June 9th, 2010 19:21:14 GMT

Risk aversion, lower yields undercut USD/JPY

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Late afternoon jitters on Wall Street are helping increase risk aversion again and risk aversion is helping cut US bond yields. USD/JPY has fallen back to the 119.15 level from earlier highs near 91.67 while EUR/JPY has slumped to 109.30 from 110.60 highs.

US two-year notes are down to 0.73% in yield from 0.77% when optimism was higher earlier in the day. 10s are at 3.175% from 3.24 earlier.

In EUR/USD, traders note heavy selling by US real money accounts from the 1.2010 area down to 1.1985. Note that there is often a lag between the underlying stock or bond trade being done and the FX component flowing to the custodians. It looks as though US managers continued to pull money out of Europe today, selling into strength.

2 Comments

June 9th, 2010 19:11:42 GMT

I guess rallies are for sale…

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As I wrote earlier in the week, blindly selling every rally in EUR/USD remains the most profitable strategy going. You don’t have to be particularly choosy, as long as you are willing to put a stop up above say 1.2150.

CNBC is blaming BP bankruptcy talk for the latest Wall Street weakness. On the merits, the talk is silly, but when you have the White House stepping on your throat and kicking your ass at the same time, all bets are off…

Also weighing is support for the swap-desk spin-off in the Senate finreg bill from Chairman Chris Dodd.

Traders are getting spun around like a record baby, right round, today.

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June 9th, 2010 19:05:13 GMT

Bernanke Rules Out This Yr for Deficit Cuts, Taxes;Rate Hikes?

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–The More Quickly the Economy Recovers, the Closer is the ‘Medium Term’

By Denny Gulino

WASHINGTON (MNI) – The way Federal Reserve Chairman Ben Bernanke
Wednesday ruled out any big fiscal shocks for this year of “fragile”
recovery suggested he felt the same way about monetary policy shocks but
on that subject of rate hikes, he remained silent.

Questioned repeatedly by members of the House Budget Committee
about what he is recommending on fiscal policy, Bernanke summed it up in
one word, a better “trajectory.” But he stressed he was not recommending
abrupt spending cuts or tax hikes in 2010. In fact, he refused to
“adjudicate for Congress” how exactly to improve budget policy.

“In the short term fiscal policy needs to take into account the
fact the recovery is still pretty fragile and may need some more
assistance,” Bernanke said. Now, he said, there is a risk “that if you
do only that short-term type of activity it may cause markets to worry
that you’re not serious and interest rates could go up.”

Bernanke adroitly avoided being caught in the usual political
crossfire, typical for House committee hearings, refusing to be drawn
into the endless debate on whether tax cuts or spending cuts are more
beneficial or harmful to the economy. At one point he said most
economists do agree tax cuts generally do not completely pay for
themselves.

Bernanke did again endorse the TARP program, saying he realized it
is unpopular but “without a doubt” prevented a collapse of the global
financial system. He appeared less enthusiastic about stimulus spending,
acknowledging that it did create “some” jobs but also increased the
deficit.

“I don’t want to buy in to the entire package and all the aspects
of it, the composition, the size, all those things, but I do believe the
fiscal policy was useful. It helped the economy recover,” he said. “I
don’t know what would have happened in the absence.”

At one point he said the cost of Fed and Treasury aid to the
banking industry may turn out to be small and perhaps turn into a profit
given the repayments so far with the exception of AIG. And even AIG, he
said, is expected to eventually complete its own repayments.

He warned the Budget Committee that should more stimulus be
contemplated, it should be paired with a “fiscal exit strategy” that
outlines that trajectory toward a balance of the “primary” budget,
excluding national debt service.

On Europe, he said both in his prepared testimony and in his
answers that market strains have cut demand for risky assets but he sees
a commitment by the euro zone authorities to reach solutions.

“If markets continue to stabilize, then the effects of the crisis
on economic growth in the United States seem likely to be modest,” he
said.

The swap lines re-established with the ECB and other central banks
remain, he said, an important backstop even though their use so far has
been “quite limited.”

The problems in Europe, he said, show the importance of “sound”
U.S. fiscal policy necessary to prevent the country experiencing
Greece-like borrowing difficulties.

