Oil drops, settles below US$77 after supply report

Nov 13, 2009
OIL prices tumbled yesterday, dropping below US$77 a barrel after the government reported that petroleum supplies continue to grow as American drivers and businesses cut way back on energy use.

Benchmark crude for December delivery gave up US$2.34 to settle at US$76.94 a barrel on the New York Mercantile Exchange.

The Energy Information Administration said in its weekly report that oil and gas supplies grew more than expected last week, even though many oil companies have shuttered refineries as fuel consumption slumps.

The government report said refineries have slowed production to the lowest levels since September 2008, and they're importing nearly 15 percent less crude than last year.

Peter Beutel, an analyst at Cameron Hanover, said traders are increasingly disappointed by the lack of consumption.

"We've been waiting since March for a rising stock market to lead to a better economy and then more oil demand, and we just haven't seen it yet," Beutel said. "You really need employment numbers to start going back up."

For most of the year, oil prices increased despite tepid consumer demand. Prices doubled from March to October as the dollar weakened and investors looked to crude and other commodities as relatively safe places to put their money. A weaker dollar also helps investors holding strong international currencies buy oil contracts.

"It's not the oil refineries who are buying most of these oil contracts," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. "It's the financial companies, the ETFs, and other people who are patient enough to sit and wait for prices to go up."

As oil prices soared, they tugged gas and diesel prices higher, boosting fuel costs for everyone.

The International Energy Agency warned yesterday that any economic recovery could suffer if energy prices continue to rise. In a report released yesterday, the agency questioned how much more oil the U.S. actually needs.

"It would seem that the 'real' U.S. economy, as opposed to the financial one, is struggling to recover, despite the end of the recession," the IEA said.

The IEA increased slightly its forecast for global oil demand to 84.8 million barrels a day in 2009, 1.7 percent or 1.5 million barrels less than last year. In October, the agency's forecast for 2009 was of 84.4 million barrels a day.

At the pump, gas prices have slid all month, dropping less than a penny overnight to a new national average of US$2.65 a gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 17.2 cents more expensive than it was last month and 44.8 cents more than a year ago.

In other Nymex trading, heating oil lost 6.48 cents to settle at US$1.991 a gallon. Gasoline for December delivery gave up 5.22 cents to settle at US$1.9405 a gallon. Natural gas for December delivery fell 13.3 cents to settle at US$4.37 per 1,000 cubic feet.

In London, Brent crude for December delivery fell US$1.93 to settle at US$76.02 on the ICE Futures exchange.

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Oil prices fall as Ida fades, dollar climbs

Nov 11, 2009
OIL prices fell yesterday as workers headed back to deep sea platforms that were bypassed by a rapidly weakening storm in the Gulf of Mexico.

Ida, once a Category 1 hurricane, was downgraded to a tropical storm Monday and then lost even that status yesterday as its winds lost their punch.

Producers like Royal Dutch Shell and Anadarko reported no damage to facilities and said flights bringing workers back to abandoned platforms and rigs would begin yesterday.

Benchmark crude for December delivery fell 38 cents to settle at $79.05 a barrel on the New York Mercantile Exchange.

Even on Monday, when Tropical Storm Ida posed a potential threat to Gulf platforms, it appeared that the affects of a weakened dollar played a more significant role as oil prices rose US$2 to US$79.43.

The dollar tumbled so far to start the week, a person holding a euro could trade it in for US$1.50, the first time the U.S. currency has been that weak since July. Because crude is traded in dollars, that means an investor could trade in euros for dollars and buy oil for a relative bargain.

Even though there are huge supplies of crude right now, the sagging dollar allows investors to buy oil and pay for storate, selling the oil months later when the price is right.

However the dollar regained ground yesterday and crude prices fell.

The response to oil company activity in the Gulf ahead of the storm was muted.

Companies shut down 30 percent of oil production and 27 percent of natural gas production and evacuated about 18 percent of nearly 700 platforms, according to the U.S. Minerals Management Service.

In the past, that would have been enough to send prices soaring by US$5 to US$10 per barrel.

Last year, U.S. retail gasoline prices spiked when hurricanes Ike and Gustav cut off supply routes, particularly in the Southeast. But Ida was weak compared with those storms and demand for fuel is not much better.

Prices at the pump edged lower overnight, falling 0.6 cents to US$2.658 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service.

The Energy Department late Monday reported that retail gasoline prices fell for the first time in five weeks.

The International Energy Agency lowered its global oil demand forecast as well on yesterday from 106 million barrels per day to 105 million barrels per day.

New technologies that have opened up vast reserves of natural gas will lead to a glut in supply for at least the next several years, the IEA said.

Natural gas for December delivery plunged 4 percent, or 20.3 cents, to settle at US$4.467 per 1,000 cubic feet on Nymex.

In other Nymex trading, heating oil fell a penny to settle at US$2.0523 a gallon. Gasoline for December delivery fell less than a penny to settle at US$1.9774 a gallon.

In London, Brent crude for December delivery fell 27 cents to settle at US$76.50 on the ICE Futures exchange.

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Analysts wary as US banks raise cash

Nov 11, 2009
ALL but one of the 19 largest American banks have raised the extra capital cushion regulators said they would need to withstand a deeper recession.

United States Treasury Secretary Timothy Geithner described this as a sign of how much the financial system had improved since the crisis began.

Still, the banks' capital needs were based on unrealistic economic projections. Some have proved too rosy, others too grim.

For example, "stress tests" envisioned unemployment reaching 8.9 percent this year; it stands at 10.2 percent.

On the other hand, the tests assumed housing prices would fall 22 percent this year in a worst-case scenario.

Instead, they fell 5.5 percent in the first half of the year and have risen for the past three months.

Early this year, the Obama administration subjected the 19 largest banks to the "stress tests." The goal was to boost confidence in the financial sector by showing how strong banks' balance sheets were.

