Wednesday, October 17, 2012

20121017 1816 FCPO EOD Daily Chart Study.

FCPO closed : 2471, changed : +5 points, volume : higher.
Bollinger band reading : correction range bound downside biased.
MACD Histogram : rising higher, buyer taking exposure.
Support : 2450, 2400, 2350, 2300 level.
Resistance : 2490, 2520, 2550, 2570 level.
Comment :
FCPO closed slightly higher with better volume transacted. Soy oil currently trading firmer after overnight closed higher while crude oil price trading marginally higher.
Price traded between gains and losses within 33 point range bound market on higher stocks and potential improving exports(base on latest ITS and SGS cargo surveyor export figures) on focus.
FCPO daily chart adjusted to suggesting a correction range bound downside biased market development testing middle Bollinger band resistance level.
When to buy : buy at support or weakness with quick cut loss and profit target.
When to sell : sell at resistant or strength with quick cut loss and profit target.

20121017 1745 FKLI EOD Daily Chart Study.

FKLI closed : 1665.5 changed : +12 points, volume : higher.
Bollinger band reading : upside biased. 
MACD Histogram : turned upward, buyer seller battling. 
Support : 1660, 1657, 1651, 1645 level.
Resistance : 1670, 1680, 1690, 1700 level.
Comment :
FKLI closed recorded gains with better volume particiaptiond doing about 5 points premium compare to cash market that closed higher. Overnight U.S. markets closed firmer and today Asia markets traded on higher ground while European markets currently registering small gain. 
Sentiment seems getting positive after U.S. reported better than estimates industrial production data and news on Spain credit rating stayed unchanged by Moody's Investor.  
Daily chart analysis revised to calling an upside biased market development. 
When to buy : buy at support or weakness with quick cut loss and profit target.
When to sell : sell at resistance or strength with quick cut loss and profit target.

20121017 1609 Global Markets & Commodities Related News.

STOCKS: Asian shares rose to their highest in over five months as strong U.S. earnings reports boosted investors risk appetite, while the euro hit a one-month high against the dollar and the yen as Spain retained an investment-grade debt rating. European shares were set to extend the previous session's sharp gains as Moody's confirmation of Spain's investment-grade rating and strong earnings from some U.S. companies improved sentiment. U.S. stocks rallied on Tuesday, giving the S&P 500 its best two-day advance in a month as strong earnings from Johnson & Johnson and other bellwether companies raised hopes for the rest of the U.S. reporting season. (Reuters)

Moody's leaves Spain sovereign rating at investment grade (Reuters)
Spain's government dodged a bullet on Tuesday when Moody's Investors Service affirmed its investment grade rating, assuaging widespread fears that the euro zone country would be cut to a junk rating.

U.S. factory output up modestly, inflation looks in check (Reuters)
The U.S. economy came under pressure from abroad in September as weak global demand appeared to hold back factory output and a surge in gasoline prices dented consumers' spending power, data showed on Tuesday.

FOREX: The euro hit a one-month high against the dollar after Moody's affirmed Spain's investment grade rating, assuaging widespread fears of a downgrade to junk status for the euro zone country.  (Reuters)

FOREX-Euro hits 1-mth peak after Moody's affirms Spain rating
SINGAPORE/SYDNEY, Oct 17 (Reuters) - The euro hit a one-month high against the dollar on Wednesday after Moody's affirmed Spain's investment grade rating, assuaging widespread fears of a downgrade to junk status for the euro zone country.
"You have to wonder whether it makes sense to buy the euro based just on this," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, referring to Moody's decision to keep Spain at Baa3, one notch above junk status.

Governments tackle food price swings, disagree on stocks (Reuters)
Farm ministers called for greater transparency and restrictive measures to contain volatility in food commodity markets at a meeting on Tuesday, but failed to agree on the bold idea of strategic grain stocks and side-stepped food use in biofuels.

GRAINS: Chicago soybeans were little changed, trading near a three-and-half month low on expectations of higher yields in the United States and bumper supplies from South America early next year. (Reuters)

OIL: Brent futures held steady near $114, as expectations that Europe's financial crisis is on the mend renewed hopes of a revival in oil demand growth, while simmering tension in the Middle East provided additional support. (Reuters)

Nov S.African coal at $80/T, lowest since Dec 2009
LONDON, Oct 15 (Reuters) - A November loading panamax cargo of South African coal traded at $80.00 a tonne FOB Richards Bay on Monday on the globalCOAL electronic trading platform.
It was the lowest traded level since end-December 2009, traders said. Coal prices hit a two-year low of $81.65 in June because supply growth outpaced demand.

Euro Coal-Prices tick 25c/T higher, few trades seen
LONDON, Oct 16 (Reuters) - Prompt physical coal prices rose by around 25 cents after falling to fresh lows on the previous day but the market remained oversupplied, traders and utilities said.
Much of the world's coal industry is in Istanbul this week for the biggest annual conference and less spot market activity has been seen as a result.

U.S. crude stocks seen up on higher imports last week (Reuters)
U.S. crude oil inventories were expected to have risen during the week to Oct. 12 due to an anticipated rise in imports, while weak demand likely helped boost gasoline stockpiles, a Reuters poll of analysts showed on Tuesday.

BASE METALS: London copper extended gains into a second session following strong U.S. earnings reports and after Moody's Investors Service affirmed Spain's investment grade rating, soothing some fears over the euro zone economy. (Reuters)

PRECIOUS METALS: Gold inched up, rising for a second day with the support of a stronger euro as concerns about the bloc's debt crisis eased after Moody's affirmed Spain's rating and German business sentiment improved. (Reuters)

China daily steel output rises 4 pct in early Oct -industry body
SHANGHAI, Oct 17 (Reuters) - China's average daily crude steel output rebounded to above 1.9 million tonnes in the first 10 days of October, as rising steel prices prompted mills to lift production even as the demand outlook for the rest of the year remains weak.
Average daily crude steel output in the world's top steel producer rose to 1.916 million tonnes between October 1-10, up 4 percent from September 21-30, data from the China Iron & Steel Association showed on Wednesday.

Iron stabilizes, but outlook remains weak
SINGAPORE/SHANGHAI, Oct 17 (Reuters) - Spot iron ore prices stabilized as steel mills in top buyer China slowed purchases of the raw material amid a weak outlook for demand after a rapid rebound in steel prices nearly stalled this week.
The lack of a strong recovery in demand, along with rising steel output, is likely to weigh on prices, pressuring iron ore.

BHP iron ore output shows clout of mega miners (Reuters)
BHP Billiton is forging ahead with plans to boost iron ore output as low cost mining giants carve out a larger market share and undercut competitors struggling with slower growth from top buyer China.

METALS-Copper up on weaker dlr, U.S. earnings, Spain rating
SHANGHAI, Oct 17 (Reuters) - London copper extended gains into a second session on Wednesday on a weaker dollar, strong U.S. earnings reports as well as Moody's Investors Service's affirmation of Spain's investment grade rating.
"London copper prices have been nudged up by some positive news today, such as Spain's unchanged rating and good U.S. earnings reports. But until we get compelling evidence that the global economy is lifting or that governments are introducing fresh stimulus measures, gains will be limited," said a Shanghai-based trader.

PRECIOUS-Gold extends gains as euro zone worries ease
SINGAPORE, Oct 17 (Reuters) - Gold inched up on Wednesday,  rising for a second day with the support of a stronger euro as  concerns about the bloc's debt crisis eased after Moody's  affirmed Spain's rating and German business sentiment improved.
"Things are improving a little bit, but we are heading  towards significant headwinds in the global economy," said  Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

Strong capesize, panamax rates drive Baltic index
Oct 16 (Reuters) - The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry commodities, rose on Tuesday as rates continued to rise for capesize and panamax ships.
The overall index, which reflects daily freight market prices for capesize, panamax, supramax and handysize dry bulk transport vessels, rose 4.25 percent to 981 points.

20121017 1447 Palm Oil Related News.

VEGOILS-Palm oil slips on higher stocks, demand in focus
Wed Oct 17, 2012 1:35am EDT
* Palm oil in rangebound trade
    * Widening discount to soyoil could shift demand to

    By Anuradha Raghu
    KUALA LUMPUR, Oct 17 (Reuters) - Malaysian palm oil futures
slipped on Wednesday after analysts expected the market to fall
further on high stocks although traders were betting on the
edible oil's big discount to competing soyoil to spur demand.
    Palm oil futures have lost 22 percent this year, prompting
one analyst at an industry seminar the previous day to forecast
prices falling to 2,200 ringgit in the next four to six weeks on
a record build-up in Malaysian stocks.
    Exports in the first half of October have climbed as much as
16.3 percent from a month ago, signalling strong buying interest
from the likes of the European Union and Pakistan, data from a
cargo surveyor showed.
    "The market is digesting all the news and views spoken
yesterday, it will remain rangebound until more is known about
demand," said a trader with a local commodities brokerage in
    By the midday break, the benchmark January contract
on the Bursa Malaysia Derivatives Exchange slipped 0.2 percent
to 2,461 ringgit ($808) per tonne.
    Total traded volumes stood at 16,373 lots of 25 tonnes each,
slightly higher than the usual 12,500 lots.
    Technical analysis showed that palm oil remained neutral,
trapped in a range of 2,361-2,528 ringgit per tonne, said
Reuters analyst Wang Tao.
    Another trader with a foreign commodities brokerage said the
upcoming U.S. presidential elections have made global investors
more cautious.
    On Tuesday, U.S. President Barack Obama and Republican rival
Mitt Romney clashed repeatedly on jobs and energy.
    While market reaction in Asia has been muted, U.S. investors
are likely to focus on the outcome as it gives an idea on the
kind of economic and financial policies that may come into the
play after the polls.
    "The U.S markets are quiet because of the presidential
election next month, so people are watching carefully. That's
why the (palm oil) market can't move," the Malaysian trader
    Palm oil takes its cues mostly from U.S. soyoil and Brent
crude, as it competes with the edible oil for food demand and
the crude oil grade for use in the energy sector.
    Brent futures held steady near $114 on Tuesday as
expectations that Europe's financial crisis is on the mend
renewed hopes of a revival in oil demand growth, while simmering
tension in the Middle East provided additional support.
    U.S. soyoil for December delivery inched up 0.2
percent in early Asian trade after declining in the previous
session on expectations of higher soybean supplies in the
   The most active January 2013 soybean oil contract on
the Dalian Commodity Exchange was almost flat.

