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  1. madden

    AUG PMI in EUROZONE

    De madden,

    Euro-Zone Aug Services PMI 58.0 Vs 58.3 In Jul - Sources
    Euro-Zone Aug Services PMI Forecast 57.9
    German Aug Services PMI 59.8 Vs 58.5 In Jul -Sources
    German Aug Services PMI Forecast 58.1
    French Aug Services PMI 58.4 Vs Jul 58.9 - Sources
    French Aug Services PMI Forecast 58.5
  2. madden
    SYDNEY (Dow Jones)--Australia's services sector recorded a slower pace of growth in August than July, a performance gauge produced by an industry group published Wednesday shows.
    The Australian Industry Group-Commonwealth Bank Performance of Services Index fell 4.4 points in August from July to 51.6.
    An index reading above 50.0 indicates expansion in the sector while a reading below 50.0 shows contraction.
    Commonwealth Bank Chief Economist Michael Blythe said the slower pace of growth in activity in August highlighted the sensitivity of the economy to interest rate rises.
    The Reserve Bank of Australia raised its official cash rate target 25 basis points to 6.5% in August.
    "The pullback in services sector activity after the August rate rise was somewhat larger than evident after the rate rises in 2003, 2005 and 2006," Blythe said.
    "That said, the domestic economy retains a fair degree of momentum at present. That momentum is the best insulation there is against the negatives at work."
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  4. madden
    LONDON (Dow Jones)--Retail trade in the euro zone disappointed in July, growing more slowly than economists had expected.
     
    The volume of retail sales rose just 0.1% on the month in July, dragged down by sales of nonfood products such as clothing and household goods which fell by 0.1% on the month, European statistics agency, Eurostat said Wednesday.
     
    Compared with July 2006, retail sales grew 0.5%, substantially less than economists had predicted. In a Dow Jones survey last week economists said they expected sales to grow 0.3% on the month and 1.0% on the year.
     
    Eurostat revised June's data upward, reporting a gain of 0.6% on the month, up from a previously estimated 0.4%, and growth of 1.0% on the year, up from 0.9%.
     
    Most economists had expected the growth rate to rise in July, predicting that warm weather and shop discounting would encourage shoppers to spend money. However, Wednesday's data suggest that the expected improvement in consumer sentiment and spending has yet to materialize.
     
    In Germany - the euro zone's largest economy - retail sales posted lower growth than in June, rising 0.3% on the month, compared with a stronger 1.2% a month earlier.
     
    The retail sales data are unlikely to affect the outlook of the European Central Bank, which is currently more focused on the recent financial market turmoil.
     
    The bank's governing council will meet Thursday to set interest rates for the single currency area and is widely expected to leave them on hold as it tries to assess the impact of the recent market fallout.
     
    It has raised the key interest rate eight times since December 2005 in a bid to curb inflationary pressures in the region's economy.
     
    In the 27 countries that make up the European Union, retail sales grew by 0.1% on the month and 2.2% on the year.
     
     
    The following table details monthly percentage changes in retail sales volume in July and June:
     
     
     
    July June
    Euro Zone +0.1 +0.6r
    Austria -1.6 +2.1r
    Belgium -3.5 +3.0r
    Finland -0.4 +1.5r
    France n/a +0.4r
    Germany +0.3 +1.2r
    Greece n/a +0.7r
    Ireland n/a -2.9r
    Italy n/a n/a
    Luxembourg -0.4 +10.6r
    Netherlands n/a +1.7r
    Portugal -1.2 +2.7r
    Spain 0.0 +0.4r
    Slovenia -0.9 +0.4
     
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  5. madden
    WASHINGTON (Dow Jones)--U.S. construction spending unexpectedly tumbled in July as outlays for housing plunged, the government said Tuesday.
     
    Total spending decreased by 0.4% at a seasonally adjusted annual rate of $1.169 trillion, the Commerce Department said. Spending rose 0.1% in June; originally, June spending was seen 0.3% lower.
     
    Wall Street had expected July construction spending would be flat. The 0.4% fall was the largest decline since a drop of 0.6% in January 2007.
     
