(BN) Economy Growing at Fastest Pace of ‘11 in U.S. Forecasts (2)

Bloomberg News, sent from my iPad.

Economy Growing at Fastest Pace of '11 in U.S. Forecasts

Nov. 18 (Bloomberg) -- The U.S. economy may end 2011 growing at its fastest clip in 18 months as analysts increase their forecasts for the fourth quarter just a few months after a slowdown raised concern among investors.

Economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent.

"The incoming data on consumption, business spending and residential investment all point to GDP growth in the fourth quarter tracking 3.3 percent," said John Herrmann, senior fixed-income strategist at State Street Global Markets in Boston.

Herrmann, who is the second most-accurate forecaster of GDP based on Bloomberg data, had been looking for fourth quarter growth of 2.4 percent at the start of this month. The economy expanded at an annualized pace of 2.5 percent in the third quarter.

Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, said he wouldn't be surprised to see fourth-quarter growth of 4 percent, though for now he is sticking with his forecast of 3 percent.

Strengthening Economy

The index of U.S. leading indicators, designed to foreshadow the economy's performance over the next three to six months, rose 0.9 percent in October, the biggest jump since February, after a 0.1 percent September increase, the New York- based Conference Board said today.

The strengthening economy will help lift U.S. stock prices, which have been depressed by the sovereign debt crisis in Europe, LaVorgna said.

The Standard & Poor's 500 Index rose 0.5 percent to 1,221.98 at 10:53 a.m. New York time. The benchmark gauge lost 3.8 percent over the first four days of this week.

"There's too much pessimism built into the market," he said, adding that the Standard & Poor's 500 Index could break 1,300 by year's end. The stock gauge closed at 1,216.13 yesterday.

Higher Yields

The economic pick-up also may push up yields on Treasury securities, Herrmann said. The yield on the 10-year note could rise to 2.25 percent or higher in the first quarter of next year, he said, assuming Europe avoids a financial catastrophe akin to the 2008 bankruptcy of Lehman Brothers Holdings Inc. The 10-year yield stood at 1.96 percent at 5 p.m. New York time yesterday, according to Bloomberg Bond Trader prices.

Behind the revised fourth quarter forecasts: Consumers have not cut back on spending even with the turmoil in world financial markets, putting pressure on companies to rebuild inventories they ran down because of concerns about Europe.

Helped by the biggest jump in electronics purchases in two years, retail sales rose 0.5 percent in October, after a 1.1 percent increase the month before, according to the Commerce Department.

"We feel confident that the momentum we have heading into the fourth quarter, combined with our holiday strategies, bode well for that quarter," said Karen Hoguet, chief financial officer for Cincinnati-based Macy's Inc., the second-biggest U.S. department-store chain. "We'll have a spectacular Christmas," she added on a Nov. 9 conference call with analysts.

Inventories Lean

Companies, meanwhile, held their inventories little changed in September as sales climbed, the Commerce Department reported on Nov. 15. Businesses had enough goods on hand to last 1.27 months at September's sales pace, near the record low of 1.24 months reached earlier this year.

Retailers "continue to manage their inventories very carefully," Harlan Kent, chief executive officer of Yankee Candle Co. Inc., which sells its products to retailers like Macy's and Target Corp., said on a Nov. 10 call with investors. "We are in good shape to quickly respond to replenishment orders and capitalize on any uptick in consumer demand."

Restocking will boost growth by 0.8 percentage points in the fourth quarter, according to JPMorgan Chase. In the third quarter, inventory changes reduced GDP by 1.1 percentage points. The economic outlook beyond the fourth quarter rests heavily on what policy makers do, both in Europe and the U.S., said Michael Feroli, JPMorgan Chase's chief U.S. economist.

Bernanke's View

The U.S. would not be able to "escape the consequences of a blowup in Europe," Federal Reserve Chairman Ben S. Bernanke said in El Paso, Texas on Nov. 10. "The world's financial markets are highly interconnected."

Federal Reserve Bank of New York President William C. Dudley said in a speech yesterday that while recent economic reports have shown improvement, that shouldn't be a signal for the Fed to relax its efforts to boost the economy. Growth next year may be around 2.75 percent after somewhat more than 2.5 percent in the fourth quarter, he said.