Regulators used a series of economic projections to see if banks could withstand the losses they would suffer in case of a worse recession.

The recession diverged far from the economic projections used. Analysts said their results revealed little about what troubles the banks face.

Some analysts said certain banks faced problems stress-test buffers may not solve.

"We're already at record numbers on losses, and those numbers are rising," said Christopher Whalen of Institutional Risk Analytics.

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Energy prices jump even as Gulf storm weakens

Nov 10, 2009
OIL prices shot above US$80 a barrel yesterday as a weakened U.S. dollar created more turbulence in energy markets than a tropical storm heading into the Gulf of Mexico.

Ida had helped push crude prices higher all morning, but just as the then-hurricane was demoted to a tropical storm, the euro pushed passed the US$1.50 level for the first time this month and sent oil even higher.

Benchmark crude for December delivery on yesterday rose US$2 to settle at US$79.43 a barrel on the New York Mercantile Exchange. A barrel passed US$80 by early afternoon before easing back.

Investors holding euros or other strong currencies can buy more dollar-based crude when the U.S. currency falls, and that has sent prices higher throughout the year.

Demand for crude is still weak, but investment in crude futures has still paid off this year. A barrel of oil cost US$32 in December.

Uncertainty about the Ida's path and its punch supported prices, at least until midmorning when wind speeds had dropped by 20 mph (32 kph). Forecasters said the storm would continue to weaken and that it would likely head east of most drilling platforms and refineries.

Weather Insight LP is expecting 700,000 barrels per day of crude oil production to be shut in, and 3 billion cubic feet per day of natural gas production to be taken off line until about Wednesday.

Given the huge surplus in oil, natural gas and gasoline in storage, the reaction to Ida on the New York Mercantile Exchange where energy futures are traded appeared to be muted.

Since hurricanes Gustav and Ike raked the gulf last year, there have been no major threats to the energy complex and demand for crude has left the country well supplied.

Crude supplies are 7.62 percent higher than a year ago and gasoline in storage is up 7 percent, according to energy consultancy Cameron Hanover.

In other Nymex trading, heating oil rose 5.9 cents to settle at US$2.0627 a gallon. Gasoline for December delivery gained 5.75 cents to settle at US$1.9818 a gallon. Natural gas for December delivery rose 7.5 cents to US$4.67 per 1,000 cubic feet.

In London, Brent crude for December delivery rose US$1.90 to settle at US$77.77 on the ICE Futures exchange.

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IMF looks into possible bank insurance charge for bailouts

Nov 10, 2009
THE International Monetary Fund is exploring the idea of making banks pay insurance fees to fund any future rescues in the sector, IMF Managing Director Dominique Strauss-Kahn said on Sunday.

He said such a tax would be in line with a proposal over the weekend by British Prime Minister Gordon Brown, who urged world governments to consider imposing a levy on banks.

Strauss-Kahn, speaking by telephone to Reuters, said his organization was not pursuing a global tax on financial transactions - a so-called "Tobin tax" - which was one of several options floated by Brown.

But British media reports suggesting there is a split between the IMF and Britain on the fundamental idea of imposing a levy are wrong, Strauss-Kahn said.

"We're not working on a Tobin tax at the IMF" because such a tax would risk being unworkable, he said.

"We're working on a tax on the financial sector which, in line with what Gordon Brown said, would solicit an insurance premium from a business activity that is riskier than others."

The IMF will present concrete proposals for the tax next April to finance ministers of the Group of 20 leading economies for review before submission to G20 leaders in June.

Brown's statement at a G20 meeting in Scotland on Saturday marked a shift for Britain, which had previously backed away from supporting a global tax on banks given London's pre-eminence as a financial center.

Facing public criticism for spending tens of billions of pounds in bailing out British banks, Brown said it was time for banks to give something back to society.

"There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transaction levy," he said.

Soon after Brown spoke, US Treasury Secretary Timothy Geithner rejected the idea of an across-the-board tax on financial trading.

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What recovery? Unemployment shoots past 10 percent

Nov 9, 2009
JUST when it was beginning to look a little better, the US economy relapsed yesterday with a return to double-digit unemployment for only the second time since World War II and warnings that next year will be even worse than previously thought.

The jobless rate rocketed to 10.2 percent in October, the highest since early 1983, dealing a psychological blow to Americans as they prepare holiday shopping lists. It was another worse-than-expected report casting a shadow over the struggling recovery.

President Barack Obama called it "a sobering number that underscores the economic challenges that lie ahead." He signed a measure to extend unemployment benefits and to expand a tax credit for homebuyers.

Economists had not expected the 10 percent mark to come so quickly and immediately darkened their forecasts. Mark Zandi, chief economist at Moody's Economy.com, and Joshua Shapiro, chief US economist at MFR Inc., predicted the rate will peak at 11 percent by mid-2010. They earlier had projected 10.5 percent.

Unemployment at 11 percent would be a post-World War II record. Only once since then has joblessness hit double digits in the United States - from September 1982 to July 1983, topping out at 10.8 percent.

"It's not a good report," said Dan Greenhaus, chief economic strategist for New York-based investment firm Miller Tabak & Co. "What we're seeing is a validation of the idea that a jobless recovery is perfectly on track."

The Labor Department, using a survey of company payrolls, said the economy shed 190,000 jobs in October. A separate survey of households found 558,000 more people were unemployed last month than in September. Some 15.7 million Americans are out of work.

The survey of companies doesn't count the self-employed and undercounts employees of small businesses. So the economic picture could be even more dire.

Troubles for small businesses could have a disproportionate effect on the economy, because they account for about 60 percent of America's jobs. They tend to rely on credit cards and home equity lines - both of which banks have tightened - for cash flow.

And the unemployment rate doesn't include people without jobs who have stopped looking, or those who have settled for part-time jobs. Counting those people, the unemployment rate would be 17.5 percent, the highest since at least 1994.

