Singapore May non-oil domestic exports fall 10.5 pct as drugs slump - UPDATE

Non-oil domestic exports in May surprisingly fell 10.5 percent, the sharpest decline since December 2006, to S$12.5 billion from a year ago as pharmaceutical exports tumbled and electronics shipments remained weak, International Enterprise Singapore said Tuesday.

A Thomson IFR poll of economists expected exports to have grown by an average of 5.1 percent last month from a year ago, compared to a revised rise of 5.3 percent in April. Economists had expected stronger pharmaceutical exports to offset weaker demand for electronics.

"It was weaker than expected, but keep in mind that this is due to pharmaceuticals [sector], which is volatile," said David Cohen, economist at Action Economics.

Pharmaceutical exports fell at an annual rate of 48.5 percent in May. Cohen said the slump in pharmaceutical shipments may have more to do with production schedules rather than reflecting a substantial weakening of demand.

Electronics exports continued to disappoint with an 8.5 percent contraction in May, extending their fall for the 16th consecutive month, on falling demand from the United States, a key export market for Singapore.

"It appears that the electronics industry on a global basis is not doing very well. We will probably see the softness extending into the coming months," said Forecast economist Vishnu Varathan.

On a seasonally-adjusted basis, non-oil domestic exports fell 9.8 percent in May from April, reversing the previous month's gain of 1.6 percent. Economists polled by Thomson IFR were expecting a modest growth of 1.0 percent.

Exports to Singapore's biggest markets were weak, with shipments to Europe plunging 28 percent in May and exports to the United States falling by 22.3 percent. Shipments to China also fell 1.5 percent last month.

"Exports to our key markets fell sharply in May.... suggesting that the slower demand from the external markets could now be having an increasingly material impact on the domestic manufacturing sector," said Alvin Liew, economist at Standard Chartered Bank.

"The official growth forecast for non-oil was 2.0 to 4.0 percent for 2008. But with external demand deteriorating as we move in the second half, the risk now is for exports to miss the 2.0 to 4.0 percent mark and, in fact, may even contract this year," said Liew.

($1=S$1.36)

Finnish May PPI 1.4 percent higher from April; up 5.3 percent year-on-year

Finnish producer prices for manufactured products in May rose 1.4 percent from April and climbed 5.3 percent compared with the same month of last year, official figures showed on Tuesday.

The year-on-year rise was driven largely by more expensive oil products, while falls in the prices of nickel capped the overall increases, Statistics Finland said.

Export prices rose 1.4 percent on last year, while import prices increased 5.5 percent.

Rio Tinto to expand bauxite production at Weipa mine, Australia

Rio Tinto said on Tuesday it plans to expand bauxite production at its Weipa mine in northeast Australia to 35 million tonnes a year from 18.2 million tonnes produced last year, subject to the completion of a $30 million feasibility study.

The world's third largest miner, currently under a $170 billion plus all-scrip offer from the world's top miner BHP Billiton, said the expansion is likely to cost about $1 billion, including the development of a new port and stockpile facilities plus other infrastructure.

Rio Tinto has rejected BHP's 3.4-for-1 offer as failing to recognize the group's long-term growth potential, with production output expected to increase across the group's suite of products by 8.6 percent a year for the next seven years to 2015.

The company said the Weipa expansion will give the group increased capacity to supply bauxite to customers globally and to Rio Tinto Alcan-owned refineries.

"The proposed mine development to the south of the current operations will allow Rio Tinto Alcan to maximize further value from its world class Weipa bauxite deposits," said Steve Hodgson, president and chief executive of Rio Tinto Alcan Bauxite and Alumina.

He said the expansion supports a decision in 2007 to invest $1.8 billion to expand the Yarwun alumina refinery in Gladstone in the northeast Australian state of Queensland and will underpin Rio Tinto Alcan's plans to be a major participant in the global third party bauxite sales market.

Japan Revised Machine Tool Orders Up 1.4% on Yr in May

Japanese machine tool orders rose 1.4% on year in May to a revised Y132.82 billion, according to figures released Tuesday by the Japan Machine Tool Builders Association.

The result was slightly below the preliminary reading of Y132.85 billion released earlier this month.

In May, orders from overseas rose 10.4% on year to Y77.74 billion, while domestic orders slipped 9.0% to Y55.09 billion.

Forex - Dollar lower in afternoon Asian trade on views Fed to delay rate hike

The U.S. dollar traded lower versus the euro and the yen in afternoon trade in Asia on Tuesday on the view that the Federal Reserve will likely delay any planned rate hike to keep the world's biggest economy from slipping into a recession.

