Desperate Measures

by Bruce Krasting

After Bernanke capitulated on the Fed’s responsibility to balance it’s dual mandate and committed to keep ZIRP alive for another 24 months the Swiss Franc exploded in value. It was up 6% in just a few hours. That was the biggest one-day move in 30 years.

The Swiss National Bank is getting desperate. They responded by announcing new emergency measures. They are immediately increasing “sight deposits” by CHF 40B. This is the second increase in a week. The two actions together will increase liquidity in the banking system from CHF 30B to CHF 120b. A 400% increase.

We are confronted with huge numbers every day. What does an increase of CHF 90b really mean? It’s a very big deal. Swiss GDP is about CHF 500b. So the increase in liquidity is equal to 20% of GDP. Now think of US GDP at $15 Trillion. What the Swiss have done in just a week is equivalent to $3 trillion in a big economy like the USA. That is massive.

This is the language from the SNB yesterday:

The massive overvaluation of the Swiss franc poses a threat to the development of the economy in Switzerland and has further increased the downside risks to price stability.

This was the sentence that caught my eye:

To accelerate the increase in Swiss franc liquidity, the SNB will additionally conduct foreign exchange swap transactions. The foreign exchange swap is a monetary policy instrument which the SNB uses to create Swiss franc liquidity.

From this I conclude that not only is the SNB trying to push interest rates to zero, they intend to push the interbank swap rates for Swiss Francs to BELOW ZERO. This is a form of intervention that is intended to discourage speculative holders of SFR. This action by the SNB is working as of this morning. The CHF has backed off against all currency pairs.

One sees the evidence of the monetary intervention in the short date swaps. This morning the Spot Next and Spot a Week roll of CHF to dollars is being priced in the hole. This is the area of the market where speculative holdings of CHF are rolled over. The one week bid offer spread pricing this AM is:

-1.9 / -0.83

Note that both sides of the swap are negative. This implies that CHF interest rates are negative. The left side (the bid side) is the price one has to pay if they were long CHF versus dollars and wanted to hold onto a long position for a week. Some math:

The USDCHF spot rate is .7378. The cost of the one-week roll is .00018. The cost of rolling a long CHF position of 10,000,000 Francs comes to $3,307 per week. That may not seem like a big deal as the dollar equivalent of CHF 10mm is $13,550,000. But that is not how things work in this big casino.

Currency trading is done on very high margin. Many participants can play at the table with only 2% margin. Others have to come up with as much as 5%. What does $3,307 come to when the equity involved is only a fraction of the principal? For the 5% player it comes an annualized cost of holding the position of 23% of equity. For that big shot who plays with only 2% down the rollover cost comes to an annualized penalty of a whopping 63%.

From long experience in this business I can tell you that short-term currency traders HATE negative carry trades. A long CHF position now has a big cost to it. If a trader has a short Dollar/Swiss position of $100mm (a modest currency position for these folks) the cost of holding it is now $25,000 a week. This cost was zero two weeks ago. This squeeze on short date swaps is a very good reason to cut those short dollar positions. That is exactly what has happened so far today. The CHF has backed off (a bit) against all other currency pairs as of this morning. As of today, the SNB has achieved its objective of getting people out of the currency market.

This won’t last for long. There will be another tremble in the market that gets people scrambling for safety. The “go to” trade will still be to buy CHF when that happens. The cost of ownership be damned. What will happen as a result of the liquidity steps is that greater volatility in spot Swissie will occur.

The relative rate of the CHF versus Euros or Dollars is important to the SNB. But even more important is the rate of change. The short date squeeze by the SNB may result in a bit of retrenchment for a few days. But it will almost certainly result in increased volatility.

My take on the actions by the SNB is that they are trying to buy time and create a more orderly adjustment to a stronger CHF. I think the consequences will be that we will have violent intraday adjustments, but over the course of a month the Franc will be stronger anyway. The SNB is trying to buy time as measured in days. To me, that is no plan at all, just a desperate act by a desperate central bank.

How long is the list of Central Banks that are undertaking extreme measures to influence very short-term outcomes? The list is endless. Virtually every CB in the world is doing it today. As a result, extremely high volatility across all markets will prevail. Squeezing short dates often has a negative affect. Something always blows up as a result. Yet every central bank is attempting essentially the same thing. They are trying to buy time. They are the source of the volatility we are living through.