"Although the latest news on the U.S. economy is somewhat more encouraging than that from earlier in the year, we should not take much solace from that," he said. "The U.S. economy continues to face several obstacles," including consumers cutting debt and caution by businesses.

"We also continue to face significant downside risks, mostly related to the stress in the euro zone," Dudley said.

Financial Crisis

Euro-region policy makers are struggling to contain a financial crisis that started two years ago in Greece and which has now spread to Italy, the region's third-biggest economy with a debt of 1.9 trillion euros ($2.6 trillion).

In Washington, the focus has been on the deliberations of the Congressional supercommittee, which faces a Nov. 23 deadline to come up with measures to reduce the budget deficit by $1.2 trillion over 10 years.

What's more important for the economy in 2012 though is the fate of a number of stimulus measures, including a 2 percent cut in employee payroll taxes and extended unemployment benefits, that are due to expire at end year, Feroli said.

If Congress doesn't continue them, "the drag from tightening fiscal policy could subtract 1.5 to 2 percentage points from GDP growth next year," the former Fed economist added in Nov. 10 note to clients.

Households would be particularly hit, as the payroll tax cut and extended unemployment benefits boosted their income by about $150 billion this year, according to Feroli.

Holiday Season

For now, consumer spending has been holding up as the crucial end-of-year holiday selling season gets underway.

The rise in retail sales last month prompted economists David Greenlaw and Ted Wieseman at Morgan Stanley to bump up their forecast for growth of household outlays in the fourth quarter to 2.7 percent from 2.2 percent. Personal consumption expenditures rose at an annualized rate of 2.4 percent in the third quarter, the fastest pace so far this year.

Economists are divided over what's behind the buoyancy of spending. David Rosenberg, chief economist at Gluskin Sheff & Associates in Toronto, ties it to a fall in the savings rate that they argue can't last. That rate dropped to 3.6 percent in September, the lowest level since the start of the last recession in December 2007.

Often Revised

Others like LaVorgna play down the significance of the drop in the savings rate, noting that it is a statistic that is frequently revised.

Feroli, too, cautioned against reading too much into the savings numbers and pointed to other reasons for the resilience of consumer expenditures.

Ebbing inflation is giving households more spending power. Consumer prices fell in October for the first time in four months, dropping 0.1 percent after a 0.3 percent rise in September, the Labor Department said on Nov. 16. Contributing to the fall was a 3.1 percent decline in gasoline prices.

Lower borrowing costs, courtesy of a flight into Treasury securities by investors fearful of developments in Europe and the Fed's continued easy monetary policy, are also helping households. The average rate for a 30-year fixed rate mortgage was 4 percent in the week ended Nov. 17, barely above the 3.94 percent record low hit last month, according to Freddie Mac.

Construction Permits

Housing construction permits climbed last month to their highest level since March 2010, according to Commerce Department data, as the near record-low mortgage rates lured some buyers into the market.

The future pace of consumer spending ultimately will be decided by the growth of household income, which in turn is tied to the health of the job market.

And there, Herrmann saw some reason to be optimistic. He forecast that private-sector payrolls would rise an average 160,000 per month for the rest of this year and by 200,000 per month in the first four months of 2012. Private payrolls increased 104,000 in October.

In a sign that the job market may be improving, claims for unemployment benefits dropped to their lowest level in seven months in the week ended Nov. 12, to 388,000, Labor Department figures released yesterday showed.

"With Europe an albatross around our necks, the fact that the economy is firming and performing better than expected is really encouraging," said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut.

To contact the reporter on this story: Richard Miller in Washington at rmiller28@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Sent from my Money Making iPad

(BN) Wall Street Protesters Blocked in Attempt to Disrupt NYSE (4)

Bloomberg News, sent from my iPad.

Wall Street Protesters Blocked in Attempt to Disrupt NYSE

Nov. 17 (Bloomberg) -- Occupy Wall Street demonstrators, whose attempts to disrupt the New York Stock Exchange were rebuffed by police, took their protest against income inequality to Union Square and the subway system.