There was no substantial market reaction to Bernanke’s comments,
given they paralleled for the most part those he made as recently as
Monday night answering questions at Washington’s Wilson Center.

Bernanke repeated the Fed’s concern about the availability of
credit, saying large business firms can get it, but small business firms
continue to have a harder time.

Bernanke said gold group holdings appeared to be reacting to market
conditions differently from other asset classes and suggested that
rather than a hedge against inflation, gold may be being used as a hedge
against uncertainty. In any event, he said he does not “fully
understand” the movements of the gold group.

Fannie Mae and Freddie Mac, he said, are in a “transition period”
and at this point, are still providing an important function in the
housing market.

The Fed, he said, contributed to housing through its purchases of
mortgage-backed securities, holding mortgage rates down. Nevertheless,
he said housing remains one of the biggest factors weighing on the
recovery, showing little improvement from last year despite the recently
expired government tax credit for homebuyers.

Suggestions on how to solve entitlement program underfunding, he
said, are “pretty rare,” and yet Social Security, Medicare and Medicaid
are a major factor in the structural fiscal mismatch that Congress must
address in the medium term.

Asked for a definition of the “medium term,” which Fed watchers
could also see as an important clue to his thinking about monetary
policy horizons as well, Bernanke answered that “it depends to some
extent on the rate of recovery of the economy. You know, the more
quickly it recovers, the sooner the medium term will come, in some
sense.”

Referring to how soon he thought Congress must alter fiscal policy
toward balance, Bernanke said, “I would say ‘medium term’ is two to five
years out in the future, and of course the situation gets much more
difficult beyond say 2020 when the entitlement spending becomes even
greater.”

Overall, “I think we need to show that within a few years we’re
going to go clearly to a path where the debt-to-GDP-ratio remains more
or less stable,” he said.

“The recovery in economic activity that began in the second half of
last year has continued at a moderate pace so far this year,” he said in
his prepared testimony. “Moreover, the economy — supported by
stimulative monetary policy and the concerted efforts of policymakers to
stabilize the financial system — appears to be on track to continue to
expand through this year and next.”

He repeated the FOMC’s growth expectations of between 3.5% and 4%
for 2011, with this year at the lower end of that range. He again
qualified the improvement’s effect on unemployment, saying that growth
pace would “be associated with only a slow reduction” in the
unemployment rate.

He recounted the typically mentioned areas of strength, including
business outlays for equipment and software, low costs of financing new
projects, increased confidence and the need to replace aging equipment
and expand capacity “as sales prospects brighten.”

Other than housing’s drag on recovery, Bernanke cited state and
local government budget strain and the consequent cuts in government
employment and construction as continuing negatives.

“Unless we as a nation make a strong commitment to fiscal
responsibility,” he said, “in the longer run, we will have neither
financial stability nor healthy economic growth.”

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MFU$$$,MCU$$$,MMUFE$,MGU$$$,MFU$$$]

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June 9th, 2010 18:56:14 GMT

EUR/JPY: Dive, dive,dive!

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EUR/JPY is getting sold off in a hurry as this morning’s optimism suddenly is called into question.

The cross rallied as far as 110.60 very briefly, just far enough to trigger stops in the 110.40/50 region.

Stops done, slide resumes.We’re now down to 109.30. 108.85 and 108.35 are supports on pullbacks within the old range…

Contributing to euro weakness is continued talk among respected officials of controlled sovereign bankruptcies (from Weber and Zoellick) . US equities have lost about two-thirds of earlier gains and gold is beginning to edge up again, a euro-negative of late.

Bids are seen in the 1.1975/85 area with stops seen down at 1.1960/65.

4 Comments

June 9th, 2010 18:55:35 GMT

NY Fed’s Sack Q/A: No One Suggesting QE Exit Timing ‘Imminent’

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–’Fully Confident’ Eventual Draining to Control S-T Rates

By Claudia Hirsch

NEW YORK (MNI) – Though now is not the time to withdraw the
liquidity that the Federal Reserve has pumped into the financial system,
it has the right tools to do so, according to New York Federal Reserve
Bank Executive Vice President Brian Sack Wednesday.

“I think no one has suggested the appropriate timing is imminent,”
Sack said, answering an audience question on the exit’s timing following
a luncheon speech to the New York Association of Business Economics.