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Following Tremonti Speech In Parliament, Serial Halts Of Italian Banks Resume

by Tyler Durden

Not even an hour after Tremonti addressed parliament discussing the various ways Italy would have to reform in order to meet European demands for austerity, the now traditional serial collapse of Italian banks resume, with the halt of the unholy trinity Unicredit, Intesa, Banca dei Monte Pasci, as well as Mediobank ensuing. Concurrently the same Italian weakness appears to have spread to France where BNP falls over 5% and SocGen down over 6%, affecting financials across the Eurozone, and sparking visions of a repeat of yesterday's collapse in European markets led by the fins. And while there is the usual plethora of rumors as to what may be responsible for this renewed weakness for now it is best not to speculate for fear of black helicopters, what is certain is that Italy's main opposition leader is setting the stage for a rerun of Greek daily strikes, by objecting to the balanced-budget plan at the heart of the Italian deficit cutting program. As Reuters reports, Italian opposition leader Pierluigi Bersani on Thursday rejected proposals for a blanket constitutional rule forbidding budget deficits but said his party was ready to support rules for greater budget discipline. Bersani said his party was ready to support measures to reinforce discipline in public finances but said it made no sense to impose unrealistic constraints on policy. "First, let's not talk about things that don't exist in any place in the world," Bersani said during a hearing of the parliamentary constitutional committee. "Balancing the budget in the constitution -- well, we don't intend to castrate ourselves for centuries from any possible economic policy." "So let's find a solution that has flexibility." Translation: we now have at best a few weeks before the strike (and riot) cam moves from Syntagma Square to Piaza Navona. As for Italian (and French) bank halts: our advice - don't exhale or the entire thing will collapse, and the smallest rumor will bring the European financial sector to a screeching halt yet again.

Reuters on Tremonti's speech:

Italy is ready to act following European requests for labour market reform and privatisations to spur growth as well as other measures to balance its budget by 2013, Italian Economy Minister Giulio Tremonti told parliament on Thursday.

A letter from the European Central Bank last week asked for large-scale privatisation of local services, pension reform and greater flexibility in the labour market, Tremonti said.

Tremonti said Italy needed stronger austerity measures to meet its target of balancing its budget by 2013, and pledged stronger action to fight tax evasion and abuse of fixed-term employment contracts.

And the contextual interpretation:

Economy Minister Giulio Tremonti appeared in parliament on Thursday to discuss the government's response to the euro zone debt crisis amid increasing criticism of its failure to provide any detail of austerity plans.

Prime Minister Silvio Berlusconi told unions and employers on Wednesday that the cabinet would approve an emergency decree with deficit reduction measures by August 18 but provided no concrete proposals.

With tense financial markets hungry for detail of government plans to fast track some 20 billion euros of austerity measures to balance the budget by 2013, Tremonti addressed the parliamentary constitutional affairs committee.

Pierluigi Bersani, leader of the centre-left opposition Democratic Party, said the extreme turbulence on financial markets over recent weeks showed that more urgency was needed.

"The government didn't say anything to the unions and employers yesterday, that's the point, just as they didn't say anything in parliament 10 days ago," he told state television. "I hope Tremonti comes with some more detail today," he said.

Berlusconi has made a handful of statements on the escalating markets crisis since the beginning of the month, addressing parliament last week and giving a news conference on Friday when he pledged to fast-track reform measures.

But there has been widespread criticism that the government has not been clear enough about its plans to repair public finances in the face of a collapse in market confidence.

"European bourses, in their disastrous fall, cannot wait until Aug. 18," the respected daily Corriere della Sera said in a front page editorial, adding that so far no credible proposals had been offered.

At least now we have a date (one week from now) when we can add Italian daily strikes to the roster of daily entertainment. And with the FTSE MIB already so fragile a mere whisper an ocean away halts the market, we can't wait to see what antics those pranksters at the CONSOB come up with to prevent this latest house of cards from dropping terminally.

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The Manufacturing Imperative

by Dani Rodrik

We may live in a post-industrial age, in which information technologies, biotech, and high-value services have become drivers of economic growth. But countries ignore the health of their manufacturing industries at their peril.

High-tech services demand specialized skills and create few jobs, so their contribution to aggregate employment is bound to remain limited. Manufacturing, on the other hand, can absorb large numbers of workers with moderate skills, providing them with stable jobs and good benefits. For most countries, therefore, it remains a potent source of high-wage employment.