Economists had expected unemployment to rise to no more than 9.9 percent, up just a tick from September's 9.8 percent, and the surprising jump added to fears that the recovery could fizzle if Americans don't spend.

Already, consumer confidence for October came in well below what analysts were expecting. Shoppers' sentiments about the state of the economy are the gloomiest in nearly three decades.

Stores, always with an eye on holiday sales, are especially worried this year.

"This is a situation where the recovery balloon is getting off the ground but might not have enough power to keep rising," said Brian Bethune, economist at IHS Global Insight.

The worst recession since the 1930s may be over, but the recovery isn't expected to be strong enough to stem job losses and get businesses hiring again. And the unemployed are staying out of work longer. The count of people jobless for six months or longer stands at a record 5.6 million.

Prospects that the government might pass a second stimulus bill appear dim. Congress is already grappling with sweeping health care legislation, raising concerns about further swelling the federal deficit.

"More debt, more spending ... clearly has not worked - particularly in a time of double-digit unemployment," said Senate Republican leader Mitch McConnell of Kentucky. Democrats said the economy would have been in worse shape without the first stimulus.

October was the 22nd straight month the US economy has lost jobs, the longest on record dating back 70 years. Losses at factories, construction companies, retailers and financial services companies far outweighed gains in education and health care, professional and business services and elsewhere. Government payrolls were flat.

One faint sign of hope: Temporary employment grew by 33,700 jobs, its third straight month of gains after steep losses earlier this year. Employers are likely to add temporary workers before hiring permanent ones.

Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi, called the big jump in the jobless rate "a kick in the stomach" and predicted a slog ahead. It could take at least four years for the jobless rate to drop to more normal levels of 5 or 6 percent.
"The last two recoveries from recession in the '90s and 2001 were jobless, and this one is clearly headed down the same road," he said.

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Oil settles lower after US unemployment report

Nov 9, 2009
OIL prices tumbled yesterday after the government said the US unemployment rate topped 10 percent for the first time since 1983.

Benchmark crude for December delivery gave up US$2.19 to settle at US$77.43 a barrel on the New York Mercantile Exchange. In London, Brent crude for December delivery shed US$2.12 to settle at US$75.87 on the ICE Futures exchange.

America's thirst for petroleum has slumped all year. With nearly 16 million people now out of work, traders found few reasons to expect it will return anytime soon. Crude prices shed most of their gains from earlier in the week, when financial reports showed consumers were spending more, and companies were squeezing more productivity out of their workers.

Prices slumped even after weather forecasters said tropical storms would sweep through the Gulf of Mexico over the weekend, likely disrupting oil production.

"There's some shock value that comes with double-digit unemployment," said Phil Flynn, an analyst with PFGBest. "It's worse than expected. If the job market isn't strong, then the economy isn't strong."

For most of the year, oil prices shrugged off growing unemployment and steadily climbed above US$80 a barrel as investors bet that American energy demand would return with an economic recovery. The weak US dollar also pushed oil higher since crude contracts are priced in dollars, and a drop in US currency gives investors with foreign money more buying power.

But oil hasn't been able to push past US$82 a barrel as US oil consumption dropped well below average for this time of year. With millions of people giving up the morning commute, gasoline demand has plunged.

"I'm glad that it's finally being talked about," trader Stephen Schork said. "We have way too much oil."

Still, Francisco Blanch, head of global commodities research with Bank of America-Merill Lynch, believes that crude prices will continue to march to US$100 a barrel by 2011. The weak dollar will continue to boost oil prices next year, he said, though it's hard to tell how much more the market will bear.

"What we know is at US$150 (a barrel last year), the world economy blew up. So it will be somewhere in that range," Blanch said.

In other Nymex trading, heating oil fell 5.41 cents to settle at US$2.0035 a gallon. Gasoline for December delivery lost 6.34 cents to settle at US$1.9243 a gallon. Natural gas for December delivery plunged 18.7 cents to settle at US$4.595 per 1,000 cubic feet.

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Fed holds key interest rate near zero as U.S. economy continues to "pick up"

Nov 5, 2009
The U.S. Federal Reserve said on Wednesday that the U.S. economic activity has continued to "pick up," and decided to keep a key interest rate unchanged at a record low of between zero to 0.25 percent to prop up the economy.

Information received recently suggested that "economic activity has continued to pick up," the Fed said. But it also noted that "economic activity is likely to remain weak for a time."

    In recent weeks, conditions in financial markets were roughly unchanged, but activity in the housing sector has increased over recent months, said the U.S. central bank in a statement following its two-day policy-making meeting in Washington.

    Meanwhile, household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

    Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales, according to the Federal Reserve.

    Although the economy is stabilizing, the Fed believes that the economy will keep a lid on inflation.

    "With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable," the Fed "expects that inflation will remain subdued for some time."

    Against this backdrop, the Fed decided to hold the key interest rate, or federal funds rate, which commercial banks charge each other for overnight loans, unchanged at a record low of between zero to 0.25 percent.

    The decision means that commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay around 3.25 percent, the lowest rate in decades.

    Moreover, the Fed said that the interest rate is likely to remain at the current low level for "an extended period".

    The Fed also decided to stay the course on existing programs intended "to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets."

    As announced in previous meetings, the Fed will purchase a total of up to 1.25 trillion dollars of agency mortgage-backed securities. But the U.S. central bank said it would buy about 175 billion dollars of agency debt, less than the maximum of 200 billion dollars it had originally announced, citing limited availability.

    The Fed said it will "gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010."

    The policy setting Federal Open Market Committee (FOMC), which approved the monetary policy unanimously, said it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

    "The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted," said the Fed in the statement.

    The Fed's decision to leave the interest rate unchanged was in line with economists' expectations.