“The FOMC is going to decide the timing of the exit and it will do
so based on how financial and economic conditions evolve. … For now,
the FOMC has said it’ll keep interest rates low for an extended period.”

Sack said that while the policy-setting Federal Open Market
Committee is discussing this schedule, he and his staff are ensuring the
monetary authority will have the means to drain liquidity when and as it
sees fit. Sack oversees the vast markets group at the New York Fed as
well as the FOMC’s open market operations.

“I am fully confident that we will control short-term interest
rates, and we will use draining tools as needed to make sure that
happens,” he said.

Sack said concerns about inflation should be “two-sided” and take
into account the possibility of deflation. He pointed to the FOMC’s
forecast that the economy will have what he described as a “considerable
amount of slack for some time” and that inflation will hover below the
informal target range.

He also said he has “full confidence” in his European counterparts’
understanding of financial markets and the European Central Bank’s
“capacity to make the correct policy decisions” regarding its fiscal
crisis.

Of the recently reintroduced one-for-one dollar swap arrangements
with five foreign central banks, including the ECB, Sack said, “I think
we should all view these programs as having no counterparty risk,”

This, he concluded, is because the Fed is extending credit to the
central banks themselves, not the financial institutions that will get
the dollar funding.

** Market News International New York Bureau: 212-669-6430 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

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June 9th, 2010 18:55:33 GMT

Beige Bk Txt:Dallas- Business Conditions Cont’d To Improve- 2

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WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Eleventh District summary, published
Wednesday:

Continued:

ELEVENTH DISTRICT-DALLAS

Services

Staffing firms say demand remains strong and widespread across
sectors. Orders are mostly for contract work but assignments are
becoming longer in length and temp-to-hire placements continue to pick
up pace. Sustained growth in demand has led contacts to expand staff
levels and has boosted the near-term outlook. Accounting firms note
demand remains flat and the outlook continues to be cautiously
optimistic. Law firms report weak demand for most types of legal
services, with the exception of a slight pickup in foreclosure-related
activity. Contacts say that they will have fewer summer clerkships than
normal due to sluggish demand.

Demand for transportation services was positive suggesting further
improvement in overall economic conditions. Intermodal cargo volumes
were flat over the past month but are slightly up from three months and
year-ago levels. Shipping firms say large freight volumes continued to
grow strongly but small parcel shipping volumes were flat over the
reporting period. Railroads reported a significant and broad-based
increase in shipments, and noted that the outlook is more upbeat than
last time. Airlines cited further improvement in demand, with leisure
travel seeing continued growth and business travel recovering. Contacts
say domestic travel is rebounding but is not as strong as international
demand. The outlook is positive as revenues have improved due to fare
increases and advance bookings are holding up well.

Construction and Real Estate

Housing demand continued to improve. Realtors reported positive
gains in home sales as the homebuyer tax credit contributed greatly to a
wave of buying. Builders increased starts due to tight new home
inventories and improved sales activity. Prices were steady to slightly
higher, according to respondents. Still outlooks reflect uncertainty
about the remainder of the year and many contacts expect flat demand in
the second half.

Apartment markets continue to fare better than expected, with
occupancy and rents improving in most Texas metros. While concessions
are ongoing, contacts noted they are not as widespread as earlier in the
year.

Commercial real estate contacts said that although conditions
remain weak, there are signs that the sector is firming. Leases and
property sales have picked up as rents and prices have come down. Some
contacts said there were a few instances of property prices being “bid
up” due to the large amount of interested buyers versus the low amount
of quality properties for sale. Despite the improvement, the large
amount of space available is expected to keep commercial construction
subdued for the remainder of this year.

Financial Services

Overall loan demand softened during the reporting period. There is
more commercial and industrial loan activity in the pipeline but
consumer loan demand outside of credit cards remains sluggish. Contacts
report that they are turning down many potential mortgage borrowers due
to poor credit. Credit standards remain tight and loan pricing is
unchanged. Some contacts reported an increased inflow of deposits, which
they attributed to the unease arising from recent stock market
volatility. Although contacts are relieved that the Federal Reserve will
retain regulatory oversight over state member banks, there continues to
be concern regarding other impending regulation changes. The outlook is
slightly optimistic with some concern about the impact of the Greek
credit crisis.