Indeed, the manufacturing sector is also where the world’s middle classes take shape and grow. Without a vibrant manufacturing base, societies tend to divide between rich and poor – those who have access to steady, well-paying jobs, and those whose jobs are less secure and lives more precarious. Manufacturing may ultimately be central to the vigor of a nation’s democracy.

The United States has experienced steady de-industrialization in recent decades, partly due to global competition and partly due to technological changes. Since 1990, manufacturing’s share of employment has fallen by nearly five percentage points. This would not necessarily have been a bad thing if labor productivity (and earnings) were not substantially higher in manufacturing than in the rest of the economy – 75% higher, in fact.

The service industries that have absorbed the labor released from manufacturing are a mixed bag. At the high end, finance, insurance, and business services, taken together, have productivity levels that are similar to manufacturing. These industries have created some new jobs, but not many – and that was before the financial crisis erupted in 2008.

The bulk of new employment has come in “personal and social services,” which is where the economy’s least productive jobs are found. This migration of jobs down the productivity ladder has shaved 0.3 percentage points off US productivity growth every year since 1990 – roughly one-sixth of the actual gain over this period. The growing proportion of low-productivity labor has also contributed to rising inequality in American society.

The loss of US manufacturing jobs accelerated after 2000, with global competition the likely culprit. As Maggie McMillan of the International Food Policy Research Institute has shown, there is an uncanny negative correlation across individual manufacturing industries between employment changes in China and the US. Where China has expanded the most, the US has lost the greatest number of jobs. In the few industries that contracted in China, the US has gained employment.

In Britain, where the decline of manufacturing seems to have been pursued almost gleefully by Conservatives from Margaret Thatcher until David Cameron came to power, the numbers are even more sobering. Between 1990 and 2005, the sector’s share in total employment fell by more than seven percentage points. The reallocation of workers to less productive service jobs has cost the British economy 0.5 points of productivity growth every year, a quarter of the total productivity gain over the period.

For developing countries, the manufacturing imperative is nothing less than vital. Typically, the productivity gap with the rest of the economy is much wider. When manufacturing takes off, it can generate millions of jobs for unskilled workers, often women, who previously were employed in traditional agriculture or petty services. Industrialization was the driving force of rapid growth in southern Europe during the 1950’s and 1960’s, and in East and Southeast Asia since the 1960’s.

India, which has recently experienced Chinese rates of growth, has bucked the trend by relying on software, call centers, and other business services. This has led some to think that India (and perhaps others) can take a different, service-led path to growth.

But the weakness of manufacturing is a drag on India’s overall economic performance and threatens the sustainability of its growth. India’s high-productivity service industries employ workers who are at the very top end of the education distribution. Ultimately, the Indian economy will have to generate productive jobs for the low-skilled workers with which it is abundantly endowed. Much of that employment will need to come from manufacturing.

For developing countries, expanding manufacturing industries enables not only improved resource allocation, but also dynamic gains over time. This is because most manufacturing industries are what might be called “escalator activities”: once an economy gets a toehold in an industry, productivity tends to rise rapidly towards that industry’s technology frontier.

I have found in my research that individual manufacturing industries, such as auto parts or machinery, exhibit what economists call “unconditional convergence” – an automatic tendency to close the gap with productivity levels in advanced countries. This is very different from the “conditional convergence” that characterizes the rest of the economy, in which productivity growth is not assured and depends on policies and external circumstances.

A typical mistake in evaluating manufacturing performance is to look solely at output or productivity without examining job creation. In Latin America, for example, manufacturing productivity has grown by leaps and bounds since the region liberalized and opened itself to international trade. But these gains have come at the expense of – and to some extent because of – industry rationalization and employment reductions. Redundant workers have ended up in worse-performing activities, such as informal services, causing economy-wide productivity to stagnate, despite impressive manufacturing performance.

Asian economies have opened up too, but policymakers there have taken greater care to support manufacturing industries. Most importantly, they have maintained competitive currencies, which is the best way to ensure high profits for manufacturers. Employment in the manufacturing sector has tended to increase (as a share of total employment), even in India, with its services-driven growth.

As economies develop and become richer, manufacturing – “making things” – inevitably becomes less important. But if this happens more rapidly than workers can acquire advanced skills, the result can be a dangerous imbalance between an economy’s productive structure and its workforce. We can see the consequences all over the world, in the form of economic underperformance, widening inequality, and divisive politics.