    Residential construction spending decreased in July, down by 1.4% to $541.9 billion. Residential spending decreased 0.4% in June; it was originally seen down 0.7% for the month. Year over year, residential was 15.6% lower in July.
     
    Non-residential construction spending rose by 0.6% in July. Outlays climbed for churches and schools, but fell for roads.
     
    Private-sector construction spending during July fell 0.7% to $880.1 billion. Spending went 0.2% lower in June.
     
    Public, or government, construction spending increased 0.7% to $289.0 billion. June outlays rose 1.0%. Federal government construction outlays dropped by 0.4%, but state and local spending - much larger than federal spending in dollars - increased 0.8% to $269.6 billion.
     
    Copyright © 2007 Dow Jones & Company, Inc.
  6. madden
    LONDON (Dow Jones)--U.K. manufacturing output slumped in July, reversing the recent positive trend, led by a drop in the manufacture of transport equipment.
     
    Figures released by the Office for National Statistics Thursday showed that manufacturing output fell 0.3% on the month in July - the first decline since a 0.8% fall in February this year. On the year output rose 0.8%. That compares with a 0.1% rise on the month in June and a 1.0% annual gain.
     
    A Dow Jones Newswires survey of economists had forecast manufacturing output would rise 0.2% on the month and 1.2% in annual terms.
     
    The June data were revised from a 0.2% monthly gain and a 0.9% year-on-year increase, ONS said.
     
    Despite reporting the first drop in five months, an ONS spokes person said that this didn't signify the end of the recent pickup in the sector as the monthly data is considered a volatile measure of output in the sector and could rise once more in the coming months.
     
    Among the six sectors that fell within manufacturing, ONS said the largest fall was a 2.6% drop in transport equipment. That was the largest fall since a 2.8% drop in October 2005 and was driven by a decline in the manufacture of aircraft and the building and repair of ships.
     
    Among the seven sectors that rose, the largest gain was a 1.2% monthly rise in the production of paper, printing and publishing.
     
    The broader measure of industrial output also slipped on the month in July but by a smaller 0.1%. On the year activity picked up from the June level, rising 0.9% compared with July 2006.
     
    Output was weaker than expected, with economists in a Dow Jones Newswires survey forecasting an increase of 0.2% on the month and 1.0% on the year.
     
    In June industrial output was flat on the month, a revision from a previously reported 0.1% rise, while on the year production rose an unrevised 0.8%.
     
    In the three months to July, data that ONS said presents a more reliable picture of the sector as it smoothes out monthly fluctuations, manufacturing output rose 0.8% from the previous three-month period and was 0.9% higher than the corresponding three-month period a year ago.
     
    Industrial production, meanwhile, also rose 0.8% compared with three months earlier and was 0.8% higher compared with a year ago.
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  7. madden
    NEW YORK (Dow Jones)--U.S. manufacturing activity expanded at a slightly slower pace in August, although the gains had positive implications for the broader economy, a report Tuesday said.
     
    Private research group the Institute for Supply Management said that its index of manufacturing activity moved to 52.9 in August, from 53.8 in July and 56.0 in June. Readings over 50 point to an expansion of activity, while those under that number denote contracting activity. Economists surveyed by Dow Jones Newswires had expected the August index to come in at 53.0.
     
    "Viewed from the manufacturing sector, the overall economy continues to grow at a significant rate," said Norbert Ore, who directs the survey for the ISM.
     
    In the details of the report, the ISM said inflationary pressures continued to grow, with the prices index hitting 63.0, from 65.0 in July. The prices index stood at 68.0 in June.
     
    Meanwhile, the new orders index came in at 55.3, after 57.5 the prior month, while August's production index was 56.1, versus 55.6 the month before.
     
    The group also reported that hiring at factories grew more quickly, with the employment index coming in at 51.3, from 50.2. The inventories index came in at 45.4, down from July's 48.5.
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  8. madden
    NEW YORK (Dow Jones)--Richmond Federal Reserve President Jeffrey Lacker said he would consider an interest rate cut if the data on inflation and consumer spending suggest it was appropriate, according to Reuters.
     
