Economic recovery spreads to OECD area at large

Nov 21, 2009

The Paris-based economic adviser Organization of Economic Cooperation and Development (OECD) confirmed Thursday the economic recovery has now spread to OECD area at large and forecasted a whole growth of 1.9 percent in 2010.

However, the report admitted that the OECD economy remains dragging in depression for 2009 as households and businesses need time to revive their confidence and repair their finances.

According to the report, the Untied States will bear a 2.5 percent contraction, better than the 4.0 percent decline for the euro area and 5.3 percent for Japan. The OECD will embrace a decline of 3.5 percent at large, and world trade will also decline12.5 percent for the year.

The OECD outlook report also forecasts growth in the coming years, saying that the United States will see 2.5 percent growth in gross domestic products (GDP) in 2010 and a further 2.8 percent in 2011, while the economy of the euro area and Japan will respectively increase 0.9 percent and 1.8 percent in 2010, and 1.7percent and 2.0 percent in 2011. Speaking generally, the report said, the world trade growth will stand at 6.0 percent for 2010.

The report attributes the long awaited modest growth across the OECD area to the held-back effect of stimulus policies implemented by different governments.

These stimulus packages also brought side effects. Jorgen Elmeskov, acting chief economist of the OECD, warned that government budgets had suffered badly from the global financial crisis. "The gross debt of most OECD countries could be larger than their GDP by 2011."

To strengthen the base of sustainable development, "removing stimulus measures is imperative but such action has to be carried out gradually to avoid undermining the recovery," OECD Secretary-General Angel Gurria said.

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Investors rule out U.S. Fed rate hike anytime soon, survey shows

Nov 20, 2009

A majority of investors expects the U.S. Federal Reserve to hold off from raising interest rates until the second half of 2010, according to the BofA Merrill Lynchsurvey of fund managers for November.

Asked when they think the Fed will first increase rates, more than three quarters of the panel predicted the second half of 2010or beyond, one in six respondents believes the Fed will not act before 2011, BofA Merrill Lynch Global Research said in a report Thursday.

U.S. Fed Chairman Ben S. Bernanke said Monday that the Fed would keep low interest rates for an extended period, citing uncertainties in U.S. economy, such as constrained flow of credit, weak economic activity and high unemployment, despite evidences of recovery.

"The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," said the chairman.

A total of 218 fund managers, managing assets worth of 534 billion U.S. dollars, participated in the global survey o Nov. 6-12, conducted by BofA Merrill Lynch Global Research with the help of market research company TNS.

A net 47 percent of respondents said they expect global core inflation to be higher in 12 months, up from a net 39 percent in October. Two thirds of the panel believe that the existing monetary policy is "about right."

"Investors see inflation as a greater risk than deflation and are hedging that risk with overweight positions in emerging markets and commodities, and an underweight position in the U.S. dollar," said Michael Hartnett, chief global equity strategist at BofA Merrill Lynch Global Research.

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Crude prices follow world markets down

Nov 20, 2009
A GLOBAL sell-off on equity markets dragged down crude prices by nearly 3 percent yesterday, the first decline this week.

The price for a barrel of crude dropped by more than US$1 immediately when U.S. markets opened, with the Dow Jones industrials giving up more than points. Markets in Asia and Europe fell early in the day.

Also pushing oil prices lower was a strengthening dollar. Crude prices have risen steadily this year as the dollar lost value against the euro. Because oil is bought and sold largely in dollars, someone holding euros can essentially by more crude for less.

Since the beginning of February, the dollar has lost more than 16 percent of its value against the euro. On days when the dollar climbs, like yesterday when the U.S. currency gained a half cent against the euro, crude prices tend to fall.

Benchmark crude for December delivery gave up US$2.12 to settle at US$77.46 a barrel with one day remaining until the futures contract expires on the New York Mercantile Exchange. Most of the trading already moved to the January contract, which lost US$2.05 to settle at US$78.05.

Still, with oil near US$80 per barrel, consumers are starting to feel the pinch.

Leaders with the International Energy Agency in Paris, the U.S. Department of Energy, and even the Organization of Petroleum Exporting Countries have warned that rapidly rising energy prices could slow any economic rebound.

Since crude prices have soared, oil refiners have been shutting down facilities because they must pay higher prices for crude, but they can't make up those costs with higher gas prices. Demand for gasoline, jet fuel and diesel, is dismal.

That has helped to send retail gas prices higher.

"Bottom line, the race is on; between falling demand and falling production," analyst Stephen Schork said. "Regardless of the outcome, one result is almost guaranteed ... the consumer will lose. And, given that consumer spending is responsible for more than two-thirds of the U.S. economy, that does not bode well for the strength of the incipient recovery."

The Energy Information Administration also reported that natural gas stockpiles rose to a new record high last week, largely because industrial customers are using a lot less energy.

In other Nymex trading, heating oil fell 5.22 cents to settle at US$1.9964 a gallon. Gasoline for December delivery lost 4.19 cents to settle at US$1.9695 a gallon. Natural gas for December delivery added 8.8 cents to settle at US$4.342 per 1,000 cubic feet.

In London, Brent crude for January delivery gave up US$1.83 to settle at US$77.64 on the ICE Futures exchange.

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Stronger dollar, weak economic data pummel stocks

Nov 20, 2009
SIGNS of a subdued U.S. economic recovery sent investors out of stocks yesterday and in search of safer assets like the dollar.

Major indexes tumbled about 1 percent, including the Dow Jones industrial average, which lost 93 points but ended well off its low. Energy and material stocks logged the biggest losses as a jump in the dollar sent commodity prices tumbling. Meanwhile, an analyst's downgrade of the chip industry pulled technology shares sharply lower.