More than 1,000 demonstrators filled the Financial District today near the NYSE and Zuccotti Park, the movement's symbolic home since protesters began camping there Sept. 17. Metal barricades blocked streets, and workers were asked to show identification to enter. The market opened on time, and transit officials reported no disruptions to subway service.

Participants later headed north to join students rallying against college indebtedness as police on foot and on motorcycles attempted to keep the streets clear. Shoppers in Manhattan's SoHo neighborhood stared from store windows and snapped pictures. Protesters plan a 5 p.m. downtown rally at Foley Square, for which they have a permit, followed by a march across the Brooklyn Bridge.

"It's a huge waste of taxpayer money to pay all these police overtime for two months," Ken Polcari, a floor trader and managing director at ICAP Corporates, said by telephone from the NYSE, where he's worked for 28 years. "The Big Board isn't going to succumb to a bunch of kids with no message."

At one point, police wrestled with protesters outside 60 Wall St., the U.S. headquarters of Deutsche Bank AG, as workers waiting to get through filmed the action with smart phones. One protester's sign read: "Debt -- the only thing still made in the U.S."

Plastic Handcuffs

Dozens of protesters sat on sidewalks in plastic handcuffs and were hauled away in police vans. Police made 177 arrests, and seven officers and 10 protesters were injured, Commissioner Raymond Kelly said in a briefing at Bellevue Hospital.

Howard Wolfson, Mayor Michael Bloomberg's deputy for government relations, said at a City Hall briefing yesterday that forces would be deployed to deal with tens of thousands of people "aimed at significant disruption."

"I'm definitely eager to show the world and the city that we still care about the occupation," Mark Greif, 36, who teaches English at the New School, said as he gathered with others at Zuccotti Park today. "I'm hoping people will see the commitment of American citizens to having something done about Wall Street excesses."

'99 Percent'

The Occupy Wall Street protests, which began in New York, have spread to cities on four continents, including London, Sydney, Toronto, Rome and Tokyo. The demonstrators refer to themselves as "the 99 percent," a reference to Nobel Prize- winning economist Joseph Stiglitz's study showing the richest 1 percent control 40 percent of U.S. wealth.

In upstate New York, hundreds stormed the Statehouse as buses from Rochester and Buffalo brought protesters to join Occupy Albany, which has set up tents in a nearby park. Signs called on Governor Andrew Cuomo to reconsider his opposition to raising taxes on those who earn $1 million or more.

Officials in Oakland, California, and other cities have shut down camps linked to Occupy Wall Street. A judge yesterday ordered Boston to refrain from removing protesters from Dewey Square until Dec. 1.

National Protests

Advocacy groups and unions are standing in solidarity with New York's demonstrators today for a nationwide day of action, according to MoveOn.org, which was started in opposition to President Bill Clinton's impeachment and became an advocate for overhauling health care.

Protests in almost every state are calling on members of a congressional supercommittee looking for spending reductions to protect programs like Medicare and Social Security and "make the super-rich pay their fair share." Protesters are targeting "decaying bridges" from Los Angeles to Miami to symbolize "failure to put America back to work."

In Portland, Oregon, police arrested 25 protesters sitting on a bridge this morning and temporarily closed the span as a precaution. Other people carrying signs marched across a lower level for bicycles and pedestrians. Mayor Sam Adams cleared camps from two parks last weekend.

"This bridge is falling apart," said Dan Keller, a 51- year-old web designer who said protesters chose the location because, like many around the U.S., it's in disrepair. "It needs funds to fix it up, which will give people jobs."

No More Camping

New York City occupiers lost their campsite at Zuccotti Park in Lower Manhattan on Nov. 15, when police in riot gear swept into the privately owned space beginning about 1 a.m. and arrested about 200 people. The protesters were evicted, then allowed to return without sleeping bags, tents, tarps and other gear.

"Zuccotti Park will remain open to all who want to enjoy it, as long as they abide by the park's rules," Bloomberg said in a statement after lawyers for the demonstrators failed to persuade a judge to reverse the eviction. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

New York City has spent $6 million on protest-related costs, excluding the Nov. 15 raid, said Wolfson and Caswell Holloway, deputy mayor for operations. Protesters won't be allowed to camp at any other city parks, Wolfson said.