    "If evidence arrives that we need a policy move, of course I will consider it and I will take that evidence seriously...That evidence would be of the nature of information that alters the outlook for real spending and inflation," Reuters cited Lacker saying Tuesday.
     
    However, he told Reuters that he "would not like people to believe that our sense of concern about inflation is diminished" because of the recent market turmoil.
     
    Lacker is not currently a voter on the Federal Open Market Committee. Last year, he consistently voted for a rate hike after the central bank stopped tightening policy in August.
     
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  9. madden
    Romania's economy slowed markedly in the second quarter despite hefty private spending, heightening concern about the country's ballooning external debt.
    Romania's gross domestic product expanded 5.6% in the second quarter, sharply down from the 7.4% pace posted in the same period a year earlier, and close to the rate achieved in 2005, when the country was wracked by devastating floods.
    Most economists had anticipated an acceleration from the 6.0% growth of the first three months of the year. Now they must pencil in the effects of higher food prices and lower farm output, both large components of the economy.
    The Romanian Statistics Institute will provide details on Friday, but recent wage and retail data suggest perilous imbalances are growing in the new European Union member.
    The risk is that Romania, after six years of deficit reduction and fiscal reform ahead of joining the E.U., is undergoing "reform fatigue," said Ciprian Dascalu, senior economist for ING in Bucharest.
    He worried that "policy complacency" would send Romania along the boom-and-bust path trod by Hungary, where years of lax fiscal policy sparked runaway inflation and debt levels. Current austerity measures will probably keep that economy from operating in high gear through 2009, according to Nordea analyst Anders Svendsen.
    Hence Dascalu's fears. "We are concerned that what we are experiencing now may be as good as it gets for the Romanian economy for some time," said the ING economist, who had expected growth of 7.1% in the second quarter.
    Romania's main stock market index declined 0.8% on Tuesday, its fifth consecutive daily drop, and is now down 11% from its July 24 high.
    Drought around the Black Sea region has hurt more than half of Romania's arable farmland. That could knock as much as one percentage point off Romania's GDP this year, Ion Ghizdeanu, president of the national CNP forecasting commission, warned over the summer.
    Achieving the CNP's forecast for 6.5% growth this year would require a substantial acceleration, even as the bulk of the damage to the agricultural sector - which accounts for 10% of GDP and a third of the work force - materializes during the autumn forecast.
    Romania has a strong fiscal position, with its budget deficit totaling only 0.2% of GDP in the first half of the year. However, the government already has plans to push the deficit to 2.7% of GDP, with much of the widening due to hefty hikes to pension benefits.
    Euphoria at joining the E.U. this year appear to have translated quickly into stalled structural reforms and a consumer binge.
    That's evident in surging retail sales, which rose 23% in July from the same month a year earlier, the statistics institute reported Monday. That effectively matches a 24% annual jump in net wages during the same month.
    Those wage gains, driven by concessions to public-sector unions and by labor shortages in the booming construction sector, more than offset productivity gains achieved as foreign firms enter Romania's manufacturing, retail and banking sectors.
    "Higher wages are likely to lead to an acceleration of the trade gap widening," said Nora Rusu, an economist for ING in Bucharest.
    The consumption binge - led by food and drink sales - is also outpacing capital investment, which promises future yields. Fixed investments rose 18.4% on the year in the second quarter.
    That compares poorly with neighboring Slovakia, another new E.U. member whose GDP grew at an annual rate of 9.4% in the second quarter, the statistics office there reported Tuesday.
    Consumer spending is accelerating in Slovakia, too - up 7.3% on the year - but that's only a fifth above the 6.3% growth of fixed investment. Moreover, Slovakia is harvesting past investments, as exports rose 18% on the year and imports only 14%.
    As a result, Slovakia's current account deficit - a measure of reliance on external financing and also a proxy for vulnerability to any global credit crunch - is about 5.4% of GDP, down from almost 9% in 2006.
    In Romania, by contrast, exports rose 9.2% on the year in June when measured in euros, while imports rose 22.2%. Romania's current account deficit hit 10.3% of GDP last year and looks likely to exceed the CNP's 2007 forecast of 11.5% - or EUR13.35 billion - by the end of the year.
    There are "important and divergent trends between countries," said Neal Shearing, an emerging-market analyst for Capital Economics.
    That's evident even in the employment picture.
    The Romanian labor force is migrating to the public sector, an "unusual situation" for a fast-growing economy reaping a bonanza in foreign direct investment, said ING's Rusu.
    With labor costs still only half of those in Slovakia, there's still time for Romania to correct its course and focus on productivity gains rather than temporary boosts to household incomes, said Dascalu.
    "It all depends on policy makers," he said. "So far, their decisions are pointing to a populist path."
     
