heavy fire....selling pressure...

Buy Reverse Knock-Out as Slowdown Hurts Ringgit, Barclays Says
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By David Yong
Jan. 15 (Bloomberg) -- Malaysia’s ringgit will weaken as falling commodity prices erode the trade surplus and the central bank cuts interest rates to revive economic growth, according to Barclays Capital Plc.
To profit from the decline, the U.K. investment bank recommended a one-month ringgit put option against the dollar with a so-called reverse knock-out price, according to a research report issued yesterday. This type of derivative is a cheaper alternative to a regular option because the knock-out barrier limits the maximum return.
“The drivers of Malaysia’s balance of payments dynamics are turning against the ringgit,” Goh Puay Yeong, a currency strategist at the bank, which is the third-biggest trader of foreign exchange, wrote in the report. “With oil prices falling, Malaysia’s export buffer from energy-related commodities is also rapidly thinning.”
Investors should buy so-called reverse knock-out ringgit put options due in a month, which grant the right to sell the currency against the dollar as long as its losses don’t exceed 3.66, Goh said in an interview in Singapore. The option ceases to exist, or gets “knocked out,” should the ringgit reach, or weaken beyond that level.
The investor can exercise the option by buying the dollar at the one-month forward rate of 3.5901 and selling the U.S. currency at the same time in the spot market at just below 3.66, Goh said.
Slumping Exports
The currency has dropped 3.9 percent this month, the second- biggest loss in Asia after the South Korean won, as Malaysian exports contracted and factory output slumped by the most since 2004. The ringgit fell to 3.5953 today, the lowest level since Dec. 11, and traded at 3.5910 as of 12:19 p.m. in Kuala Lumpur.
Malaysia’s trade surplus sagged to 10.6 billion ringgit ($2.95 billion) in October and November, versus an average of 13.9 billion ringgit during the third quarter, Barclays said. Foreign-exchange reserves fell to $91.4 billion on Dec. 31 from $97.7 billion on Nov. 28, the lowest level since April 2007, the central said last week.
Crude oil traded at $36.81 a barrel compared with a record high of $147.27 reached on July 11. An average price of $60 a barrel in 2009 will trim Malaysia’s current-account surplus by half to 7.9 percent of gross domestic product, Barclays forecasts.
Prices of palm oil, Malaysia’s biggest commodity export, have dropped 58 percent since touching an all-time high of 4,298 ringgit per ton in March last year.
Bank Negara Malaysia will lower its overnight interest rate to 2 percent from 3.25 percent by year-end, Barclays predicts, which would be the lowest level since the benchmark was introduced in 2004. The first cut will likely be a quarter- percentage point on Jan. 21 when policy makers kick off meetings fro 2009, it said.
To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net Last Updated: January 14, 2009 23:37 EST

small rebound formation.....