Dani Rodrik, Professor of International Political Economy at Harvard University, is the author of The Globalization Paradox: Democracy and the Future of the World Economy.

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Exclusive: One bank in Asia cuts, others review credit

By Rachel Armstrong and Saeed Azhar

(Reuters) - One bank in Asia has cut credit lines to major French lenders while five other banks in Asia are reviewing trades and counterparty risk as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday.

Rumors on Wednesday that France was to lose its AAA rating, later denied by ratings agencies, helped trigger the biggest widening in the European credit default swap index since the credit crunch in 2008.

That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said.

Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas (BNPP.PA) in Paris said: "We never comment on market rumors."

Societe Generale (SOGN.PA) had no immediate comment to make while a spokeswoman for Credit Agricole (CAGR.PA), which will publish its second-quarter earnings later in August, said the bank would not make any comment.

The banks in Asia and the sources -- a mix of risk officers, senior traders and loan bankers -- could not be identified because of the sensitive nature of the information.

The head of treasury risk management for Asia at one bank in Singapore -- which has a significant presence across the region -- said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.

"We've cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis," the treasury risk official said. The official declined to name the French banks.

Societe Generale put out a statement on Wednesday denying rumors about its financial health after its shares fell by as much as 21 percent.

The statement failed to fend off much of the market's concern with its shares ending the day 15 percent lower, taking losses since early July to more than 50 percent.

A senior credit trader in Singapore said that when a bank's shares fall that sharply their risk officer will automatically look at how much exposure they have to that lender.

SocGen shares were down 4 percent by 6:30 a.m. EDT on Thursday. BNP was down 5 percent while Credit Agricole (CAGR.PA) was largely flat.

Banks' heightened responses could exacerbate the market strains if they all acted simultaneously with portfolio-at-risk modeling, analysts said.

"The thing is if they all use it at the same time they will all sell at the same time when risk goes up, and that will drive prices down and it is like a snowball because then the prices go down and then your value-at-risk ratio will tell you 'oh, I must reduce my risk even more'," said Mark Matthews, head of research at Julius Baer.

WIDESPREAD REVIEWS

Several of the traders and bankers in Asia said that while they had not cut all exposure to any particular institution, they were very cautious about taking on new trading positions with them.

A senior risk officer at a bank in Singapore said "obviously we are having a review," when asked if they were reassessing their positions with European counterparties.

Bankers and risk officers at the five institutions in Asia that were still dealing with French banks said that while short-term lending of up to 30 days was still taking place, they were conducting a thorough review of longer-term credit lines regardless of the type of transaction.

"It's all in relation to (our) take on a French bank's credit risk, regardless of whether it's a swap or interbank lending transaction," said a senior loan banker at a Japanese bank.

Criteria banks are reviewing include looking at whether parts of the credit lines they have in place with their 

French financial counterparties are as yet unused, and if so if they can be reduced. The term lengths of loans they've granted are also under review, with a view to cutting them if they can.

Lenders are also considering imposing a larger haircut on the European government bonds posted as collateral by the euro zone banks they lend to, the treasury risk official from the bank that has cut credit lines said.

CAUTION RULES

These practices already look to be constraining European lenders' access to longer term funds, given that banks had to tap the European Central bank for 50 billion euros worth of six-month cash this week.

"They went on (credit) watch late last week for us. We can't extend further counterparty risk on French banks," said a senior trader at another financial institution in Singapore.

The restrictions, put in place on Friday, limited trading across financial asset classes that would increase the institution's exposure to the French banks, the senior trader said.

A compliance officer at another European bank in Singapore said banks are responding to changes in the risk outlook much more quickly than during the 2008 financial crisis.

"We have a dedicated unit not just going through our exposures on a name by name basis but looking at the broad portfolio of assets the whole bank is exposed to and the risks it contains," he said.

"People are flagging much earlier if they think there's counterparty risk we need to reassess."

Chris Matten, a financial services partner at PricewaterhouseCoopers in Singapore and a former CFO of OCBC Bank (OCBC.SI), said reviews of European lenders would have been happening regularly.

"The smarter banks would have gone through the exercise a while ago. We've seen sharp falls in shares this week but the debt problems in the euro zone have been a train crash in slow motion," Matten told Reuters.

"I know of at least a few smart banks that went through all their exposure to south European banks six months ago and have since cut that exposure quite substantially."