As stocks fell, investors flocked to the dollar and Treasurys. The yield on the three-month T-bill, considered one of the safest investments, tumbled to its lowest level since last December. The Chicago Board Options Exchange's Volatility Index, also known as Wall Street's fear gauge, rose more than 4 percent.

Overseas markets also fell sharply.

The day's trade was a shift out of riskier assets and back into safe havens like the dollar and Treasurys. After amassing significant gains during an eight-month rally in stocks, investors are hesitant to take on too many extra risks as the year ends, worried that the economy's rebound might not be sustainable.

"Large money managers, going into the end of the year, are looking to protect their gains and are shifting assets," said Adam Gould, senior portfolio manager at Direxion Funds in New York.

For much of this year, investors have been selling dollars and putting their money in assets like stocks and commodities that have the potential to earn higher returns, believing the economy is recovering.

Now, investors are wondering whether the dollar's slide has run its course and whether other markets have gotten overheated considering economic challenges like high unemployment.

The latest reports on the economy gave investors little incentive to hold on to stocks. A report from the Labor Department yesterday indicated that the economy is still shedding jobs, and the Mortgage Bankers Association reported a surge in foreclosures.

Still, analysts warn that the dollar's rise yesterday doesn't necessarily mark the beginning of a long-term move. Low interest rates could continue to weigh on the dollar.

Jon Biele, head of capital markets at Cowen & Co., said investors are searching for direction.

"There are a lot of questions out there and not a lot of answers. When you don't have the right information you don't do anything," he said.

The Dow fell 93.87, or 0.9 percent, to 10,332.44. The Standard & Poor's 500 index fell 14.90, or 1.3 percent, to 1,094.90, while the Nasdaq composite index fell 36.32, or 1.7 percent, to 2,156.82.

Bonds rallied as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.35 percent from 3.37 percent late Wednesday. The yield on the three-month T-bill was holding steady at 0.02 percent, after earlier falling to as low as 0.005 percent.

The ICE Futures US dollar index, which measures the dollar against other major currencies, gained 0.3 percent, weighing on commodities prices. Gold prices inched higher, while oil prices dropped US$2.12 to settle at US$77.46 a barrel on the New York Mercantile Exchange.

Analysts said the dollar was the biggest force behind trading, as it has been in recent months. A stronger dollar makes commodities more expensive to foreign buyers, and companies that produce the commodities make less money from them.

"There might be a little fear out there about dollar strengthening, as well as some natural profit-taking opportunities," said Dan Cook, senior market analyst at IG Markets Inc. in Chicago. "We've been on an amazing run."

The stronger dollar also makes U.S. goods and services more expensive overseas. And U.S. companies that do business abroad make less money when their earnings are translated from other countries' currencies into dollars.

Among the day's economic news, the Mortgage Bankers Association said more than 14 percent of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of September. Investors are worried that loan defaults could continue to rise as long as unemployment keeps rising.

The government said the number of newly laid-off workers seeking unemployment insurance was unchanged last week at 505,000. The figure remains above the level that would indicate the economy is adding jobs.

Meanwhile, a private group's forecast of economic activity rose less than expected in October, signaling slow growth next year. The Conference Board said its index of leading economic indicators, which forecasts activity over the next six months, rose 0.3 percent last month.

The market's losses added to a modest drop Wednesday that followed a drop in home construction and worse-than-expected forecasts from technology companies.

Tech shares fell again after chipmakers, including Intel Corp., were downgraded.

"If a company like Intel isn't going to do as was well as people think, then that has many ripple effects," said Gould of Direxion Funds, adding that technology has been one of the areas of the economy thought to be strengthening.

Intel fell 4.1 percent, sliding 82 cents to US$19.30. Texas Instruments Inc. fell 87 cents, or 3.4 percent, to US$24.88, while Advanced Micro Devices Inc. fell 27 cents, or 3.7 percent, to US$7.05.

Five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares, in line with Wednesday.

The Russell 2000 index of smaller companies fell 14.47, or 2.4 percent, to 585.68.

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US debt rise not a sign of new strategy

Nov 19, 2009

Despite worries about the value of its foreign assets, China increased its holdings in United States Treasury securities in September by $1.8 billion.

The increase bumps the nation's Treasury holdings to $798.9 billion from $797.1 billion in August. The latest monthly figures in the Treasury International Capital (TIC) report for September, released on Tuesday, indicates that China remains the world's largest holder of Treasury bonds.

Meanwhile, US economists estimated China holds roughly $1.5 trillion in US assets, at least 65 percent of China's total foreign assets, according to the US Council on Foreign Relations, a nonprofit and nonpartisan organization.

In contrast with China's small increase of US debt in September, the Treasury report showed foreigners bought $133.5 billion in US bonds in September, the most since October of last year.

Net foreign purchases of long-term securities were $40.7 billion in September from a revised $34.2 billion in the prior month, but foreign holdings of dollar-denominated short-term US securities decreased $11.8 billion.

For September, Japan's holdings of US Treasury securities rose $20.3 billion to $751.5 billion.

Other countries with large holdings of US Treasury securities also increased their holdings in September with the UK's investment rising to $249.3 billion from $226.9 billion. The Treasury holdings of Brazil rose to $144.9 billion, from $137.3 billion in August.

But the China's slow growth in US securities in September does not necessarily mean China is on the way to reduce its US securities despite strong domestic doubts on the large holding of US debts, analysts told China Daily.