Though Fed Chairman Ben Bernanke this month has said the outlook for the U.S. economy has improved, the country is still saddled with a rising number of jobless people, falling home prices, growing defaults on mortgages, a slumping financial sector and declining manufacturing output.

"The financial markets are placing too much bet on the possibility that the Fed will be tightening its monetary policy soon, even as early as in August. But so far, the economic picture looks clouded and the U.S. has yet to clean up its housing sector which continues to represent a threat to the economy," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.

The Fed will likely raise its key interest rates by the fourth quarter of 2008 or even later, Cohen said.

Delays in the rate increase will continue to pressure the dollar.

At 1 p.m. (0500 GMT), the euro was trading at $1.5526, up from $1.5470 in Sydney this morning. The dollar was buying 107.86 yen, down from 108.18 yen.

Since it began easing monetary policy in September, the Fed has cut its key rates seven times by a cumulative 325 basis points. The series of rate cuts caused the U.S. currency to fall to record lows against the euro and to multi-year lows versus the Japanese yen.

Also putting a strain on the dollar are increasing bets the European Central Bank (ECB) will raise its benchmark rate by at least a quarter of a percentage point in July, its first rate hike in a year.

ECB President Jean-Claude Trichet this month did not rule out the possibility of a rate increase in the 15-member euro zone as early as July to curb inflation.

Consumer prices in the euro area rose 3.7 percent in May from a year ago, its fastest pace in 16 years, data released on Monday showed. That was faster than the 3.3 percent gain in April and way above the ECB's 2 percent target for the year.

"It's almost certain that the ECB will raise interest rates next month," said Cohen.

"Trichet has certainly implied that they would."

And next month's rate hike in the euro zone may not be the last for the year, Cohen said.

"While Trichet has indicated that it will be a one-time rate hike, it could potentially be the first in a series."

The ECB has kept its key rate unchanged at 4 percent, a six-year high, since June 2007.

Media reports implying that the Fed is not likely to increase rates soon also weighed on the dollar.

John Noonan, a senior foreign exchange analyst at Thomson IFR Markets, said central bank expectations are continuing to dominate trading though hawkish expectations relating to the Fed seen last week are being scaled back due to weak data.

Overnight, an unexpected steep contraction in New York Empire State manufacturing data combined with anti-inflation talk from the ECB to push the dollar down.

The New York Federal Reserve Bank's Empire State Manufacturing Index fell 5 points to minus 8.68 in June, the fourth negative reading in the last five months. Economists polled by Thomson IFR Markets had a median forecast of a reading of minus 0.5 for this month.

ECB Governing Council member Nout Wellink said stabilizing inflation in the medium term was a priority.

David Mann, currency strategist at Standard Chartered Bank, predicts the dollar may weaken to $1.56 against the euro in the third quarter and further to $1.58 in the fourth should the ECB raise its rates next month.

Later today, investors will be waiting for the release of last month's U.S. housing data and producer price index which they hope would give them more clues on where the Fed's interest rates are headed.

Singapore May non-oil domestic exports fall 10.5 pct as drug shipments tumble

Non-oil domestic exports in May fell 10.5 percent to S$12.5 billion from a year ago as pharmaceutical exports tumbled and electronics shipments remained weak, International Enterprise

Singapore said Tuesday.

A Thomson IFR poll of economists expected exports to have grown by an average of 5.1 percent last month from a year ago, compared to a revised rise of 5.3 percent in April. The economists had expected stronger pharmaceutical exports to offset weaker demand for electronics.

Pharmaceutical exports fell at an annual rate of 48.5 percent in May, while electronics exports were down 8.5 percent.

Exports to Singapore's biggest markets were weak, with shipments to Europe plunging 28 percent in May and exports to the United States falling by 22.3 percent. Shipments to China also fell 1.5 percent last month. ($1=S$1.36)

Euro Zone Inflation

Euro Zone Inflation accelerates in already high levels in May

SigmaForex (Barcelona) – Consumer Prices have accelerates in May in the countries sharing the Euro, at levels well above the ECB’s margin for price stability, with food and transport posting the highest increases, according to data released by the European Statistics Office.

Consumer prices have increased 0.6% in May from April. Year on year, prices have accelerated to a 3.7% increase, from a 3.3% ear on year rise posted in April. In May 2007, consumer prices rose4 1.9% year on year.

The main components with the highest annual rates in May were food, 6.4% up on the year, and transport, and 5.7% up year on year. Prices for communication posted the largest deflationary contribution, with a 1.7% decline.

Consumer prices are growing at a pace almost twice as the maximum acceptable rate in the margin for price stability established by the European Central Bank, while interest rates have remained unchanged for a year, this reading could put some pressure on the Bank to raise rates on their next meeting.