Dollar Extends Gain on CPI Expectations

The U.S. dollar extended its gain against other major currencies on Forex today as the investors expect higher April CPI figures from the report that will be released today at 12:30 GMT.

UPDATE: Chile March Industrial Output Falls 1.0% On Year

UPDATE: Chile March Industrial Output Falls 1.0% On Year

(Updates with additional data and an analyst's comments)

SANTIAGO (Dow Jones)--Chile's industrial output decreased 1.0% year-on-year in March, which compares with a 5.7% increase in February, Chile's government statistics agency INE reported Wednesday.

The March tumble was well below analysts' expectations of a 2.5% increase.

According to the INE, the drop was mostly due to the seasonal effect of the three-day Easter holiday weekend.

In 2007, industrial output rose 4.1% from the previous year.

Industrial sales fell 0.7% on the year in March, which compares with a 2.4% on-year increase in February, INE reported.

Among industrial sectors, capital goods output fell 12.3% on the year, compared with a 42.8% surge in February. Capital goods production is a key indicator for future growth.

Durable goods output tumbled 6.1% compared with a 25.1% increase in February.

On the year, intermediate goods output growth inched up 0.1%, versus a 3.7% on-the-year gain in February.

Consumer goods output slid 1.6% in March, down from 7.3% growth in February.

"The overall set of demand and supply side indicators was relatively weak but the March figures are beset by the significant distortion introduced by the impact of Easter week holidays," Goldman Sachs economist Alberto Ramos said in a comment.

He added that demand-side indicators were still relatively robust, in line with "vibrant investment spending," mostly in the mining and energy sectors, and strong private consumption.

Retail sales in March, meanwhile, jumped 4.2% on the year in real terms and 10.1% from the previous month, the INE reported. The gain was due, in part, to a 3.2% on-year increase in department store sales and a 5.2% gain in specialized store sales.

Supermarket sales for the month rose 4.4% on the year in real terms and 16.3% in nominal terms, the INE reported.

INE Web site: http://www.ine.cl

-By Carolina Pica, Dow Jones Newswires; 56-2-460-8544; carolina.pica@dowjones.com

(Patricia San Juan contributed to this report)

(END) Dow Jones Newswires

April 30, 2008 12:56 ET (16:56 GMT)


Copyright 2008 Dow Jones & Company, Inc.

U.S. Market Update

The Senate Finance Committee heard testimony from Fed officials today over the state of the economy. Fed Chairman Bernanke once again defended the actions taken by the Fed in rescuing Bear Stearns last month. The New York Fed's Geithner called for stronger supervision of the financial industry and urged banks to put in place more fail-safes to prevent the liquidity problems that felled BSC. Geithner added a new justification for the Fed rescue, saying that a lack of response from the Fed “would in effect have penalized” other businesses and banks that had “behaved more prudently” than BSC.

Weekly jobless claims sent stocks lower along with U.S. Teasury yields after claims climbed above the 400K mark that is often associated with a recession. The initial jobless claims data released today indicated that the economy is seeing the highest level of unemployment payouts since September 2005. The number climbed 38,000 to a total of 407,000, although traders should note that a Labor Department official said that the early timing of the Easter holiday may have influenced the reading. Immediatly the May fed fund future saw the odds of a 50 basis point cut rise from roughly 15% to closer to 25%. The March ISM non-manufacturing reading came in a smidgen higher than expectations, at 49.6 v 48.5e. The data showed the services sector contracting only slightly last month, indicating a stronger performance than February. Treasury futures did move away from their best levels after March Non-manufacturing ISM beat expectations but yields still remain marginally lower.

Financials opened the session with some profit taking in the wake of further bank write-downs across the pond, while Lehman and Citigroup analysts were seen cutting some numbers. LEH indicated overnight that it would shutter its UK subprime units. “It's another nail in the coffin for the subprime section of the market,'' said Ray Boulger, senior technical manager at mortgage broker John Charcol Ltd. “They had been pretty active even after some other lenders pulled their horns in.''

Altria Group and other cigarette makers spiked this morning on news that the industry had won a critical legal victory blocking a $200B lawsuit against them. The Federal appeals court decision blocked a racketeering class-action suit filed on behalf of smokers of "light" cigarettes. The court reversed a lower court decision allowing the suit to move forward.