20121017 1436 Global Markets & Energy Related News.

GLOBAL MARKETS-Asian shares, euro higher on US earnings, Spanish hopes
TOKYO, Oct 17 (Reuters) - Asian shares rose as strong U.S. earnings reports brightened investor mood, while the euro hit a one-month high against the dollar as Spain dodged a bullet when Moody's Investor Service kept Madrid's investment grade rating.
"The Kospi will attempt a second day of gains as the macro environment has improved. However, the rise will be capped by concerns about third quarter earnings," said Won Sang-pil, an analyst at Tongyang Securities, referring to Korean stocks.

OIL-Brent falls as Nov contract expires, U.S. crude higher
NEW YORK, Oct 16 (Reuters) - Brent crude prices fell on Tuesday as the front-month November contract expired ahead of weekly inventory reports expected to show U.S. crude oil inventories rose last week.
"Crude got a temporary boost on the expectations that Spain will ask for a bailout, and end the uncertainty, but the consensus is that inventory numbers are going to be bearish," said Phil Flynn, analyst at Price Futures Group in Chicago.

US crude stocks seen up on higher imports last week
Oct 16 (Reuters) - U.S. crude oil inventories were expected to have risen during the week to Oct. 12 due to an anticipated rise in imports, while weak demand likely helped boost gasoline stockpiles, a Reuters poll of analysts showed on Tuesday.
The poll of 10 analysts forecast a 1.7-million-barrel build in weekly U.S. crude stockpiles for the week ended Oct. 12. All but one analyst estimated  increases in crude inventories.

EU sanctions target Iran oil, gas, tanker companies
BRUSSELS, Oct 16 (Reuters) - European Union governments imposed sanctions on Tuesday against major Iranian state companies in the oil and gas industry, and strengthened restrictions on the central bank, cranking up financial pressure over Tehran's nuclear programme.
More than 30 firms and institutions were listed in the EU's Official Journal as targets for asset freezes in the EU, including the National Iranian Oil Company (NIOC), a large crude exporter, and the National Iranian Tanker Company (NITC).

NATURAL GAS-U.S. natgas futures end down second day on mild weather
NEW YORK, Oct 16 (Reuters) - U.S. natural gas futures slid more than 1 percent on Tuesday, extending losses to nearly 5 percent in the last two sessions, with milder weather forecast for much of the country and profit-taking cited for the back to back decline.
"The natural gas market was hit with an expected round of profit taking selling," said Energy Management Institute analyst Dominick Chirichella.

EURO COAL-Prices tick 25c/T higher, few trades seen
LONDON, Oct 16 (Reuters) - Prompt physical coal prices rose by around 25 cents on Tuesday after falling to fresh lows on the previous day but the market remained oversupplied, traders and utilities said.
"The whole energy complex rose in the afternoon but there was no fundamental reason for coal to strengthen. There are still a lot of offers out there," one European trader said.

20121017 1050 Global Economy Related News.

Australia: Stock reach fresh 14-month high
Australian stocks climbed on Wednesday to a fresh 14-month high, with the benchmark S&P/ASX 200 index rising 0.9% to 4,529.60. The advance followed a strong performance in the US equity markets on Tuesday, where data and earnings continued to inspire gains, while the ongoing optimism over Europe’s ability to deal with its debt troubles also helped boost the market. (Market Watch)

EU: September inflation holds steady, exports rebound
Euro-area inflation held steady last month and exports rebounded in August as European leaders struggled to contain the region’s fiscal crisis. The inflation rate in the 17-member currency region remained at 2.6% from a year ago, the European Union’s statistics office in Luxembourg said today. It had previously reported an annual gain of 2.7%. Euro-area exports rose 3.7% from July, when they fell 2.2%, a separate report showed. (Bloomberg)

UK: Inflation cools to 2.2%, least in almost three years
UK inflation slowed to the least in almost three years in September as electricity and gas price increases a year earlier dropped out of the index. Consumer prices rose 2.2% from a year earlier, the smallest gain since November 2009 and down from a 2.5% gain in August, the Office for National Statistics said today in London. The largest downward effect was from utility bills which knocked 0.43% point off the rate. (Bloomberg)

Brazil: Swap rates drop on slower inflation; BRL appreciates
Brazilian swap rates fell for the first time in a week after a report showed inflation unexpectedly slowed, bolstering the central bank’s case that it can keep borrowing costs at a record low. Swap rates on the contract due in January 2014 dropped seven basis points, or 0.07%, to a record-low 7.39, the first decrease on a closing basis since Oct 9. The BRL appreciated 0.1% to 2.0337 per USD. (Bloomberg)

US: Industrial output rises in sign US economy is stabilising
American manufacturers churned out more appliances, clothing and construction supplies in September, indicating a mainstay of the early part of the economic expansion is regaining its footing. Output at factories, mines and utilities rose 0.4 percent, beating the median forecast of economists surveyed by Bloomberg, after a 1.4 percent drop in August that was the biggest since March 2009, according to data from the Federal Reserve issued today in Washington. Other reports showed there was little inflation outside of fuel costs and homebuilder confidence climbed to a six-year high. (Market Watch)

US: Sets tariffs on some Asia steel-pipe exports
The US Commerce Department set final tariff rates Tuesday on imports of steel pipe from India, Vietnam, Oman and the United Arab Emirates. The department plans to levy antidumping duties on all four countries, determining that the imports of circular welded carbon-quality steel pipe from them are being sold in the US below fair value. In retaliation for alleged government subsidies, the department also plans countervailing measures against pipe from India, Oman and the U.A.E. (Market Watch)

20121017 0959 Malaysia Corporate Related News.

US stocks rise on Spain bailout optimism, earnings
Global stocks jumped the most in a month amid better-than-forecast US earnings and industrial production, while the euro and Spanish bonds gained as two German lawmakers said the country is open to Spain seeking a precautionary credit line. Both the S&P500 Index and the Dow rallied 1.0% as Johnson & Johnson and Mattel advanced after reporting earnings, while Citigroup climbed as Vikram Pandit stepped down as CEO. European shares rose earlier as German investor confidence increased for a second month in October, Another report showed US industrial production increased a more-than-forecast 0.4% in September, partially reversing the prior month’s slump and indicating manufacturers are regaining their footing. (Bloomberg)

Green Packet looking to sell P1
Green Packet is looking to exit the broadband service business by selling its entire 61% stake in Packet One Networks (M) SB (P1). Five parties have submitted bids for P1, of which three are foreign parties, according to executives familiar with the matter. P1’s other major shareholder is South Korea’s SK Telecom with a 28.2% stake. (Financial Daily)

AMMB gets nod to buy back stake in life insurance ventures
AMMB received the green light from Bank Negara to start negotiations with Friends Life to buy back the 30% equity held in subsidiaries AmLife Insurance and AmFamily Takaful, which will allow AMMB and Friends Life to pursue separate strategies to enhance their respective businesses. Friends Life will nonetheless continue to provide technical support to AmLife and AmTakaful over a period of time. Friends Life’s JV with AMMB in AmLife began in Dec 2008, while the JV with AmTakaful began in Dec 2011. (Malaysian Reserve) Please see accompanying report.