To contact the reporters on this story: Esme E. Deprez in New York at edeprez@bloomberg.net Charles Mead in New York at cmead11@bloomberg.net Elizabeth Ody in New York eody@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Sent from my Money Making iPad

(BN) U.S. Stocks Drop After Fitch Warns of Debt Contagion; Crude Oil Tops $102

Bloomberg News, sent from my iPad.

U.S. Stocks Drop as Fitch Warns of Debt Contagion; Oil Tops $102

Nov. 16 (Bloomberg) -- U.S. stocks slid, erasing yesterday's gain in benchmark indexes, as Fitch Ratings said further contagion from Europe's debt crisis would pose a risk to American banks. The euro weakened, while oil climbed to a five- month high above $102 a barrel.

The Standard & Poor's 500 Index lost 1.7 percent to 1,237.0 at 4 p.m. in New York. Most stocks in the Stoxx Europe 600 Index retreated. The euro slipped 0.5 percent to $1.3469 after losing as much as 0.8 percent. Credit-default swaps insuring Italian and Spanish debt retreated from records and Italy's 10-year yield fell as the European Central Bank bought the nations' debt. Oil rallied as Enbridge Inc. planned to reverse the direction of a pipeline, potentially alleviating a bottleneck that had lowered prices.

Stocks slid to their lows of the session as Fitch Ratings said that while U.S. lenders have "manageable direct exposure" to Greece, Ireland, Italy, Portugal and Spain, further turmoil in those markets poses a "serious risk." Benchmark U.S. indexes briefly erased losses earlier as Federal Reserve Bank of Boston President Eric Rosengren said the Fed may need to coordinate with the ECB on fighting turmoil in credit markets.

"It's such a black cloud that's overhanging," Daniel Genter, who oversees about $3.7 billion as president of RNC Genter Capital Management in Los Angeles, said in telephone interview. "Europe is going to enter a recession," he said. "The U.S. economy is re-accelerating. On the other hand, as oil prices jump up, it's going to have an impact on spending."

Early losses in stocks came after Bank of England policy makers said that failure to resolve the European debt turmoil could lead to "significant adverse effects" on the global economy. UniCredit SpA, Italy's largest bank, prepared to ask central-bank officials to broaden the types of assets accepted as collateral.

Market Leaders

Gauges of financial and commodity stocks helped lead losses in all 10 of the main industry groups in the S&P 500. JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc. paced declines in diversified financial shares.

Rambus Inc. plunged after it lost a $3.95 billion jury trial over its allegations that Micron Technology Inc. and Hynix Semiconductor Inc. conspired to prevent its memory chips from becoming an industry standard. Abercrombie & Fitch Co. tumbled as the retailer's profit trailed estimates. Dell Inc. slipped as the computer maker told investors to expect more slow sales growth for the rest of the year.

Economic Data

Stocks slid even after the Fed said industrial production in the U.S. advanced 0.7 percent in October, more than the median economist forecast and adding to evidence the world��s largest economy is weathering disruptions in financial markets caused by the crisis in Europe. Other data showed the cost of living unexpectedly fell and homebuilder sentiment improved.

The rally in oil came as Enbridge Inc. agreed to acquire ConocoPhillips's share of the pipeline that runs between Cushing, Oklahoma, and the Gulf Coast and announced the reversal. The change may alleviate a bottleneck at the Cushing storage hub that had lowered the price of West Texas Intermediate, the grade traded in New York, versus other oils.

Oil helped lead the S&P GSCI Index up 0.7 percent even amid declines in 15 of the 24 commodities tracked by the gauge. Kansas wheat, silver and natural gas lost at least 1.7 percent for the biggest declines.

European Stocks

Among European stocks, Electricite de France SA slid 4.4 percent as the nation's opposition Socialist and Green parties united to campaign for the closure of 24 nuclear reactors by 2025. Vivendi SA, the owner of the world's largest video-game and music companies, advanced 5.6 percent after reporting profit that exceeded analysts' estimates.

Credit-default swaps on Italy dropped 18 basis points to 576, while contracts on Spain were down 11 basis points at 470.