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What Can Replace the Dollar?

by Barry Eichengreen

For more than a half-century, the US dollar has been not only America’s currency, but the world’s as well. It has been the dominant unit used in cross-border transactions and the principal asset held as reserves by central banks and governments.

But, already before the recent debt-ceiling imbroglio, the dollar had begun to lose its luster. Its share in the identified foreign-exchange reserves of central banks, for example, had fallen to just over 60%, from 70% a decade ago.

The explanation is simple: the United States no longer dominates the world economy to the extent that it did in the past. It makes sense that the international monetary system should follow the global economy in becoming more multipolar. Just as the US now has to share the world stage with other economies, the dollar will have to make room for other international currencies.

In my recent book Exorbitant Privilege: The Rise and Fall of the Dollar, I described a future in which the dollar and the euro would be the dominant global currencies. And, peering ten and more years down the road, I anticipated a potential international role for the Chinese renminbi.

I ruled out a role for Special Drawing Rights (SDRs), the accounting unit issued by the International Monetary Fund. One might think that the SDR, as a basket of four currencies, might be attractive to central banks and governments seeking to hedge their bets. But the process for issuing SDRs is cumbersome, and there are no private markets in which they can be traded.

There was no realistic alternative, I concluded, to a future in which the leading national currencies, the dollar and the euro, still dominated international transactions.

What’s different now is that a pox has been cast on both houses. The US debt-ceiling fiasco has raised doubts in the minds of central bankers about the advisability of holding dollars, while Europe’s failure to resolve its sovereign-debt crisis continues to fuel doubt that the euro can survive. Once upon a time (less than a year ago), it was possible to imagine international-reserve portfolios dominated by the dollar and euro; today, anxious central bankers are desperate for alternatives to both sick currencies.

The problem is that they have nowhere to turn. The gold market is small and volatile. Chinese bonds remain unavailable. Second-tier currencies, like the Swiss franc, the Canadian dollar, and the Australian dollar, are only a slightly larger midget when combined.

With central banks seeking an alternative to dollars and euros, isn’t now a perfect time to expand the role of SDRs? Why not issue more? Why not develop markets in which they can be traded? Isn’t this a once-in-a-lifetime opportunity to move away from a world where the US Federal Reserve and the European Central Bank hold the supply of international liquidity in thrall?

The answer, unfortunately, is no. This much has not changed in the last year: the SDR still is not an attractive option for central banks disenchanted with the dollar and the euro. The reason is obvious on a moment’s reflection: the combined share of the dollar and euro approaches 80% of the basket of currencies that comprise the SDR.

Expanding the basket to include emerging-market currencies would help, but only a little, because the US and Europe still account for half of the world economy and more than half of its liquid financial markets. The SDR would offer little protection if the dollar and euro lost value over time.

A better idea is to start work now on creating a more attractive global reserve asset. The ideal instrument would be a global-GDP-linked bond, the returns on which would vary with global growth rates, just as returns on the GDP warrants issued by the governments of Costa Rica and Argentina, for example, vary with their national growth rates.

This would enable central banks to hold instruments that behave like a widely diversified global equity portfolio. They would be compensated for inflation and currency depreciation in the US and Europe, since the payout would depend on these economies’ nominal, not real, GDP. The IMF could use its bond-issuing power to purchase GDP-indexed bonds from national governments, thereby providing the new global reserve assets with backing and interest-generating capacity, while creating an incentive for governments to issue them.

The Yale University economist Robert Shiller has long argued that national governments should issue GDP-linked bonds as a safer way to borrow, but convincing them has been difficult. Persuading them to support issuance by the IMF of a global-GDP-indexed bond would be even harder. But if governments and central banks are serious about identifying alternatives to the dollar and the euro, now is the time to start – and GDP-linked bonds are the place to look.

Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley.

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Evening markets: data prospect shelters corn, soy from storm

by Agrimoney.com

Anybody home in Chicago?

External markets witnessed their customary mayhem on Wednesday, although this time with a twist in that New York crude, up nearly 4% in late deals above $82 a barrel, supported by data showing a decline in US oil inventories, charged the opposite way to stocks.

New York's Dow Jones Industrial Average was 2.9% lower in late deals following declines on other share markets, which saw London's FTSE 100 index close down 3.1%, amid fears for exposure of eurozone banks, and particularly French ones, to the region's debt problems.

France's Cac index plunged 5.5%.

Unusual situation

But in grain markets, the mood was altogether different.