Revival plan for Proton
DRB-HICOM will announce a plan by as early as next month to revive the fortunes of Proton. "If we don't solve Proton's problems, not only Proton, but the whole DRB-HICOM group will go down," COO Datuk Seri Che Khalib Mohamad Noh said. The new business plan will look into the whole ecosystem of Proton which includes the vendors as well as its more than 100,000 workers. Che Khalib, however, declined to give further details of the plan or comment on the possibility that a foreign partner would be roped in for Proton. (BT)

Scomi’s asset sale still on, after cancellation of ROS
Scomi Group will still proceed with the proposed sale of three subsidiaries that form part of the group’s ongoing restructuring after the cancellation of the proposed renounceable offer for sale of 283.24m Scomi Marine shares to Scomi Group shareholders. Under the original proposal, Scomi shareholders would have been given the option to buy Scomi Marine shares at a discount of up to 10% of the RM0.47 per share at which Scomi Marine shares were issued pursuant to the proposed RM776m disposal of Scomi Oilfield. (Financial Daily)

Time to supply IPTV to Cyberjaya users
Time dotCom (TdC) has secured a 10-year deal to provide Internet protocol television (IPTV), data, Internet and voice services to commercial and residential premises within the vicinity of Cyberjaya. TdC has signed a memorandum of agreement to collaborate with Cyberjaya’s master developer Setia Haruman Technology SB to introduce 100% fibre-to-the-home and fibre-to-the-office services to about 3,300 homes and 1,400 offices. (Malaysian Reserve)

Glomac on M&A trail
Glomac is seeking M&A as part of its growth strategy, which may involve acquiring smaller real estate firms and Malaysian boutique developers. For now, Glomac is looking at acquiring land in Greater Kuala Lumpur and elsewhere like Johor, according to Group MD and CEO Datuk FD Iskandar Mansor. Glomac has some 400 ha with an expected RM7bn in gross development value. (BT)

Top Glove Corp Bhd has welcomed the proposed takeover offer of Latexx Partners Bhd by Semperit AG Holdings, saying it is 'good' for the overall industry. Semperit is also a customer of Top Glove albeit not a huge one. Top Glove said, "Semperit's strategy to acquire existing capacity instead of adding new capacity is appropriate as there must always be a balance of demand and supply". The company also said that the deal could spur more M&A deals in the sector. (Star Biz)

China's import of palm oil is expected to reach about 6m tonnes next year due to increasing demand, says the  Malaysian Palm Oil Council. Its Regional Manager for China, Desmond Ng said as the Chinese economy and population continued to grow, demand for palm oil will also increase steadily, but at a slower pace in tandem with that of the Gross Domestic Product (GDP). "Direct usage of palm oil or substituting other oils in the food processing  industry may decline. The further processing of palm oil will play a bigger role for the product in the country," he said. As a result of  lower soybean import duty in China, locally produced soybean oil will always have the cost discount, against imported soybean oil by 6%. "This again put pressure on imported palm oil and also partly became the reason for the discount in the local palm oil price against landed cost in China," he added. (Bernama)

The  Felda Holdings Bhd's refusal to pay the full price for the purchase of fresh fruit bunches (FFB) has been described as unjust.  Lembah Pantai MP Nurul Izzah Anwar said after sellers complained  that Felda Holdings, through its subsidiary Felda Palm Industries Sdn Bhd, had issued a notice that the company would not pay the full sum to all sellers of FFB. "Felda is blantantly ignoring the prevailing market prices and will pay the sellers, who are also Felda settlers, approximately 10% less than the market rate. The formula is based on the current market Crude Palm Oil (CPO) price minus RM200 per metric tonne," she said. Nurul Izzah said it was unjust, if not illegal, for Felda to unilaterally forced a discount on the settlers. (Malay Mail)

India's Oil and Natural Gas Corp (ONGC) is keen to partner with Petronas in its third-country ventures, said Minister in PM's Department Tan Sri Nor Mohamed Yakcop after meeting India's Minister of Petroleum and Natural Gas, Jaipal Reddy. (Bernama)

Maybank has obtained a banking licence in Laos and plans to open its first branch in the capital city in early November, becoming one of few Malaysian banking groups to venture into the smallest Southeast Asian economy. The move ties in with its plan to have a presence in all 10 Asean countries by 2015. "We're making all the final arrangements to open a branch in Vientiane this November," president and CEO  Datuk Seri Abdul Wahid Omar told. (BT)

Malaysia Airports (MAHB) expects the Penang International Airport to register a 4-5% growth in passenger traffic this year despite the upgrading work in progress. Last year, the airport recorded a 4% growth, handling 4.5m passengers. (Bernama)

YTL hotels, the hospitality arm of YTL Corp, said demand for its hotels remains strong despite the global economic uncertainties. Its executive director Datuk Mark Yeoh said this is mainly driven by the growing trend of its Asian customer base. "We noticed that our hotels are seeing a shift in customer base, from being more European centric in the past, to more Asian. Yeoh expects the bullish trend to continue over the near term, thanks partly to growing affluence in the region that sees more Asians going on holiday. He added that its hotels are doing "very well", with occupancy rates of over 80% in most cases. (BT)

Telekom Malaysia, Astro Malaysia Holdings: Scoring for EPL
The bidding process for English Premier League (EPL) broadcast for the next 4 years is set to begin, with Telekom Malaysia (TM), Astro Malaysia Holdings and newcomer Asian Broadcasting Network (ABN) indicated their interest for bidding. The previous 2010-2012 EPL season bid was won by Astro, paying a rumoured figure of RM800m. Potential bidders have until Oct 12 to decide and must submit their bids by Nov 8. The winner will be announced in January or February 2013 and the successful party will have to pay up 5% of bid price to secure the rights. (StarBiz)

Hartalega Holdings: Forms subsidiary in India
Hartalega Holdings has formed a 70%-owned subsidiary, Pharmatex Healthcare Ptd Ltd, in India through its wholly-owned unit Hartalega Sdn Bhd. The authorised capital of Pharmatex is 100,000 rupees divided into 10,000 equity shares of 10 rupees each, with an issued and paid-up capital of 100,000 rupees only divided into 10,000 ordinary shares of 10 rupees each. Pharmatex is mainly involved in trading, import, export, packing and re-packing in all kinds of high quality rubber gloves. (StarBiz)

Apex Equity Holdings: New substantial shareholder emerges
Apex Equity Holdings which was the subject of shareholders’ fights 4 months ago has seen the emergence of a substantial shareholder – Endau Suria Sdn Bhd. The filling with Bursa Malaysia yesterday shows that Endau Suria holds 7.54%, or 15.27m shares, in Apex Equity, which makes it the fourth largest shareholder in the stockbroking group. The shareholders of Endau Suria are Laura Hauw Soei Yong and Kong Hock Kin.  (Financial Daily)

Sarawak Cable: Plans to buy over Trenergy
Sarawak Cable (SCB) has proposed the acquisition of the entire stake in Trenergy Infrastructure Sdn Bhd and the remaining 25% stake in Sarwaja Timur Sdn Bhd for RM65m and RM11.3m respectively, to be funded wholly in cash. SCB already owns 75% of Sarwaja, asteel fabrication and galvanising company, and the complete acquisition is intended to enable SCB to fully consolidate the financial results of Sarwaja into the audited financial statements of the SCB group. The remaining 25% had been held by Austin Corp (M) Sdn Bhd. Meanwhile, Trenergy would be bought from its chairman Datuk Seri Mahmud Abu Bekir Taib, who is also SCB non-independent non-executive chairman, Clarion Power Sdn Bhd and
Austin. (Starbiz)

20121017 0956 Global Market Related News.

Asia FX By Cornelius Luca - Tue 16 Oct 2012 16:23:04 CT (Source:CME/
The appetite for risk improved markedly on Tuesday due to decent US data and earnings, and hopes the European Union's leaders will be able to deal with Spain and Greece's debilitating debt later this week. The Financial Times reported that Spanish government is prepared to officially request a bailout, but the plan is being delayed due to external factors including its possible influence on the decision of other Eurozone countries. All of the European and commodity currencies but the Canadian dollar closed up and the yen further down. The US stock markets advanced. Gold, oil and silver ended a little higher. The short-term outlook for most of the European and commodity currencies is sideways. The medium-term outlook for most of the foreign currencies is slightly bullish. The LGR short-term model is short on all foreign currencies. Good luck!

US: Consumer Price Index rose 0.6% in September, the same as in August. The core CPI edged up 0.1% for a third month.
US: Net long-term TIC flows rose to $90.0 billion in August from $67.2 billion in July. Total net TIC flows rose to $91.4 billion from $74.0 billion.
US: Industrial production rose September after sliding a revised 1.4% in August. Capacity utilization edged up to 78.3% from 78.0%.
US: The NAHB Housing Market Index rose to 41 in October from 40 in September.
Canada: Canadian portfolio investment in foreign securities rose C$1.69 billion in August after falling C$4.56 billion in July.

Today's economic calendar
Australia: Westpac Leading Index for August
apan:  Machine tool orders for September

Asian Stocks Advance as U.S. Production, Earnings Beat Estimates (Bloomberg)
Asian stocks advanced, with the regional benchmark index headed for the biggest two-day gain in a month, after U.S. industrial production and corporate earnings beat estimates. Mobile phone maker LG Electronics Inc. (066570), which gets about 30 percent of its sales in North America, rose 1.5 percent in Seoul. Advantest Corp. (6857), a Japanese maker of memory-chip testers, slid 1.1 percent after industry bellwether Intel Corp. forecast fourth-quarter profit margins that missed analyst estimates. Camera maker Canon Inc. (7751), which gets 31 percent of its revenue in Europe, rose 2.1 percent in Tokyo after Spain retained its investment-grade credit rating from Moody’s Investors Service. The MSCI Asia Pacific Index rose 0.8 percent to 122.57 as of 9:28 a.m. in Tokyo before markets in Hong Kong and China opened. More than five stocks gained for each that fell on the measure.

Japanese Stocks Rise on U.S. Industrial Output, Earnings (Bloomberg)
Japanese stocks gained after U.S. industrial production rose more than estimated and American companies reported better-than-expected earnings. The Nikkei 225 Stock Average (NKY) rose 0.7 percent to 8,760.69 as of 9:01 a.m. in Tokyo. The broader Topix climbed 0.7 percent to 737.47, with more than seven times as many shares advancing as falling.