"The $1.8 billion is small compared with China's huge holdings of US debt," said Zhao Xijun, a professor of finance at Renmin University of China. "It's very normal whether China increases or decreases the US bonds, because the buying and selling is fluctuating every month."

Increases in US holdings from other countries did not mean they were optimistic about the US recovery as some American economists said recently, according to Zhao.

"It's just a result of different investment strategies taken by different countries," he said.

Although he suggested China should diversify its portfolio of foreign assets, the country has few choices.

Li Wei, an analyst at Standard Chartered Bank, said: "The TIC report sometimes cannot reflect the true figure since China often buys the US debt via agents in London." That part is put under the name of the UK, Li said.

The real figure of China's holding of US securities may be $970 billion, according to Standard Chartered Bank.

Given the fact that China bears the brunt of the dollar's weakness, it's unfair to criticize the renminbi's exchange rate, said Yao Yang, a professor of economics at Peking University.

"The US has argued that the Chinese currency is undervalued by as much as 40 percent against the dollar, but in fact it is at most 5 or 6 percent," Yao said.

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Oil settles higher on weak dollar

Nov 19, 2009
OIL prices increased for the third day in a row as the dollar weakened and auto club AAA reported that more drivers are expected on America's highways next week.

Benchmark crude for December delivery added 44 cents yesterday to settle at US$79.58 a barrel on the New York Mercantile Exchange. Most of the trading had already passed to the January contract, which rose 38 cents to settle at US$80.10 a barrel.

The weak dollar has helped boost oil prices most of the year. Crude prices, which are priced in U.S. currency, tend to rise as the dollar falls and investors holding strong international currencies get more buying power.

AAA also reported yesterday that 33.2 million Americans would get in their cars and travel at least 50 miles (80 kilometers) over the Thanksgiving weekend, next yesterday through Sunday. That's an increase of 2.1 percent from 2008, even though a gallon of gas is 56 cents more expensive than the same time last year.

AAA, which based its report on a telephone survey, said the increase was a sign that consumers are more confident in the economy.

Meanwhile, the Energy Information Administration reported that the country's stockpile of crude oil fell by 900,000 barrels last week. But the drop was hardly a sign of a recovering economy.

American petroleum consumption has dropped to the lowest level since July 17, and oil companies are importing much less oil as they scale back their refining operations.

"Demand is still very, very weak," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "It's keeping us from sharing in the bullish euphoria that you're seeing in the stock market."

Some analysts expect weak global economic growth to keep commodities like oil from surging much higher. Global growth will likely average 2.5 percent a year during the next three years, about half the rate between 2002 and 2007, said Stephen Roach, Asia Chairman for Morgan Stanley.

"I don't see commodities repeating the boom-like surges," Roach said in Singapore.

In other Nymex trading, heating oil lost less than a penny to settle at US$2.0486 a gallon. Gasoline for December delivery added less than a penny to settle at US$2.0114 a gallon. Natural gas for December delivery gave up 27.6 cents to settle at US$4.254 per 1,000 cubic feet.

In London, Brent crude for December delivery added 50 cents to settle at US$79.47 on the ICE Futures exchange.

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US sees faster rise in prices

Nov 19, 2009

CONSUMER prices in the United States edged up faster than expected last month, driven higher by another increase in energy prices and the biggest jump in new car prices in 28 years.

Still, prices are lower than they were a year ago and inflation is expected to remain subdued amid a slow economic recovery.

The Labor Department yesterday said consumer prices rose 0.3 percent in October, a bit more than the 0.2 percent economists had expected. Core inflation, which excludes energy and food, rose 0.2 percent, compared with analysts' expectation for a 0.1 percent rise.

Overall prices since October 2008 are down 0.2 percent, reflecting the effects of the longest recession since the 1930s. Even though economists believe the downturn ended over the summer, the unemployment rate has continued to rise, hitting a 26-year high of 10.2 percent in October.

Weak labor markets have kept a lid on wage pressures, and the fragile economy has made it tough for businesses to raise the price of their products.

The absence of inflation has given the Federal Reserve the room to push a key interest rate to a record low near zero in an effort to boost the economy.

Fed Chairman Ben Bernanke said earlier this week that he expected inflation to be "subdued for some time." Many economists don't believe the Fed will consider beginning to raise interest rates until the jobless rate peaks, probably next summer.

For October, energy prices rose 1.5 percent, the biggest hike since a 4.6 percent jump in August. The climb was driven by a 6.3 percent jump in home heating oil.

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Retail sales in US higher than expected

Nov 18, 2009
SALES at retailers in the United States rose more than expected in October as consumers bought more motor vehicles and other goods, but the previous month's figures were revised sharply downward, a government report showed on Monday.

In a report that pointed to gradual improvement in spending, the Commerce Department said total retail sales increased 1.4 percent last month, the largest advance since August, after dropping by a revised 2.3 percent in September. Sales in September were previously reported to have declined by 1.5 percent.

Analysts had forecast headline retail sales rising 1 percent last month. Sales in October were boosted by a jump in new vehicle and parts sales, which surged 7.4 percent.

Auto sales had slumped 14.3 percent the previous month following the expiration of the government's popular "Cash-for-Clunkers" incentive program in August that had buoyed demand for motor vehicles. Previously, the government reported auto sales falling 10.4 percent in September.

With government stimulus behind the bulk of the economy's 3.5 percent annualized growth pace in the third quarter, there are fears rising unemployment will continue to weigh on consumer spending and hold back the recovery.

Excluding motor vehicles and parts, retail sales rose by a smaller-than-expected 0.2 percent in October after increasing 0.4 percent in September.