    Most economists believe that the Fed will keep the target range for its bank lending rate between zero and 0.25 percent through the rest of this year and probably into next year to help spur the economy.

    Fed Chairman Ben Bernanke has predicted that the recession "is very likely over."

    On Wednesday, the Fed said it continues to "anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability."

    The U.S. economy rose at a pace of 3.5 percent in the third quarter after four consecutive quarters of contraction, a strong signal that the worst recession since the Great Depression has ended.

    The third-quarter gain was better than the 3.3 percent annualized increase that experts had expected.

    In the first two quarters of 2009, the U.S. real GDP decreased 6.4 percent and 0.7 percent respectively. In the third and fourth quarters of 2008, the economy contracted 2.7 percent and 5.4 percent.

    The recent good news signed that "we are moving in the right direction," said President Barack Obama on Saturday, but he also warned that there were still many challenges ahead.

    "While we have a long way to go before we return to prosperity, and there will undoubtedly be ups and downs along the road, it's also true that we've come a long way,'' Obama said in his weekly radio and Internet address.

    "Positive news today does not mean there won't be difficult days ahead," he stressed.

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UN: Global wages falling this year

Nov 5, 2009

Global wages fell in the United States and some other wealthy nations in the second quarter of the year, raising questions about whether workers are sharing in any economic recovery, the UN labor agency said Tuesday.

The International Labor Organization said inflation-adjusted wage growth fell sharply around the world last year to 1.4 percent, from 4.3 percent in 2007. It said wages are falling in a number of countries so far this year.

"The picture on wages is likely to get worse in 2009, despite the beginning of a possible economic recovery," the 15-page report said.

The ILO analyzed data from 35 countries including Brazil, Britain, Japan, South Africa and Ukraine. China and India, which provide large amounts of the world's workers, were excluded from the report.

Monthly wages have fallen almost 2 percent in the United States since January, said Patrick Belser, an ILO economist.

Manuela Tomei, ILO's employment chief, said wage declines were depriving national economies of much needed demand and were contributing to sapping consumer confidence.

"The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early," Tomei said.

The ILO noted some good efforts by governments to help workers, citing minimum wage increases above inflation in the United States, Brazil, Japan and Russia.

"In the US, there is a real policy toward strengthening the wage policies," Belser said, adding that Washington was trying to make it easier for workers to join unions.

"These measures can go a long way in addressing the imbalance that we found before the crisis, particularly with zero growth in the median wages in the US for many years despite a booming economy," he said.

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Gold heads for 1,100 dollars, extending all-time high on weak greenback

Nov 5, 2009
Gold futures on the COMEX Division of the New York Mercantile Exchange headed for 1,100 U.S. dollars on Wednesday, setting a new record high as dollar weakened. Silver and platinum both rose.

    The most active gold contract for December delivery gained 2.40 dollars, or 0.2 percent, to finish at 1,087.30 dollars an ounce, but it rallied to a new record high of 1098.50 during the electronic session after the contract closed in pit trading.

    A weaker dollar was considered the main factor which fueled the yellow metal to a new peak. By the end of gold floor trading time, the dollar index, a gauge measuring the greenback's value against a basket of major currencies, dropped 0.455 to 76.015, raising gold's demand of hedge and haven.

    Tuesday's news that India's central bank bought 200 tons of gold from the International Monetary Fund made investors more optimistic about gold's demand, helping the precious metal's rally.

    On Wednesday afternoon, the Federal Reserve kept its benchmark interest rate unchanged at a record low of near zero, weighing much on the dollar and providing additional support in gold's after-hours trading.

    December silver was up 22.5 cents to 17.405 dollars per ounce. January platinum rose 13.10 dollars to 1369.30 dollars an ounce.

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Oil tops $80 on inventory draw, weakening dollar

Nov 5, 2009
Crude prices settled above 80 U.S. dollars a barrel on Wednesday as crude inventories dropped and the dollar weakened against a basket of currencies.

    Light, sweet crude for December delivery rose 80 cents, or 1.0 percent, to settle at 80.40 dollars a barrel on the New York Mercantile Exchange.

    According to the U.S. Energy Department's Energy Information Administration (EIA), crude stockpiles dropped by 4.0 million barrels for the week ended October 30 while gasoline inventories dropped by 0.3 million barrels, surprising most analysts who had expected for a rise.

    The dollar retreated after the Federal Reserve decided to leave the interest rate unchanged at a record low and again pledged to keep it there for an "extended period" to foster the fragile economic recovery. A weaker dollar tends to boost commodities priced in the U.S. currency as they become cheaper for holders of other currencies.

    In London, Brent Crude for December delivery added 78 cents to settle at 78.89 dollars a barrel on the ICE Futures exchange.

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Dollar mixed against major currencies

Nov 4, 2009
The dollar was mixed against major currencies on Tuesday amid worries over banking sector and strong U.S. economic data.

    Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc will receive 31.3 billion pounds (51 billion dollars) government bailout, the U.K. Treasury announced on Tuesday. Both banks agreed to sell branches and divisions to comply with aid rules.

    Swiss bank UBS AG posted a net loss of 564 million Swiss francs (542 million dollars) in the third quarter. It was the fourth consecutive quarterly loss of the bank group.

    The dollar gained in early New York trading on Tuesday as banking worries boosted safety-haven demand. The greenback lost grounds later after it was reported that U.S. factory orders rose by 0.9 percent month-to-month in September. The increase, slightly larger than a consensus expectation of 0.8 percent, was mainly driven by machinery and auto orders.

    Investors remained cautious ahead of rate decisions from some central banks and a key employment report.

    The U.S. Federal Reserve began its two-day monetary policy meeting on Tuesday. The central bank was expected to leave its benchmark rates unchanged at ultra-low levels. Recent data showed that U.S. has emerged from its longest and deepest recession in the post-war period. But the Fed might not raise rated until 2010 or even 2011 as recovery is not guaranteed, some analysts said.