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  10. madden
    SINGAPORE (Dow Jones)--The Japanese currency has taken another leg higher in Asia Wednesday on comments suggesting further dark days for the yen-funded carry trade, but there is no need to get swept away yet.
     
    Japan's banking minister, Yoshimi Watanabe, has startled markets a bit with what would appear to be a fairly benign comment - that there's always the chance of further carry trade unwinding.
     
    As Westpac Banking Corp.'s Sean Callow puts it, "I guess the fear is someone in Watanabe's position might be seeing signs of outstanding yen carry positions that had on some measures seemed roughly squared."
     
    This has taken the dollar down to around Y115.74 and the euro to Y157.28, with corresponding weakness in the higher-yielding New Zealand and Australian dollars.
     
    While things have calmed down a bit in the recent weeks, there remains the risk of further bouts of global market volatility, especially as the commercial paper market is under strain. In a risk-averse environment, the Japanese currency tends to fare well.
     
    The argument goes that a rise in the yen prompts Japanese individuals to bring funds back from higher-yielding investments in places like Australia and New Zealand. A higher yen makes the carry trade less appealing as it eats into the relative yield advantage of parking funds offshore.
     
    The carry trade is also a murky beast, which creates an environment ripe for rumor and mystique. It is difficult to get any real idea of the magnitude of it. Japan officials have admitted as much. So it's hard to tell how much unwinding may then be occurring.
     
    Still, for all the chatter about hordes of nervous households in Japan bailing out of foreign assets and into bank deposits or Japanese equities, so far the market gyrations don't seem to have produced such a scenario. Periodic volatility may continue but as the aftershocks become smaller and smaller, carry-trade demand should remain.
     
    Macquarie Research's Richard Jerram notes this argument has history on its side.
     
    Looking at investment trust flows during previous episodes of yen strength in 2003-2004, Jerram says there is no evidence this had an impact on flows into foreign interest-bearing investment trusts.
     
    "There continues to be talk about unwinding of yen carry trades," he said in a note to investors. "Just as estimates of the magnitude of the positions were elusive, the talk now must be taken with the proverbial grain of salt."
     
    Jerram also disputes the idea Japanese investors would want to put their money back into local equities, anyway, which carry their own risk. "It seems unlikely that people would sell a foreign bond fund and put the proceeds into domestic equities," he says.
     
    Some of the skepticism is shared by Marc Chandler at Brown Brothers Harriman.
     
    The recent rise in the yen is not so much a function of unwinding of carry trades by Japan investors, but rather, he says, speculators at the Chicago Mercantile Exchange switching their positions to go long the yen.
     
    Noncommercial positions have turned long yen, though modestly so. Real money accounts have also been buying the yen as foreign investors have bought Japanese bonds.
     
    Regardless of where the yen gains have come from, they may not continue. As noted before, volatility is likely to become less influential in coming months as investors adopt a more sanguine view of the troubles in the U.S. housing market.
     
    Also, as Chandler notes, the October start of the second half of the Japanese fiscal year isn't far off. That could bring with it fresh demand from Japanese investors for foreign assets.
     
    There is also no immediate risk of a Bank of Japan rate hike to make local assets more appealing from a yield perspective.
     
