U.S. Economy Improving, More Stimulus Isn't the Answer, Rubin, O'Neill Say

The U.S. Economy will improve slowly and another round of fiscal stimulus probably wouldn't be effective, former Treasury secretaries Paul O'Neill and Robert Rubin said.

Rubin, who server under Democratic President Bill Clinton, said the U.S. Is “going to have slow and bumpy growth,” an interview on CNN's “Fareed Zakaria GPS” aired yesterday. A “major second stimulus” might create more uncertainty and undermine confidence, he said.

Companies concerned about demand won't expand facilities or hire new employees until sales have improved, said O'Neill, who was Treasury secretary under Republican President George W. Bush.

“We are moving forward at a pretty gradual pace,” he said. “But I don't think things are terrible.”

The world's largest economy may be cooling in the second half of the year as a scarcity of jobs limits consumer spending. At the same time, concern about the surging fiscal deficit has prompted President Barack Obama to urge lawmakers to let the Bush administration tax cuts for the wealthiest Americans expire this year.

While Rubin backed Obama's stance, O'Neill reiterated that he strongly opposed the Bush tax cuts of 2003 and said the president and U.S. Lawmakers need to focus on overhauling the entire tax system rather than on the expiring cuts.

Not 'Intelligent People'

“The tax code we have is proof we're not an intelligent people,” said O'Neill, a senior adviser and consultant to New York based Blackstone Group LP. “The president could earn a lot of credit and he could make a huge difference if he would lead the charge for fundamental tax reform,” which might include a “consumption based tax.”

Obama wants to let the tax cuts expire for households earning more than $250,000 a year and maintain them for households earning less than that. The tax reductions, enacted in 2001 and 2003, expire on Dec. 31. Treasury Secretary Timothy F. Geithner has said the government can't afford to extend tax reductions for the wealthiest group, as the breaks don't pay for themselves in economic growth.

Fed Chairman Ben S.Bernanke last month said the central bank is prepared to take further policy actions if the economy “doesn't continue to improve.” Bernanke said last month the Fed may at some point maintain stimulus by investing the proceeds for maturing bonds into U.S. Treasuries.

Most Asian Stocks Rise as Profit Speculation Overshadows Growth Concerns

Most Asian stocks rose, led by finance companies and Taiwanese electronics makers amid speculation corporate earnings growth can weather slower economic growth in the U.S. And Japan.

Winbond Electronics Corp. surged 7 percent in Taipei after reporting a second quarter profit compared with a loss the previous year. Melbourne based Axa Asia Pacific Holdings Ltd. Surged 5.4 percent on speculation regulators will approve a buyout by National Australia Bank Ltd. Japanese exporters Toyota Motor Corp., Canon Inc. and Honda Motor Co. fell more than 1.6 percent as Goldman Sachs Group Inc. cut its forecasts for economic growth forecasts in the U.S. And Japan.

About 15 stocks advanced for every 14 that declined in the MSCI Asia Pacific which fell 0.1 percent to 122.08 as of 2:52 p.m in Tokyo. The index dropped after rising for the last five consecutive weeks, the longest stretch in year.

“While we're recovering and we'd all like to see it go in a straight line upwards, the nature of the recovery is still bumpy, “said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. In Melbourne. “It's clearly a road full of twists and turns.”

Japan's Nikkei 225 Stock Average slumped 0.8 percent. Ministry of Finance figures released today showed the country's current account surplus unexpectedly shrank for a second month in June as export growth cooled, a sign an economic recovery is losing momentum.

China's Shanghai Composite Index gained 0.1 percent, with cement makers advancing on optimism overcapacity in the industry will ease. Australia's S&P/ASX 200 Index rose 0.7 percent and Taiwan's Taiex index climbed 0.9 percent. South Korea's Kospi index increased 0.3 percent.

European Stocks Climb; Rio Tinto Leads Rally in Mining Shares

European stocks advanced for the first time in three days as basic resource producers and energy companies climbed with commodity prices. Asian equities were little changed, while U.S. Index futures rose.

The benchmark Stoxx Europe 600 Index climbed 1.3 percent to 261.97 at 9:49 am in London, extending last week's 1.3 percent gain. The gauge is up 13 percent from this year's low on May 25 as corporate earnings helped alleviate concern that the economy may tip back into recession. About 55 percent of companies in the Stoxx 600 to have posted results since July 12 have topped net income estimates.

The Standard & Poor's 500 Index slipped 0.4 percent on Aug.6 on weaker than forecast growth in company payrools. The gauge recouped most of its losses in the final hours of trading as the federal housing Administration said it will begin accepting applications for a program to hekp struggling mortgage borrowers.

Former Treasury secretaries Paul O'Neill and Robert Rubin said in an interview on CNN'S “Fareed Zakaria GPS” yesterday that the U.S. Will improve slowly and another round of fiscal stimulus probably wouldn't be effective.

RIM Said to Plan Tablet for November to Take on Ipad

Research In Motion Ltd., maker of the Black Berry RIM Said to Plan Tablet for November to Take on Ipadsmart phone, plans to introduce a tablet computer in November to compete with Apple Inc.'s i Pad, according to two people familiar with the company's plans.

The device will have roughly the same dimensions as the i Pad, which has a 9.7 inch diagonal screen, said the two people who wouldn't be identified because the plans haven't been made public. The device will include WI-Fi and Blue tooth wireless technology that will allow people to connect to the Internet through their Black Berry smart phones, the two people said.

RIM is racing to come out with a product to rival the ipad in the fast growing market for devices that bridge the gap between smart phones and notebook computers. Apple, based in Cupertino, California, last month said it sold 3 million i Pad tablet computers in 80 days after they debuted in the U.S.

RIM rose $1.83, or 3.3 percent, to $57.53 at 4 p.m New York time in NASDAQ Stock Market trading, reversing an earlier decline of as much as 2.5 percent. The stock has dropped 15 percent this year, as Apple has climbed 22 percent.

The RIM tablet will also have front and back facing cameras for video conferencing, Rodman & Renshaw's Kumar said, citing sources at suppliers in Asia.

