Finance and Economic

Australian retail sales rose in May at the fastest pace in six months, sending the currency higher on speculation the central bank will boost borrowing costs again this year.

Sales climbed 0.7 percent from April, when they fell a revised 0.1 percent, the Bureau of Statistics said in Sydney today. The increase beat the median estimate of 24 economists surveyed by Bloomberg News for a 0.1 percent gain.

Spending has increased on food, recreational goods, cosmetics and jewelry, suggesting households are weathering 12- year high interest rates and record gasoline prices. Tax cuts introduced yesterday that boost average incomes by A$20 ($19) a week may drive spending in coming months, increasing pressure on central bank Governor Glenn Stevens to cool the economy further.

“We're calling another rate hike this year, probably in November,'' said Matthew Johnson, a senior economist at ICAP Australia Ltd. in Sydney. “If consumers can increase discretionary spending when fuel prices are high, then they will most probably spend the tax cuts.''

The Australian dollar climbed to 95.85 U.S. cents at 12:33 p.m. in Sydney from 95.47 cents before the figures were released. The two-year government bond yield rose 7 basis points, or 0.07 percentage point, to 6.93 percent.

Spending at recreational goods retailers gained 2.2 percent in May, while food sales increased 1 percent, the report showed.

Rate Increases

Australia's central bank has been trying to curb consumer spending, which accounts for about 60 percent of the economy, to cool inflation that has accelerated above its target range of between 2 percent and 3 percent.

Stevens and his board left the benchmark interest rate at 7.25 percent yesterday, saying the economy will moderate this year. The bank increased rates in March, February, November and August.

Last month, Stevens signaled that the bank is prepared to boost borrowing costs again if consumer and business spending rebounds.

Today's report suggests hiring by mining companies such as BHP Billiton Ltd., which is expanding to meet demand from China for iron ore and coal, is shoring up spending. The jobless rate was 4.3 percent in May, close to the lowest in more than three decades internet payday loans.

Export Boom

The central bank expects Australia's terms of trade, a measure of income from overseas sales, to surge 20 percent this year. The increase “will add substantially to national income and ability to spend,'' Stevens said yesterday.

Also, some A$33 billion ($32 billion) in income-tax cuts over four years took effect from yesterday.

Households also appear to be weathering this year's surge in the price of crude oil, which hit a record $143.67 a barrel this week.

“So much for higher petrol prices affecting households discretionary spending,'' said Katie Dean, a senior economist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Today's data raises doubts over the Reserve Bank's apparent view that household spending was slowing abruptly.''

The surge in retail spending means an August increase in the central bank's cash rate target can't be ruled out, Dean added.

Conflicting Reports

Investors increased bets on the size of future increases in borrowing costs after today's report. Stevens will boost the benchmark rate by 25 basis points in the next 12 months, according to a Credit Suisse Group index based on trading in interest-rate swaps. Yesterday, they forecast 19 basis points of gains.

Still, some economic reports signal household spending will slow in coming months. Consumer confidence slumped to the lowest level in almost 16 years in June, and a separate release today showed home-building approvals fell 6.5 percent May, the fourth decline in the first five months of this year.

Just Group Ltd., Australia's largest specialty clothing retailer, cut earnings forecasts today because of a “further weakening in consumer sentiment.''

“Anecdotes about spending remain very weak,'' said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. “For that reason, we think policy makers will view today's retail sales report with a large dose of salt.''

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Workers returned to the Grangemouth oil refinery in central Scotland on Tuesday after a 48-hour strike that forced the closure of a major North Sea pipeline system.

UNITE, Britain’s largest union, said further industrial action remains possible unless refinery owner Ineos backs down in a dispute over pensions.

Power and steam were restored to the Forties Pipeline, but BP spokesman Richard Grant said it would take several days to safely get it back up to its capacity of 700,000 barrels of crude a day.

Management at the Grangemouth Refinery said it would take two to three weeks to bring the plant up to its full capacity of processing 210,000 barrels of crude per day.

"For safety reasons we say it will take two to three weeks to safely get the plant up and running. The union is saying it will take a week. We will see," said Ineos Group Ltd. spokesman Sion Taylor.