    Credit Suisse's market pricing shows just a 10% chance of a 25 basis point rate hike at the September 19 meeting, with only 29 basis points of hikes priced in over the next 12 months. Hardly a reason to put money in the bank in Japan.
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  11. madden
    Sell stops in GBP/USD below 2.0125 on top of those already triggered at 2.0148 are putting 2.0 back in range, says a dealer at Societe Generale. Says intraday technicals show a downward trend forming, and advises selling on a break below Friday's low of 2.0111. Pair now at 2.0134, day's low 2.0123 on EBS. (JSE)
     
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  12. madden
    Calyon sees Romanian Leu under pressure and reiterates its call to sell the RON against Hungary's forint. Says Romanian central bank interest rates are likely to head up from 7% given rising inflation, even as the economy slows and current account deficit widens. Analyst Nigel Rendell notes "increasing nervousness over the RON's fate" as the euro is up 7% against it from early July. EUR/RON +1.2% to 3.30 in Wednesday trading. (CRE)
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  14. madden
    U.K. seasonally adjusted input prices fell 0.5% on the month and grew 0.7% on the year in August, below economists' expectations. Output prices rose 0.1% on the month and 2.5% on the year, the Office of National Statistics says. Core output prices, which exclude volatile items, such as food, drink, tobacco, and petrol, rose 0.2% on the month and 2.4% on the year. In a DJN survey, economists predicted that output prices would rise 0.1% on the month and 2.4% on the year. They estimated that input prices would fall 0.2% on the month and rise 0.9% on the year, and that core prices would rise 2.3% on the year.
     
    Copyright © 2007 Dow Jones & Company, Inc.
  15. madden
    Japan Bank Minister Yoshimi Watanabe says in early afternoon session that Tokyo shares may fall more on U.S. subprime mortgage problems. "I think this is in line with the views of everyone in the market," says manager at sales department at Japanese brokerage. Nikkei could dip below Aug. 17 low of 15262.10 if players see greater impact from subprime issue, such as USD/JPY fall that could significantly affect earnings outlooks for Japanese exporters, he says.
     
    Japan Bank Minister Watanabe's comment there's chance JPY carry trade unwinding will continue is likely behind recent drop in EUR, USD, NZD and others vs JPY; EUR/JPY falls as far as 157.30 with USD/JPY briefly down near 115.75. Comments keep alive view that carry trade unwinding could pick up again amid uncertain global environment. "His remarks may have been used as a cue to buy the yen," says trader at Japan bank; adds impact may be short-lived as unclear on what ground Watanabe thinks this may be the case. "It's necessary to pay attention to whether he has clear evidence the unwinding will continue," says another trader. Westpac's Sean Callow says "the fear is someone in Watanabe's position might be seeing signs of outstanding yen carry positions that had on some measures seemed roughly squared."
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  16. madden
    NEW YORK (Dow Jones)--The Institute for Supply Management's manufacturing index is expected to have slipped a bit, but remained firmly in positive territory in August.
    The median estimate of 13 economists surveyed Friday by Dow Jones Newswires is for a reading of 53.0 in August for the ISM manufacturing index, down slightly from the reading of 53.8 in July. Readings above 50 point to expansion in activity.
    The ISM is due to release its manufacturing index for August at 10:00 a.m. EDT (1400 GMT) on Tuesday.
    After the release of the National Association of Purchasing Management-Chicago's purchasing managers index on Friday, which showed a modest increase to a reading of 53.8 from 53.4, Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn., wrote "we still look for a modest deceleration in the ISM index for August. We are forecasting a decline from 53.8 to 53.0 and are not altering that view in light of the Chicago PMI results."
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  17. madden
    Revenue in the January-July period stood at 70.9 billion lei ($29.6 billion) and represented 18.2% of GDP. Expenditure totaled RON69.05 billion, or 17.7% of GDP.
     
    The state budget, which makes up the bulk of the country's general consolidated budget, posted a deficit of RON3.55 billion in January-July, but was offset by surpluses for the local and social security budgets.
     
    In the first half of 2007, the general consolidated budget posted a deficit of 0.19% of GDP, compared with a surplus of 1.12% of GDP in the corresponding period a year earlier.
     
    Romanian Finance Minister Varujan Vosganian said last week that he expects a year-end budget deficit of about 2% of GDP, which is below this year's budget deficit target of 2.8% of GDP and below the European Union's 3%-of-GDP budget deficit limit.
     
    Romania should avoid any risk of exceeding the E.U. limit, he said.
     