The yield on the 10-year Italian security declined six basis points to 7.00 percent, while the equivalent-maturity Spanish yield added eight basis points to 6.41 percent. French 10-year yields rose three basis point to 3.71 percent and the nation's borrowing costs relative to benchmark German bunds retreated from a euro-era record.

The ECB bought larger-than-usual sizes and quantities of Italian debt, said two people with knowledge of the trades, who declined to be identified because the deals are private.

Monti Sworn In

Mario Monti was sworn in as Italian prime minister and finance minister, taking over an unelected government charged with imposing austerity to prevent the euro area's third-biggest economy from succumbing to the debt crisis. Greek Prime Minister Lucas Papademos won a confidence vote in parliament, receiving a mandate to push through budget measures necessary to secure financing designed to avert a collapse of the economy and keep Greece in the euro.

Benchmark German bunds fell, sending 10-year yields up three basis points to 1.82 percent. German Chancellor Angela Merkel said the nation is prepared to cede some national sovereignty to the European Union to achieve closer economic and political ties.

The pound slid for a third day against the dollar after a report showed U.K. unemployment rose in the three months through September as joblessness among young people climbed above 1 million for the first time since at least 1992. The jobless rate climbed to a 15-year high of 8.3 percent. The FTSE 100 Index of stocks lost 0.2 percent.

The MSCI Emerging Markets Index fell 1 percent. The Hang Seng China Enterprises Index in Hong Kong tumbled 2.9 percent, while Taiwan's Taiex Index fell 1.4 percent. South Korea's Kospi Index dropped 1.6 percent.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Sent from my Money Making iPad

Dollar Approaches Monthly High but Follow Through will be a Struggle

By John Kicklighter, Currency Strategist

• Dollar Approaches Monthly High but Follow Through will be a Struggle
• Euro Weathers 3Q GDP Figures but Financial Troubles Making Up for It
• British Pound Traders Should Watch the BoE Quarterly Inflation Report Closely
• Japanese Yen: Will the Bank of Japan Attempt to Shift the Yen at its Rate Decision?
• Australian Dollar Bulls Can’t Hold onto RBA Optimism from Minutes
• Canadian Dollar Sliding Towards Critical Boundary with US Dollar as Risk Drops
• Gold Refuses to Play the Role of Straightforward Safe Haven

Dollar Approaches Monthly High but Follow Through will be a Struggle

Risk aversion was the name of the game through much of Tuesday’s session; but a sharp correction in sentiment measured through equities in the second half of the session seemed to put demand for a safe haven on ice. Yet, through this swing in speculative interest; the dollar seemed to hold a remarkably consistent (albeit tame) advance. Now, heading into new trading day, we find the risk aversion switch once again flipped. Equity futures are pulling back; but the progress being made does little to incite the threat of new, robust bear trends. Alternatively, we find the US Dollar Index pushing above 9,850 to mark highs last seen a month ago. This is a noteworthy divergence in risk-sensitive markets that have otherwise moved more-or-less in lockstep over recent weeks. What does this mean? Is this a permanent divergence? Could there be a major fundamental trend shift in the works?

To appreciate the connection between equity and FX markets in risk appetite, it is worth noting that the 20-day correlation between EURUSD and the S&P 500 through the beginning of this month was 98 percent. That is a remarkable. However, up to today, that relationship has dropped to 49 percent – a dramatic divergence which we can certainly see evidence of in this morning’s price action. In general, the two market’s broad trends are the same; but the smaller corrections are not running at the same time or pace. The foundation of this disparity is most likely a lack of true momentum – both fundamentally and technically. For technical traders, it isn’t difficult to spot the congestion (directionless chop) on the benchmark US equity index since the beginning of the month. EURUSD on the other hand is finding a little more progress in its decline (thanks to intrinsic fundamental issues in Europe, which we will discuss in more detail below) but is still failing to secure a trend akin to late August.

The fundamental implications are that there simply isn’t a strong enough drive in underlying sentiment to maintain cross-market correlations through market-wide capital flow. In other words, there isn’t enough fear to encourage the wholesale scramble to safety. That said, it is surprising that the dollar (typically a liquidity provider during deteriorating financial conditions) should lead the drive. The reference to data (advanced retail sales and factory-level inflation) or central bank speak doesn’t hold the necessary influence to fill the gap here. Divergences like these do not last for long; so unless risk aversion commits to the risk aversion drive, the greenback’s rally could sputter. Looking for catalysts to stoke fear; there is little that can carry the overall market. And so, we will keep a close watch on the performance between EURUSD and S&P 500 futures.