Recap Stock Index Market Report (CME)
The December S&P 500 trended higher throughout the US trading session, supported by this morning's positive flow of corporate earnings and favorable economic readings. Goldman Sachs reported earnings that surpassed expectations on revenues that were double their year ago level, as well as raising their dividend by 9%. Financial sharers were also supported by reports that the CEO of Citigroup would step down immediately. Shares of Johnson & Johnson were up more than 1% on the session after better than expected Q3 earnings and after raising their full year profit outlook. Another force that could have added to the bullish fodder this morning was reports that Spain could be close to a partial credit line from the ESM. All of the major S&P sector indices were higher, with strong performances in materials and energy-related shares. The market gets two bell whether tech-related earnings after the close from Intel and IBM.

Emerging Stocks Gain Most in Month on U.S. Sales Data (Bloomberg)
Emerging-market stocks rose the most in three weeks after U.S. retail sales beat estimates and as a report showed German investor sentiment is improving, boosting prospects for exports. The MSCI Emerging Markets Index rallied 0.8 percent to 1,003.35 at the close of trading in New York, the biggest gain since Sept. 21. Samsung Electronics Co. surged the most in more than a month in Seoul. The Bovespa gained 0.2 percent as Vale SA (VALE3), the world’s biggest iron-ore producer, jumped on speculation infrastructure investments in China will boost the commodity. Turkey’s ISE National 100 Index (XU100) rose to the highest level in almost two years. The Commerce Department announced yesterday that retail sales in the U.S. climbed 1.1 percent in September, compared with the 0.8 percent expansion forecast by economists. German investor confidence gained for a second month in October, the ZEW Center for European Economic Research in Mannheim said today.
The 21 nations in MSCI’s developing-nations gauge send about 30 percent of their exports to the European Union and 13 percent to the U.S. on average, according to data compiled by the World Trade Organization. “There is positive news where there wasn’t two months ago,” Charles Robertson, global chief economist at Renaissance Capital in London, said by telephone. “There is a growing belief we might avoid a hard landing.”

German Stocks Rise as Investor Sentiment Tops Forecasts (Bloomberg)
German stocks advanced for a second day, the first back-to-back gains in more than a month, as investor confidence exceeded economists’ forecasts. Deutsche Bank AG (DBK) and Commerzbank AG (CBK), Germany’s biggest lenders, increased at least 4 percent as a gauge of banks led gains in the Stoxx Europe 600 Index. (SXXP) Volkswagen AG (VOW) rose 1 percent as Exane BNP Paribas boosted its price estimate on the shares. Wacker Chemie AG (WCH) dropped as Deutsche Bank downgraded the world’s fourth-largest supplier of polysilicon to the microchip and solar-cell industries. The DAX Index (DAX) climbed 1.6 percent to 7,376.27 at the close of trading in Frankfurt, the biggest gain since Sept. 6. The benchmark gauge has rallied 24 percent from this year’s low on June 5 as European Central Bank policy makers approved an unlimited bond-buying program and the U.S. Federal Reserve started a third round of asset purchases. The broader HDAX Index also soared 1.6 percent today.
“Banking and technology stocks have been the strongest today,” said Raimund Saxinger, a fund manager at Frankfurt- Trust Investment GmbH, which oversees about $22 billion. “With banks, there has been a continuation of the normalization since August after the announcement from the ECB put a floor underneath banks, removing extreme downside risk.” The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 11.5 this month from minus 18.2 in September. Economists forecast an increase to minus 14.9, according to the median of 36 estimates in a Bloomberg survey.

U.K. Stocks Rally on Spain Funding Talk; Lloyds, Rio Rise (Bloomberg)
U.K. stocks rallied, led by banks and mining companies, as two German lawmakers said the country is open to Spain’s seeking a credit line and as U.S. industrial- production data topped economists forecasts. Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) led a gauge of British lenders to the highest in more than a year. Rio Tinto Group rose 2.7 percent after reporting an increase in iron-ore output and as base metals climbed in London. Bellway (BWY) Plc surged to the highest since 2007 after posting a 58 percent jump in annual profit. The FTSE 100 (UKX) Index advanced 68.37 points, or 1.2 percent, to 5,873.98 at 3:59 p.m. in London, on track for the biggest two-day gain in a month. The gauge added 0.2 percent yesterday after better-than-forecast U.S. retail-sales data. The broader FTSE All-Share Index increased 1.2 percent today and Ireland’s ISEQ Index climbed 0.4 percent.
Bank stocks rallied in Europe after two German lawmakers said Germany is open to Spain’s seeking a precautionary credit line from the euro-area rescue fund, signaling a reversal of German Finance Minister Wolfgang Schaeuble’s public position. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.

Europe Stocks Rise as Germany Open to Spanish Credit Line (Bloomberg)
European (SXXP) stocks rose as two German lawmakers said the country is open to Spain seeking a precautionary credit line from Europe’s rescue fund, and German investor confidence advanced more than expected in October. BNP Paribas SA and Deutsche Bank AG (DBK) paced gains among banking shares. Rio Tinto Group rose 2.9 percent after the mining company posted third-quarter iron-ore output that beat analyst projections. GKN Plc fell 3.4 percent after forecasting weaker demand in Europe. The Stoxx Europe 600 Index climbed 1.3 percent to 274.38 at the close of trading, the first time the benchmark gauge has risen for two straight days since Sept. 12. It has rallied 17 percent from a June 4 low as European Central Bank policy makers agreed on an unlimited bond-buying plan and the Federal Reserve announced a third round of quantitative easing.
European stocks will “stay positive for the rest of the year, with a limited upside of 5-6 percent,” Benoit Peloille, equity market strategist at Natixis, told Maryam Nemazee in a Bloomberg Television interview. “As the political risk premium will be corrected in a few weeks, the markets can re-focus on the growth issue.” Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, signal a reversal of Finance Minister Wolfgang Schaeuble’s position that Germany is opposed to a full sovereign bailout for Spain.

Stimulus Bets Stoke Longest Advance Since March: China Overnight (Bloomberg)
Chinese equities in the U.S. climbed for a fifth day, the longest stretch of gains since March, on prospects slowing inflation will allow policy makers to take further steps to stimulate the economy. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in New York climbed 0.7 percent to 95.39 yesterday, the highest close since May 14. Spreadtrum Communications Inc. (SPRD) rose to a one-month high after Credit Suisse Group AG said the mobile chipmaker was a good buy, and Youku Tudou Inc. (YOKU) had the strongest gain in three months. Huaneng (902) Power International Inc. traded at the highest premium to the Hong Kong share in two months as BNP Paribas SA upgraded the stock.
Chinese consumer prices rose 1.9 percent from a year earlier in September, an Oct. 15 government report showed, 10 basis points off the slowest pace in two years. The Bloomberg China-US gauge added 4.6 percent in September, the biggest monthly advance since February, on speculation China’s new leaders to be announced on Nov. 8 will build on this year’s reductions in interest rates and bank reserve ratios with further measures to stoke growth. “Falling inflation will allow the government to take more stimulus measures,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc (FCAM), said by phone from London yesterday. “We expect stimulus will mainly come from cuts in reserve requirement ratios. Emerging- market stocks, including the Chinese, will see an uptrend in the next 12 months.”

Treasuries Fall After Moody’s Affirms Spain Rating (Bloomberg)
Treasuries fell for a third day as Spain kept its investment grade debt rating from Moody’s Investors Service, curbing demand for the safest assets. U.S. government debt tumbled the most in a week yesterday as Germany signaled it may be open to a bailout for Spain. Benchmark 10-year yields increased two basis points, or 0.02 percentage point, to 1.74 percent as of 9:19 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 fell 6/32, or $1.88 per $1,000 face amount, to 98 30/32. Moody’s assigned a negative outlook on Spain’s Baa3 sovereign debt, one step above junk, the New York-based company said in a statement yesterday.

Euro Touches Month-High on Spain Optimism Before Summit (Bloomberg)
The euro advanced to a one-month high on speculation Spain will move toward seeking financial assistance, helping contain Europe’s debt crisis. The 17-nation currency rose versus all of its 16 major counterparts after Moody’s Investors Service said yesterday it held the nation’s investment grade credit rating. European Union leaders will hold a summit in Brussels this week. The yen was 0.1 percent from its lowest level in a month after an advance in equities worldwide curbed appetite for haven assets. “The euro is rising amid speculation Spain will request a precautionary credit line,” said Masato Yanagiya, head of currency and money trading in New York at Sumitomo Mitsui Banking Corp. “Expectations are rising before the EU summit.”
The euro gained 0.5 percent to $1.3115 at 8:34 a.m. in Tokyo after touching $1.3124, the highest since Sept. 17. It reached 103.52 yen, the most since Sept. 19, before trading at 103.45. Japan’s currency was at 78.88 per U.S. dollar from 78.89 yesterday, when it slid to 78.97, the least since Sept. 19. The Standard & Poor’s 500 Index of shares added 1 percent yesterday. The Stoxx Europe 600 Index gained 1.3 percent. Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said yesterday. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain and signaled a reversal of Finance Minister Wolfgang Schaeuble’s public position.
Moody’s said in a statement yesterday it assigned a negative outlook on Spain’s Baa3 sovereign debt as it concluded the review for possible further downgrade of the country’s rating that it had initiated in June. Spain will sell bonds due in 2022, 2016 and 2015 tomorrow. The nation’s 10-year yield fell one basis point to 5.81 percent yesterday after an auction of bills beat the maximum target.