Energy The rig count rose further over the reporting period and
most of the increase was in oildirected drilling. Even with the drop in
oil prices from $85 to $70 per barrel, oil-directed projects remain
profitable. In contrast, at $4 per mmbtu prices do not justify unhedged
shale gas drilling. Hence, as current hedges expire, contacts say that
there will likely be a slowdown in gas-directed drilling.

Agriculture Lack of rainfall and high winds dried out the topsoil
in some areas but recent rains have restored much of the lost moisture.
Spring planting is moving ahead of its normal pace, and crop conditions
are significantly better than last year. Demand for several agricultural
products has improved and exports of cotton, rice and grains are up from
last year. Cattle and cotton prices have risen and remain strong, while
grain prices have weakened slightly.

(2 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

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June 9th, 2010 18:55:32 GMT

Beige Bk: Activity,Improved;Some Concern About EU Ficl Crisis

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–Oil Spill Could Have ‘Much Greater’ Impact

By Yali N’Diaye

WASHINGTON (MNI) – The Federal Reserve Wednesday reported that its
latest survey of economic conditions around the country — the “Beige
Book” — showed that economic activity “continued to improve,” albeit
mostly at a “modest pace.”

Improvement was reported by all 12 Districts, compared with 11
Districts in the April 14 report, when the St. Louis Federal Reserve
reported “softened” economic conditions. This time, it also reported a
modest increase in activity.

The report noted, however, some concerns about the potential impact
of the European fiscal crisis, as well as the potential for a “much
greater” impact from the Gulf of Mexico oil spill.

The economic improvement was both on the consumer and business
sides, with spending increasing for both categories.

Residential real estate also strengthened, with activity “buoyed by
the April deadline for the homebuyer tax credit.”

The improvement occurred without creating inflation pressures, as
retail prices were “largely stable” and wage pressures remained limited
despite a “slight” improvement in the labor market.

Weak spots remain nonetheless, especially commercial real estate
and slower inventory investment spending.

And despite “a few” reports of a modest rise in lending, financial
activity “was little changed on balance.”

Some districts even reported concerns about the potential impact of
the fiscal crisis in Europe on both financial and business conditions,
“and reported a corresponding increase in uncertainty and financial
market volatility.”

Overall, financial activity dragged by the ongoing weakness in
commercial and industrial lending. “In contrast, real estate lending
increased even though standards on these loans remained tighter than on
other loans, particularly for commercial mortgages.”

Increased lending in residential real estate was consistent with
higher activity in the sector. The latter was buoyed, however, by the
April 30th deadline for homebuyer tax credit, leading to a slowdown in
activity in May compared with April.

On the consumer front, spending improved but remained concentrated
on “necessities,” according to the report, prepared by the Federal
Reserve Bank of Chicago with information collected through May 28.

Vehicle and tourism activity also increased.

“Atlanta also reported, however, that the Gulf oil spill and
Tennessee floods had already resulted in some vacation lodging
cancellations,” the Beige Book said. “The potential exists for a much
greater impact, although contacts are quite uncertain as to the ultimate
effects,” it added.

So far, the oil spill “had little immediate effect on oil
production, although it had damaged fishing operations.”

On the business side, spending also increased, albeit “moderately,”
the report said, “with employment and capital spending edging up but
inventory investment slowing.”

Manufacturing and transportation, as well as nonfinancial services
continued their gradual improvement.

Against this backdrop, labor market conditions improved “slightly,”
the report said, noting “permanent employment levels edging up in most
Districts.” This was accompanied by a continued rise in temporary hires.

The manufacturing sector was cited as the largest source of job
gains.

Still, wage pressures were “limited,” the report said, also noting
that final goods and services prices were also unchanged.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$CR$,MK$$$$,MT$$$$]

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June 9th, 2010 18:55:29 GMT

Beige Bk Txt:Dallas- Business Conditions Cont’d To Improve- 1

by

WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Eleventh District summary, published
Wednesday:

ELEVENTH DISTRICT-DALLAS

Business conditions continued to improve in the Eleventh District.
Activity in manufacturing, staffing services, transportation services,
housing and energy grew modestly. Retail sales were flat to slightly
down but in line with retailers’ expectations during the reporting
period. While outlooks remained positive, contacts from some industries
noted concerns about how the European debt crisis and recent stock
market volatility would affect future business.