Gasoline station sales were flat after rising 0.9 percent in September. Core retail sales excluding autos, gasoline and building materials rose 0.5 percent. Sales of building materials dropped 2.4 percent.

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Gold soars to new all-time high above 1,140 dollars on weak greenback

Nov 17, 2009

Gold futures on the COMEX Division of the New York Mercantile Exchange went up sharply and set a new record high on Monday as dollar slid to another 15-month low. Silver and platinum both rallied.

The most active gold contract for December delivery climbed 22.50 U.S. dollars, or 2 percent, to finish at 1,139.20 dollars an ounce. In the after-hours electronic session, the precious metal climbed to the new peak of 1,143.40.

In the overnight trading, gold regained strength as dollar weakened and saw a big rally. Coming to the day session, the greenback continued tumbling, although Federal Reserve Chairman Ben Bernanke said at a conference held by the Economic Club of New York that the central bank will keep a close eye on the sliding U.S. dollar.

The dollar index, a gauge measuring the greenback's value against other major currencies, dropped more than 0.9 percent to 74.75 about half an hour after gold pit trading closed. That is the U.S. currency's lowest level since last August. Gold's appeal was refueled for investors always purchase the yellow metal as the hedge assets against dollar's depreciation.

December silver was up 1.02 dollars to 18.48 dollars per ounce. January platinum rose 55.90 dollars to 1,444.60 dollars an ounce.

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Wall Street renews year high on retail sales, weak dollar

Nov 17, 2009

Wall Street renewed its 2009 high on Monday due to better-than-expected retail sales and higher commodity prices resulting from a weaker dollar.

The U.S. Commerce Department reported on Monday that retail sales rose 1.4 percent in October as demand for autos climbed, much higher than the 0.8-percent prediction by economists and the 2.3-percent decline in September. The reading eased concern that households will curtail spending after government incentives ended.

However, excluding autos, sales rose 0.2 percent, weaker than the 0.4-percent increase economists had expected, while wholesale inventories fell for a 13th consecutive month in September.

Federal Reserve Chairman Ben Bernanke anticipated on Monday that the U.S. economy will continue its recovery next year, but warned about more challenges ahead.

He also reaffirmed the Fed would keep low interest rates for an extended period.

"The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," said the Fed chairman at the New York Economic Club.

On corporate news, home improvement retailer Lowe's Cos. reported its third-quarter profit fell 30 percent. But the company said some of the hardest hit home markets are stabilizing.

The U.S. dollar fell against a basket of currencies on Monday, helping extend gains in commodities. Crude prices surged more than3 percent while gold futures set a new record high.

The Dow Jones rose 136.49, or 1.33 percent, to 10,406.96. The Standard &Poor's 500 index climbed 15.82, or 1.45 percent, to 1,109.30 and the Nasdaq increased 29.97, or 1.38 percent, to 2,197.85.

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Bernanke says Fed seeks to ensure strong dollar

Nov 17, 2009

Federal Reserve Chairman Ben Bernanke said on Monday that the US central bank will pay attention on the depreciation of the US dollar and help ensure the dollar is strong.

"We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability," said Bernanke in a speech delivered at the Economic Club of New York.

"Our commitment to our dual objectives, together with the underlying strengths of the US economy, will help ensure that the dollar is strong and a source of global financial stability," he stressed.

In the speech, Bernanke also stated that the US economy will continue its recovery next year, but noting more challenges ahead.

"I expect moderate economic growth to continue next year," he said. "Final demand shows signs of strengthening, supported by the broad improvement in financial conditions."

"Additionally, the beneficial influence of the inventory cycle on production should continue for somewhat longer. Housing faces important problems, including continuing high foreclosure rates, but residential investment should become a small positive for growth next year rather than a significant drag, as has been the case for the past several years," said the US central bank chief.

In the business sector, manufacturing activity has been expanding and should be helped by the continuing strength of the recovery in the emerging market economies, especially in Asia, he said.

"As the recovery takes hold, enhanced business confidence, together with the low cost of capital for firms with access to public capital markets, should lead to a pickup in business spending on equipment and software, which has already shown signs of stabilizing," said Bernanke.

However, some important headwinds, in particular, constrained bank lending and a weak job market, "likely will prevent the expansion from being as robust as we would hope," he warned.

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Oil picks up from one-month low

Nov 16, 2009
Crude oil rose from a one-month low on speculation demand will increase as the global economy recovers from its worst recession since World War II.

A report today in the US, the world's largest energy user, will probably show New York manufacturing expanded for a fourth month in October, based on the median estimate in a Bloomberg survey of economists. Oil also rose as the dollar declined, increasing the investment appeal of commodities and pushing up the price producers must seek to maintain purchasing power.

"Even with the (US) dollar near 15-month lows there is still more room to the downside and crude has more room to the upside,'' said Jonathan Kornafel, a director for Asia at options traders Hudson Capital Energy in Singapore. "As long as Asia is doing well and Europe and the US aren't doing terribly, the risk trade is going to continue and that will push crude up and the dollar down.''

Crude oil for December delivery rose as much as 80 cents, or 1.1 per cent, to $US77.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $US77.05 at 10:31 a.m. in Singapore.

The contract fell 59 cents to $US76.35 a barrel on Nov. 13, the lowest settlement since Oct. 14, after an unexpected decline in US consumer confidence. Prices fell 1.4 per cent last week as jobless claims in the world's largest economy increased, fuel stockpiles rose and the nation's refiners reduced operating rates to a 13-month low.

Weak US dollar

Oil "has been a trade based on the recovery story and that hasn't changed,'' said Toby Hassall, a research analyst with CWA Global Markets in Sydney. "The weakness in the US dollar should remain a pretty supportive factor.''

