumption has weakened much more than income, said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

"The savings rate has gone up and that has worsened the severity of the recession," he said. "That is something which is novel about the last six months. It seems that the public has basically panicked about job security to an extent that hasn't happened in previous cycles."

Recent signs, however, suggest that the worst may have passed.

The decline in exports is slowing, and with companies aggressively trimming inventories, factories are beginning to boost production. Economists say that efforts by both the public and private sectors are also starting to pay off.

The government is trying to spark a turnaround with massive public spending. Its newest $150 billion stimulus package includes incentives for consumers to buy environmentally friendly appliances and cars, as well as help for the unemployed and small businesses.

"We think January-March will be recognized as marking the bottom in the economy for the time being," said Masayuki Kichikawa, chief economist for Bank of America-Merrill Lynch in Tokyo, in a recent report.

For the last fiscal period through March 31, Japan's GDP contracted by a record 3.5 per cent from the previous year, the Cabinet Office said. It expects the economy to shrink 3.3 per cent this fiscal year. link...

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