Prices

Most contacts said prices were holding steady, although some paper,
fabricated metals, and aircraft and parts manufacturers reported slight
increases in selling prices. Contacts at department stores said less
discounting was taking place. Input and raw material costs were
generally stable, but there were reports of an uptick in the cost of
lumber, food, engineered metal products, linerboard, steel and some
industrial metals. Firms’ ability to pass on these cost increases
remained limited.

Crude oil prices dropped from $85 per barrel in early April to near
$70 in late May. Natural gas prices were flat during the reporting
period. Sharp increases in the price of petrochemicals such as ethylene
and propylene seen earlier are reversing as ethylene plants come back
online and refineries increase utilization rates. Declining prices have
spurred export demand for U.S. petrochemicals and related products.

Labor Market

Employment levels held steady at several respondent firms and there
were a few reports of hiring activity. Staffing firms continued to cite
increased demand for their services, and some contacts in transportation
services, automotive sales, transportation and construction-related
manufacturing said they had either added a few employees or planned on
hiring additional workers. Wage pressures remained subdued, with the
exception of the airline industry. Many firms are continuing with salary
or 401(k) contribution freezes, although a few noted that they planned
on giving small pay increases this year. In addition, staffing firms
reported that pay rates were stable.

Manufacturing

Most construction-related manufacturers said demand ticked up from
low levels. Orders from the public sector and homebuilding industry have
improved but demand for commercial construction materials remains weak.
A few contacts said they were slowly increasing work hours or capacity
utilization rates. Although there is still caution among contacts,
outlooks were slightly more optimistic than the last report. Fabricated
metals producers cited continued increases in demand, and reported that
large government-related projects have boosted the sales outlook for the
next three months.

Some high-tech manufacturers noted slight easing in export demand
due to the European fiscal crisis, while others said orders continued to
grow at a consistently strong pace. Inventories were reported to be
under control and one semiconductor respondent said they were able to
increase inventories to desired levels. Most respondents remain
optimistic that demand will be strong over the next six months but noted
that the outlook has become more uncertain due to fiscal problems in
Europe.

Producers of trailers said continued strength in demand has boosted
the outlook over the next three months. Manufacturers of aircrafts and
parts said orders from the commercial and general aviation industry have
improved, while demand for government and military aircraft remains
weak. An aircraft repair and maintenance firm said demand strengthened
over the past month, and is expected to rise further over the next three
months.

Reports from paper manufacturers were mixed. Most respondents
reported strong demand while one corrugated box manufacturer noted a
decline in orders. Food producers noted an increase in orders.
Inventories are at desired levels but some food manufacturers said
stocking up for certain items has been an issue due to the recent
acceleration in demand.

Petrochemical producers cited improved domestic demand for most
products except for polyvinyl chloride, which is tied to commercial and
residential construction. Demand for oil products is above yearago
levels, and refinery capacity utilization rates have risen from the low
80 percent range in early April to the high 80s in late May. Refinery
margins have improved and are at their highest levels for the year.

Retail Sales Retail activity was flat to slightly down but in line
with contacts’ expectations during the reporting period. Contacts say
the decline in sales was largely due to Easter pulling sales forward
into March. Department store sales were flat despite strong demand for
apparel and accessories. Most contacts say Texas sales are faring
slightly better than the national average, and same-store sales are on
track to hit low single-digit nominal growth this year. The outlook is
for gradual improvement for the remainder of the year, with some concern
over the impact of Europe’s fiscal situation on consumer confidence.

Automobile dealers said sales ticked up since the last report.
Inventories remain lean. Prices have been inching upwards due to some
pullback in incentives introduced earlier. Contacts expect demand will
gradually improve through the end of the year.

(1 of 2)

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

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June 9th, 2010 18:15:35 GMT

Beige Bk Txt: Kansas City- Expect Improvement In Coming Mos

by

WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Tenth District summary, published
Wednesday:

TENTH DISTRICT – KANSAS CITY

The Tenth District economy grew modestly since the last survey with
expectations of further improvement in the coming months. Consumer sales
edged up at retail stores and auto dealerships, and District contacts
were hopeful that rising consumer confidence would boost future sales.
Residential real estate activity improved slightly, but real estate
agents expected expiring tax credits to weigh on the housing rebound.
While the commercial real estate market remained stressed, District
contacts noted a slight improvement in leasing activity. Manufacturing
activity expanded modestly, transportation activity strengthened, and
factory managers expected further production gains. Bankers reported
improved expectations for loan quality, and credit standards were
generally unchanged. Energy activity expanded further as oil and natural
gas production increased. Agricultural conditions improved with higher
livestock profits and farmland values. Despite higher input prices,
retail prices and wage pressures remained low, and few firms planned to
pass through additional costs to consumers.

