FOREX AND ANALYSIS

Tuesday, August 25, 2009

Oil Drops on Falling Equities, Concern China to Tighten Lending

Crude oil dropped from a 10-month high as concerns that China may tighten lending and more U.S. loans may default raised doubts about the strength of the world’s recovery from recession.

Oil fell in tandem with equities on signs Chinese banks may curb new loans and after SunTrust Banks Inc. said that U.S. lenders face more credit losses and commercial real estate may falter through 2010.

“Equity and oil markets have been very closely correlated in the last six months,” said Ben Westmore, an energy and minerals economist at National Australia Bank Ltd. in Melbourne. “There are concerns on some U.S. banks. Probably it would affect investment flows into the oil market.”

Crude oil for October delivery dropped as much as 96 cents, or 1.3 percent, to $73.41 a barrel on the New York Mercantile Exchange. It was at $73.91 at 2:51 p.m. in Singapore. Yesterday, the contract rose 48 cents to settle at $74.37, the highest since Oct. 15. Futures have gained 66 percent in 2009.

“Banks are still showing signs of weakness, the economy is staying afloat from federal spending, and there is high unemployment,” said Mike Sander, an investment adviser with Sander Capital in Seattle. “I would still shoot for a price range this week between $68 and $75.”

China Construction Bank Corp., the nation’s second-largest bank, said excess cash in the banking system has led to asset bubbles, underscoring concern that the nation’s lenders will rein in credit. Chinese banks handed out $1.1 trillion in new loans in the first half of this year, the most on record.

Stocks Decline

Oil futures in New York and the U.S. Standard & Poor’s 500 Index had a correlation of 0.7 over the last six months. A correlation of 1 means the two moved in lockstep. Oil and the Shanghai Composite Index had a correlation of 0.996 over the last month.

Most Asian stocks declined, with the MSCI Asia Pacific losing 0.3 percent to 113.09 as of 2:39 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the steepest advance since May 19. link.....

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....

PRECIOUS-Gold inches up as dollar steadies vs euro

Gold prices edged higher on Tuesday
after falling the previous day on the strength of the dollar,
with investors keeping a close eye on currency markets for
bullion's near-term direction.

The dollar has been the main driver for gold in recent weeks:
a firmer dollar typically hurts the precious metal, as it makes
dollar-priced gold more expensive for non-dollar holders and
dampens interest in bullion as an alternative asset.

A weaker greenback supports gold if investors are selling the
U.S. currency to buy other assets including gold. If dollar
selling is due to U.S.-related concerns, gold can also benefit
from its status as a hedge against risk.

"The dollar's still the main driver behind gold's movement,"
said Adrian Koh, an analyst at Phillip Futures in Singapore.

"Gold's very much still in a sideways consolidation pattern
between $920-$980," he said, adding that he expected the market
to remain in that range until a clearer picture of the U.S.
economy emerged.

Spot gold XAU= rose 0.3 percent to $944.60 an ounce as of
0531 GMT, compared with New York's notional close of $941.40. It
hit a one-week high of $957.65 on Friday and has since hovered
below that level.

In the currency market, the yen was broadly firmer as
investors took a pause from a recent rush to stocks and
higher-yielding currencies, with focus shifting to U.S. data.
[USD/]

The dollar was nearly flat against the euro EUR= after
inching up against the single currency on Monday.

U.S. gold futures for December delivery GCZ9 were up 0.3
percent at $946.10 an ounce, compared with $943.70 an ounce on
the COMEX division of the New York Mercantile Exchange.

Traders are looking to consumer confidence, durable goods
orders and housing data due this week to gauge the state of the
U.S. economy.

Koh said traders were looking for housing data for further
signs that the housing market may have stabilised.

Reflecting a lack of market direction, no new investment was
made in the world's largest gold-backed exchange-traded fund, the
SPDR Gold Trust GLD, which said its holdings were steady at
1,066.41 tonnes as of Aug. 24. [GOL/SPDR] link....

McCann Sues Bank of America Seeking to Void Non-Compete Clause

Former Merrill Lynch & Co. brokerage head Robert McCann sued Bank of America Corp. to force the company to release him from exit terms that keep him from taking another job.

Bank of America fired him without cause after rejecting his resignation, making the Charlotte, North Carolina-based company unable to enforce a non-compete clause, McCann said in a suit filed yesterday in New York State Supreme Court.

McCann, 51, announced plans to leave Bank of America in January, less than a week after the company completed its $18.5 billion acquisition of Merrill Lynch. He said in the suit that he left for “good reason” after his role was “severely diminished” and he didn’t get a bonus following the sale. After initially saying McCann’s resignation would be effective in July, the bank fired him in February, according to the suit.

UBS AG, Switzerland’s largest bank, was close to hiring McCann as head of its wealth management unit in the Americas, the Financial Times said this month. The newspaper also reported McCann’s suit yesterday.

Bank of America spokesman Scott Silvestri declined to comment on the suit. UBS spokesman Mark Arena didn’t return a call for comment.

McCann said in his lawsuit that Bank of America was required to buy his Merrill Lynch shares for more than $18 million after firing him and hasn’t done so.

He was named in 2003 to head the brokerage unit that Bank of America Chief Executive Officer Ken Lewis last year called Merrill Lynch’s “crown jewel.” Dan Sontag replaced McCann in January, and Sallie Krawcheck, who previously led Citigroup Inc.’s Smith Barney brokerage, took over for Sontag this month.

link....

S Korea Shares End Down On Pft-Taking On Weak US, China Mkts

South Korean shares closed lower Tuesday as overnight weak finish on Wall Street and sharp declines in China stocks led investors to take profits.

The Korea Composite Stock Price Index, or Kospi, lost 10.84 points, or 0.7%, to 1601.38.

"It was natural to see investors locking in profits after (local) blue chips and the main index rose sharply in the short period" since late last week, said Oh Hyun-seok, an analyst at Samsung Securities.

Most blue-chip bank, technology and auto stocks retreated after showing a strong performance again in the previous day.

"But the sentiment was not that bad despite the sharp declines in China markets. Bullish sentiment seems to have taken control of the market. There seem to be more people waiting to enter the market on dips than people waiting to take profits," added Oh.

Foreigners and local retail investors were net buyers of shares worth KRW194.4 billion and KRW244.1 billion, respectively. But domestic institutions offloaded a net KRW400.8 billion worth of stocks on still-high demand for fund redemption, said analysts.

Market analysts also expect U.S. financial markets to react positively to news that U.S. President Barack Obama will reappoint Ben Bernanke for a second four-year term as Chairman of the Federal Reserve.

Bernanke's reappointment will remove the risk of any change in the current policy stance and potential miscommunication with a new chairman, said Bae Sung-young, an analyst at Hyundai Securities.

The Kospi is expected to remain on an uptrend although its rising pace may slow down after recent steep gains in the broader index and blue chips, added Bae.

The local stock market will also likely to continue to be swayed by China markets, said Oh.

Investors will watch closely for cues from housing and consumer-related data due to be released this week.

Among banks, KB Financial Group retreated 2.9% to KRW54,400, and Woori Finance Holdings dropped 0.3% to KRW14,500.

Samsung Electronics fell 1% to KRW775,000, and Hyundai Motor dropped 0.9% to KRW106,500 - both after hitting historic peaks Monday.

LG Display rose 2.6% to KRW36,250 partly on news that it has signed a non-binding memorandum of understanding with the Guangzhou government in China to set up an advanced panel manufacturing plant that could cost more than US$3 billion, said analysts. link....