Aussie Climbs to 2-Week High as Spain Bailout Bets Boosts Risk (Bloomberg)
The Australian dollar climbed to its highest level in two weeks and government bonds fell as speculation Spain is closer to requesting a sovereign bailout spurred appetite for riskier assets. New Zealand’s currency rebounded from the biggest drop in two weeks after the debt-saddled European nation yesterday retained its investment-grade credit rating from Moody’s Investors Service, easing concern that the region’s debt crisis will worsen. Demand for the so-called Aussie and kiwi dollars was also supported as Asian stocks joined a global rally amid signs the U.S. economy is gaining momentum. The Australian dollar rose 0.3 percent to $1.0309 as of 11:46 a.m. in Sydney. It earlier touched $1.0315, the strongest since Oct. 2. The Aussie gained 0.2 percent to 81.22 yen. The New Zealand dollar climbed 0.4 percent to 81.75 U.S. cents, after dropping 0.5 percent to 81.41 yesterday. It rose 0.3 percent to 64.40 yen.
“There certainly has been a lot of smoke around a Spanish bailout deal in recent trading sessions and I think there is a rising sense that that is coming soon,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “That probably means we take the pressure off Aussie in the short term.” The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent after the Standard & Poor’s 500 Index of U.S. stocks added 1 percent yesterday and the Stoxx Europe 600 Index gained 1.3 percent. Australian bonds declined, pushing the yield on 10-year debt up by 12 basis points, or 0.12 percentage point, to 3.14 percent. It earlier reached 3.16 percent, the highest since Sept. 25.

U.S. Industrial Production Rises in Stabilization Sign (Bloomberg)
American manufacturers churned out more appliances, clothing and construction supplies in September, indicating a mainstay of the early part of the economic expansion is regaining its footing. Output at factories, mines and utilities rose 0.4 percent, beating the median forecast of economists surveyed by Bloomberg, after a 1.4 percent drop in August that was the biggest since March 2009, according to data from the Federal Reserve issued today in Washington. Other reports showed there was little inflation outside of fuel costs and homebuilder confidence climbed to a six-year high. The biggest back-to-back gain in retail sales in almost two years points to a pickup in consumer spending that may help offset a pullback in business investment. At the same time, a global slowdown that is hurting exports represents a hurdle for manufacturing.
“The economy is regaining momentum it appeared to have lost in the spring,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh who correctly forecast the production gain. “I don’t think manufacturing is down for the count.” Shares climbed as corporate earnings topped estimates. The Standard & Poor’s 500 Index rose 1 percent to 1,454.92 at the close in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.72 percent from 1.66 percent late yesterday.

International Demand for U.S. Assets Rises on Europe (Bloomberg)
International purchases of U.S. financial assets rose in August as investors sought shelter from the debt crisis in Europe, boosted by purchases from France, the U.K. and China. Net buying of long-term equities, notes and bonds totaled $90 billion during the month, up from net purchases of $67.2 billion in July, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $48 billion of long-term assets, according to the median estimate. “This report underscores the healthy demand for U.S. Treasury assets globally as the European uncertainty continues to weigh on investors’ sentiment,” Millan Mulraine, senior U.S. strategist for TD Securities in New York, said after the report was released.
U.S. assets have maintained their attraction as European leaders struggle to resolve differences on renewed aid for Greece and as Spain holds out on tapping a bailout. The International Monetary Fund’s decision this month to cut its forecast for world economic growth to 3.3 percent this year and 3.6 percent for 2013 may further increase the lure of U.S. assets as a safe-haven investment.

Confidence Among U.S. Homebuilders Climbs for a Sixth Month (Bloomberg)
Confidence among U.S. homebuilders climbed for a sixth straight month in October, adding to signs the real-estate market is healing. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006, from 40 in September, according to figures from the Washington-based group released today. The median forecast in a Bloomberg survey of economists called for an increase to 41. Readings below 50 mean more respondents said conditions were poor. Record-low borrowing costs are helping sustain sales for homebuilders such as Hovnanian Enterprises Inc. (HOV) Strict credit standards and slowing payroll growth remain obstacles for the industry that was at the center of the financial crisis. “Many builders are reporting increases in the number of serious buyers visiting their sales offices,” Barry Rutenberg, chairman of the NAHB and a builder from Gainesville, Florida, said in a statement.
Estimates of 49 economists in the Bloomberg survey ranged from 40 to 43. The gauge, which was first published in January 1985, averaged 54 in the five years leading to the recession that started in December 2007. It reached a record low of 8 in January 2009. An index of single-family home sales was unchanged at 42 this month. A measure of buyer traffic jumped five points to 35, its highest level since April 2006.

U.S. Consumer Prices Rose in September on Cost of Fuel (Bloomberg)
The cost of living in the U.S. rose in September for a second month, reflecting a jump in energy expenses that failed to trickle through to other goods and services. The consumer-price index increased 0.6 percent for a second month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.5 percent advance. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected. Companies such as Abercrombie & Fitch Co. (ANF) and Safeway Inc. (SWY) are among those saying price increases are difficult to achieve as 12.1 million Americans remain unemployed and rising fuel bills eat into workers’ paychecks. The lack of pricing power is one reason the Federal Reserve eased policy further to focus on jump-starting employment.
“There isn’t any meaningful risk of short-term core inflation,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the gain in core prices. “When it comes to everyday goods and services, the lack of demand just isn’t going to push prices higher.” Treasuries remained lower after the report. The benchmark 10-year yield climbed four basis points, or 0.04 percentage point, to 1.71 percent at 9:50 a.m. in New York, according to Bloomberg Bond Trader prices.

Shrinking China Job Needs Show Why GDP Slowdown May Be Tolerated (Bloomberg)
The slowdown in China’s economy isn’t making it any easier for Liu Fengling to hire 10 experienced welders this year for his heating-equipment maker. Liu has managed to find just three employees even with the economy in its deepest slowdown since the global financial crisis. “The scenario when migrant workers will throng around your desk after you hang the job poster is long gone,” said Liu, 46, whose company is in the southern city of Zhuhai. “It’s getting worse year by year.” The world’s second-biggest economy probably expanded 7.4 percent in the third quarter from a year earlier, according to the median estimate in a Bloomberg News survey of 43 economists before data due in Beijing tomorrow. That’s the slowest pace since the first quarter of 2009 and the seventh straight quarterly deceleration.
Liu’s story helps explain why the ruling Communist Party hasn’t rolled out a stronger monetary and fiscal policy response as officials watch for signs that the economy is stabilizing. While the government has this year described the labor market as “grim,” pressure for job creation is lessening as the one-child policy introduced in 1979 caps new entrants to the workforce. As recently as 2010, Premier Wen Jiabao said that an 8 percent expansion was necessary for “basic stability of employment,” and anything lower will create “problems,” according to the party’s Qiushi magazine.

Labor Resilience
“With China’s shifting demographics, that benchmark should shift as well,” said Louis Kuijs, chief China economist for Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. Labor market resilience “reduces the perceived urgency of a major policy response,” he said. The working age population is growing at 0.5 percent a year now, one-third the pace of 10 years ago, Kuijs estimates. That means the benchmark growth rate may be 7 percent, he said. China unleashed a 4 trillion yuan ($586 billion at the time) stimulus package and an unprecedented bank lending spree at the end of 2008 to shield the economy from the global financial crisis, as a collapse in exports led to about 20 million migrant workers losing their jobs. The central bank cut interest rates five times in four months and lowered lenders’ reserve requirements three times in the final quarter of 2008.
This time the response is more muted, with bank reserve requirements cut three times since November, interest rates reduced in June and July, and a speeding of investment approvals.

Chinese Show Deepening Concern at Officials’ Corruption (Bloomberg)
Chinese people are increasingly worried about growing income inequality and official corruption, according to a Pew Research Center survey released weeks before a once-a-decade leadership transition. Forty-eight percent of 3,177 adults surveyed said the gap between rich and poor in China is a “very big problem,” up seven percentage points from a 2008 survey, the Pew Global Attitudes Project found. Fifty percent said official corruption was a very big problem, compared with 39 percent four years ago. The poll had a margin of error of plus or minus 4.3 percentage points. The poll results reflect growing public disenchantment with a rich-poor divide that has widened as growth accelerated, averaging 10.1 percent since 1981. Even as China has succeeded in lifting hundreds of millions of people out of poverty, high- profile corruption cases among business and government leaders have exacerbated social tensions ahead of the leadership change.
“While the Chinese have consistently rated their national and personal economic situations positively over the last few years, they are now grappling with the concerns of a modern, increasingly wealthy society,” the survey said. “As China prepares for its once-in-a-decade change of leadership, their country faces serious and growing challenges.” The survey was conducted as the biggest political scandal in a generation was unfolding in China, the sacking of Bo Xilai from his post as a regional party boss and removal from the ruling Politburo. Chinese authorities allege that he was involved in the murder of a British businessman, accepted bribes and maintained improper sexual relations with other women.