Crude has gained 73 per cent this year and reached a 12- month high of $US82 on Oct. 21. The euro has gained about 6.4 per cent over the same period, and climbed to as much as $US1.4967 today from $US1.4903 late in New York last week.

Oil's "pre-emptive'' rally has been affirmed by the return to growth in Europe and recent data from the US and China, Hassall said. The US recovery appears "uneven'' and more consistent data may be needed for oil to push higher.

"We're more likely to break lower out of this range than to break higher, at least in the short-term,'' he said. "I don't see a huge amount of downside for oil.''

CFTC report

Hedge-fund managers and other large speculators decreased their net-long position in New York crude-oil futures in the week ended Nov. 10, according to US Commodity Futures Trading Commission data.

Net-long positions fell by 15,772 contracts, or 15 per cent, from a week earlier. Overall speculative long positions, or bets prices will rise, still outnumbered short positions by 88,045 contracts on NYMEX, the Washington-based commission said in its Commitments of Traders report.

Brent crude for January settlement rose 75 cents, or 1 per cent, to $US77.06 a barrel on the London-based ICE Futures Europe exchange. It dropped 46 cents, or 0.6 per cent, to $US76.31 a barrel on Nov. 13. The December contract expired the same day, falling 47 cents, or 0.6 per cent, to $US75.55.

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Gold's rally have some targeting $US1300

Nov 16, 2009
Gold climbed to an all-time high as investors stepped up purchases of the precious metal on speculation that the US dollar will extend a decline. Silver, platinum and palladium also advanced.

''Investors are taking shelter in gold,'' said Wallace Ng, chief dealer with Fortis Bank in Hong Kong. ''I see gold rising to $US1,300 an ounce. It's not an unreasonable call at all if you look at how the (US) dollar behaves.''

The US dollar fell for a second day against a basket of six currencies after a report showed Japan's economy grew more than economists expected in the third quarter. China's banking regulation head also warned that the ''continuous depreciation'' of the US currency had ''seriously affected global asset prices.'' Shares in gold producers climbed.

Bullion for immediate delivery advanced as much as 0.7 per cent to $US1,126.07 an ounce, surpassing the peak reached on Nov. 12. The metal, set for a ninth annual gain and 28 per cent higher this year, was at $US1,124.20 at 10:34 a.m. Singapore time.

Japan's economy, the world's second-largest, expanded at an annual 4.8 per cent pace in the third quarter, the fastest since the first three months of 2007, the Cabinet Office said today. That boosted demand for higher-yielding assets, prompting dollar sales, according to Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale.

Gold for December delivery climbed 1 per cent to a record $US1,127.90 an ounce, and traded at $US1,124.10 on the Comex division of the New York Mercantile Exchange. The US dollar fell to $US1.4952 per euro from $US1.4903 on Nov. 13 in New York. (The Australian dollar was buying 93.4 US cents.)

China's warning

Liu Mingkang, chairman of the China Banking Regulatory Commission, said yesterday that low US interest rates and the dollar's fall posed risks to the global recovery, echoing comments from Donald Tsang, the chief executive of Hong Kong.

The Federal Reserve has cut borrowing costs to an all-time low while the US government boosted spending to a record to combat recession in the world's biggest economy, fuelling speculation that the currency will be debased.

The Reserve Bank of India bought 200 metric tons of gold from the International Monetary Fund last month and Sri Lanka said it will continue buying the metal.

''Investors of all levels, from retail investors to central banks, are really diversifying their portfolios,'' said Toby Hassall, an analyst with CWA Global Markets Pty Ltd. in Sydney.

Newcrest Mining Ltd., Australia's biggest gold producer, advanced 1.9 per cent to $35.23 in Sydney, taking gains over the past year to 69 per cent. Lihir Gold, the second-largest miner on the exchange, climbed as much as 4.2 per cent to $3.50.

Among other precious metals for immediate delivery, platinum gained as much as 0.5 per cent to $US1,400.50 an ounce, the highest price since Sept. 4, 2008. Palladium climbed as much 1.1 per cent to $US359.75 an ounce, and silver advanced as much as 1.3 per cent to $US17.6575 an ounce.

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U.S. trade deficit rises 18.2% in September

Nov 15, 2009
The U.S. trade deficit increased 18.2 percent in September to 36.5 billion U.S. dollars, the highest level since January, the Commerce Department reported Friday.

    The figure was more than the 31.7 billion dollars economists had expected. The key factor that drove up the trade deficit in September was foreign oil prices, which rose to their highest level in nearly a year, offsetting a fifth consecutive gain in exports.

    The Commerce Department said that exports, which have been rising since May, increased 2.9 percent to 132 billion dollars, reflecting stronger sales of American autos, aircraft and industrial machinery.

    Imports rose 5.8 percent to 168.4 billion dollars, led by a 20.1 percent jump in oil shipments.

    So far this year, the U.S. trade deficit is running at 366 billion dollars, about half of last year's 695.9 billion dollars deficit.

    Analysts expected that a rebounding global economy will keep pushing demand for exports higher, helping to bolster the U.S. recovery.

    President Barack Obama said earlier this month that the U.S. economy would transform its model of growth, indicating to promote the country's export.

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Dollar ends week lower as euro zone exits recession

Nov 15, 2009
The dollar ended the week lower against major currencies as a growth of the euro zone economy boosted investors' risk appetite, which lacked support in previous sessions.

    Gross Domestic Product (GDP) increased by 0.4 percent in the euro zone, and by 0.2 in the 27-nation European Union (EU) during the third quarter of 2009, according to Eurostat, the statistical office of the European communities.