Consumer Spending.

Consumer spending continued to improve, and many contacts expected
further gains in retail sales. Spurred by lower prices and promotional
advertising, retailers reported a rise in sales led by summer apparel
items and lower-priced appliances. Auto dealers reported strong demand
for used vehicles, which helped boost auto sales and reduce vehicle
inventories. Some contacts felt rising consumer confidence would
encourage future auto sales. Restaurant sales declined with fewer diners
and a flat average check amount. With the onset of seasonal travel,
tourism activity and hotel occupancy rose. Further improvements in the
tourism and hotel industries were expected as summer travel picks up.

Real Estate and Construction.

Residential real estate activity improved slightly in April and
May, while the decline in commercial real estate activity slowed. Lower
priced singlefamily homes sold well in April as buyers rushed to take
advantage of tax credits. In contrast, sales of higher-priced homes
slowed, contributing to a rise in home inventories. Real estate agents
expected home sales to fall in the coming months due to expiring tax
credits and weak job growth in some areas of the District. After rising
in the last survey period, residential construction activity held
steady. Mortgage lending activity rose with new home purchases, and loan
refinancing volumes increased with lower mortgage rates. Commercial real
estate activity remained weak and below year-ago levels. However, lower
rents appeared to slow the rise in vacancy rates and raise absorption
rates since the last survey period. District contacts expected leasing
activity to rise faster than sales activity for commercial property in
the coming months. Commercial construction activity continued to decline
due in part to difficulty accessing credit.

Manufacturing and Other Business Activity.

Manufacturing activity grew at a modest pace in April and May while
transportation firms reported sustained growth. After several months of
solid gains, the pace of production moderated at both durable and
non-durable goods producing plants. The volume of new orders, order
backlogs, and shipments edged down from March levels while finished
goods inventories rose slightly. Employment levels were stable and fewer
firms planned to increase payrolls. Still, manufacturing activity
strengthened compared to a year ago, and more plant managers expected
factory production to ramp up in the next six months. Some District
manufacturers noted an increase in supplier delivery times, and sales
activity in the transportation sector rose further. Most transportation
firms anticipated the rebound would continue through the summer. Some
companies were having difficulty finding qualified drivers, and a few
contacts raised concerns about future capacity constraints. The hightech
industry reported a slight uptick in sales activity, partly due to an
increase in government contracts.

Banking.

Bankers reported steady loan demand, higher deposits, and an
improved outlook for loan quality. Overall loan demand was essentially
unchanged, following a series of declines over the last year. Demand for
commercial and industrial loans was flat, while demand for commercial
real estate loans and residential real estate loans increased
moderately. Consumer installment loans continued to trend downward.
Credit standards were generally unchanged. Slightly more bankers
reported an improvement in loan quality from one year ago than reported
a deterioration. Also, for the first time since late 2007, respondents
expected stable rather than declining loan quality over the next six
months. Deposits increased moderately after showing no change in the
previous three surveys.

Energy.

Energy production expanded since the last survey period, and
additional gains were expected in the coming months. The number of
active drilling rigs in the District rose further, primarily due to
expansion in Oklahoma and New Mexico. Some firms reported difficulty
finding qualified workers, especially engineers. Crude oil prices were
expected to rise due to an uptick in demand from the industrial sector
and higher gasoline use for summer travel. Since the last survey, fewer
contacts expected further declines in natural gas prices. However,
several natural gas producers were concerned that prices would remain
low due to excess supply. With increased production and limited demand,
supplies at natural gas storage facilities grew at a record pace. Though
District coal production slowed in April and May, year-to-date volumes
approached 2009 levels.

Agriculture.