Goldman Sachs’s O’Neill Sees Bank of BRICS Gathering Momentum (Bloomberg)
Leaders from the world’s biggest emerging markets are moving closer toward establishing a development bank of their own, according to Goldman Sachs Asset Management Chairman Jim O’Neill. The so-called BRICS nations of Brazil, Russia, India, China and South Africa have spent the year considering an Indian proposal for a multilateral bank that would be exclusively funded by those nations and finance projects in them. While the Chinese have been “scratching their head” about whether to support it, they may decide to if rich nations continue to prove slow in backing a shift in voting power toward emerging economies at the International Monetary Fund, O’Neill told Tom Keene at the Bloomberg Link FX Summit in London yesterday. “The Chinese could jump ship,” said O’Neill, who devised the BRIC term a decade ago. The U.S. has so far failed to ratify a 2010 agreement that would give more strength to emerging markets at the IMF and make China the third most powerful member.
Negotiations over a 2014 shift in voting rights are already subject to disagreement over how to calculate the reshuffle. O’Neill said China is shifting to a better “quality” of growth from a previous focus on “quantity,” and its economy will now expand between 6 percent and 8 percent. “China are telling us they’re happy to have less growth going forward,” said O’Neill, who added he expected more reform to the nation’s economy and financial system.

S&P Cuts Santander, BBVA Ratings on Spain Downgrade (Bloomberg)
Standard & Poor’s cut its credit ratings on Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders. The shares surged on speculation the country is edging toward a bailout. Santander’s long-term counterparty credit rating was lowered two levels to BBB with a negative outlook, from A-, and BBVA’s rating was cut to BBB- from BBB+, S&P said in a statement today. The firm also cut the ratings of nine other banks and placed six on creditwatch negative. Last week’s reduction of Spain’s sovereign debt rating to BBB-/A-3 also affected the assessment of lenders ranked higher than the country and those whose ratings assumed government support, S&P said. Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, said Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, signaling a reversal of Finance Minister Wolfgang Schaeuble’s position.
Santander rose 4.3 percent to 6.06 euros at 5:30 p.m. in Madrid, the biggest gain since Sept. 6. BBVA advanced 6 percent to 6.31 euros. Bankinter SA (BKT) jumped 7.4 percent to 3.12 euros.

Germany Open to Spanish Precautionary Credit, Lawmakers Say (Bloomberg)
Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month. or Spain, where Prime Minister Mariano Rajoy’s government has said it won’t request aid until the terms are clearer, a precautionary credit line “would be a possible move,” Barthle said today in a text message. The 500 billion-euro ($650 billion) permanent rescue fund, the European Stability Mechanism, which came into force on Oct. 8, “envisages help for sectors in the economy with limited conditionality.”
The views of German lawmakers are critical because they would have to ratify any aid request under parliamentary rules. Spain has cited concern of German rejection for its reluctance so far to seek bailout funds, a condition for triggering European Central Bank help to lower borrowing costs.

German Investor Sentiment Rose in October on ECB Plan (Bloomberg)
German investor confidence gained for a second month in October as the European Central Bank’s plan to buy government bonds fueled speculation that the sovereign debt crisis can be contained. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 11.5 from minus 18.2 in September. Economists forecast an increase to minus 14.9, according to the median of 36 estimates in a Bloomberg News survey. Germany’s benchmark DAX share index has rallied more than 10 percent since ECB President Mario Draghi pledged on July 26 to do whatever it takes to preserve the euro and unveiled an unlimited bond-purchase program. While the German economy, Europe’s largest, is also outperforming its euro-area counterparts, there are signs that the crisis is damping growth. Factory orders fell more than forecast in August and business confidence dropped to a 2 1/2 year low in September.
“The improvement was primarily driven by investor relief at the ECB’s unlimited bond-purchase program,” said Carsten Brzeski, senior European economist at ING Group in Brussels. “However, it also points to a soft landing for the German economy. The outlook is more subdued, but we won’t have a recession.”

Spain Retains Investment Grade Credit Rating From Moody’s (Bloomberg)
Spain kept its investment grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access because of the European Central Bank’s willingness to buy the nation’s debt. Moody’s assigned a negative outlook on the Baa3 sovereign debt, one step above junk, as it concluded the review for a possible further downgrade of Spain’s rating that it had initiated in June, the New York-based company said in a statement yesterday. Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as being rated below investment grade. Standard & Poor’s has a negative outlook on its BBB- rating, also one step above junk, and Fitch Ratings has Spain at BBB, two levels higher than junk. The willingness of the ECB to purchase Spain’s government bonds in the secondary market “is an important step” for Spain to maintain access to credit markets, Kathrin Muehlbronner, a Moody’s analyst in London, said in a telephone interview.
She said she expects Spain to request a precautionary credit line from the European Stability Mechanism, the region’s permanent rescue fund “to be able to activate the ECB purchases in the secondary market.”

20121017 0956 Global Commodities Related News.

DTN Closing Grain Comments 10/16 14:29(CME)
Grains Fail to Sustain Momentum
What started out as a promising day with solid gains was wiped out by the close near unchanged across the grain complex. This doesn't exactly bode well for grains heading into the CME Globex Session this evening.

Pro Farmer: After The Bell Wheat Recap(CME)
Wheat futures were unable to hold onto early corrective gains and could only muster a narrowly mixed close at all three exchanges. Wheat futures were supported by corrective short-covering overnight and through mid-morning amid ideas Monday's losses were overdone and by weakness in the U.S. dollar index. But given a lack of bullish fundamental news, the buying interest faded.

Wheat Market Recap Report(CME)
December Wheat finished down 1/2 at 847 3/4, 10 off the high and 4 up from the low. March Wheat closed down 1/4 at 860 1/4. This was 4 1/4 up from the low and 9 1/2 off the high. December Chicago wheat ended the day slightly lower while KC and Minneapolis saw marginal gains. Minneapolis wheat gained on the other two wheat markets after it was reported that China purchased 295,000 tonnes of Canadian spring wheat over the last two weeks. The fact that the US remains behind the average pace needed to reach this year's USDA export goal as well as being overprice relative to other world origins is a short term negative and continues to add a bearish tilt to the market. Traders are optimistic that the US will be competitive in the Algerian wheat tender which was issued yesterday for 50,000 tonnes. Pressure is linked to news that Ukraine would not limit exports of corn and barley this crop year which would directly compete with US wheat in the world feed markets. Outside market were positive throughout the day with the US Dollar trading lower and US stocks were higher. Most commodities were mixed to slightly higher and short covering was prevalent following yesterday's steep declines across the sector. December Oats closed up 4 1/2 at 392 1/2. This was 4 1/2 up from the low and 2 1/2 off the high.

Pro Farmer: After The Bell Corn Recap(CME)
Corn futures favored a firmer tone throughout the day on short-covering following yesterday's losses, but buying interest eroded into the close and futures ended 1 cent higher to 3 cents lower, with nearbys leading gains. Weakness in the U.S. dollar index also helped to support short-covering in early trade, but given a lack of fresh positive news, buying interest was lackluster and eventually gave way to profit-taking.

Corn Market Recap for 10/16/2012(CME)
December Corn finished up 1 at 738 1/4, 7 off the high and 3 1/4 up from the low. March Corn closed up 1 at 738 1/4. This was 3 1/4 up from the low and 7 off the high. December corn finished the day around a penny higher but traded throughout the day in positive and negative territory. The lower trade was linked to profit taking and on very poor export demand. Support came from scattered end user coverage, strong interior basis levels, and on positive outside markets. Basis values in the Gulf of Mexico were steady as the lower futures prices have offset the sluggish export demand. Strong basis levels exist in the interior of the US as processing markets struggle to keep physical corn moving. Ukraine announced overnight that they had no plans to restrict exports on corn and barley which adds to the negative outlook for US corn exports. South American corn is also taking market share away from the US as it continues to trade at a steep discount. Outside markets limited losses throughout the day as the US Dollar traded lower and the stock market was higher. Most commodity markets bounced off the steep declines from yesterday but buyers were hesitant to establish positions on fears that funds will continue to liquidate positions. This added to the short term bearish tilt in the marketplace. November Rice finished down 0.14 at 14.87, 0.06 off the high and equal to the low.

Wheat Futures Fall as Kansas Rain Boosts Crop Outlook (Bloomberg)
Wheat futures fell for the third straight session on speculation that rain in parts of Kansas, the biggest U.S. grower of winter varieties, will boost crop prospects. Precipitation increased soil moisture in central and eastern counties in Kansas. Yesterday, the U.S. Department of Agriculture reported that 81 percent of the state’s winter crop was planted as of Oct. 14, up from 65 percent a week earlier, while wheat dropped to a 13-week low. “The rain was pretty widespread,” Jeff McReynolds, the owner of McReynolds Marketing & Investments in Hays, Kansas, said in a telephone interview. “The northwest part of the state didn’t get anything, so we still have a fairly sizeable dry patch, but for the rest of the state, this is going to be enough to allow the crop to be planted and germinate.” Wheat futures for December delivery fell 0.1 percent to settle at $8.4775 a bushel at 2 p.m. on the Chicago Board of Trade. The price has dropped 4.3 percent in three sessions.
In the U.S., wheat is the fourth-largest crop, valued at $14.4 billion in 2011, behind corn, soybeans and hay, government data show.