Various technology names also got off to a weak start after CSCO was downgraded to neutral at UBS, while Garmin and Memc Electronic cut their outlook. Garmin's CFO said he sees Q1 revenues down 40-50% m/m, while MEMC revised its Q1 revenue guidance down to $500M v $559Me, from earlier guidance of $560M. The company noted that it saw a good deal of plant downtime due to equipment maintenance problems, saying it would recover most of the lost revenue in the second half. Offsetting some of the weakness in tech were shares of RIMM and MU which have posted solid gains after earnings reports.

Crude mounted another mid-day rally on very little in the way of news sending the May contract back above $105. June gold began the session in the red after the Greenback posted some gains in the overnight session but has since rebounded back towards $910.

In currencies, the price action was choppy as softer economic data reverberated in both Europe and the US regions. EUR/USD initially broke below the 1.56 level after weaker-than-expected retail sales data for the Euro Zone. However, the US weekly jobless claims neutralized any upward momentum in the USD. The ECB's Wellink noted that the US was probably near or in a recession, adding that he was more worried over EU inflation than economic growth. ECB's Garganas also expressed his concerns over inflation, which is boilerplate for the ECB. French officials continued their verbal currency intervention ahead of next week's G7 meeting.

EUR/JPY encountered some selling pressures above the 161 level as Japanese exporters took advantage of the recent climb in the cross. Dealers noted that fresh Toshins issues had pushed the JPY lower since the start of the month. JPY buying accelerated when global equity markets turned lower following the soft round of economic data on Thursday. USD/JPY dipping back towards the 102 level during the NY morning after probing the 103 neighborhood in Europe.

The pound was broadly weaker following the March PMI data and BoE credit conditions report. GBP/USD fell over a big figure from the highs seen during Asia and tested the 1.9760 level. EUR/GBP retested above the 0.79 level before retreating on weak Euro-zone retail sales data and continued M&A flow. GBP/JPY probed below the 203 level.

CAD strengthened on continued technical buying following the failure to sustain above the 1.03 level earlier in the week. USD/CAD was 1.0070, with strength attributed to comments from BoC's Jenkins on Wednesday to the effect that there was no specific target for CAD.

European fixed income futures were mildly firmer in the session. June Bunds +17 ticks at 115.35 and the June Gilts firmer by 8 ticks at 110.64. Euro-Stoxx 50 lower by 0.8% at 3,766; FTSE -0.7% at 5,873; CAC-40 off 0.6% at 4,882 and DAX lower by 0.7% at 6,731.

Trade The News Staff
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U.S. Personal Consumer Spending Rises - Personal Income Much Stronger

Personal consumer expenditure (PCE) rose a minimal 0.1% in February which was in line with market expectations. This represented a slowing in growth from the 0.4% gain achieved in January. The minimal gain in spending occurred despite an unexpected jump in growth in income in February to 0.5% which was up from the 0.3% gain recorded in January. With income growth outstripping the rise in spending, the savings rate managed to return to positive territory rising to 0.3% from -0.1% in January. Consumer spending on a volumes basis remained unchanged in the month following a negligible 0.1% gain in January.

The modest overall gain in nominal consumer spending largely reflected weakness in the nondurables component which fell 0.2% in February. Greater strength was evident in the purchase of durables and services which both rose 0.3% in the month.

Overall personal consumer expenditure (PCE) prices were up a minimal 0.1% in the month as was the core, or ex food and energy, component. On a year-over-year basis, the overall measure continues to rise at an elevated 3.4% due to earlier gains in energy prices though this does represent a modest easing from the 3.5% recorded in January. The annual increase in core prices is rising a much more moderate 2.0%, which came in slightly under market expectations and was unchanged from the downwardly revised increase in January. The increase in core prices still remains at the upper end of the Fed's so-called “1% to 2% comfort zone.”

Despite the volume of PCE remaining unchanged in February after rising only 0.1% in January, earlier increases have still left the level of spending up an annualized ½% relative to the fourth quarter. This does reinforce the expectation that consumer spending likely slowed from the 1.9% recorded in Q4 though growth does appear likely to have remained in positive territory. With housing expected to continue to subtract almost a full percentage point from quarterly growth over the first half of the year, growth in other key expenditure areas like consumer spending and business investment will need to remain in positive territory to minimize the negative hit to overall GDP. Thus the Fed is expected to continue to try and ease the pressures in financial markets that are currently pressuring the cost of capital higher and weighing on consumer confidence. The response by policymakers will likely entail both measures to deal with illiquidity in specific asset market along further interest rate reductions. Our forecast assumes that Fed funds will be cut a further 75 basis points over the next two FOMC meeting dropping to a near-term trough of 1.50% by mid-2008.