    The two largest economies in the euro zone, Germany and France, grew by 0.7 percent and 0.3 percent respectively in the third quarter, Eurostat said on Friday.

    The 0.4 percent growth of the euro zone GDP, slightly less than expected, showed that the 16-nation zone emerged from its first recession since the single currency was unveiled in 1999. It ended a series of contractions in five consecutive quarters.

    The euro zone slipped into recession in the third quarter of 2008, showing two consecutive quarters of negative growth. Its GDP contracted by a massive 2.5 percent in the first quarter of 2009 before showing signs of bottoming out.

    The dollar "still remains on the strong side" despite its declines in recent months, the International Monetary Fund (IMF) said in a report. The comments suggested that the dollar could fall further.

    There are indications that the dollar is now serving as the funding currency for carry trades. These trades may be contributing to upward pressure on the euro and some emerging economy currencies, the IMF said.

    In carry trades, investors sells a certain currency with a relatively low interest rate and use the funds to purchase a different currency yielding a higher interest rate.

    Benchmark rates of the United States have been kept at a range between zero and 0.25 percent, lower than other major economies. Economic conditions were likely to warrant exceptionally low levels of the federal funds rate for an extended period, said the U.S. Federal Reserve in a statement from its latest monetary policy meeting.

    The dollar opened lower this week as a commitment from Group of20 (G20) policymakers boosted hopes for recovery. The G20 finance ministers and central bank governors, who met last Saturday in Scotland, agreed to maintain support for the recovery until it is assured by efforts to restore the global economy.

    The dollar's declines took a break in mid-week trading as there were few U.S. economic reports released. Trade volume has been light because of the Veterans Day holiday on Wednesday.

    The pound fell against the dollar on Wednesday after British Central Bank Governor Mervyn King said he was open on whether to pump more money into the economy.

    The British economy had "only just started" along its road to economic recovery, King said.

    The Bank of England expected the British economy to return to growth at the beginning of next year, and it would be late 2011 before the economy recovered to the pre-recession level.

    The British currency rebounded on Thursday as some analysts said it was still undervalued.

    Declines of the dollar sparked some worries that rising oil prices could hurt consumer spending and hinder economic growth. Appreciation of the currencies of other countries, especially emerging economies, dampens their export. This would also threaten a global recovery.

    The Asia-Pacific Economic Cooperation (APEC) finance ministers who met in Singapore on Thursday promised to undertake monetary policies consistent with price stability in the context of market-oriented exchange rates that reflect underlying economic fundamentals, according to a joint statement.

    The dollar strengthened on Thursday amidst the APEC statement and a report showing that U.S. oil inventories had jumped.

    The Energy Information Administration of the U.S. Department of Energy reported an increase of 1.8 million barrels in crude stocks and a rise of 2.5 million barrels in gasoline inventory last week. The numbers are both higher than analysts' forecast.

    Safety-haven demand for the dollar edged higher on Thursday as the EIA report showed that oil demand was not as good as expected. The demand faded on Friday amidst the euro zone GDP report.

    The euro bought 1.4893 dollars in late Friday New York trading, about 0.4 percent higher than a week ago. The pound rose 0.4 percent to 1.6672 dollars.

    The dollar fell 2.3 percent during the past week to 1.0517 Canadian dollars, and fell 0.4 percent to 1.0135 Swiss francs. It fell 0.3 percent to 89.63 Japanese yen.

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Oil dips to lowest level since October

Nov 14, 2009
OIL slid yesterday to its lowest price in a month as investors started to pay more attention to a yearlong slump in American energy demand.

For most of the year, oil prices surged as investors pumped money into crude contracts to protect themselves from a weakening dollar. Oil was thought of as a safe bet with demand expected to rise next year.

But as crude prices doubled from March to October, consumers and businesses continued to use less gasoline and diesel. Refiners struggled. In parts of the Midwest this week, gasoline was selling at a cheaper price than the oil used to make it, according to the Oil Price Information Service.

With their business models turned upside down, many refiners decided to scale back and cut their losses. Energy Information Administration data showed this week that refiners are operating at the lowest levels ever - except for years when hurricanes disrupted operations in the Gulf of Mexico - according to analyst Stephen Schork.

"That was a wake-up call," said Phil Flynn, an analyst with PFGBest. "People are starting to realize that maybe oil isn't the best hedge against inflation."

Benchmark crude for December delivery lost 59 cents to settle at US$76.35 a barrel on the New York Mercantile Exchange. Prices dipped as low as US$75.57 earlier in the day, the cheapest since Oct. 15.

Exxon Mobil chief Rex Tillerson said yesterday oil prices would be even lower if they were based totally on supply and demand. "Oil is about US$20 to US$25 a barrel higher simply it's priced in dollars, and there's a weak dollar," he said after a speech at the Asia-Pacific Economic Cooperation summit.

The EIA also said yesterday that natural gas stockpiles continue to be the highest on record. The U.S. crammed another 25 billion cubic feet into storage last week, putting the country's inventory at more than 3.8 trillion cubic feet.

In other Nymex trading, heating oil fell 2.49 cents to settle at US$1.9661 a gallon. Gasoline for December delivery lost 2.43 cents to settle at US$1.9162 a gallon. Natural gas for December delivery added 2.2 cents to settle at US$4.392 per 1,000 cubic feet.

In London, Brent crude for December delivery gave up 47 cents to settle at US$75.55 on the ICE Futures exchange.

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Earnings reports push stocks higher; Dow gains 73

Nov 14, 2009
ENCOURAGING earnings news from major retailers and The Walt Disney Co. drew investors back into the stock market one day after a big drop.