    The European Central Bank and the Bank of England will also announce their monetary policy decisions later this week. The U.S. Labor Department will report the closely watched non-farm payroll data on Friday.

    The euro bought 1.4702 dollars in late New York trading compared with 1.4753 dollars it bought late Monday. The pound rose to 1.6402 dollars from 1.6383 dollars.

    The dollar fell to 1.0677 Canadian dollars from 1.0791 Canadian dollars, and rose to 1.0274 Swiss francs from 1.0236 Swiss francs. It fell to 90.32 Japanese yen from 90.35 Japanese yen.

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Oil prices rise as Fed meets on interest rates

Nov 4, 2009
OIL prices rose yesterday as the Federal Reserve began a two-day policy meeting on interest rates.

Benchmark crude for December delivery gained US$1.47 to settle at US$79.60 a barrel yesterday on the New York Mercantile Exchange.

The U.S. government stepped in to bail out faltering banks and other giant businesses over the past year, which has helped send the dollar tumbling and the price of oil sharply higher.

Since oil is largely bought and sold in dollars, investors holding stronger currencies can buy more crude for less and have done so in recent months, sending the price of benchmark crude above US$80 near the end of October.

The central bank isn't expected to take any action on interest rates, yet statements issued after such meetings can hint at the Fed's take on the state of the economy.

"Oil is still being controlled by larger macroeconomic forces and not just demand and demand expectations," said PFGBest analyst Phil Flynn. "The main concern is still all about what the Federal Reserve might do."

Crude has been plentiful because the global economic slowdown has crimped demand, particularly in the United States.

Most analysts believe crude supplies in the U.S. grew again last week, and the Energy Department on Wednesday will release its weekly supply and demand figures for oil and gasoline.

In other Nymex trading, heating oil rose 2.73 cents to settle at US$2.0733 a gallon. Gasoline for December delivery gained 1.32 cents to US$2.0035 a gallon. Natural gas for December delivery gained 9.8 cents to settle at US$4.922 per 1,000 cubic feet.

In London, Brent crude for December delivery added US$1.56 to settle at US$78.11 on the ICE Futures exchange.

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IMF sells 200 tons of gold to India

Nov 3, 2009
The International Monetary Fund announced on Monday the sale of 200 tons of gold to India's central bank, almost half the total sales volume of 403.3 tons that was approved by the Executive Board in September.

    "I strongly welcome this transaction with the Reserve Bank of India," Managing Director Dominique Strauss-Kahn said in a statement. "This transaction is an important step toward achieving the objectives of the IMF's limited gold sales program, which are to help put the Fund's finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries."

    The transaction, which is in the process of being settled, involved daily sales that were phased over a two-week period during October 19-30, 2009, with each daily sale conducted at a price set on the basis of market prices prevailing that day.

    The total sales proceeds are equivalent to 6.7 billion dollars or SDR 4.2 billion.

    Under the IMF's Articles of Agreement, all gold sales must be conducted at prices based on market prices, including direct sales to official holders as in the case of this transaction.

    The action, authorized by the Group of 20 (G20) countries at their summit in London in April, mainly aimed at boosting the IMF's capacity to lend to poor countries.

    The IMF, a 186-nation Washington-based lending institution, is the third-largest official holder of gold in the world after the United States and Germany.

    In accordance with the guiding principle of avoiding disruption of the gold market, the IMF said its Executive Board adopted modalities for the gold sales consistent with guidelines it had earlier established.

    In particular, the Fund is standing ready for an initial period to sell gold directly to central banks and other official holders that may be interested in such sales.

    Thereafter, on-market sales of any amounts remaining from the 403.3 tons would be conducted in a phased manner over time, following the approach adopted successfully by central banks participating in the Central Bank Gold Agreement, according to the agency.

    Meanwhile, the IMF also promised that it will inform markets before any on-market sales commence, and will report regularly to the public on progress with the gold sales.    

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Dollar mostly lower on strong U.S. economic reports

Nov 3, 2009
The dollar fell slightly against most major currencies on Monday as investors' risk appetite was boosted by strong U.S. economic reports. Worries over the U.K. banking sector drove the greenback higher against the pound.

    The Institute of Supply Management (ISM) said its ISM manufacturing index rose from 52.6 in September to 55.7 in October, the highest level since April 2006. Orders and production growth were both strong, especially production.

    The sub-index for employment jumped from 46.2 to 53.1, also its best since April 2006. It broke the threshold of 50, indicating that manufacturing employment pulled out of contraction. Investors were waiting the non-farm payroll report due Friday for any more signals of employment improvement.

    The U.S. Pending Home Sales Index rose by 6.1 percent in September, the National Association of Realtors (NAR) reported. The index, a forward-looking indicator based on signed contracts, has been rising for eight consecutive months. It was 21.2 percent higher than a year ago.

    The Commerce Department reported that U.S. construction spending increased 0.8 percent month-by-month in September. But August data was revised down to show a decline of 0.1 percent rather than a gain of 0.8 percent in earlier estimate.

    The report showed that private building activity in August and September was much weaker that than it had been assumed in constructing the first estimate of Gross Domestic Product of the third quarter, said analysts of Nomura Economic Research.

    The euro jumped higher in early Monday trading, but it gave up some gains later amid comments from a Federal Reserve official. U.S. banks are at risk of sizable new loan losses, particularly on commercial property, said Jon Greenlee, associate director of the Fed's Division of Banking Supervision and Regulation.

    The pound fell speculations that forced asset sales by U.K. banks may weaken the country's financial institutions. It was reported that Royal Bank of Scotland Group and Lloyds Banking Group may have to sell assets in exchange for the government aid they received during the financial crisis. Northern Rock Plc is splitting into two.

    The euro bought 1.4753 dollars in late New York trading compared with 1.4730 dollars it bought late Friday. The pound fell to 1.6383 dollars from 1.6447 dollars.