RBC Financial Group
http://www.rbc.com

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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Indonesia's annual CPI to surge in March; central bank to keep BI rate on hold

Indonesia's inflation data for March, due next Tuesday, is expected to show a sharp annual increase in March and prompt the central bank to keep its key BI rate on hold instead of yielding to expectations for an interest rate cut.

On a monthly basis, the consumer price index (CPI) may reflect a slowdown, given that food prices reached abnormally high levels in recent months on the back of record global commodity prices, according to estimates by most economists polled by Thomson Financial.

"I think the danger about the CPI data is that although it is easing on a monthly basis, the annual rise is even higher. That will spark negative sentiment," said Anton Gunawan, an economist at Bank Danamon Indonesia.

Forecasts for the CPI by the 10 economists polled by Thomson range from a rise of 0.21-0.5 percent in March from February. In February, the CPI was up 0.65 percent from the preceding month.

Year-on-year, the CPI is expected to show a rise of between 7.37 percent and 7.63 percent. This range compares with the actual annual increase of 7.4 percent posted in February, driven by food prices.

One basic assumption for a month-on-month slowdown is a decline in rice prices following the start of the harvest season this month in some parts of the country, said Destry Damayanti, an economist at Mandiri Securities.

"I think some food components like spices, cooking oil, still rose but not as strongly as in the previous month. We may also see pressure from kerosene prices during the month," Bank Danamon's Gunawan said.

Kerosene prices in some cities were driven higher by scarce supply as a result of the government's program to replace non-subsidized kerosene, which is used mostly by poor families for cooking, with liquefied petroleum gas (LPG) to reduce its burden of oil subsidies.

Apart from the fall in rice prices, fiscal measures such as the removal of import tax on wheat and soybean should have also helped stabilize food prices, said Eric Sugandi, an economist at Standard Chartered Bank.

Monetary implications

Amid threats of mounting prices, the central bank is expected to keep its key interest rate unchanged in April, instead of giving in to expectations for a rate cut, economists said.

The BI rate has been steady at 8.0 percent over the last four months, a level viewed by many as high enough to contain inflation in the coming months.

The monthly CPI in April is bound to be pushed up by the same risks faced by the global economy, which require central banks to balance out the effects of accelerating inflation and slowing economic growth. The CPI in April 2007 was down 0.16 percent from March.

"Like many central banks across the region, BI is likely to remain patient in the face of growing uncertainties surrounding the conflicting pressures of accelerating inflation versus a potential global economic slowdown, " said David Cohen, an economist at Singapore-based Action Economics.

The threat of rising food and energy prices will continue to fuel inflation going forward, making it difficult to cut interest rates, said Mandiri's Damayanti.

"I don't see BI easing rates should inflation stay above 7.0 percent, although toward the latter part of the year we must reassess the situation" said Gundy Cahyadi, an economist at Ideaglobal Ltd in Singapore.

Damhuri Nasution, an economist at Danareksa Research Institute, said Bank Indonesia will certainly keep the BI rate steady to maintain real interest rates in the range of 1.5-2.0 percent.

Eric Sugandi of Standard Chartered said in the event the central bank finds a reason to cut its rates, the earliest it would do so would be in May, when food prices are expected to ease.

Damayanti said she is maintaining her year-end inflation forecast at 7.5 percent and the BI rate at 8.0 percent.

Following is a summary of forecasts for monthly and annual CPI changes, along with the BI rates:

1. Mega Capital - up 0.19 percent; up 7.35 percent; 8.0 percent

2. BII - up 0.21 percent; up 7.37 percent: 8.0 percent

3. Ideaglobal Ltd - N/A; up 7.4 percent; 8.0 percent

4. Danareksa - up 0.24 percent; up 7.40 percent; 8.0 percent

5. Bank Lippo - up 0.30 percent; up 7.46 percent; 8.0 percent

6. StanChart - up 0.30 percent; up 7.5 percent; 8.0 percent

7. Mandiri Securities - up 0.33 percent; up 7.5 percent; 8.0 percent

8. Action Economics - up 0.5 percent; up 7.5 percent; 8.0 percent

9. Bank Danamon - up 0.28 percent; up 7.44 percent; 8.0 percent

10. Samuel Securities - up 0.47 percent; up 7.63 percent; 8.0 percent

aloysius.bhui@thomson.com

alo/nt

--- By Aloysius Bhui ---

ab/nt/nt

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