Oil prices fell Tuesday amid expectations that the supply disruption would soon be resolved.

Light, sweet crude for June delivery fell 79 cents Tuesday from the day before to $117.96 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.

Business Secretary John Hutton, who was in Scotland on Tuesday, said he was glad the union and the company planned to meet later in the day.

"There is a gap between the two sides that has got to be bridged - only the two parties themselves can reach an agreement instant cash advance. No one can do that for them," Hutton said.

The strike at the refinery led to the closure of the Forties Pipeline System, which brings oil from the North Sea to BP PLC’s (BP) Kinneil plant. Kinneil is powered from the Grangemouth site. 

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Despite complaints that rules requiring companies to value assets at current prices has worsened the credit crisis, U.S. accounting rule-makers appear unwilling to do any backpedaling.

New rules on mark-to-market, or “fair value” accounting, took full effect this year, forcing companies to use a new framework to value their hardest-to-price assets.

In a best-case scenario those values are based on price quotes in an active market, but often companies have to rely on management’s best estimation using mathematical models.

Companies believe the new rules have increased volatility in financial statements and led to a downward spiral, where every write-down of their asset-backed securities met shocked investors who stopped trading, leading to further writedowns.

But the Financial Accounting Standards Board feels investors are benefiting from more information about the riskiest assets no teletrack payday loans.

“We at the FASB, sometimes like to view ourselves as in the communication business — we like to make sure that investors are getting what they need,” said Russell Golden, director of FASB’s technical application and implementation activities, during a Thursday panel discussion in New York.

In fact, a March survey of more than 2,000 investors from the CFA Institute found that 79 percent feel the new fair value requirements improve transparency and investor understanding.

Although FASB has budged on other rules in the past, last year it refused requests to delay implementation of the new fair value rules for financial assets and seems unlikely to change anything now. 

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American Airlines, a unit of AMR Corp (AMR.N: Quote, Profile, Research), on Tuesday again grounded planes and canceled hundreds of flights to conduct additional safety inspections of its MD-80 aircraft, the airline said.

American said in a statement that the Federal Aviation Administration (FAA) raised new concerns about recent wiring inspections on the mainly older narrowbody planes that resulted in canceled flights two weeks ago.

The current and previous inspections stem from an industrywide FAA review of airline compliance with agency safety directives.

Several carriers have grounded aircraft as a result of the audit, which was triggered by inspection and maintenance lapses at Southwest Airlines Co (LUV.N: Quote, Profile, Research) and pressure from government watchdogs and congressional investigators to take action http://paydayloans-on.com.

American said it had canceled up to 500 flights on Tuesday, more than 20 percent of its daily mainline service, and additional cancellations were likely on Wednesday.

“We’ve been working in good faith to ensure that we are in compliance with this airworthiness directive,” said Gerard Arpey, AMR’s chairman and chief executive.

Arpey apologized to customers for “once again” inconveniencing them.

American operates nearly 300 MD-80 aircraft, about half its overall fleet, mainly on busy routes servicing its Dallas and Chicago hubs. 

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Swiss bank UBS shocked markets with tens of billions of dollars in new exposure to risky U.S. mortgages, leveraged finance and complex securities, dramatically raising its vulnerability to the credit crisis.

The revelations, which included $26.6 billion in exposure to U.S. mortgages distinct from subprime loans, sent the bank’s shares tumbling to levels not seen since 2004 as investors braced for even more writedowns.

UBS stock has lost more than half its value since last June after it took $18.1 billion of writedowns in the second half of 2007 alone on subprime-related exposures.

“They have $60-70 billion worth of exposure to troubled areas and the market did not know about much of it,” said David Williams at Fox-Pitt, Kelton in London.

Deutsche Bank estimated that UBS’s total exposure to risky U.S bad credit payday advance. mortgages was $68.7 billion.

“They are in a sorry predicament. They have by far the largest exposure of any European bank and they cannot just trade out of it. The crisis at UBS will last as long as the credit crisis lasts,” said Williams.

Shares in UBS, which said it was facing another difficult year in 2008, were trading down 7 percent at 38 francs at 1500 GMT.