Hewlett Packard Co., which bought smart phone maker Palm Inc. this month, said it plans to produce a tablet device that runs on Microsoft Corp.'s Windows operating system. Korea's LG Electronics Inc. said this month it plans to introduce a tablet computer in the fourth quarter that runs on Google Inc.'s Android software. Microsoft Chief Executive Officer Steve Ballmer said yesterday the software company plans to increase its focus on tablets.

ICICI Bank Posts 17% Increase in First Quarter Net Income to $222 Million

ICIC Bank Ltd., India's second biggest lender, said first quarter profit rose 17 percent, as it cut provisions and increased fee income.

Net income advanced to 10.3 billion rupees ($222 million), or 9.16 rupees a share, in the three months ended June 30, from 8.78 billion rupees, or 7.87 rupees a share, a year earlier, the Mumbai-based bank said today. Profit matched the 10.3 billion rupee average of 18.

ICICI, which was the worst performing stock last quarter on the 14 member Bankex index, fell 2.6 percent to 904.90 rupees in Mumbai trading yesterday. The shares have added 3.2 percent this year, trailing the benchmark lenders' gauge's 15 percent gain.

The bank's total outstanding loans dropped to 1.84 trillion rupees at the end of June, from 1.98 trillion rupees a year earlier, ICICI said in a statement. Deposit shrank to 2 trillion rupees, from 2.1 trillion rupees.

Fee income gained 7 percent in the quarter to 14.1 billion rupees, while net non performing assets declined 25 percent to 35.1 billion rupees, the bank said. Treasury income, or income from trading in bonds and currencies, fell to 1.04 billion rupees, from 7.14 billion rupees.

The bank cut its non performing asset ratio to 1.62 percent, from 2.19 percent a year earlier. The provisioning coverage ratio widened to 64.8 percent as of June 30, from 51.1 percent in the year earlier period. The Reserve Bank in October asked banks to increase the minimum provision ratio for non performing asset, or NPAs, to 70 percent from 10 percent by September 2010. ICICI received an extension until March 2011.

European Stocks Post Weekly Drop as U.S. Growth Misses Forecast

European stocks declined this week as slower than forecast U.S. Economic growth overshadowed a rally in banks after European Union stress test eased concern that lenders may need to raise more capital.

Nestle SA and Unilever led food companies lower as U.S. Rivals Kellogg Co. and Colgate Palmolive Co. reported revenue that missed estimate. Gamesa Corporacion Tecnologic SA tumbled 12 percent after reducing its forecast for wind turbine sales. UBS AG, Switzerland's largest bank, surged the most in 15 months after earnings beat analysts estimates.

“The GDP report raises concerns surrounding the sustainability of the recovery, “David Semmens, an economist with Standard Chartered Bank in New York, wrote in an e-mail. “The dire contribution from the U.S. Consumer will weigh on sentiment. Without a pick up in hiring in the U.S. We expect GDP growth to continue to fade through 2010.

National benchmark indexed fell in 8 of the 18 western European Markets. Germany's Dax lost 0.3 percent and the U.K.'s FTSE 100 retreated 1 percent. France's CAC 40 advanced 1 percent as Societe Generale SA and Credit Agricole SA rallied more than 12 percent.

Nestle, the world's biggest food company, slid 4.1 percent, the biggest drop in almost 3 months. Unilever, the second largest consumer goods company, plunged 6.7 percent, the most since March 2009.

Deutsche Bank AG strategist Gareth Evans downgraded the European food and beverage industry to “neutral” from “overweight”, citing the sector's performance this year.

Banks received a further boost as the Basel Committee on Banking Supervision softened some of its proposed capital and liquidity rules, agreeing to allow certain assets, including minority stakes in other financial firms, to count as capital.

Weekend News

Citi's Medina More Plans 'Multi Year Investments' in U.S. Bank

Citigroup Inc, with a U.S. Branch network one sixth the size of rival Bank of America Corp. s', plans “multi year investments in people, infrastructure and marketing” to expand its North American consumer business, regional head Manuel Medina – Mora wrote in a memo.

Citigroup, wich got a $45 billion bailout in 2008 and is still 18 percent owned by the U.S. Treasury Department, has tried since early 2009 to develop a strategy for the consumer business. The unit's 1,002 banking locations in North America compare with Charlotte, North Carolina based Bank of America's 5,900 branch domestic network.

Citigold

Pandit, 53, replaced Dial in January with Medina-Mora, who retained responsibility for Citigroup's Latin American operations. Peluso now reports to Medina-Mora as the division's full time chief marketing officer. Medina-Mora, based in Mexico City, wroth in the memo that he had “spent the last few months evaluating and reviewing “the North American division.

The bank plans to “invest more in our sales force and marketing efforts and upgrade our distribution infrastructure,” he wrote. It also will strengthen lending to small and mid-sized businesses and invest in Citigold, Medina-Mora said.

Citigroup also plans to develop “innovative cards and banking solutions” and a “seamless experience for our customers, “ Medina-Mora wrote, echoing earlier descriptions of Dial's “Bank of the Future.”

Most Asian Stocks Fall on Fed Comments; HTC, Nippon Yusen Gain

Most Asian stocks fell as U.S. Federal Reserve comments that growth slowed in some areas of the economy overshadowed signs of increased corporate earnings.

Samsung Electronics Co., which gets a fifth of its revenue in America, sank 1.2 percent in Seoul. Panasonic Corp. slumped 8.6 percent in Tokyo on speculation the company will sell stock to buy out two units. Taiwanese handset maker HTC Corp. climbed 6.8 percent after Citigroup Inc. raised its share price estimate. Nippon Yusen K.K., Japan's largest shipping line by sales, jumped 5 percent after almost doubling its forecast for profit.

The MSCI Asia Pacific Index was little changed at 119.45 as of 2:41 p.m in Tokyo. About three stocks declined for every two that advanced. The gauge has slumped 7.5 percent from its high this year on April 15 on concern Europe's debt crisis and Chinese steps to curb property prices will slow global growth.

“The economic outlook is unclear and we don't know how long this will continue,”said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co., which oversees about $65 billion.