    The dollar fell to 1.0791 Canadian dollars from 1.0797 Canadian dollars, and fell to 1.0236 Swiss francs from 1.0252 Swiss francs. It rose to 90.35 Japanese yen from 89.98 Japanese yen.

...Read more...

Volatility returns to markets, pulls Dow off highs

Nov 3, 2009
AFTER months on hiatus, volatility is back on Wall Street.

Stocks ended higher yesterday after another day of big swings. Stronger reports on manufacturing and housing gave the market an early boost but a rise in the dollar and worries about the soundness of an eight-month rally chipped away at the gains. A late surge left the Dow Jones industrial average with a gain of 77 points but still down by about half from its best levels of the day.

After nearly unbreakable gains since midsummer, trading has become much rockier in recent weeks as investors worry that the pace of the economic recovery they have been counting on will be hard to maintain.

Jittery traders have pushed the market around in ways more reminiscent of the huge swings of a year ago than the smoother advance stocks have seen since the early spring. The Dow has gained or lost more than 100 points in six out of the last seven days. The last time the Dow has as long a streak of triple-digit moves was in late March, shortly after major stock indexes bounced off 12-year lows.

Good news can still lift the market, but those gains are now less likely to hold than they were earlier in the year. The market jumped last Thursday after the government reported the economy grew at a 3.5 percent pace in the July-September quarter, well ahead of expectations.

But that enthusiasm faded quickly as many noted that much of the growth came from government spending programs which are winding down. Likewise, many companies are reporting stronger than expected earnings, but in many cases the gains came from cost-cutting instead of higher sales. On Friday the Dow slumped nearly 250 points as those worries deepened, more than erasing the 200-point gain from the day before.

Analysts say many investors still expect the economy to improve but are worried it won't happen as quickly as they had hoped. The signs of investor anxiety are clear. The Chicago Board Options Exchange's Volatility Index, known as Wall Street's fear gauge, crept up to 31.84 yesterday - a fresh four-month high before ending at 29.78.

"It's a flip of a coin right now," said Jeffrey Frankel, president of Stuart Frankel & Co. "You never know what you're going to get the next day when you come in to work."

As the market heads into the final months of the year, investors are trying to determine whether the bets they've been placing on a rebound in the economy over the past several months have been overdone. Even with a 2 percent loss in the Standard & Poor's 500 in October, the index is still up 54.2 percent from a 12-year low in March.

"The question is, is the trend changing?" said Jim Dunigan, managing executive of investments at PNC Wealth Management.

Trading is likely to be volatile throughout the week as investors sift through a flood of economic data, including the government's monthly employment report on Friday, that will offer a glimpse at the fourth quarter. The Federal Reserve will also weigh in on the economy after a two-day policy meeting on Wednesday.

On yesterday, the Dow rose 76.71, or 0.8 percent, to 9,789.44, its fourth gain in 10 days. The broader Standard & Poor's 500 index rose 6.69, or 0.7 percent, to 1,042.88, and the Nasdaq composite index rose 4.09, or 0.2 percent, to 2,049.20.

The seesaw trade came after the Institute for Supply Management said manufacturing activity grew in October at the fastest pace since April 2006 and much better than expected. Meanwhile, the National Association of Realtors said pending home sales increased for the eighth straight month in September, also topping expectations.

Separately, the Commerce Department said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a drop.

AFTER months on hiatus, volatility is back on Wall Street.

Stocks ended higher yesterday after another day of big swings. Stronger reports on manufacturing and housing gave the market an early boost but a rise in the dollar and worries about the soundness of an eight-month rally chipped away at the gains. A late surge left the Dow Jones industrial average with a gain of 77 points but still down by about half from its best levels of the day.

After nearly unbreakable gains since midsummer, trading has become much rockier in recent weeks as investors worry that the pace of the economic recovery they have been counting on will be hard to maintain.

Jittery traders have pushed the market around in ways more reminiscent of the huge swings of a year ago than the smoother advance stocks have seen since the early spring. The Dow has gained or lost more than 100 points in six out of the last seven days. The last time the Dow has as long a streak of triple-digit moves was in late March, shortly after major stock indexes bounced off 12-year lows.

Good news can still lift the market, but those gains are now less likely to hold than they were earlier in the year. The market jumped last Thursday after the government reported the economy grew at a 3.5 percent pace in the July-September quarter, well ahead of expectations.

But that enthusiasm faded quickly as many noted that much of the growth came from government spending programs which are winding down. Likewise, many companies are reporting stronger than expected earnings, but in many cases the gains came from cost-cutting instead of higher sales. On Friday the Dow slumped nearly 250 points as those worries deepened, more than erasing the 200-point gain from the day before.

Analysts say many investors still expect the economy to improve but are worried it won't happen as quickly as they had hoped. The signs of investor anxiety are clear. The Chicago Board Options Exchange's Volatility Index, known as Wall Street's fear gauge, crept up to 31.84 yesterday - a fresh four-month high before ending at 29.78.

"It's a flip of a coin right now," said Jeffrey Frankel, president of Stuart Frankel & Co. "You never know what you're going to get the next day when you come in to work."

As the market heads into the final months of the year, investors are trying to determine whether the bets they've been placing on a rebound in the economy over the past several months have been overdone. Even with a 2 percent loss in the Standard & Poor's 500 in October, the index is still up 54.2 percent from a 12-year low in March.

"The question is, is the trend changing?" said Jim Dunigan, managing executive of investments at PNC Wealth Management.

Trading is likely to be volatile throughout the week as investors sift through a flood of economic data, including the government's monthly employment report on Friday, that will offer a glimpse at the fourth quarter. The Federal Reserve will also weigh in on the economy after a two-day policy meeting on Wednesday.