seller ready to take profit.... into oversold level

.S. Economy: Retail Sales Decline for a Sixth Month (Update4)
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By Bob Willis
Jan. 14 (Bloomberg) -- Sales at U.S. retailers fell more than twice as much as forecast in December as job losses and the lack of credit led Americans to cut back on everything from car purchases to eating out.
The 2.7 percent slump marked the sixth straight month of declines, the longest string since comparable records began in 1992, the Commerce Department said today in Washington. Labor Department data showed the global collapse in commodities caused prices of goods imported by the U.S. to fall for a fifth month.
Today’s sales figures indicate the hit to spending in the recession is even deeper than estimated, and spurred a sell-off in stocks. The loss of 2.6 million jobs and declining home and stock values are squeezing households, hurting retailers from Wal-Mart Stores Inc. to Tiffany & Co., which today said its holiday sales fell 21 percent and cut its earnings forecast.
“There is a major retrenchment going on,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “All that policy can do at this stage is cushion this. You can’t short-circuit it.”
Commerce also reported that inventories at all businesses in November dropped 0.7 percent, more than economists estimated and the third straight decrease. A 1.7 percent decline in stockpiles at retailers, as furniture stores and auto dealers cut back, paced the overall slump.
Stocks Slump
Treasuries rallied, sending yields on benchmark 10-year notes down to 2.20 percent at 4:26 p.m. in New York, from 2.29 percent late yesterday. The Standard & Poor’s 500 Stock Index slid 3.4 percent to close at 842.62.
Retail sales were projected to fall 1.2 percent after an originally reported 1.8 percent drop the prior month, according to the median estimate of 78 economists in a Bloomberg News survey. Forecasts ranged from declines of 3.5 percent to 0.3 percent.
Purchases excluding automobiles slumped 3.1 percent, the most since records began. The decline also exceeded the median estimate of economists surveyed that projected a 1.4 percent drop.
The decline in purchases and lack of credit caused a further weakening in the economy across almost all areas of the country in the past month, the Federal Reserve said today in its regional business survey. Retailers engaged in “deep discounting” during the holidays, with “sizable” price cuts, while wage pressures were “largely contained,” the Fed report found.
Obama Plan
Today’s sales report will serve as a reminder to lawmakers of the urgency to enact President-elect Barack Obama’s stimulus proposals to combat the recession.
Obama, who takes office Jan. 20, is proposing a two-year recovery plan that includes about $300 billion in tax cuts for individuals and businesses and infrastructure spending aimed at creating or saving 4 million jobs.
“It’s not too late to change course -- but only if we take immediate and dramatic action,” Obama said in his weekly radio address on Jan. 10.
Labor Department figures showed the import-price index decreased 4.2 percent, less than economists forecast, after a revised 7 percent drop in November. Prices from a year earlier were down 9.3 percent, the largest year-over-year decline since the index was first published in 1982. Prices excluding fuels dropped 1.1 percent last month.
“This is a reflection of the synchronicity of a slowdown in demand worldwide,” said Jonathan Basile, an economist at Credit Suisse Holdings USA Inc. in New York.
First Drop
Retail sales fell 0.1 percent for all of 2008 compared with the prior year, the first decrease in the Commerce Department’s records. Comparable data only go back to 1992 because government economists reformulated their retail-sales figures earlier this decade, and didn’t revise historical records beyond that year.
November’s decline was revised to 2.1 percent from a previously estimated fall of 1.8 percent.
Today’s report showed declines in 11 of the 13 major categories tracked by the government, led by a 16 percent plunge at gasoline service stations that partly reflected the slump in fuel costs. The drop at grocery stores was the biggest since April 2002 and the decrease at restaurants was the largest since the terrorist attacks in September 2001.
Only health and beauty stores and a miscellaneous category saw increases last month.
Auto Slump
Purchases of expensive goods are falling as banks restrict access to credit. Auto sales fell 36 percent in December from the same month last year, capping the industry’s worst year since 1992.
Same-store sales dropped 2.2 percent in the last two months of 2008, making it the worst holiday shopping season in almost four decades of record keeping, the International Council of Shopping Centers said last week.
The first half of this year will also be “extraordinarily challenging,” Wal-Mart Chief Executive Officer H. Lee Scott told a retailers’ convention this week in New York City. “Some people are giving up eating out; some people are giving up movies; some people are giving up other things like shopping,” Scott said. “Those are fundamental changes that will continue.”
Knoxville, Tennessee-based Goody’s LLC, operator of a 282- store U.S. clothing chain, and Fresno, California-based Gottschalks Inc., owner of department stores in six western states, sought bankruptcy protection after sales slumped.
‘No Other Recourse’
“Persistent challenges in the economy and recent unexpected reductions to our borrowing capacity as a result of tightening credit markets have left us with no other recourse,” Jim Famalette, Gottschalks’ chairman and chief executive officer, said in a statement.
Americans are scrimping as unemployment last month rose to 7.2 percent, the highest level in almost 16 years. Job losses are likely to continue for most of this year, economists said.
The plunge at filling stations in part reflected a 43 cent- per-gallon drop in the average cost of gasoline last month. Excluding gas, retail sales fell 1.4 percent.
The U.S. economy shrank at a 0.5 percent annual pace from July through September as Americans reduced purchases at a 3.8 percent annual rate, the first decline in consumer spending since 1991 and the biggest in 28 years, the government said last month.
The economic slump probably worsened in the fourth quarter as declines in business investment and construction intensified and consumers continued to pull back.
Excluding autos, gasoline and building materials, the retail group the government uses to calculate gross domestic product figures for consumer spending, sales dropped 1.4 percent, after a 0.1 percent increase in the prior month. The government uses data from other sources to calculate the contribution from the three categories excluded.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net Last Updated: January 14, 2009 16:28 EST