The Dow Jones industrial average gained 73 yesterday after dropping 94 on Thursday.

Upbeat quarterly reports yesterday from Abercrombie & Fitch Co., J.C. Penney Co. and Disney offset worries about a disappointing consumer confidence report.

Disney said late Thursday that higher revenue at its cable, broadcast and movie studio divisions helped produce an 18 percent increase in its fiscal fourth-quarter profit. Abercrombie's results were better than expected, while J.C. Penney raised its profit and sales forecasts.

The market briefly stumbled in morning trading after a report found the mood of consumers darkened. The preliminary Reuters/University of Michigan consumer sentiment index for November came in at 66.0, down from 70.6 in October. That made investors nervous that cautious consumers wouldn't step up spending at the holidays.

Stocks rebounded after the sentiment report but later pared their gains as the dollar pulled off its lows of the day. The dollar's steady slide since March, due largely to record-low US interest rates, has encouraged investors to move money out of dollars and into higher-yielding assets like stocks and commodities.

Lawrence Creatura, equity market strategist and portfolio manager at Federated Clover Capital Advisors, said investors were able to look past the consumer confidence figure and instead focused on earnings reports from retailers because they are a more reliable indicator about the economy.

"It's probably safe to say that investors are rationally more focused on what consumers do rather than what they say," he said.

The Dow rose 73.00, or 0.7 percent, to 10,270.47. The Dow's drop Thursday broke a six-day winning streak, as oil prices tumbled on fresh signs of weak energy demand and a stronger dollar.

The broader Standard & Poor's 500 index rose 6.24, or 0.6 percent, to 1,093.48. The Nasdaq composite index rose 18.86, or 0.9 percent, to 2,167.88.

For the week, the Dow rose 2.5 percent, after jumping 3.2 percent last week. The two weeks have boosted the Dow's gain for the year to 17 percent.

The S&P 500 index rose 2.3 percent for the week, while the Nasdaq added 2.6 percent.

The ICE Futures US dollar index, which measures the dollar against other currencies, fell after rising for two days.

The dollar drove trading during the week, as it has for months. The biggest gain of the week came Monday when the Dow jumped 204 points as a falling dollar increased commodities prices and officials from the Group of 20 wealthy and developing nations signaled they would hold interest rates low to propel economic growth. The Dow rose each day except Thursday.

Randy Frederick, director of trading and derivatives at Charles Schwab, expects the ties between a weak dollar and stocks to continue.

"As long as interest rates stay low it's going to be difficult for the dollar to gain any strength," he said.

Analysts also say news about consumers will drive trading. Traders will be gathering fresh insight next week with a government report due Monday on retail sales in October as well as quarterly earnings reports from Gap Inc., Home Depot Inc., Saks Inc. and Target Corp.

Investors are worried that consumers won't be ready to spend more as the effects of government spending like the Cash for Clunkers program dissipate.

"The real concern is once the impact of the stimulus works its way through the system is there going to be a smooth handoff to the consumer?" said Jim Baird, chief investment strategist at Plante Moran Financial Advisors.

The latest batch of earnings reports gave some hope yesterday. Disney rose US$1.39, or 4.8 percent, to US$30.44 and posted the biggest advance of the 30 stocks that make up the Dow industrials.

Abercrombie jumped US$3.92, or 10.7 percent, to US$40.68, while J.C. Penney gained US$1.82, or 6.2 percent, to US$31.21.

Bonds mostly rose, pushing yields lower. The yield on the 10-year note fell to 3.43 percent from 3.45 percent late Thursday.

Three stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume came to 3.9 billion shares, the lowest level in a month. Volume was 4.2 billion Thursday.

The Russell 2000 index of smaller companies rose 5.96, or 1 percent, to 586.28.

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New US jobless benefit claims drop

Nov 13, 2009
NEW claims for unemployment insurance in the United States fell more than expected last week, evidence the job market is slowly healing as the economy recovers.

Still, many analysts worry the nation could be in for a "jobless recovery" as the unemployment rate rises despite some overall economic growth.

The Labor Department said yesterday that first-time claims for jobless benefits dropped to a seasonally adjusted 502,000 from an upwardly revised 514,000 the previous week. That's the fewest claims since the week ended on January 3, and below economists' estimates.

The four-week average, which smooths fluctuations, dropped to 519,750, the lowest in almost a year. It has fallen by more than 20 percent since its peak in the spring.

Economists closely watch initial claims as a gauge of the pace of layoffs. But claims also can provide a signal about the willingness of companies to hire, because laid-off workers able to find jobs are less likely to request benefits.

Many analysts estimate that claims must fall to roughly 450,000 to signal that the economy is adding jobs.

The number of people continuing to claim benefits dropped by 139,000 to 5.6 million, also below analysts' estimates. The figures on continuing claims lag initial claims by a week.

But millions of unemployed Americans have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 additional weeks, paid for by the federal government. Congress added 14 to 20 weeks to the extended program last week, the fourth extension since the recession began and the longest total extension on record.

About 4.1 million people were receiving extended unemployment benefits in the week ended on October 24, little changed from the previous week.

The unemployment rate jumped to 10.2 percent in October, the department said last week, as employers cut a net total of 190,000 jobs. That's the highest jobless rate in 26 years.

But the economy expanded at a 3.5 percent annual rate in the July-September quarter after a record four straight quarterly declines.

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Proposal for super-cop to police banks

Nov 13, 2009

Pushing for tougher changes in United States financial regulations, the Senate's top banking legislator on Tuesday proposed a new super-cop to police banks, a systemic risk agency and strong consumer protection.