Euro Weathers 3Q GDP Figures but Financial Troubles Making Up for It

The third quarter GDP figures that printed Tuesday were an opportunity for market participants to see exactly what kind of impact the burgeoning financial crisis is having on the Euro-region. However, instead of optimists finding a harsh dose of reality in freezing credit markets and strong austerity; the masses were able to cling onto their temporary hope and fall back on complacency as France recorded 0.4 percent expansion and Germany grew 0.5 percent. As the core continues to hold out from the financial contagion, there is still room for the ardent bulls to hang onto the belief that the Euro Zone will be able to stabilize its crisis and return to strong form. However, reality is better reflected in the Spanish bond auction of the past session. Like the painful Italian bond auction on Monday, Spain paid sharply higher yields to raise funds in 12 and 18-month bond auctions. In the upcoming session, Portugal will be the next litmus test. In financial strain, we see the real future of capital flow.

British Pound Traders Should Watch the BoE Quarterly Inflation Report Closely

The British pound made a remarkable came under remarkable pressure through this past session – dropping below critical 1.5850 against the dollar and even losing ground against high yielding currencies in the second half of the day. Despite BoE Governor King’s confidence that inflation will drop aggressively; CPI is still running at 5.0 percent and creating trouble with an economic slowdown. With King’s view, the MPC’s push for bond purchases and warnings of possible recession; we now look ahead to a likely dovish BoE Quarterly Inflation report.

Japanese Yen: Will the Bank of Japan Attempt to Shift the Yen at its Rate Decision?

Sometime in the coming hours, the Bank of Japan is scheduled to announce its monetary policy decisions for this month. It is unlikely that the group changes stimulus programs (much less official rates); but there is a lingering threat that economic strain, political pressure and the USDJPY’s retracement of post-Ministry of Finance intervention will force the BoJ into action. Simply yen selling won’t do. They need creativity.

Australian Dollar Bulls Can’t Hold onto RBA Optimism from Minutes

Tuesday morning, the Australian dollar caught a notable bid after the market learned from the RBA minutes that there was an argument to be made in holding the nation’s benchmark rate. However, rates were cut; and the market is fully pricing in another 25bp drop next month. It’s hard to take an optimistic view on a clearly bearish/dovish event when risk aversion is redefining the Aussie dollar’s bearings.

Canadian Dollar Sliding Towards Critical Boundary with US Dollar as Risk Drops

USDCAD is temping a month-long range top at 1.0260 as risk aversion undermines investment currencies (a group that the loonie certainly fits into). There was modest event risk this past session and we have more through the second half of this week; but the data likely carries little influence in these markets. What truly matters with this pair is that we are specifically highlighting liquidity.

Gold Refuses to Play the Role of Straightforward Safe Haven

Looking at the S&P 500 and Gold daily charts side-by-side, we see something remarkable – a positive correlation. One is a renowned risk appetite barometer and the other a favored safe haven; and yet they are moving in the same direction. This is another example of what can happen when strong and persistence shifts in fundamental expectations and sentiment dissipate. If the dollar continues to gain, both will lose.

source

(BN) Obama Says ‘Enough’s Enough’ on China Currency Valuation

Bloomberg News, sent from my iPad.

Obama Says 'Enough's Enough' on China Currency Valuation

Nov. 14 (Bloomberg) -- President Barack Obama kept up his pressure on China's foreign-exhange policy and trade practices, saying "enough's enough" on what the U.S. views as a too-slow appreciation of the yuan.

While there's been a "slight improvement," China's exporters "like the system the way it is" and are resistant to any moves to loosen the reins on the yuan, Obama said.

"Changes are difficult for them politically, I get it," Obama said at a news conference concluding a summit with Asia- Pacific leaders in Hawaii yesterday. "But the United States and other countries, I think understandably, feel that enough's enough."