Japan's Nikkei 225 stock Average fell 0.7 percent , the biggest decline among Asia-Pacific equity indexes. Australia's S&P/ASX 200 Index and South Korea's Kospi Index slid 0.2 percent. China's Shanghai Composite Index lost 0.3 percent and Hong Kong's Seng Index slipped 0.1 percent .

Sanofi Board Said to Support Genzyme Bid of Up to $70

Sanofi Aventis SA Chief Executive Officer Chris Viehbacher has support from his board of directors to offer as much as $70 a share for Genzyme Corp., or about $18.7 billion, said three people with knowledge of the situation.

France's largest drug maker is preparing a formal approach, and plans to send a letter to Genzme in the coming days that will detail its interest and give a specific price, said the people, who spoke on condition of anonymity because the talks are private. The Paris-based company may offer less than $70 a share in the letter, two of the people said.

Viehbacher is counting on take over to help replace revenue it will lose as its medicines face competition from lower priced generic drugs. Sanofi cut its 2010 earnings forecast this month after U.S. Regulators approved a generic rival to its Lovenox blood thinner. Genzyme, the world's largest maker of medicines for genetic diseases, last week rebuffed an informal approach by Sanofi to enter talks, said people familiar with the situation.

Struggle for Support

Viehbacher the 50 year old chief executive, who announced a 7.6 percent increase in second quarter earnings to 2.48 bilion euros ($3.23 billion) today, said the company remains “opportunistic” on acquisitions and is looking for takeovers worth between $5 billion and $20 billion that will bolster earnings. Sanofi is “disciplined” about take over the rejects “mega-merger-type deals,” he said.

A sanofi acquisition of Genzyme would be the biggest industry take over since Merck & Co. bought Schering Plough Corp for about $47 billion in November 2009.

$20 Billion Goal

Viehbacher likely would need additional board approval to make an offer for Genzyme higher than $70 a share, according to the people. Genzyme shares closed Wednesday at $68, up 26 percent since Sanofi's interest in the company was first reported on July 23. Sanofi rose 1.5 percent to 46.125 euros at 9:05 a.m in Paris trading.

Genzyme investors will insist on at least $20 billion, said Seven Borho, with OrbiMed Advisors, holder of 2.5 million Genzyme shares, on July 26.

Growth in U.S Probably Cooled as Spending Slowed, Trade Deficit Swelled

The U.S. Economy expanded at a slower pace in the second quarter as consumer spending cooled and the trade deficit swelled, economists project a report this week will show.

Gross domestic product rose at a 2.5 percent annual pace after increasing at a 2.7 percent rate in the first three months of the year, according to the median estimate of 68 economists. Other data may show gains in business investment are taking up some of the slack, while housing is mired in a slump.

Less growth heading into the second half of the year means employers will hesitate to take on staff and will keep a lid on prices to spur sales. Federal Reserve Chairman Ben S. Bernanke last week said the central bank is prepared to take further police actions if the world's largest economy “doesn't continue to improve.”

“We're experiencing a relatively subdued and fragile recovery, “said John Herrmann, a senior fixed – income strategist at State Street Global Markets LLC in Boston. “That fits with subdued payroll growth and subdued inflation going forward.”

The GDP estimate is the first of three for the quarter, with the other releases scheduled in August and September when more information becomes.

Consumer spending, which accounts for about 70 percent of the economy, increased at 2.4 percent annual rate last quarter after growing at a 3 percent pace the previous three months, economists project the report will show.

Spending Outlook

A lack of jobs, a loss of household wealth stemming from the slumps in stocks and housing, tight credit and the need to reduce debt and rebuild savings are among reasons economists forecast spending will be slow to recover. Purchases will increase at a 2.6 percent pace on average in the second half of the year, according to the median estimate of economists surveyed earlier this month.

Imports Climb

The trade deficit adjusted for inflation, the figures used in calculating GDP, averaged $45.1 billion a month In April and May, up from $42.3 billion a month in the first quarter as imports climbed faster than exports, according to figures from the Commerce Department.

The government will estimate June figures for trade and inventories, which will not be available until next month, in calculating growth.

“Despite the anticipated slow pace of the U.S. Recovery and a cautious outlook for Europe, we are confident in our ability to grow the business and improve profits, “Chief Financial Officer Kurt Kuehn said in a July 22 statement.

Asian Stocks Rise for Third Week on Commodities, Improving Profit Outlook

Asian stocks rose for a third week as commodity prices gained and as U.S. Companies reported or raised profit forecasts, boosting confidence in the strength of global economic growth.

Hong Kong's Hang Seng Index rose 2.8 percent this week as the city's developers gained on prospects of higher property prices. China's Shanghai Composite Index climbed 6.1 percent. Shouth Korea's Kospi Index increased 1.1 percent. Australia's S&P/ASX 200 Index rose 0.8 percent, led by materials companies. Japan's Nikkei 225 stock Average advanced 0.2 percent in a four day, holiday-shortened week.

Materials Stocks Advance

A gauge of material companies gained the most this week among the 10 industry groups in the MSCI Asia Pacific Index, followed by energy companies.

The London Metals Exchange Index, a measure of six metals, rose 7.0 percent this week, while copper futures for September delivery jumped 8.7 percent in New York after a report showed sales of previously owned U.S. Homes fell less than forecast in June, bolstering the demand outlook for the metal. Crude oil for September delivery climbed 3.2 percent.

Hon Hai Increases

Microsoft, the world's largest software maker, reported on July 22 a 48 percent climb in fourth quarter net income, exceeding the average analyst estimate Separately, California based company Apple Inc. forecast fourth quarter sales that topped analysts estimates.

Microsoft's earnings reiterated that demand for electronics in the second half is still positive,” said Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd. In Hong Kong. “This is a boost to Asian stock sentiment as it stops the earlier noises about possible weak demand.”

China Policy Speculation

Property developers rose this week on speculation China's government will soon end policies to cool the housing market. Donald Straszheim, a senior managing director for China research at International Strategy & Investment Group, said China will “back away” from its tightening policies in the housing market within three months as the economy faces a bigger risk from a slowdown than inflation.

“What the market is betting now is that government will allow the current tightening measures to be relaxed going forward, “said Sun Chao, an analyst at Citic Securities Co. in Shanghai.