    The European Union has warned newcomer Romania that it may face disciplinary action as its 2007 deficit is likely to exceed the E.U. limit. According to E.U. accounting methods, the Romanian budget deficit will total 3.2% of GDP this year.
     
    In 2006, Romania's budget deficit, according to the European System of Accounts, stood at 1.9% of GDP, compared with the 1.7% of GDP calculated by the Romanian authorities.
     
     
     
     
     
    Web site: www.mediafax.ro
     
  19. madden
    The latest finance ministry data indicate revenue to the general consolidated budget totaled 76.1 billion lei ($31.8 billion) in the first eight months of this year, up from RON63.55 billion in the corresponding period last year. The ministry didn't provide expenditure data.
     
    Romania's general budget posted a surplus last month on the back of local and social security budgets. In the first eight months of this year, local budgets posted a surplus of 0.9% of GDP, sustaining again the growth in the general consolidated budget.
     
    In the first half of 2007, the general consolidated budget posted a deficit of 0.19% of GDP, compared with a surplus of 1.12% of GDP in the corresponding period a year earlier.
     
    The Romanian government has set a budget deficit ceiling of 2.8% of GDP for this year, but Vosganian said last week he expects a year-end budget deficit of about 2% of GDP.
     
     
     
    Agency Web site: http://www.mediafax.ro
  20. madden
    BUCHAREST (Dow Jones)--Weaker-than-expected Romanian economic growth of 5.8% in the first half of the year drove analysts Tuesday to lower their year-end forecasts to well below official estimates, news agency Mediafax reported.
     
    Romania's economy has recorded robust growth over the past few years, with growth accelerating to 7.7% last year, and Romanian authorities expect economic growth of 6.5% this year.
     
    "It's highly unlikely that Romania's GDP growth will top 5.8% this year," said Ionut Dumitru, an analyst at Raiffeisen Bank Romania.
     
    Agriculture will be mostly responsible for a slowdown in GDP growth in the remainder of the year, he said, as the country has been hit by the worst heatwave in the last 60 years.
     
    Earlier Tuesday, Romania's Statistics Institute said second-quarter GDP grew 5.6% compared with 7.8% in the year-earlier period, but didn't give any reasons for the slowdown. It said it would give further details on GDP growth in a press conference Friday.
     
    Analysts, however, cited taxes, lower industrial output and the country's heat-ravaged agriculture sector.
     
    "Weaker tax revenues, which in the first quarter trimmed GDP growth (of 6.0%) by 1 percentage point, might have lingered in the second quarter as well," said Ciprian Dascalu, senior economist at ING Bank in Bucharest.
     
    "Of course, we can only assume these to be the main reasons for the slowdown," he added.
     
    Radu Craciun, an analyst at ABN Amro Romania, said he expects economic growth to range between 5.5% and 5.9% this year.
     
    Analysts at international ratings agencies also revised forecasts on Romania Tuesday.
     
    "The slowdown in growth is expected. There is probably some base effects after last year's rapid growth," said Kenneth Orchard of Moody's Investors Service Inc., adding the ratings agency's latest data indicate Romania's economy will grow 5.8% in 2007.
     
    "First-half GDP growth of 5.8% was below my expectation of 6-6.5%. I had thought GDP was likely to grow 6.5% over 2007 as a whole. I am revising that down to 6.0%," said Andrew Colquhoun, a senior analyst at Fitch.
     
    The slowdown in first-half GDP growth had an immediate impact on the Romanian leu, which sank to a near four-month low of RON3.3105 against the euro Tuesday afternoon.
     
     
     