Milk Seen Surging 15% on Drought-Feed Costs Before Demand Slows (Bloomberg)
Retail-milk prices will rise as much as 15 percent by the first quarter of 2013 after the worst U.S. drought since 1956 sent livestock-feed costs to a record, according to Dairy Management Inc., an industry group. “Since the drought started, the milk price has gone up quite a bit,” Dairy Management Chief Executive Officer Tom Gallagher said yesterday during an interview in Chicago. “Prices are going to go up worldwide.” The drought led to the biggest U.S. drop in corn production in 17 years, sending the price of the main feed ingredient for dairies to an all-time high on Aug. 10 of $8.49 a bushel. Prices are up 47 percent since mid-June, forcing some California dairies into bankruptcy, while others cut their herds and output to limit losses. Milk futures in Chicago touched $21.26 per 100 pounds on Oct. 3, a 13-month high.
“When you get to $25 milk, if that happens, the effect on the retail price is enormous,” Gallagher said. Consumers paid on average $3.469 a gallon in September, U.S. Bureau of Labor Statistics data show. Milk futures through yesterday were up 36 percent since mid-June on the Chicago Mercantile Exchange and may advance to a record $25 by June, according to Shawn Hackett, the president of Boynton Beach, Florida-based Hackett Financial Advisers Inc., who in March correctly forecast prices would rally. Dairy Management, a marketer based in Rosemont, Illinois, receives 15 cents on every 100 pounds of milk produced in the U.S. to promote dairy products domestically and overseas. The organization includes the American Dairy Association, National Dairy Council and U.S. Dairy Export Council.

Sugar Glut Extending to Longest in More Than Decade: Commodities (Bloomberg)
The global sugar glut is extending into a third year, the longest stretch in more than a decade, as Brazil and Australia expand output and imports contract to the smallest since 2008. Production will exceed demand by 5.9 million metric tons in the year that began Oct. 1, more than the U.S. consumes in six months, the International Sugar Organization estimates. Global supply including inventories will be the highest ever, the London-based group says. Raw-sugar futures traded in New York may drop 11 percent to 18 cents a pound by the end of the year, according to the median of 15 estimates from traders and analysts compiled by Bloomberg.
Futures fell 44 percent since reaching a three-decade high of 36.08 cents in February 2011 as farmers from Russia to Thailand planted more crops. The drop is moderating global food prices that the United Nations says rose 7.7 percent in the past three months as drought and heat waves wilted U.S. and European wheat, corn and soybeans. Lower prices are helping to cut costs for food companies including Nestle SA (NESN), which spent about 1.5 billion Swiss francs ($1.6 billion) last year on sugar. “The surplus is probably getting worse,” said Jonathan Kingsman, the chief executive officer of Lausanne, Switzerland- based research company Kingsman SA who has traded sugar for more three decades. “More sugar will have to be stockpiled on lack of demand and we would expect prices to stay under pressure.”

Cheap Gas From Fracking Fuels Profits at LyondellBasell (Bloomberg)
Profit margins for ethylene, a colorless gas used to ripen fruit, open flowers and make products from plastic bags to paint removers, are surging to near record levels and may climb further, reviving fortunes of U.S. producers. Two of the commodity’s largest makers, LyondellBasell Industries NV (LYB) and Westlake Chemical Co. (WLK), have posted their highest-ever profits and their shares have gained 66 percent and 91 percent respectively this year. Their margins will continue to improve as constrained production capacity pushes up prices, say Brian Maguire and Bob Koort, analysts at Goldman Sachs Group Inc. in Houston.
The driver is cheap shale gas, which is rejuvenating the country’s chemical industry after a decade of decline. Hydraulic fracturing of shale rock formations, known as fracking, cut U.S. gas prices to a 10-year low in April. It has also produced an oversupply of ethane, a natural gas component that is converted to ethylene with heat and pressure in a process known as cracking. Gas liquids, mostly ethane, supply about 85 percent of the feedstock for U.S. ethylene makers. Ethane at Mont Belvieu, Texas, the main supply hub for Gulf Coast chemical makers, has fallen 67 percent in a year to 31.6 cents a gallon. Consumers and manufacturers alike benefit. Ethylene is the raw material used to make polymers -- sturdy chemical compounds that are building blocks for products in the transportation, electronics, textiles, construction and packaging industries.

Natural Gas Drops as Mild U.S. Weather to Crimp Heating Demand (Bloomberg)
Natural gas futures declined for a second day in New York as forecasts for mild weather signaled reduced demand for the heating fuel. Gas fell 1.4 percent after forecasters including Commodity Weather Group LLC predicted above-normal temperatures for the East Coast over the next six to 10 days. Heating demand in the lower 48 states will be 42 percent below normal Oct. 22 through Oct. 26, said Weather Derivatives in Belton, Missouri. “The spotlight is on the mild weather forecasts for the next couple of weeks,” said Brad Florer, a trader at Kottke Associates LLC in Louisville, Kentucky. “Fair value is somewhere right around where we are right now. We might see a bit of a tug of war.” Natural gas for November delivery fell 4.9 cents to $3.437 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Oct. 8. The futures have dropped 7.2 percent from a year ago.
February $5.50 calls were the most active gas options in electronic trading. They were unchanged at 1.1 cents per million Btu on volume of 6,150 contracts as of 3:04 p.m. Calls accounted for 70 percent of options volume. The low temperature in Boston on Oct. 23 may be 54 degrees Fahrenheit (12 Celsius), 10 above normal, and Washington may see a low of 59 degrees, 11 above normal, according to AccuWeather Inc. in State College, Pennsylvania.

Recap Energy Market Report(CME)
November crude oil prices flipped-flopped around unchanged levels throughout the US trading session, despite a favorable risk-on attitude in outside markets. Some traders indicated that weakness in the expiring November Brent crude oil might have limited upside potential in WTI during the session. There were also concerns that this week's EIA inventory report would show another build in crude supplies last week. November crude oil established a higher high in early morning action but spent most of the US session fractionally lower.

Oil Gains a Second Day on Spain Bailout Optimism, U.S. Economy (Bloomberg)
Oil rose a second day in New York on signs Germany may ease its resistance to a Spanish bailout and after U.S. industrial production rose more than forecast. Futures advanced as much as 0.7 percent after two German lawmakers said the country is open to Spain seeking a precautionary credit line. Output at U.S. factories, mines and utilities rose 0.4 percent in September, twice as much as the median forecast of economists surveyed by Bloomberg News, according to data from the Federal Reserve in Washington. “The proposal for a line of credit seems like a positive compromise,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “It may mean, as far bondholders and the market are concerned, there’s a back-up facility there to be used. There was also a positive response to the U.S. industrial production figures, which were a little higher than expected.”
Crude for November delivery climbed as much as 67 cents to $92.76 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.41 at 10:23 a.m. Sydney time. The contract yesterday rose 24 cents to $92.09, the highest settlement since Oct. 9. Prices are down 6.5 percent this year. Brent oil for November settlement, which expired yesterday, dropped 73 cents to $115.07 a barrel on the London-based ICE Futures Europe. December futures slid 40 cents to $114. The European benchmark grade’s premium to West Texas Intermediate closed at $22.98. It settled at $23.95 on Oct. 15, the widest gap since reaching a record on Oct. 14, 2011.

U.S. crude oil exports may be inevitable
--John Kemp is a Reuters market analyst. The views expressed are his own--
LONDON, Oct 15 (Reuters) - Requests from Shell, BP and Vitol, among others, to start sending substantial amounts of U.S. crude to refineries in Canada have hit the headlines, as oil producers try to find outlets for surging production of light oil from North Dakota and elsewhere by easing decades-old restrictions on exporting domestically produced crude .
Less well-known is that record volumes of light hydrocarbons such as propane, butane and pentane are already being exported, as oil and gas producers seek alternative markets for the prodigious quantity of natural gas liquids (NGLs) now being produced alongside oil and gas from shale formations.

Gold, Silver Rebound on Investment Demand as Dollar Drops (Bloomberg)
Gold futures rebounded from a four- week low as the dollar’s decline boosted demand for the metal as an alternative investment. Silver also climbed. The greenback fell as much 0.5 percent against a basket of major currencies on speculation that Spain may get a line of credit from Europe’s rescue fund, easing debt concerns in the region. Yesterday, gold and silver tumbled the most in three months, partly on speculation that China may refrain from expanding economic stimulus. “The dollar trading lower, and talk about Spain set to ask for a bailout is helping set the positive tone,” Steve Scacalossi, a New York-based vice president at TD Securities Inc., said in an e-mail. Gold futures for December delivery rose 0.5 percent to settle at $1,746.30 an ounce at 1:43 p.m. on the Comex in New York, the biggest advance for a most-active contract since Oct. 4. Yesterday, the metal slumped 1.3 percent, the most since July 6, after touching $1,729.70, the lowest since Sept. 13.
“The gold market experienced momentum-based selling but appears to have found a base” around $1,735, Australia & New Zealand Banking Group Ltd. (ANZ) analysts led by Mark Pervan said in a report. Silver futures for December delivery climbed 0.7 percent to $32.959 an ounce on the Comex. Yesterday, the metal fell 2.8 percent, the most since June 21. This year, silver has gained 18 percent, and gold has climbed 11 percent. On the New York Mercantile Exchange, platinum futures for January delivery rose 0.8 percent to $1,645.20 an ounce. Palladium futures for December delivery advanced 1 percent to $638.95 an ounce.