VM Aims to sell 100,000 New Jetta Sedans in U.S. Barnes Says

Volkswagen AG, Europe's largest car maker, aims to sell more than 100,000 units of a new version of its best selling jetta sedan in the U.S. this year, according to the interim chief of the VW brand in the country.

VW aims to sell 1 million cars and sport utility vehicles in the U.S. by 2010, with its Audi luxury division accounting for 20 percent of that figure. The Wolfsburg, Germany-based manufacture is aiming to dethrone Bayerische Motoren Werke AG as the largest luxury car maker.

Excluding Audi, VW aims to more than double U.S. Deliveries to 450,000 by 2012 to 2013, Jacoby said in January.

Volkswagen's preferred shares added 18 cents, or 0.2 percent, to 76 euros in Frankfurt June 16 bringing their gains this year to 16 percent and valuing the car maker at 34.1 billion eruos ($44.1 billion).

Vodafone Partner Essar Weighs Stake Sale in IPO

Vodafone Group Plc's Indian partner Essar Group is considering an initial public offering for a stake in the companies Indian venture, according to four people familiar with the matter.

Essar has invited banks to advise on options including selling part of its 33 percent stake in Vodafone Essar Ltd. A sale of a 10 percent stake may take place early next year, two of the people said.

Essar has an option to sell its entire stake to Vodafone for $5 billion or it can sell a smaller stake at an independently appraised fair market trading value.

The window to sell the stake opened in May for 12 months. Vodafone, the world's biggest mobile-phone company, has yet to decide on its response and is waiting for Essar to make a proposal, one of the people said.

Vodafone is based in Newbury, England, bought a 67 percent stake in Hutchison Essar Ltd. For $10.7 billion in 2007. Vodafone's outlook for India soured a year after its entry, when six new national licenses were awarded.

Essar Group, founded by billionaires Shashi and Ravi Ruia, may reduce its stake in the telecommunications venture as it exploration and shipping businesses.

New operators “triggered very strong price declines,” Vodafone Chief Executive Officer Vittorio Colao said in May. “we are recognizing the pricing environments is different from what we had put in the acquisition business case, “he said at the time.

Vodafone also bid 116.2 billion rupees ($2.48 billion) for licenses to offer faster wireless services, the Indian department of telecommunications said in May. Vodafone won permits for nine regions, including Mumbai and New Delhi, the nation's biggest cities with the most expensive permits.

European Stock Post Weekly Drop After China, U.S. Global Growth Reports

European stocks fell this week as economic reports in China and the U.S. Signaled the global recovery may falter and as Bank of America Corp. and Citigroup Inc. reported sales that trailed analysts' estimates.

Credit Suisse Group AG, Deutsche Bank AG and Barclays Plc declined more than 3 percent as concerns grew about the performance of some U.S. Banks in the second quarter. Rio Tinto Group and BHP Billiton Ltd. Led raw material shares to the largest drop among all 19 industry groups on the benchmark Stoxx Europe 600 Index.

The Stoxx 600 fell 0.8 percent to 248.11, Paring last week's 5.4 percent rally, the biggest gain in a year. The gauge remains 8.8 percent below this year's high on April 15 on concern that the global economic recovery is losing steam as indebted European governments slash spending and China takes steps to tame inflation.

“Recent worries about the strength of the economic recovery have come back to the forefront of investors' minds”, said David Jones, chief market strategist at IG Markets in London. “The past quarter may well have been good for business but at the moment the future still looks fragile and it is difficult to see much real headway being made by stock markets in the short to medium term.”

National benchmark indexes fell in 14 of the 18 western European markets. France's CAC 40 Index lost 1.5 percent and Germany's DAX Index retreated 0.4 percent. The U.K.'s FTSE 100 gained 0.5 percent .

U.S. Companies began reporting quarterly results this week. Citigroup and Bank of America Joined General Electric Co. reporting revenue that missed analyst's estimates, triggering declines among European lenders. Companies on the Standard & Poor's 500 Index are projected to increase profits by 34 percent in 2010 and 18 percent in 2011, the fastest two year gain since 1995.

Banks Retreat

Credit Suisse lost 3.4 percent. Deutsche Bank, Germany's largest lender, slid 3.2 percent. Barclays, the U.K'.s third biggest, slipped 5.3 percent.

Rio Tinto, the world's third largest mining company, declined 5.3 percent and BHP Billiton, the biggest, slid 2.2 percent. Copper traded on the London Metal Exchange for delivery in three months dropped 4 percent this week.

Acergy SA, which designs and delivers oil services in harsh and remote offshore environments, fell 7.6 percent. BP Plc's Macondo well and as other drugs alone, according to a U.S. Food and Drug Administration staff review. FDA advisers will meet july 20 to evaluate the drug and consider whether use in breast cancer should continued, expanded or halted.

Halted Flow

BP surged 12 percent, a third straight weekly rally, as the company temporarily halted the flow of oil from its Macondo well and as people familiar with the matter said the company is negotiating the sale of assets in Alaska for up to $11 billion. BP said yesterday that it is “encouraged” after a pressure test that halted the spill indicated no sign of an oil leak after the first 17 hours.

Bayerische Motoren Werke AG, the world's biggest maker of luxury cars, surged 7.7 percent after saying higher volumes in 2010 will boost profit. The car maker forecast 2010 sales volumes will rise by about 10 percent to more than 1.4 million units, with a full year profit margin of more than 5 percent expected for the automobiles segment. 

Ferrovial SA jumped 9.3 percent after Canada Pension Plan Investment Board made a $3.47 billion offer for toll road operater Intoll Group.

Piraeus Bank SA surged 16 percent as Greece's fourth-largest lender offered to buy government stakes in two banks for 701 million euros. Piraeus Chief Executive Officer Michalis Sallas said the bank would purchase 77 percent of Agricultural Bank of Greece SA and 33 percent of Hellenic Post bank SA to create Greece's biggest bank. Greece's Finance Ministry said it is studying the offer.

Retail Sales Probably Declined in June: U.S. Economy Preview

Retail sales in the U.S. Fell in June for a second month and industrial production cooled, indicating that the expansion will moderate in the second half, economists said before reports this week.