UBS also unveiled further exposures of $11.4 billion in leveraged finance — loans made to fund buyouts of companies — and of $11.2 billion to a complex securitization product called a U.S. reference-linked note program. 

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E*Trade Financial Corp , the online brokerage crippled by mounting losses at its mortgage business, said it sold about $3 billion in mortgage-backed securities and reduced wholesale borrowing levels by about $3.5 billion.

The company said it ended the year with $190 billion in client assets and $33 billion in cash.

E*Trade on Tuesday told Reuters that it will exit the U.S instant payday loan. institutional sales business eliminating about 30 jobs.
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Georgia Labor Commissioner Michael Thurmond said Friday that Democratic presidential hopeful Hillary Clinton’s plan to deal with the nation’s mortgage crisis could pay dividends here.

Thurmond and Laura Tyson, former chair of President Bill Clinton’s Council of Economic Advisers, told reporters in a conference call that Clinton’s plan would help in Georgia, where the rate of delinquent mortgages was third-highest in the country earlier this year.

Thurmond, who has endorsed Clinton, said the U.S. senator from New York, “has the vision to not only meet the challenge but develop plans and strategies that ultimately will have a very positive impact.”

Clinton’s plan includes:

• A moratorium on foreclosures in the sub-prime market.

“We have such large numbers [of foreclosures], it’s unprecedented,” said Tyson, an economic adviser to Clinton’s campaign.

• A five-year freeze on adjustable rate mortgages.

• And creation of a $5 billion federal fund to help state and local communities deal with the crisis fallout.

“Senator Clinton really saw this problem first, and she has been consistently suggesting solutions,” Tyson said.

All of the candidates in the race for the Democratic nomination have addressed the mortgage situation.

Former U.S fast payday loan no faxing. Sen. John Edwards of North Carolina has railed against what he calls predatory lenders since before the crisis began in early 2007. Edwards has called for national legislation to ban what he says are the worst abuses in the mortgage market: loan-flipping, mandatory arbitration clauses, balloon loans and pre-payment penalties. He would allow predatory lending victims to get new terms for mortgages.

U.S. Sen. Barack Obama of Illinois has proposed the Stop Fraud Act that increases funding for law enforcement to combat mortgage fraud and create criminal penalties for it. He wants to create a fund to help homeowners avoid foreclosure.
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While government statistics show consumer spending is holding steady, some economists fret about the rising level of debt Americans are putting on credit cards, and whether or not they’ll ever be able to pay it off.

The Associated Press reported this week that its analysis of data from credit card lenders shows a big spike in the number of accounts more than 90 days in arrears. That’s the delinquency period when most debt is turned over to collection agencies.

As more consumers fall behind on credit payments, states are grappling with increasing activity of so-called debt counselors and debt settlement services.

In West Virginia, Attorney General Darrell McGraw has won a court order temporarily forbidding a Florida law firm from offering debt settlement services in the state.

McGraw says the firm, Hess Kennedy, of Coral Springs, Florida, claims to assist consumers who are struggling financially to make payments to their creditors. McGraw said he has seen more of this increasingly common, and sometimes controversial business as consumer credit card debt has ballooned in the past few years.

Debt settlers such as Hess Kennedy make repayment plans to help consumers repay outstanding debts, at a deep discount, to avoid being sued or filing for bankruptcy. Monthly payments are then made by consumers to the debt settlers in turn for which the debt settlers claim to negotiate with creditors to reduce the amount of debt owed.

Although debt settlement services are unrestricted in some states, West Virginia’s law regarding debt settlement only permits for-profit companies to charge a monthly service fee of two percent of the payments made by consumers.

Although McGraw’s investigation is incomplete, the attorney general says it appears that Hess Kennedy was charging more than the two percent fee allowed by state law.

“Although the debt settlement approach to debt relief may work for some persons, the service has legal consequences and should only be offered by persons licensed to practice law in West Virginia,” McGraw said.

“My office will continue to scrutinize the debt relief industry in an effort to protect consumers who are already facing dire financial circumstances from paying excessive fees for services that may leave them in worse shape than before.”

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