Agricultural conditions improved since the last survey period.
Overall, the winter wheat crop was reported in good condition. However,
prolonged cool, wet weather promoted wheat crop diseases, which could
reduce yields in some areas of Nebraska, Kansas and Oklahoma. Corn
planting was almost complete while soybean planting was slightly behind
schedule. Crop prices were little changed since the last survey period,
but hog and cattle prices rose significantly with further contractions
in supplies. Improved incomes among livestock producers contributed to a
rise in District ranchland values. Cropland values also increased with
strong farmer demand and nonfarm investor interest. Agricultural lenders
reported a slight decline in loan repayment rates, but loan renewals and
extensions held steady.

Wages and Prices.

Wage and retail price pressures remained low in April and May;
however, input prices rose for some District firms. District labor
markets improved slightly and contacts generally reported little wage
pressure and few problems finding qualified workers. After falling in
April and May, retail prices were expected to dip further in the coming
months, and builders expected lumber prices to fall from their recent
spike. However, materials prices, especially steel, rose sharply for
District manufacturers. In addition, transportation companies noted
rising fuel costs, and restaurant owners paid higher food prices.
Despite rising input costs, most District contacts were reluctant to
increase selling prices.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

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June 9th, 2010 18:15:34 GMT

Beige Bk Txt: Minneapolis – Signs Labor Mkt Strengthening – 2

by

WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey Eighth District summary, published
Wednesday:

Continued:

NINTH DISTRICT–MINNEAPOLIS

Services

Contacts from various services firms noted a recent increase in
business. Preliminary results of the Minneapolis Fed’s annual survey of
professional services companies in May showed that sales revenue, space
usage, and profits are expected to increase over the next year. A small
North Dakota information technology firm commented that the “outlook is
good.”

Manufacturing

Manufacturing output was up since the last report. An April survey
of purchasing managers by Creighton University (Omaha, Neb.) showed that
manufacturing activity increased significantly in Minnesota and South
Dakota and increased slightly in North Dakota. A computer component
plant in western Wisconsin planned to increase capital expenditures
significantly in 2010. An expansion of a food processing facility is
under way in North Dakota.

Energy and Mining

Activity in the energy and mining sectors increased since the last
report. Late May oil exploration increased from early April. Wind energy
projects continued to be planned and built in the western portion of the
district. Iron ore production in Minnesota increased about 5 percent in
April from March.

Agriculture

Agricultural activity increased. Across most of the District, crops
were planted earlier than the five-year average and are emerging at a
faster pace. However, the Minneapolis Fed’s first-quarter (April) survey
of agricultural credit conditions indicated that lenders expect overall
agricultural income and capital spending to decrease in the second
quarter.

Employment, Wages and Prices

Some signs of strengthening were noted in labor markets. In
Minnesota, a shoe manufacturer recently announced plans to hire up to 80
more workers, and a manufacturer of windows and doors increased the
workweek for employees after reducing their time during the economic
downturn. About three-quarters of respondents to a Minneapolis Fed
survey of temporary employment firms in Minnesota, North Dakota, and
Wisconsin reported an increase in the number of customers and employed
workers. Placements at industrial firms showed the largest increase. At
a Montana employment office, more businesses were looking to hire
employees, but overall hiring activity remained relatively slow.

Despite signs of improvement, overall labor markets remained weak.
In Montana, a recent job fair attracted hundreds of job seekers for
openings at almost 50 companies. A wood furniture factory and chain of
stores in Montana recently went out of business, affecting over 60
workers statewide. Almost 50 workers were laid off by a defense
contractor in Minnesota.

Wage increases were subdued. According to respondents to a recent
St. Cloud (Minn.) Area Business Outlook Survey, only 18 percent expect
to increase employee compensation at their companies over the next six
months. In last year’s survey, 21 percent expected to increase
compensation. Several temporary staffing firms noted flat to lower
wages. The majority of respondents from the Minneapolis Fed’s
preliminary survey of professional business services firms indicated no
increases in wages for the next year. A nurses union in Minneapolis-St.
Paul recently approved a one-day strike in response to negotiations with
area hospitals, which had proposed to change work rules, cut pensions,
and reduce health benefits.

Overall prices remained level. Some price pressures were noted in
materials for large construction projects; however, in recent weeks,
prices for oil, copper, and some steel products decreased. In addition,
fertilizer prices were down from a year ago.

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** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: M$$CR$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]

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