Target Corp. and Gap Inc. were among retailers whose sales in June trailed forecasts as limited hiring and reduced housing wealth restrained spending, which accounts for 70 percent of the economy. Few price pressures and signs of slower growth encouraged Fed policy makers last month to renew a pledge to hold interest rates close to zero .

“Consumer spending is subdued and economic growth isn't going to be as strong as we've had”, said Brain Bethune, chief U.S. Financial economist at his Global Insight in Lexington, Massachusetts. “With employment still weak and asset price under pressure, the drumbeat of downbeat news is holding things down. Inflation isn't an issue for the Fed.”

The Commerce Department's retail sales report will show purchases excluding automobiles were unchanged last month, according to the survey median.

European Debt Crisis

Europe's debt crisis, which has pushed share prices lower and shaken consumer and business confidence, poses a risk to U.S. recovery. The Standard & Poor's 500 Index has fallen 11 percent from its April 23 high. The S&P Super composite Retailing gauge is down 20 percent from this year's peak on April 26.

“Less supportive” financial conditions were cited by Fed officials on June 23, when they reaffirmed forecasts for a “moderate” pace of growth and kept interest rates unchanged. Minutes of the meeting are due on July 14, and policy makers will also release their updated economic forecasts.

The outlook for household spending also reflects the waning of government incentives such as rebates to buy energy efficient appliances that spurred retail sales earlier this year.

Consumer Spending Forecast

Economists forecast a July 15 report from the Fed will show a drop in industrial production in June after a 1.3 percent surge the previous month.

Inflation receded in June, Labor Department reports are forecast to show. The consumer price index declined 0.1 percent in June after falling in May. Excluding food and energy, core consumer price rose 0.9 percent from the same month in 2009, matching the smallest year over year gain since 1966, the survey showed.

Import prices declined for a second month, while producers costs were down for the third consecutive time, reports earlier in the week may show.

China's Trade Surplus Widens in June, Adding Pressure on Yuan

China's trade surplus widened to the highest this year and exported climbed more than estimated to a record in June, adding pressure on the government to led the currency gain after the U.S. Said the yuan “remains undervalued”.

U.S. Treasury Secretary Timothy F. Geithner said July 8 will “closely” monitor the Yuan's appreciation after China scrapped a two year peg to the dollar and allowed a 0.8 percent advance in the past three weeks. Policy makers in the world's biggest exporting nation may be reluctant to step up gains while Europe's debt woes threaten demand, even as the bureau said trade has recovered to levels before the global crisis.

Currency Gains

China took a significant step last month when it began to allow markets to drive the currency higher, the Treasury Department said in a report to drive the currency higher, the Treasury Department said in a report to Congress released July 8, after postponing the release in April. It's not yet clear whether the policy shift will correct the yuan's undervaluation, it said.

New York Democrat Senator Charles Schumer called the report “disappointing”, saying “it's clear it will take an act of Congress to do the obvious and call China out for its currency manipulation”.

“Trade “has recovered to pre crisis levels“ said Zheng Yuesheng, head of the customs, bureau's statistics department in an interview on state television yesterday after the release of the data, echoing the views of some economists that the European sovereign debt crisis has yet to impact overseas sales.

Exports to the U.S. and European Union jumped by more than 40 percent for the second month, and exports to Russia climbed 84 percent in June, according to the statement. Shipments to Brazil, which more than doubled in April and May, surged by 125 percent last month .

Record Exports

Signs that global trade remains buoyant include a report by container shipping line AP Moller Maersk A/S of shortages of cargo boxes. The International Monetary Fund last week raised its 2010 global growth forecast to 4.6 percent form an April estimate of 4.2 percent.

The value of China's outbound shipments rose to a record $137.4 billion in June, the customs bureau said. The previous high was $136.68 billion in July 2008, before the global financial crisis deepened. The 43.9 percent expansion compared with the median 38 percent.

Cooler Economy

Concerns that the pace of expansion is cooling may damp market expectations for rapid currency gain, JPMorgan's Wang said. Non deliverable forwards suggest traders are betting the yuan will appreciate 1.7 percent in the coming year.

Euro  Breakup Would Unleash GDP Growth, Capital Economics Says

The possible breakup of the Euro area would save the 16 nation region from years of economic stagnation by boosting weaker members competitiveness as wall as domestic demand in Germany to spark growth, Capital Economics said.

“The threatened breakup of the euro zone, which may see as a potential disaster, would actually open the door to renewed economic growth, not just for weaker members of the zone, but for Europe as whole, “Capital Economics analysts including Roger Bootle in London said in a report released today.

Greece's debt crisis has driven down the Euro and forced the governments of Spain and Italy to embrace austerity measures and cut their deficits, clouding the outlook for recovery from the worst recession in six decades. The International Monetary Fund on July 8 kept its forecast for 1 percent growth this year in the region, which expanded 0.2 percent in the first quarter.

Europe's weaker economies face “years of economic pain” as they deflate costs and prices to regain competitiveness with Germany, which runs a large trade surplus and restrains domestic demand, Capital Economics said. Italy, Spain, Ireland, Portugal and Greece could quickly narrow the competitiveness gap if they returned to their won currencies, which would depreciate and allow exports to expand, it said.

'Escape Route'

“This would offer them an escape route from their difficulties through economic growth, rather than depression,” the economists wrote.

A full abandonment of the euro would also help Germany as a restored deutsche mark would appreciate would appreciate and make the government expand domestic demand to maintain jobs and growth, pushing up the German standard of living, according to the report . That, in turn, would further fuel imports from euro countries, helping to rebalanced Europe's economy.

In a separate report on July 7 by ING Bank NV, economists including Mark Cliffe in London said a euro area breakup is “thinkable, but unpalatable. “The region's cumulative loss in economic output is the first two years after a breakup would be “close to 10 percent, dwarfing the fallout caused by the collapse after the demise of Lehman Brothers in September 2008, “according to the report. 

Stocks, Euro, Oil Extend Global Rally on U.S. Retail Sales Stress Tests

Asian stocks, the Euro and the Won rose to their highest level this month, extending a global rally, based on the optimistic view that the global economy will avoid a second recession. Oil rebounded from a four-week low, copper climbed for a fifth day, and concern about corporate debt defaults waned.