On yesterday, the Dow rose 76.71, or 0.8 percent, to 9,789.44, its fourth gain in 10 days. The broader Standard & Poor's 500 index rose 6.69, or 0.7 percent, to 1,042.88, and the Nasdaq composite index rose 4.09, or 0.2 percent, to 2,049.20.

The seesaw trade came after the Institute for Supply Management said manufacturing activity grew in October at the fastest pace since April 2006 and much better than expected. Meanwhile, the National Association of Realtors said pending home sales increased for the eighth straight month in September, also topping expectations.

Separately, the Commerce Department said construction spending increased 0.8 percent in September, matching the gain in August. Economists had been expecting a drop.

...Read more...

Oil above US$78 after economic reports

Nov 3, 2009
OIL prices rose yesterday, backed by the weaker dollar and strong economic data in the U.S. and China, which raised hopes for an increase in energy demand.

Benchmark crude for December delivery rose US$1.13 to settle at US$78.13 a barrel on the New York Mercantile Exchange after shedding US$2.87 on Friday to settle at US$77.

The Institute for Supply Management, a trade group of purchasing executives, said yesterday that U.S. manufacturing activity grew in October at the fastest pace in more than three years, helped by government spending and higher demand from overseas.

The strong report raised hopes that energy demand, which has been hampered by the recession, may be rebounding. Yet the dollar keeps falling, which has helped push oil prices higher as well.

Dollar-based oil can look like a bargain for investors holding stronger currencies.

Also yesterday, the Commerce Department reported that September construction spending posted a better-than-expected performance, powered by the largest jump in housing construction in more than six years.

And the National Association of Realtors said that the volume of signed contracts to buy previously occupied homes rose for the eighth straight month in September as buyers scrambled to take advantage of a tax credit for first-time owners that expires at the end of this month.

Oil also received a boost from a weakened dollar and strong economic data out of China, which could be a stimulus for greater oil demand.

Danske Bank said the data suggested that "the Chinese recovery remains strong and might even be gaining further strength following a slowdown during (the third quarter)."

Oil has slumped from its 2009 high of US$82 a barrel last month as the dollar reversed some of its earlier losses, but on yesterday the euro gained again on the U.S currency, rising to US$1.4753 from US$1.4730.

Investors will be paying attention to more third quarter U.S. corporate earnings results this week.

Ford Motor Co. surprised the market yesterday by reporting net income of US$1 billion in the third quarter and forecast a "solidly profitable" 2011. Ford lost more than US$14.6 billion in 2008 and hasn't posted a full-year profit since 2005.

Cisco Systems Inc., Kraft Foods Inc., Marathon Oil Corp., Starbucks Corp. and Time Warner Inc. are also scheduled to report earnings.

In other Nymex trading, heating oil gained 4.08 cents to settle at US$2.046 a gallon. Gasoline for December delivery gained 3.07 cents to settle at US$1.9903 a gallon. Natural gas for December delivery fell 22.1 cents to settle at US$4.824 per 1,000 cubic feet.
In London, Brent crude for December delivery gained US$1.35 to settle at US$76.55 on the ICE Futures exchange.

...Read more...

Economists urge U.S. to replace government-led growth

Nov 2, 2009
The U.S. economy grew 3.4 percent in the third quarter for the first time in more than a year, indicating the worst recession since the 1930s may be coming to an end. But economists have also warned that the government-led growth must be replaced by growth led by private consumption in order for the recovery to be sustained.

    DESPITE GOOD NEWS, WORRIES LINGER

    The U.S. Commerce Department reported last Thursday that the nation's gross domestic product rose at a 3.5 percent annual rate in the third quarter, the first increase after four consecutive quarters of contraction.

    "I think it's very good news. It's in line with our expectations at Standard Chartered," said Gerard Lyons, chief economist at Standard Chartered Bank in a recent exclusive interview.

    "We think the U.S. economy will grow very strongly for the next6 to 9 months," largely due to the fiscal stimulus and low interest rate, he said.

    His forecast was echoed by Fred Bergsten, director of the Peterson Institute for International Economics, a leading U.S. think tank based in Washington D.C..

    "I'm quite optimistic about the outlook of the U.S. economy over the next year or so," Bergsten said. "I think we'll go up about 4 percent through 2010."

    But many economists also worry that the effect of the government-led growth will be short-lived and that the next few quarters may see sluggish growth or even a second dip.

    Mark Borthwick, director of U.S. Asia Pacific Council, noted that the U.S. economy would continue to expand, but at a slower pace. "The economy is strong enough to keep going, but not strong enough to grow fast," he said.

    "So the question whether we have a V shape recovery is still not answered," Borthwick said. "I always hope for a V shape for recovery, but it's very possible it will be a U shape."

    Among the hurdles to sustained and robust growth is the U.S. unemployment rate, which stands at 9.8 percent now, the highest level in 26 years.

    "We've had a technical end of the recession, which is something that economists and bankers like to talk about," said Robert A. Dye, senior economist at PNC Financial Services Group.

    "But it's not going to feel like we've had an end to the recession on Main Street until unemployment starts to go down," he said.

    GOVERNMENT-LED GROWTH TO BE REPLACED

    For the expansion to be sustained, private consumption must replace government spending, which is the biggest challenge faced by the U.S. economy, economists warned.

    Lyons said the big challenge is that the current recovery is driven by the government. A U.S. recovery is normally not driven by the government, but spurred by the private sector.

    "I'm still concerned that the private sector will not step in so the stimulus will boost economy over the next few months and into the early part of next year, but it will phase out because the private sector will remain cautious and U.S. consumers are still worried about jobs and about their wages," Lyons said.

    "So it's a recovery, but it's not a typical U.S. recovery, a recovery driven by the policy stimulus and we need to see the private sector stepping in for the recovery to become truly sustainable," he said.

    But in Borthwick's opinion, even private consumption is not the best for the U.S. economic model.