Senator Christopher Dodd, who is fighting for his political life back home in Connecticut, unveiled a 1,136-page bill that leaps ahead of previous, more moderate financial reform proposals.

The long-awaited Dodd bill raises the stakes in a struggle under way for more than a year now, with Democrats working to bring the outdated US regulatory system into the 21st century and prevent a repeat of the capital market crisis that last year pushed the financial system to the brink of disaster.

Senate Republican Leader Mitch McConnell said there were no signs yet of Republican support for the bill.

Dodd would create a single bank regulator by closing two existing regulators and stripping two others, including the Federal Reserve, of direct bank supervision duties.

He also seeks crackdowns on over-the-counter derivatives, hedge funds, mortgage-backed securities, credit rating agencies and executive pay, reflecting Obama administration proposals in some ways, but charting new territory in others.

Flanked by eight other Democratic senators, Dodd released his bill at a news conference. He said he eyes a debate in the Senate Banking Committee, which he chairs, in December.

"This proposal will ... make our financial institutions more transparent, more responsible, and more accountable," Dodd said.

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Drop in US energy use drags stock market lower

Nov 13, 2009
A JUMP in the U.S. energy inventories sent stocks falling yesterday as investors worried that demand for oil and gasoline is falling because of the struggling economy.

Major stock indexes slid about 1 percent from 13-month highs, including the Dow Jones industrial average, which fell 94 points after six days of gains. The inventory report from the government pushed crude oil down 3 percent, below US$77 a barrel. A gain in the dollar also weighed on prices for commodities including oil by making them more expensive for overseas buyers.

A drop in energy company stocks upended an early advance led by technology shares, which rose after 3Com Corp. agreed to a US$2.7 billion takeover by Hewlett-Packard Co. and as Intel Corp. said it would pay US$1.25 billion to Advanced Micro Devices Inc. to settle legal disputes.

But stocks could get a boost Friday from The Walt Disney Co., which said after the closing bell that its quarterly profit jumped 18 percent on better results at its movie studio.

The disappointing report on energy usage overshadowed more upbeat news about the economy. The Labor Department said new claims for unemployment insurance fell last week to a seasonally adjusted 502,000 from an upwardly revised 514,000 the previous week. That's the fewest claims since early January and better than economists had forecast.

Wal-Mart Stores Inc. reported third-quarter earnings that beat analysts' expectations, though sales at stores open at least a year dropped during the quarter. The nation's biggest retailer said sales at existing stores would range from a drop of 1 percent to a gain of 1 percent in its fourth quarter. Sales at stores open at least a year are an important indicator of a retailer's strength.

The mammoth company is seen as a key indicator of consumer spending trends. Investors have worried for months that consumers are so strained by unemployment and lower home prices that they won't spend more and help propel a recovery in the economy.

Frank Ingarra Jr., co-portfolio manager at Hennessy Funds in Stamford, Connecticut, said stocks had been due for a break after steep gains in the past week. The Dow and the S&P 500 index closed at their highest levels since October 2008 on Wednesday.

"There is very light volume so it looks like the market wants to do a little consolidating here," he said.

The Dow fell 93.79, or 0.9 percent, to 10,197.47. It was the biggest drop since Oct. 30 and only the second time this month it fell. The Dow had risen 519 points, or 5.3 percent, in the prior six days - its longest stretch of gains since late August.

The broader S&P 500 index fell 11.27, or 1 percent, to 1,087.24, after two days of gains. The Nasdaq fell 17.88, or 0.8 percent, to 2,149.02.

The Russell 2000 index of smaller companies fell 12.39, or 2.1 percent, to 580.32.

Four stocks fell for every one that rose on the New York Stock Exchange, where consolidated volume came to 4.2 billion shares compared with 4.3 billion Wednesday.

Tom Nyheim, portfolio manager at Christiana Bank & Trust Co. in Greenville, Delaware, said the drop in oil wasn't likely to continue because demand would outstrip supply as economies in Asia and elsewhere recover ahead of the U.S.

Nyheim said the market's drop indicated a healthy caution among traders after an eight-month advance that has pushed the S&P 500 index up 60.7 percent. Nyheim predicts that investors satisfied with their gains for the year might avoid placing big bets in November and December to safeguard their returns.

"I think we're going to consolidate, maybe flat-line toward the end of the year," he said.

Treasurys rose, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.45 percent from 3.48 percent late Tuesday. Bond markets were closed Wednesday for Veterans Day.

Crude oil fell US$2.34 to settle at US$76.94 per barrel on the New York Mercantile Exchange. Gold fell after eight days of gains, settling at US$1,106.60.

The drop in oil weighed on energy stocks. Anadarko Petroleum Corp. fell US$2.43, or 3.7 percent, to US$62.55, while Range Resources Corp. fell US$2.22, or 4.3 percent, to US$48.98.

Among tech stocks, 3Com rose US$1.77, or 31.1 percent, to US$7.46, while H-P fell 30 cents, or 0.6 percent, to US$49.70.

Advanced Micro rose US$1.16, or 21.8 percent, to US$6.48, and Intel fell 16 cents, or 0.8 percent, to US$19.68.

Wal-Mart rose 27 cents, or 0.5 percent, to US$53.24. Kohl's Corp. rose 5 cents, or 0.1 percent, to US$54.64 after the department store chain's fiscal third-quarter profit rose 21 percent.

Overseas, Britain's FTSE 100 rose 0.2 percent, Germany's DAX index fell 0.1 percent and France's CAC-40 lost 0.2 percent. Japan's benchmark Nikkei stock average fell 0.7 percent.

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