“I doubt we'll have another global recession,” said Masayuki Kubota, a fund manager at Tokyo based Daiwa SB Investments Ltd., which oversees $51 billion. “People are  very sensitive to economic data from the U.S. If something good comes out, market sentiment easily rebounds. I'm buying sectors which were sold on excessive pessimism.”

IMF Boosts Forecast

The world economy will expand 4.6 percent in 2010, the biggest gain since 2007, compared with an April projection of 4.2 percent, the Washington based IMF said in revisions today to its World Economic Outlook. Growth next year is projected to 4.3 percent, unchanged from the April forecast.

European Union banking regulators have told lenders their planned stress tests may assume a loss of about 17 percent on Greek government debt and 3 percent on Spanish bonds, according to two people briefed on the talks, half of the worst case scenario estimated by JPMorgan Chase & Co.

A U.S. Retail-trade group said yesterday that sales were growing at the fastest pace since 2006, easing concern that a slump in consumer confidence will scuttle the economic recovery.

Deterioration Brake

“The general consensus was that the U.S. Economy was going to deteriorate and the good retail sales put a brake on that view,” said Mitsushige Akino who oversees $450 million at Tokyo based Ichiyoshi Investments Management Co.

Advantest Corp., the world's No. 1 maker of chip testing equipment, leapt 6 percent after the Nikkei newspaper said semiconductor demand in Asia is rising. Posco, South Korea's no biggest steelmaker, gained 3.1 percent and was the country's most active stock by value. China Merchants Bank Co. rose 2.7 percent in Hong Kong after forecasting higher profit.

Euro, Swaps, Commodities

The Euro gained value and reached the strongest level in seven weeks versus the dollar.  The Australian dollar rose to a one-week high versus the yen after government data showed employers added three times more jobs than economists expected.

The cost of protecting Asia Pacific bonds from non payment fell to the lowest level in two weeks. The Markit iTraxx Asia index of credit default swaps on 50 investment grade borrowers outside Japan dropped 9.5 basis points to 130.5 basis points, according to Credit Agricole CIB. That's the lowest since June 23, according to CMA DataVision in New York.

IMF Raises 2010 Growth Estimate, Sees Recovery Risk

The International Monetary Fund raised its forecast for global growth this year, reflecting on a stronger than expected first half, while warning that financial market turmoil has increased the risks to the recovery.

Canada and the U.S. are both leading advanced economies out of the worst recession since World  War 2, trailed by the Euro countries that need additional measures to boost confidence in their banks. Faster expansions in Brazil, China and India are helping to protect the global recovery as a sovereign debt crisis weighs on Europe, the IMF said.

“The overarching policy challenge is to restore financial market confidence without choking the recovery, “the IMF report said. “The new forecasts hinge on implementation of policies to rebuild confidence and stability, particularly in the euro area.

The Euro has fallen against the dollar in each of the past seven months on concern that nations including Greece and Spain might default on their debt. The MSCI AC World Index of stocks has dropped for three straight months, and the Markit iTraxx SovX Western Europe Index of default swaps insuring against losses on debt of 15 governments last month reached on all time high.

'Cloud' Over Outlook

“Recent turbulence in financial market – reflecting a drop in confidence about fiscal sustainability, policy responses, and future growth prospects has cast a cloud over the outlook, “the IMF report said.

European Union regulators are carrying out stress test on 91 banks to examine whether they can withstand a shrinking economy and a drop in government bond values. Regulators are counting on the tests on firms including Madrid based Banco Santander SA and Frankfurt based Deutsche Bank AG to reassure investors that banks have enough capital to withstand a debt default by a European country.

Impact on Lending

While there's “little evidence of negative spillovers” from the financial stress, some countries are facing “high levels of public debt,unemployment, and in some cases, constrained bank lending, “the report said.

The IMF urged governments to commit to implementing “credible” plans to lower their deficits over the medium term, including the adoption of binding, multi-year targets. Still, the developed economists don't need to start fiscal tightening before 2011, it said.

Monetary Policy

If risks materialized in economies with central bank policy rates close to zero officials may need to expand their balance sheets again to ease monetary conditions, it said.

European Stress Tests Underestimate Probable Losses on Bonds, Analysts say.

European stress tests on 91 of the region's biggest banks drew criticism from analysts who said regulators are underestimating probable losses on Greek and Spanish government bonds.

The tests are designed to assess how banks will be able to absorb losses on loans and government bonds, the Committee of European Banking Supervisors said yesterday. Regulators have told lenders the tests may assume a loss of about 17 percent on Greek, government debt, 3 percent on Spanish bonds and non on German debt, said two people briefed on the talks who declined to be identified because the details are private.

“This isn't a stress test,” said Jaap Meijer, a London based analyst at Evolution Securities Ltd. It's “merely the current valuation of government bonds”.

Credit markets are pricing in losses of about 60 percent on Greek bonds should the government default, more than three times the level said to be assumed by CEBS. Derivatives know as recovery swaps are trading at rates that imply investors would get back about 40 percent in a Greek default or restructuring.

“I wonder how much these stress test are reverse engineered to inspire confidence in the market and banks”, said Bruce Packard, an analyst at Seymour Pierce Ltd. In London. “If they are too aggressive, everyone fails.”

Stocks Rally

EU regulators are relying on the stress test to restore public confidence in banks amid concern that some lenders don't have enough capital to withstand a default by a European country.  A stress test of U.S. Banks last May spurred a rally that lifted the Standard & Poor's Financial Index 36 percent in the following seven months.

“I think they are letting the banks off lightly, said Stephen Pope, London based chief global equity strategist at Cantor Fitzgerald. “This sounds like the softest option possible. “Regulators should be applying a 20 percent haircut on Greek bonds and 7 percent on Spanish debt, he said.

Angela Markel

A CEBS spokeswoman in London declined to comment on the discussions. The EU will disclose the results of the tests, showing how individual banks would hold up to economic and market shocks, on July 23, German Chancellor Angela Merkel said yesterday. Policy makers haven't decided how much detail to disclose.