As he seeks to reassert U.S. interests in Asia, Obama is using increasingly strong language on China's trade, currency and intellectual property policies. The U.S. contends China's currency is kept artificially low, putting American businesses at a disadvantage and driving up Chinese trade surpluses.

Obama, who met Nov. 12 with China's President Hu Jintao in Honolulu, said that as China's influence rises, leaders of the world's second-largest economy must take more responsibility for making sure trade is fair and that intellectual property rights are respected. Hu and Obama were in the Hawaiian capital to attend the annual Asia Pacific Economic Cooperation summit.

China's Response

China has pushed back against the pressure. After Obama told Hu that the U.S. public and businesses were losing patience with China's policies, the Chinese Foreign Ministry released a statement saying the U.S. trade deficit and unemployment are not caused by the yuan exchange rate and a large appreciation in the currency won't solve U.S. problems.

"China's foreign exchange policy is a responsible one," Hu told Obama, according to the statement. The country will "continue reforming its exchange rate mechanism."

The yuan has gained about 8 percent against the dollar in nominal terms since the country ended a two-year peg to the U.S. currency in June 2010, and 30 percent since July 2005. In real, or inflation-adjusted, terms the gain has been more than 10 percent, because consumer prices have risen faster in China than in the U.S.

The yuan rose 0.04 percent to 6.3400 per dollar as of 10:30 a.m. in Shanghai, according to the China Foreign Exchange Trade System.

"We recognize they may not be able to do it overnight," Obama said about the currency valuation, "but they can do it much more quickly than they've done it so far."

Companies 'Wary'

Obama said that he's consistently raising concerns with the Chinese about currency, intellectual property and market access because U.S. companies "are wary" that they will be restricted in doing business in China if they raise complaints.

Two-way trade between the U.S. and China was $457 billion last year and the U.S. deficit was $273 billion. Still Obama and U.S. businesses regard China as a growing market for American goods; of the 2.3 million vehicles General Motors Co. delivered in the second quarter, 588,000 were sold in China, where the Detroit-based company is No. 1 in market share.

A March survey by the American Chamber of Commerce in China found 78 percent of member companies in the country said their China operations in 2010 were very profitable or profitable. At the same time, 24 percent of respondents said China's economic reforms had done nothing to improve the environment for U.S. businesses in the country, up from 9 percent who said the same an earlier poll.

Iran Sanctions

During the news conference, Obama also said the U.S. is examining stronger sanctions on Iran over its nuclear program. He said U.S. Russia and China "agree on the objective" that Iran must not be allowed to develop a nuclear weapon. He declined to say whether Hu and Russian President Dmitry Medvedev indicated they would support a new round of penalties.

Russia and China have resisted efforts to impose tighter sanctions on Iran at the United Nations. The International Atomic Energy Agency has concluded that Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, has continued working on nuclear weapons capability until at least last year.

Obama said the sanctions that have already been imposed have "enormous bite."

While Obama's focus during the 55-minute press conference was on Asia, he couldn't escape domestic politics. He was asked at several points to respond to criticisms raised by Republican presidential candidates at a Nov. 12 debate.

Republican Criticism

Former Massachusetts governor Mitt Romney said Obama's "greatest failing" as president was not preventing Iran from making progress toward a nuclear weapon and that "if we reelect Barack Obama, Iran will have a nuclear weapon."

Obama said he's "going to make a practice of not commenting on whatever is said in Republican debates until they've got an actual nominee." Still, he defended his administration's efforts to hold Iran accountable and indirectly hit back at Romney.

"Now, is this an easy issue? No," he said. "Anybody who claims it is, is either politicking or doesn't know what they're talking about."

On domestic issues, Obama said the bipartisan congressional supercommittee working to narrow the U.S. budget deficit must "bite the bullet" and come up with a plan that includes both cutting spending and increasing revenue.

"Prudent cuts need to be matched with prudent revenue," Obama said. "There are no magic beans that you can toss in the ground and suddenly a bunch of money grows on trees."

To contact the reporters on this story: Julianna Goldman in Honolulu at jgoldman6@bloomberg.net Margaret Talev in Honolulu at mtalev@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Find out more about Bloomberg for iPad: http://m.bloomberg.com/ipad/

Sent from my Money Making iPad