     
    http://www.mediafax.ro
  22. madden
    FRANKFURT -(Dow Jones)- The European Central Bank is widely expected to keep interest rates on hold Thursday on volatile financial market conditions and liquidity concerns, but may flag plans to lift rates later this year.
    Thirty-nine of the 51 private-sector banks polled by Dow Jones Newswires say that the minimum bid rate for the ECB's weekly refinancing operations will remain at 4.0%.
    "Maintaining the status quo seems to be the most probable scenario, since it would give the central bank more time to judge the financial situation and its impact on growth and inflation," BNP Paribas economists wrote in a note to clients.
    News about the exposure of some financial institutions to bad U.S. sub-prime mortgage debt has pushed down equities and led to a global liquidity crunch. This has prompted central banks to feed extra liquidity into the markets. The U.S. Federal Reserve also cut the discount rate by 50 basis points in August - an option that the ECB could adopt should liquidity concerns persist.
    "It would be surprising for the European Central Bank to further tighten monetary conditions within the current context: its U.S. counterpart looks likely to cut Fed Funds at least twice, in September and October, in order to cushion the impact of the sub-prime crisis...and no one is yet able to get a clear idea of the fallout from the credit crisis," Natixis economists said in a research note.
    ECB President Jean-Claude Trichet and executive board member Lorenzo Bini Smaghi have also both hinted that a September rate hike is off the table.
    Trichet said last week that the governing council's previous stance of early August, which at that time indicated a rate hike on Sep. 6, was issued before liquidity concerns erupted.
    Elevated money market rates represent "a tightening of monetary conditions, equivalent to a 50 basis point hike in official rates under normal circumstances," said Jose Luis Alzola, a Senior European economist at Citigroup.
    At 0945 GMT, overnight rates traded at 4.34%-4.46%.
    Demand at the ECB's weekly main refinancing operation Tuesday was strong, with the ECB awarding funds at a rate of 4.15% and higher.
    But inflationary pressure, and resilient real economic data may still prompt the ECB to hike rates later this year, economist said.
    In particular, ECB staff may revise up their inflation projections for 2007 to an annual rate of 2.1% from 2.0% currently. The ECB aims to anchor inflation at a level "close to, but below" 2% over the medium term.
    Trichet will present ECB staff's independent projections for euro zone growth and inflation at the press conference following Thursday's rate verdict.
    Economists will also listen carefully to Trichet's assessment of current market conditions and whether he uses the "vigilance" key word that typically indicates a rate increase at the next rate-setting meeting on October 4.
    Ten of the 51 economists polled by Dow Jones Newswires expect the ECB to lift rates to 4.25% Thursday. Thirty-three economists see rates hitting 4.25% by year-end.
     
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
  25. madden
    LONDON (Dow Jones)--The euro zone's trade surplus with the rest of the world narrowed in July from June, but export growth remained strong despite the strength of the region's currency.
    The 13 countries that share the euro recorded a surplus of EUR4.6 billion in trade in goods with the rest of the world in July, the European statistics agency Eurostat said Monday, narrower than the figure reported in June, but well ahead of the EUR1.1 billion surplus recorded a year earlier.
    Eurostat revised June's surplus down to EUR7.6 billion from an originally reported EUR7.8 billion surplus.
    The data came in below the EUR5.1 billion surplus predicted by economists in a Dow Jones survey last week, but still suggest that exports continue to perform well.
    Eurostat said exports grew 15% year-on-year, rising to EUR129.7 billion from EUR113.1 billion, while imports rose 12%, and the euro zone's internal dispatches grew 10%.
    The recent strength of the euro against the dollar has prompted complaints from some politicians that the exchange rate would harm exports and business prospects for the region. Last week, the euro reached a fresh new high against the dollar.
    And while Monday's data suggest that the currency isn't affecting export growth, they are unlikely to affect the European Central Bank's outlook on interest rates.
    The ECB left its key interest rate on hold at its September monthly policy meeting due to uncertainty about the impact of the ongoing liquidity crisis that has been affecting financial markets since the end of July.
    Many economists had expected the ECB's Governing Council to raise the rate by 25 basis points to 4.25% before the year's end, but many now think this is heavily dependent on whether or not the market turbulence persists.
    In the first six months of the year, the data showed that the euro zone's trade surplus with the U.K. increased, compared with the first six months of 2006, while its surplus with the U.S. fell.
    The region's deficit with China continued to widen, while the deficit with Russia narrowed further.
    The euro zone's energy deficit was EUR105.7 billion in the six months to June, slightly narrower than the EUR125.4 billion deficit recorded in the six months to June 2006.
    Exports of manufactured goods remained strong, growing 10% on the year.
     
     
    Copyright © 2007 Dow Jones & Company, Inc.
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