CEBS is working with the European Central Bank on several cross border lenders, which represent more than “60 percent of the EU banking sector in terms of total assets,” the agency said last month. CEBS's role is to coordinate national banking authorities and make policy recommendations to EU on regulation.

Stocks, Commodities Snap Declines, Won Gains as Asian Recovery Seen Intact

 Asian stocks(binary options) snapped four days of decline while commodities and the Won gained on optimism. The region will continue to grow amid mounting concerns about the pace of the global recovery.

 China's Premier Wen Jiabao said on July 3 the government will ensure “steady and relatively fast” growth. Gains were muted by the 125,000 decline in U.S. Payrolls last month and after European Central Bank President Jean Claude Trichet said: “I have no problem with austerity, rigor. I call this good budgetary management, “ by government controlling their deficits.

“The outlook for growth around the world is certainly not as optimistic as it was a few months ago, “ said Toby Hassall, a commodity analyst at CWA global Markets Pty in Sydney. “There will be the longer term participants in the market who are viewing this decline in price as a good time to get long”.

Investor Sentiment

 “Different sentiments among investors are colliding with each other,” said Kiyoshi Ishigane, a strategist in Tokyo at Mitsubishi UFJ Asset Management Co. which oversees $65 billion. “stocks are relatively undervalued. Although there is uncertainty in being long on equities, some investors are giving it a go.”

Acom Co. led a surge in Japanese consumer lenders after the Mainichi newspaper said the Osaka government will seek to start a business zone with looser lending rules than national laws. Acom soared 26 percent. Credit Saison Co. Jumped 9 percent.

Goldman Boosts Won

 The Won strengthened for the first time in five days, leading gains among regional currencies, after Goldman Sachs Group Inc. raised its 2010 economic growth forecast.

The Bank of Korea will keep its benchmark interest rate at a record low 2 percent at a review this week. Three predicted a quarter of a percentage point increase.

 The Euro declined from near its strongest level in six weeks amid speculation the sovereign debt crisis in Europe will force the region's central bank to keep interest rates at a record  low.

 Trichet pressed governments to trim their budget deficits, saying such action would boost economic growth by improving confidence of consumers and investors.

 
The comments yesterday reinforce plans set out by Group of 20 leaders last month in Toronto, where the countries representing 85 percent of the world economy responded to plans by European government to tackle the region's sovereign debt crisis by slashing budget deficits.

“The ECB will be forced into a lower-for-longer stance on its monetary policy,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “We are still very bearish on the euro and expect a move toward $1.15 by the end of the year.

U.K. FTSE 100 Index Fluctuates; Mining Stocks Decline, BP Shares Advance

 U.K. Stocks (binary options) fluctuated, following two weeks of losses for the benchmark FTSE 100 index, as investors speculated about the strength of the economic recovery.

African Barrick Gold Ltd. Led declines by basic resources companies, falling 2.2 percent. TUI Travel Plc rose 1.9 percent after UBS AG recommended buying the shares. BP Plc gained 2 percent after the Sunday Times reported that the company is seeking a strategic investor.

“The economic growth path will remain bumpy,” said Christoph Riniker, a strategist at Bank Julius Baer Group Ltd. In Zurich, which manages about $226 billion. “Equity investors have priced in a double dip with current valuations. So, the overall environment looks a little shaky”.

BP, struggling to contain the worst oil spill in U.S. History, is seeking a strategic investor who could help the company thwart takeover bids, the Sunday Times reported, without saying where it got the information. The shares climbed 2 percent to 328.5 pence.

Berkeley Group Holdings Plc climbed 2.4 percent to 791.5 pence. The home builder was upgraded to “outperform” from “neutral” at Credit Suisse Group AG.

 HMV Group Plc, the music and DVD retailer, rallied 1.4 percent to 56.5 pence. The company may sell its Waterstone's book chain, the Mail on Sunday reported, citing an interview with Chief Executive Officer Simon Fox.

U.S. Stocks Drop as Dow Posts Longest Losing Streak Since 2008

U.S. Stocks (binary options) plunged this week, giving the Dow Jones Industrial Average its first seven day loss since 2008, after reports showing slower then estimated growth in jobs and factory orders and amid concern China's economy has slowed.

“The problem is that when you get several important data points that fail to meet expectations, then you get people concerned that it's all going to add up to a strong reassessment of economic growth, “said Charles Knott, co-chief investment officer at knott Capital U.S. Management in Exton, Pennsylvania, who oversees about $500 million. “Stocks have taken a pounding.”

“People are looking around in confusion, wondering what's next, said Gary Stroik, vice president and chief investment officer from WBI Investment in Little Silver, New Jersey, who manages $420 million. “We have all these people rushing to the safety of Treasury bonds. It's like running under a tree during a thunderstorm.”

Bonds Beat Stocks

 Bond returns exceeded stock gains by the widest margin in nine years during the first six months of 2010, as all 10 equity industries dropped. While U.S. Stocks have fallen 16 percent and lost $2.4 trillion since April 23, they may end up surging through the end of the year, said Tobias Levkovich, Citigroup Inc.'s chief U.S. Equity strategist. Stocks should gain as Republicans gain votes in Congress in November and the benefits from European debt cutting measures become clear, he said.

“People are avoiding risk and there is an overarching concern that the economy is heading into slowdown, “said Art Hogan, chief market analyst at New York based jefferies Group Inc. “If you're concerned about the pace of the economy, then it's difficult to hang onto stocks.”

Options Intelligence Report : Financial Select Sector SPDR (XLF) & Vale S.A. (VALE)

 XLF – Financial Select Sector SPDR

A bearish three legged options combination play initiated on the XLF, an exchange traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, indicates one big options player expects shares of the underlying fund to decline ahead of August expiration. Shares of the ETF are currently down 0.55% to stand at $14.49 with just under 30 minutes remaining before the closing bell.

The pessimistic options strategist appears to have sold call options in order to partially offset the cost of buying a debit put spread. The investor sold 20,000 calls at the August $20 strike for a premium of $0.24 each, purchased 20,000 puts at the lower August $15 strike for a premium of $0.65 per contract, and finally sold 20,000 puts at the August $15 strike for a premium of $0.20 apiece. The net cost of the transaction is reduced to just $0.30 per contract.