    The U.S. economy is largely driven by consumption expenditure, but this kind of economic growth model also leads to over consumption and credit debt which are the roots of the current financial crisis.

    "To return to growth without being driven so heavily by consumer-led growth, it's got to grow through exports, its own manufacturing and its own investment," said Borthwick.

    "The recovery has to be sustained under a new structure of growth rather than what we had before," he stressed.

    U.S. ENTERING A NEW CRISIS?

    Meanwhile, some economists have warned that the U.S. is entering a new crisis due to the government-led growth, fueled by huge budget deficit.

    "The United States is headed toward a new financial crisis," said Allan Meltzer, professor of political economy at Carnegie Mellon University.

    "A steady, committed policy to reduce future inflation and lower future budget deficits will avoid the crisis that current policies will surely bring," he said.

    According to him, the U.S. economic growth will remain at a slow rate, below the average of the last 30 or 40 years. Besides, there will be a period of very fluctuating growth ahead.

    "It would be good in the third quarter, maybe not so good in the fourth quarter. It will be up and down but along a very low growth rate," Meltzer said.

...Read more...

British banks set to sell assets in exchange for bailout given

Nov 2, 2009
THE Royal Bank of Scotland, Northern Rock, and Lloyds Banking Group are to sell off as many as 700 branches in the next few years in exchange for the public aid they received during the economic meltdown, a government official told The Associated Press.

The assets being put up for sale would be reserved for new entrants to the British banking market, effectively creating three new banks over the next five years or so, the official said late Saturday.

The official said the banks were in negotiations with Britain's Treasury and European regulators over how many assets they would have to give up in return for the help they received from taxpayers.

"Essentially, they are expected to have to divest - each of them - some of their branches," he said.

As many as 700 branches could be sold off, the official said. That figure would include all of Northern Rock's 100 or so branches, as well as chunks from the Lloyds Banking Group Plc's approximately 3,000 branches and just over 2,200 branches operated by the Royal Bank of Scotland Group Plc.

Established players such as Barclays Plc or the Spanish Banco Santander SA, which owns three United Kingdom banking businesses, would not be allowed to bid.

The official warned that the figures were subject to change, and spoke on condition of anonymity because the moves had yet to be finalized. He added that an official announcement could come within days.

The shake-up would come after Britain pumped billions of pounds (dollars) into its banking sector in an effort to stave off the collapse of its financial system in the wake of the credit crunch. Northern Rock was nationalized early last year after it struggled to raise funds from crunch-hit wholesale lending markets. The government has significant stakes in both RBS and Lloyds Banking Group.

The European Union has kept a wary eye on efforts by Britain and other governments to prop up their banks, warning that it may call on banks that got public help to sell off some of their units.

The move to sell was intended to help counter the advantage the banks received from the massive state recapitalizations.

...Read more...

Wall Street executives head for government jobs after crisis

Nov 2, 2009

Hundreds of Wall Street executives and professionals filled into the three conference rooms of a midtown Manhattan high-rise with resumes in hands, lining up for an all-day job fair Friday.

They were not there, however, to meet with representatives from Wall Street giants such as Morgan Stanley or Goldman Sachs. Instead, they were on hand to interview with federal government agencies.

The attendance by hundreds of Wall Street professionals at the government job fair reflects a significant change in the financial job market structure: Federal agencies unprecedentedly are luring Wall Street professionals and some money-making talent is leaving Wall Street to be regulators for the "meaningful" work. Instead of considering them part of the problem, government agencies hope Wall Street stars can be part of the solution.

The federal job fair, held by the New York Society of Security Analysts was the second this year for Wall Street professionals.

"Experiencing financial turmoil, federal agencies are obviously more active now in regulation than before, which means they need more people to oversees and regulate Wall Street," Richard Lipstein, a finance services executive from a global recruiting firm and a volunteer job fair organizer, told Xinhua.

"The government is increasingly reaching into the private sector to fill these employment needs because Wall Street professionals have the great understanding of various jobs, firms and banks that the federal is looking for," he said.

Federal government agencies on hand included the Securities and Exchange Commission (SEC), Federal Deposit Insurance Corp. (FDIC),Commodity Future Trading Commission (CFTC), and the Federal Housing Finance Agency (FHFA).

The openings are usually for examiners, financial analysts, forensic accountants, and lawyers. Recruiters said positions are open at all levels, but experienced executives and managers are most often hired.

The job-seekers were not all unemployed. Some were looking for mid-career transitions for a fresh start. Michael, in his 40s, an equity analyst, has been working on Wall Street for almost 20 years. He said he is trying a new move to the next level to do a more "meaningful" job.

"I like my current work," Michael said. "But through 20 years in Wall Street I have seen lots of, I cannot say 'cheatings', but 'games', maybe the word, in the current financial system. Money, it is too easy to make here. Wall Street needs solutions and regulation, and I want to be part of the solution. That is what I mean a meaningful job."

Michael said leaving behind a six-figure salary for government work has little to do with money.

"Compensation is not all I am working for," he said. "I have Wall Street experience, so I can bring something new on the table for the government."

JOB MARKET REBOUNDS, BUT NOT REAL RECOVERY

"The financial job market in general no doubt is getting a rebound since the financial crisis began two years ago," Lipstein said, "Recently we have more clients coming in and pay great rates to find Wall Street professionals."

The structure of Wall Street is changing after the financial crisis. There are fewer financial giants across the street, high-risk derivative markets are shrinking, former Wall Street stars are losing jobs, and smaller start-ups are increasing.

In the states, meanwhile, the jobless rate rose to 9.8 percent in September, reaching a 26-year high. Some economists estimate it would have topped 10 percent if there had been no change in the labor force.

"The overall unemployment still remains high as the economy struggles to create jobs in the early stages of the financial recovery. Wall Street needs at least two years to be close to previous levels before the crisis," Lipstein said.

...Read more...