Copper Advances in London as U.S. Factory Report Buoys Outlook (Bloomberg)
Copper prices rose in London for the first time in three sessions after a report showed industrial production increased more than forecast in the U.S., the world’s second-biggest consumer of the metal. Output at factories, mines and utilities advanced 0.4 percent last month after a 1.4 percent decline in August, the Federal Reserve said today. The median estimate in a Bloomberg survey of economists was for a 0.2 percent rise. Copper also climbed as two German lawmakers said the country is open to Spain seeking a precautionary credit line, bolstering optimism that Europe can contain its debt crisis. “The economic and the Spanish-bailout news are helping to prop things up,” Dennis Cajigas, a senior market strategist at Zaner Group in Chicago, said in a telephone interview. “The U.S. and China are driving markets, and the industrial production figure is boosting expectations for demand.”
Copper for delivery in three months gained 0.4 percent to settle at $8,125 a metric ton ($3.69 a pound) at 5:50 p.m. on the London Metal Exchange. Last week, the price fell 2 percent, the most since July 20, amid concern that demand will ease in the U.S. and China, the top consumer. Stockpiles in warehouses monitored by the LME declined 0.7 percent today to 210,725 tons, the lowest since Oct. 23, 2008. Copper futures for December delivery fell less than 1 percent to settle at $3.70 a pound on the Comex in New York. On the LME, nickel, aluminum and zinc declined, while lead and tin gained.

Silver Market Recap Report(CME)
The silver market spent a large portion of the trade today in positive ground. Favorable outside market conditions, upbeat macro economic sentiment and positive leadership from gold and platinum probably emboldened the bull camp in silver today. Perhaps silver managed to de-link from the hopes of additional easing and that in turn could mean that silver prices in the coming trading sessions will be driven by the ebb and flow of the outlook for the US economy. If silver was shifting back toward a growth/no growth focus, it is possible that lackluster action in the copper market might have dampened bullish sentiment for silver.

Gold Market Recap Report(CME)
The gold managed to recoil from the big range down extension in the prior session and for the bull camp today might have been a moral victory. In other words, gold seemed to throw off a recent pattern of weakness in the face of events that reduced the prospect for additional easing and that in turn would seem to suggest that gold was shifting back toward a classic physical market focus again. However, it goes without saying that gold prices benefited today from currency, commodity and equity market action.

20121017 0955 Soy Oil & Palm Oil Related News.

Pro Farmer: After The Bell Soybean Recap(CME)
Soybean futures traded as much as 20-plus cents higher this morning, but this encouraged profit-taking that ultimately resulted in a disappointing finish. Futures ended with gains of just 1 to 4 1/2 cents. Soybean futures initially benefited from corrective short-covering encouraged by ideas the downside has been overdone and a weaker U.S. dollar index.

Soybean Complex Market Recap(CME)
November Soybeans finished up 1 1/4 at 1493 3/4, 21 off the high and 3/4 up from the low. January Soybeans closed up 1 at 1492 3/4. This was 3/4 up from the low and 20 3/4 off the high. December Soymeal closed down 3.3 at 452.8. This was 0.5 up from the low and 9.6 off the high. December Soybean Oil finished up 0.46 at 50.47, 0.27 off the high and 0.46 up from the low. November soybeans saw double digit gains early in the session but ultimately closed nearly unchanged on the day. Soybean meal ended the day lower and oil finished higher. Continued rumors of China buying US soybean cargos this week along with a very positive export inspections report yesterday has kept underlying support in the market. Reports surfaced this morning that showed US exporters sold 110,150 tonnes of soybeans to an unknown destination overnight. Most in the market believe the buyer is China. The robust pace of US exports continues to give a long term, positive outlook to prices. Negative market sentiment continues to weigh on futures this week as weather remains quite favorable in the short term for South America and large funds continue to liquidate long positions. Outside markets added a supportive tilt to market early in the day as the US dollar moved lower and US Stocks were higher but profit taking prevailed and soybeans ended well off session highs.

Brazil soy planting picks up with rain (Reuters)
A cold front that moved into southeastern Brazil over the weekend will also likely bring light rainfall to the country's main soy belt this week as farmers step up planting, local forecaster Somar said on Monday.

EDIBLE OIL: Malaysian palm oil futures ended slightly lower after top industry analysts projected weaker prices and as investors digested news that export tax cuts will only take effect next year. (Reuters)

VEGOILS-Palm oil ends lower as analyst comments weigh
Tue Oct 16, 2012 6:17am EDT
* Prices could drop further, help ease record stocks -top analysts
    * Palm oil neutral in 2,361-2,528 ringgit range -technicals
    * Malaysia palm oil exports higher than month ago

 (Updates throughout)
    By Anuradha Raghu
    KUALA LUMPUR, Oct 16 (Reuters) - Malaysian palm oil futures
ended slightly lower on Tuesday after top industry analysts
projected weaker prices and as investors digested news that
export tax cuts will only take effect next year.
    Palm oil prices have fallen by a fifth since the start of
the year, but they could drop further as stockpiles could reach
as much as 3 million tonnes by the start of 2013, swollen by
strong output and slowing exports, analysts said.
    Adding to concerns over rising stocks was the government's
decision to implement palm oil export tax cut only in January.

    "The market is still trying to get a grip on how big stocks
can get in Malaysia, as well as digesting news that the export
taxes are not going to come through until early January," said
ANZ agricultural commodity strategist Victor Thianpiriya.
    "In the short term, this will probably depress prices a
little bit, as consumers would prefer to wait until January and
potentially source from Indonesia to bridge that gap."
    At the close, the benchmark January contract on the
Bursa Malaysia Derivatives Exchange fell 0.2 percent to 2,466
ringgit ($808) per tonne.
    Total traded volumes stood at 40,889 lots of 25 tonnes each,
much higher than the usual 25,000 lots.
    Technical analysis showed palm oil will be neutral until it
gets out of a range of 2,361-2,528 ringgit per tonne, said
Reuters analyst Wang Tao.
    Palm oil stocks in Malaysia hit a record 2.48 million tonnes
in September, but strong export data in the first 15 days of
October could help support prices.
    Exports of Malaysian palm oil products for Oct. 1-15 rose
13.1 percent to 769,534 tonnes from 680,112 tonnes last month,
cargo surveyor Intertek Testing Services said on Monday.

    Another cargo surveyor Societe Generale de Surveillance
showed exports in the same period surged 16.3 percent to 768,550
    In a bullish sign for palm oil, oil steadied above $115 on
Tuesday, underpinned by supply concerns after the European Union
slapped more sanctions on Iran, while ample supplies and hefty
stockpiles in top consumer the United States capped gains.
    In other vegetable oil markets, U.S. soyoil for December
delivery inched up 0.8 percent in late Asian trade. The
most active January 2013 soybean oil contract on the
Dalian Commodity Exchange ended 1.5 percent higher.

UPDATE 1-EU Commission weakens biofuel rule changes -draft
Tue Oct 16, 2012 2:19pm EDT
* Penalties for biofuels' indirect emissions removed
* New limit on use of crop-based biofuels remains
* Commission to formally present draft rules Wednesday (Adds details from draft proposal, reaction)

By Charlie Dunmore
BRUSSELS, Oct 16 (Reuters) - The European Commission has watered down proposals to reduce the indirect climate impact of biofuels, but is sticking to a strict new limit on the amount of food crops that can be used to make fuel, draft legislation showed.
The late changes mean that fuel suppliers will not, as originally planned, be held accountable for the indirect emissions biofuels cause by displacing food production into new areas, resulting in forest clearance and peatland draining known in EU jargon as ILUC.
"The 5 percent limit is still in, but the ILUC factors are now purely for reporting purposes and not part of the sustainability accounting rules for biofuels," one EU source involved in the discussions said.
The plan to limit use of crop-based biofuels to 5 percent of total EU transport energy demand by 2020 represents a virtual halving of the bloc's current goal, which mandates a 10 percent share of renewables in transport by the end of the decade.
"The share of energy from biofuels produced from cereal and other starch rich crops, sugars and oil crops shall be no more than 5 percent... of the final consumption of energy in transport in 2020," said the draft legislation, seen by Reuters.
A Commission source, who also spoke on condition of anonymity, confirmed that the proposed indirect land use change (ILUC) emission factors for biofuels made from cereals, sugars and oilseeds would carry no legal weight.
As a result, fuel suppliers will be free to continue blending biodiesel made from rapeseed, palm oil and soybeans into their fuels and claiming credit for cutting emissions, despite EU scientific studies showing that overall emissions from biodiesel are higher than from fossil fuel.
Figures in the proposals show that ILUC emissions linked to biodiesel from oilseeds are more than four times higher than those for ethanol made from cereals or sugar.

The changes are a victory for European biodiesel producers who said the Commission's original proposal would have wiped out their industry practically overnight, and who have complained that the scientific models underpinning ILUC calculations are too uncertain.
But the move could harm ethanol producers, who had been expected to increase their share of the EU biofuel market from 20 percent currently, at the expense of dominant biodiesel.
"I don't know what the Commission is thinking," said Rob Vierhout, secretary general of EU bioethanol lobby ePURE. "What will happen is people will walk away from Europe and invest their money somewhere else, because there is no future for the biofuel industry in Europe anymore."
Campaigners who blame biofuels for taking food out of people's mouths for little environmental benefit also criticised the much-delayed proposals.
"We've waited two years, and what we've ended up with is an ILUC proposal from the Commission without any ILUC in it," said Laura Sullivan, European Advocacy Coordinator for anti-poverty campaigners Action Aid.
"With this proposal, European citizens will have no guarantee that the biofuels they put in their cars are actually better for the climate," said Nusa Urbancic, fuels campaigner with green transport campaigners T&E.
The Commission will formally present its proposals on Wednesday, after which the rules must be jointly agreed by EU governments and lawmakers in a process that could take up to two years.