"It has probably been the most stagnant price movement that we have seen in weeks," Darrell Holaday at Country Futures said.

At PitGuru, Matthew Pierce said: "Commodities are actually the 'stable' option right now as compared with equities and energies. How odd is that?"

Chicago corn for December ended flat at $6.88 ½ a bushel, with the best-traded soybean lot, November, adding all of 1.75 cents, albeit important ones, to drag the contract back above $13 a bushel, to $13.01 ½ a bushel.

Volumes were weak too.

Demand hopes

It wasn't that the day was bereft of news.

South Korean feed groups bought 55,000 tonnes of US corn, indicating that demand hasn't gone away even after the dent to sentiment wrought by August so far.

That goes for domestic demand too. US production of ethanol last week, at 98,000 barrels a day, was up 40,000 barrels a day week on week, meaning bigger consumption of corn by biofuel plants.

In soybeans, Chinese customs data showed the country's imports of the oilseed soared 24% last month to 5.35m tonnes, the best figure of 2011 so far.

The import rise is likely to reflect, besides the lifting of price caps on cooking oil, "soybean meal demand for the expanding pork industry with pork prices having risen markedly this year", Sudakshina Unnikrishnan at Barclays Capital said.

Pork price inflation in July remained at 57%, as Chinese farmers seek to rebuild herds even amid a time of soaring demand for the meat.

'A market mover'

However, the mood was nervous ahead of a US Department of Agriculture Wasde crop report on Thursday which has been anticipated for weeks, largely for its estimate of how much damage last month's US heatwave wrought on corn and soybeans, at a time of already-thin stocks.

"The report tomorrow is a market mover," US Commodities said, noting that, on average, August Wasde reports cause a swing of $0.24 a bushel in corn futures on the day, and $0.41 a bushel in soybeans.

For wheat, the briefing is viewed as less crucial, causing an average move of $0.14 a bushel, with much of the US crop already in the barn by now.

'Still some optimism'

And, indeed, the grain managed movement denied its peers, in an upward direction too, helped by its newly-rediscovered competitiveness against Russian wheat on export markets.

"There is still some optimism regarding wheat exports and that has supported wheat today," Mr Holaday said.

Furthermore, while some dry southern US wheat areas have received much-needed rain, the western wheat areas received nothing", leaving winter wheat growers facing the prospect of poor soil conditions for planting.

And the Rosario Grain Exchange pegged Argentina's wheat crop at 12.5m tonnes, lower than the current USDA forecast of 15m tonnes, taking some of the sting out of another upgrade for the French crop, this time from official farm bureau FranceAgriMer.

Big tender

There was also evidence of demand in wheat, with Saudi Arabia tendering for 660,000 tonnes of hard wheat.

Chicago (soft red winter) wheat for September added 2.0% to $6.85 a bushel, while Kansas (hard red winter) wheat for the same month closed up 2.9% at $7.85 a bushel.

Minneapolis hard red spring wheat gained 2.5% to $8.37 ¼ a bushel.

In Europe, Paris wheat for November added 0.8% to E195.00 a tonne, with London's November lot gaining 0.8% to £162.00 a tonne.

More data

Cotton, for which the Wasde is also considered likely to prove market moving, managed to show greater direction, closing up 2.1% at 95.76 cents a pound for the benchmark December lot.

The rise was attributed to investors with short positions taking profit ahead of a report which could cut the US crop estimate considerably – although there are other considerations to factor in.

"We have US production at 15.5m bales, down 500,000 bales, from the July report. Yet, we expect exports to shrink 900,000 bales to 11.20m bales," Keith Brown at Georgia-based brokerage Keith Brown & Co said.

For raw sugar, a close up a modest 0.5% at 27.62 cents, in New York, for October delivery, belied a reasonably volatile day, with the lot trading over a range of some 5%.

Movement was instilled by positioning ahead of data from Unica, the cane industry body, on Thursday.

'Bottoming effort is close'

And New York coffee for September continued a creep higher, by all but 0.1 cents to 234.85 cents, helped by lower exchange inventories and lingering fears for more frost in Brazil growing areas.

"Coffee prices have also been under pressure as traders seem reluctant to take on aggressive positions," Jurgens Bauer at PitGuru said.

"But with Ice [exchange] stocks at historically low levels, and Friday's freeze scare, there are many waiting for a bottom to be confirmed.

"Lord knows there are many sharp experienced traders considering a bottoming effort is close."

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