Thus, the bearish trader is poised to profit if shares of the XLF fall another 4.75% from the current price of $15 to breach the effective breakeven price of $14 by August expiration. The investor walks away with maximum potential profits of $2 per contract for total gains of 3.150 million if the price of the underlying fund plummets 17.3% to trade at or below $12 by expiration day in August.

BP May Sell Prudhoe Bay Stake as Spill Costs Mount

Invest Plc may have to sell some of its most valued assets, including a stake in the biggest U.S. Oil field to pay cleanup costs, fines and legal damages from the largest offshore spill in U.S. History.

The 26 percent take in Prudhoe Bay on Alaska's North Slope and other BP assets could attract suitors such as China National Petroleum Corp., Occidental Petroleum Corp. and Hess Corp., said Douglas Ober, chief executive officer at Petroleum & Resources Corp. in Baltimore, the oldest U.S. Oil fund.

The Crisis is Over !

 So says Emeric Challier, a money manager at Avenir Finance Investment Managers in Paris.

Rather than being alarmed by the plunging Euro down 4.1 percent against the USD in the week before the European Union's nearly trillion dollar bailout for debt saddled members and 3.1 percent the week father he cites the economic boost a weaker currency provides.

“The advantage of the Euro drop is it will continue to support the recovery,” says Challier, who is betting that Spanish and Greek vacations become cheaper for Americans and Asians. The benefit is especially significant if the euro is depressed a year of more, he says.

The fiscal discipline that comes as a condition of the rescue package will also benefit European economists after the initial pain of government spending cuts and tax increases, says Christoph Kind, head of asset allocation at Frankfurt Trust, which manages about $17 billion.

Shares Benefit

 Kind is bullish on European equities, especially shares of manufacture that will benefit from the cheaper euro. “Automakers, capital goods producers are in good shape companies like Siemens,” he says. Siemens AG, the maker of electronics and railroad equipment based in Munich, rose 8 percent in the week after the bailout plan was completed on May 10. The shares are up 10 percent so far this year, though yesterday. Before Europe's finance ministers hammered out the giant loan package, the region's sovereign debt crisis had been deepening for months. Yields on Greek two year bonds reached 18.85 percent topping the interest rate on a Visa Gold card available in Greece.

Europe's Disciplinarian

 As Greek, Spanish, Portuguese and Irish borrowing costs rose, the budget deficits that triggered the crisis became more intractable, says Christopher Pryce, a director at Fitch Ratings in London who studies sovereign debt. He says the rescue, which includes funds from the International Monetary Fund and sovereign debt purchases directed by the European Central Bank, broke that cycle.

German Chancellor Angela Merkel is Europe's disciplinarian. She was reluctant to join the bailout amid resentment at home over fiscal recklessness elsewhere in Europe. The day the rescue was done, Merkel called for stricter enforcement of EU rules on deficits.

Greek Prime Minister Gorge Papandreou, Spanish Prime Minister Jose Luis Rodriguez Zapatero and other European leaders are trying to fall in line. Papandreou has announced three rounds of deficit-reduction measures so far this year even amid violent protests against cuts to wages and pensions. His socialist government is increasing levies on fuel, alcohol and tobacco.

Following the bailout, Spain announced a 5 percent cut in public sector wages. Today the Spanish parliament ratified the government's austerity plan, the nation's deepest budget cuts in 30 years. Portugal has pledged to slash wages and raise taxes to trim its budget deficit.

Long Term Gain

 The attack on the Euro may end later this year as more investors begin to believe in Europe's fiscal discipline, fixed income investor Jon Stopford says. “By implementing economic reform and taking some pain, there's long-term gain,” says Stopford, co-head of fixed income at Investec Asset Management Ltd. In London, which oversees about $65 billion.

 “European countries are learning the right way to confront this situation, “says Fabrizio Fiorini, head of fixed income at Aletti Gestielle SGR Spa in Milan, who manages about $8 billion. “And the market will discover this is strong for European bonds, stocks and the euro. In one or two years, everyone will discover we did the right thing”.

This trader sees that Europe has taken responsible measures toward acquiring investor's trust. Today's trader advice is BUY BUY BUY EUR while it's low.

Leading Economic Index: April Pace Signals that Expansion May be Slowing Down 

Info Bullets: 

-The index of U.S leading indicators probably climbed in April at the slowest rate in more than a year, a clear sign that economic growth may cool down to a more sustainable pace, at least that is the opinion of the vast majority of economists. 

-The Conference Board's measure of the outlook for three to six months rose 0.2 percent, the smallest gain since March 2009, according to the median estimate of 59 economists surveyed by Bloomberg News.  

-The initial factory-induced rebound from the worst recession since the 1930s, which is broadening to include advances in consumer spending and service industries, still faces hurdles. A slump in building permits, little letup in layoffs and retreating stock prices highlight risks to the strength of the economic recovery, as concern over the European debt crisis mounts.  

-“Large gains in the leading index over the last year are fairly typical of an early rebound from recession and should give way to more moderate growth as the recovery matures”, said Aaron Smith, a senior economist at Moody's Economy.com in West Chester, Pennsylvania.  

-Caterpillar Inc., the world's largest construction – equipment maker, is among companies profiting from the rebound in exports and orders. The Peoria, Illinois-based company projects sales to increase in 2010 as demand from mining and energy markets pick up, Chief Executive Office Jim Owens said May 5 in an interview in Washington. 

“We're seeing a very sharp recovery in 2010”, Owens said in the interview. “Exports by the end of the year will be close to record levels”  

-On the Euro-USD front, the outlook may be turning a little murkier. The jump in the value of the dollar caused by mounting concern over European debt means American goods will become more expensive to buyers overseas.

Seven of the 10 indicators that make up the leading index are known ahead of times: stock prices, jobless claims, building permits, consumer expectations, the yield curve, factory hours and supplier delivery times.

 The economy will expand 3 percent this year, according to the median forecast of economist's surveyed form April 29 to May 10. That compares whit a 2.4 percent contraction last year.