Chinese Yuan continues to push the bands, as interest rates rise for a fifth time

U.S. Treasury Secretary Henry Paulson addressed issues on housing and trade with China Friday during a trip to Chicago. He asked Congress to limit action regarding imports and China, and to support the administration's plan to help troubled mortgage holders avoid foreclosure.Paulson remains optimistic about the economy, stating that the world has the strongest economy he's seen in his business lifetime.

However, Paulson stressed that the strength was dependent on the continual nurturing of trade and investment by the U.S. and other countries.

“Globalization is here to stay and it is important that we continue to benefit from it rather than retreat into isolationism,” he said. As far as the United States' role in the global economy, Paulson made it clear that the country must remain leaders.

“In order to keep our economy healthy and extend this sixth year of economic expansion, we need to focus on areas that are vital to maintain our economic leadership,” he said. “It is ironic that protectionism is rising at a time when the global economy is so strong.”

The treasury secretary directed many of his remarks against the recent introduction of bills by members of Congress that could lead to tariffs against Chinese imports. The bills are designed to protect the U.S. dollars against the undervalued yuan, which many US companies believes gives China an unfair advantage.

“Punitive trade legislation could have enormous repercussions, especially when we are working to extend our economic expansion and get through a turbulent time in our markets,” Paulson said, referencing problems in the subprime and lending markets. He did state that China's slow efforts were leaving him “impatient,” though he did the legislation “isn't the answer.”

As an alternative to the possible tariffs, Paulson called for ongoing talks with China on trade, attempting to speed up the pace of China's reforms.

Paulson later turned his focus to the 2 million borrowers within the United States who will run the risk of foreclosure over the next few years. In terms of those borrowers, Paulson reinforced the belief that an ounce of prevention is worth a pound of cure - and prevention begins with identification.

”The key ... is to identify as early as possible those homeowners that may be facing problems,” Paulson. “If you can't identify them, if they don't work with those who can help them, it's going to be very difficult to have success.”

Part of the plan offered by the Bush administration is to have the lenders who helped to create the subprime mortgage crisis assist those hit with skyrocketing interest rates.

Earlier in the week Paulson met with several top mortgage lenders, laying blame for the current turbulence in the financial world on their bad lending practices.

“This turbulence wasn't precipitated by problems in the real economy,” Paulson reminded the CEOs. “This came as the result of bad lending.”

Paulson told the lenders that the Bush administration was looking for their help. The lenders were asked to ensure subprime homeowners receive help in dealing with skyrocketing mortgage payments as their initial low adjustable rate mortgages now reset to higher levels.
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Friday, September 14, 2007 9:35:50 AM - The Chinese central bank hiked interest rate for the fifth time this year on Friday, after data released earlier in the week showed that inflation accelerated to an 11-year high.

The People's Bank of China decided to raise the benchmark one-year lending rate by 0.27 percentage points to 7.29% from 7.02%. The central bank also upped the benchmark one-year deposit rate to 3.87% from the current 3.60%. The new interest rates will take effect on September 15.

The central bank noted that its current move was to strengthen monetary credit control, guide reasonable investment growth and to stabilize inflation.

Last week, the central bank hiked its reserve requirement ratio for the seventh time this year to curb lending growth. The reserve requirement ratio on bank deposits by 0.5 percentage points to 12.5%, with effect from September 25.

Data released on September 11 showed that consumer inflation in China soared to its highest level in nearly 11 years in August as food prices continue to surge. This had raised the possibility of another rate hike.

The Consumer Price Index, a barometer of inflation, rose 6.5% year-on-year in August after a 5.6% increase in the previous month. The latest inflation rate, the highest since December 1996, exceeded the forecast of 6% and is well above the official target of 3% for the calendar year.

The Chinese economy has shown resilient growth despite several tightening measures. Official data revealed in July that the economy expanded at a rapid pace of 11.9% in the second quarter, marking the highest growth in eleven years.

Elsewhere, the National Bureau of Statistics said Friday that the urban capital spending rose 26.7% annually to 6,665.9 billion yuan in January to August.


Crude Oil Slips Below $80 Mark []

Friday, September 14, 2007 9:33:59 AM - Oil prices edged back below the $80.00 mark on Friday morning in U.S. trading, after Hurricane Humberto missed the oil region in Texas. Light sweet crude for October delivery was at $79.76, down 34 cents on the session. Oil has reached as low as $79.40 in early trading.

Humberto, which hit Texas with surprising intensity, was downgraded on Thursday afternoon without causing significant damage to the oil region. Earlier in the summer, Hurricanes Dean and Felix also spared the oil-producing areas in the Gulf of Mexico.

Overall, oil remains near record levels on global supply concerns. On Thursday, oil prices set new intraday and closing highs. Crude eventually ended the session up $0.18 at $80.09 a barrel. With the modest increase, the price of oil extended its recent upward move, ending the session at a new record closing high. During the trading session, the price of oil reached a record intraday high of $80.20 a barrel.

Crude moved above $80 for the first time on Wednesday after the U.S. Department of Energy's weekly report showed that crude oil inventories fell by 7.1 million barrels to 322.6 million barrels. On Tuesday, OPEC revealed it will raise production by 500,000 barrels per day.

Natural gas surged up 32.4 cents to trade at $6.354. Traders continued to digest Thursday's inventory data that showed stockpiles were up 64 billion cubic feet in the recent week. Heating oil dropped 0.12 cents to trade at $2.2178 and gasoline slipped slightly to $2.046.

Gold prices were higher again on Friday morning, moving back towards a 16-month high. Bullion for December delivery was up $5.50 to trade at $723.40. The metal has seen strength as the U.S. dollar has moved lower against most of the other currencies. The greenback moved to a record low against the euro and a monthly low against the British pound earlier this week. Gold generally moves in the opposite direction of the dollar as investors often turn to the precious metal as a hedge.

On Friday, U.S. traders considered data from the Department of Commerce, showing that sales increased by less than expected. The report also showed an unexpected drop in sales excluding autos. Data showed that retail sales rose 0.3 percent in August following an upwardly revised 0.5 percent increase in July. Economists had expected sales to increase by 0.5 percent compared to the 0.3 percent increase originally reported for the previous month.

Meanwhile, other metals posted modest losses in early trading. Silver dropped by a half-cent to $12.675, copper declined 1.25 cents to $3.384, palladium fell $4.05 to $332.55 and platinum gave up $2.40 to move at $1,297.50.

In soft commodity news, wheat prices continued to move lower in the U.S. after besting the $9.00 a bushel mark on Wednesday morning for the first time. Traders considered the weekly export sales data released Thursday by the USDA that revealed for the week ended Sept. 6, traders expect wheat sales between 1 to 1.4 million metric tons.

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"We are going to work our way through this, in some markets more quickly than others," Paulson told the finance officials at a meeting at the Treasury Department Wednesday. "We are already seeing signs of improvements in a number of markets that have been experiencing stress," he pointed out. However, Paulson warned that it would "take longer to work through the problems in the subprime market."

In addition, Paulson said today that the administration is pressing “very hard” for legislation designed to modernize the inefficient Federal Housing Administration. Part of the legislation would allow FHA to offer new lending products to consumers.

"The President asked Treasury to focus on helping struggling homeowners keep their primary residence, and we will rely on the help of CDFI organizations like Neighborhood Housing Services (NHS) of Chicago to reach borrowers who are likely to have trouble, and work with them to help them keep their homes,” Paulson said in Chicago Friday.

On Wednesday Paulson had admitted that recovery from housing woes will vary by region. Though problems in the housing market are widespread, some areas of the country have seen more problems than others.