Oil falls as stronger dollar offsets encouraging jobs data

August 8, 2009
Oil prices fell on Friday as the U.S. dollar rose against the euro, weakening the purchasing power of buyers using other currencies.

Light, sweet crude for September delivery dropped 1.01 dollars, or 1.4 percent, to settle at 70.93 dollars a barrel on the New York Mercantile Exchange.

The contract initially rose after the release of the encouraging jobs data which showed the U.S. jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent in July, adding to optimism that the economy was turning around.

However, oil prices began to drop as the dollar got stronger against the euro. The Dollar Index rose more than 1.2 percent, undermining demand for dollar-priced assets such as oil used to hedge against inflation.

In London, Brent crude for September delivery dropped 1.41 dollars to 73.42 dollars a barrel on the ICE Futures exchange.

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Wall Street sets new highs as jobless rate dips

August 8, 2009
Wall Street jumped Friday with the Dow Jones Industrial Average and S&P 500 touching new highs for 2009, after the U.S. government reported the unemployment rate unexpectedly fell in July, offering a strong signal that the recession is easing.

The U.S. Labor Department posted that employers cut 247,000 jobs in July, the fewest in a year, and the unemployment rate dipped to 9.4 percent from 9.5 percent, the first decline since April 2008. Economists had expected an unemployment rate of 9.6 percent last month.

Financials led the rally, as American Express and JPMorgan Chase climbed strongly. American International Group's upbeat earning also boosted the market. The insurer rescued by the U.S. government reported its first profit in seven quarters as investment losses narrowed. Its shares soared over 20 percent.

On other corporate news, D.R. Horton, the largest U.S. homebuilder by sales, gained 7.8 percent, as Goldman Sachs added the stock to its "conviction buy" list.

The Dow Jones rose 113.81, or 1.23 percent, to 9,370.07. Broader indexes also went higher. The Standard & Poor's 500 index added 13.40, or 1.34 percent, to 1,010.48 and the Nasdaq climbed 27.09, or 1.37 percent, to 2,000.25.

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Fannie Mae seeks another $10.7 bln aid

August 7, 2009
The U.S. major mortgage firm Fannie Mae asked the government for another 10.7 billion-dollar aid after a massive loss in the second quarter, the company said Thursday.

The troubled state-backed housing giant posted a 15.2 billion-dollar lost in the April to June period after a 23.2 billion-dollar loss in the first quarter. That compares with a loss of 2.6 billion dollars in the second quarter last year.

Fannie Mae and its fellow state-backed lender Freddie Mac have already received hundreds of billions of dollars as part of a virtual government takeover aimed at avoiding their collapse in the wake of the subprime mortgage crisis.

The government, which seized control of Fannie Mae and its sibling Freddie Mac last September, has already spent about 85 billion dollars to prop up the two companies. Fannie Mae's new request from the Treasury Department will bring the total to nearly 96 billion dollars. Freddie Mac is expected to report its quarterly results on Friday.

"We are dependent on the continued support of Treasury in order to continue operating our business," Fannie Mae said in a Securities and Exchange Commission filing late Thursday.

Fannie Mae and Freddie Mac play a vital role in the U.S. mortgage market by purchasing loans from banks and selling them to investors. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about 5.4 trillion dollars. That's about half of all U.S home mortgages.

The Obama Administration has been trying to reform the ailing housing market since taking office.

It is reported Wednesday that the head of the federal agency that regulates Fannie and Freddie Mac, James Lockhart, is stepping down at the end of this month.

Analysts said that the U.S. housing market may still in trouble.

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Russia's gas exports down 45% to 48.8 bln cu m in 1H09

August 7, 2009
Russia's natural gas exports to countries other than former Soviet republics declined 45%, year-on-year, in January-June 2009 to 48.8 billion cubic meters, the Federal Customs Service said on Thursday.

Exports to the Commonwealth of Independent States (CIS), a loose association of former Soviet republics excluding the Baltic States, fell 37.2% to 6.2 bcm, the Federal Customs Service said.

Overall, Russia exported 55 bcm of gas worth $15.97 billion in the first six months of the year, the Federal Customs Service said.

The national statistics service Rosstat earlier reported that Russia's gas output declined 20.8%, year-on-year, in the first six months of 2009 to 274 bcm.

Gas production had been expected to reach 620-644 bcm in 2009, with exports estimated at 190-196 bcm. In 2008, output grew 1.6%, year-on-year, to 663 bcm, with exports of 174.3 bcm bringing in $66.4 billion.

Russia's crude oil exports to non-CIS countries were unchanged from January-June 2008 at about 104.15 million metric tons (763 million barrels) worth $35.34 billion, or 52.4% less than last year, the Federal Customs Service said.

Crude oil exports to CIS countries fell 4.9%, year-on-year, in January-June 2009 to 8.03 million metric tons (59 million barrels) worth $2.29 billion, the Federal Customs Service said.

Overall, Russia exported 112.18 million metric tons (822 million barrels) worth $37.63 billion in January-June 2009, the Federal Customs Service said.

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Wall Street turns negative before July's jobs report

August 7, 2009
Wall Street fell on Thursday as investors turned cautious prior to a U.S. government report on July employment.

The U.S. Labor Department said on Thursday that initial claims for jobless benefits dropped to a seasonally adjusted 550,000 last week, down from 588,000 in the previous week and much lower than analysts' estimates of 580,000. The reading showed fresh evidence that layoffs are easing.

Positive data also came from July retail sales, as some U.S. retailers reported sales declines that were not as steep as expected.

However, lower oil prices dragged down energy producers and a JPMorgan downgrade sent health-care companies lower, overshadowing better-than-expected economic data.

Exxon Mobil Corp. and Chevron Corp. slipped as oil dipped on the stronger U.S. dollar. And health-care companies lost ground after JPMorgan Chase &Co. cut its rating on health stocks to "underweight" from "neutral."

Investors' attention is now on the government's non-farm payrolls report, which will show the number of jobs lost in July. The data will be released before the bell on Friday.

The Dow Jones industrial average declined 24.71 points, or 0.27 percent, to 9,256.26. The Standard &Poor's 500 index fell 5.64 points, or 0.56 percent, to 997.08. The Nasdaq composite index was down 19.89 points, or 1 percent, to 1,973.16.

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Oil prices near US$72 despite robust supplies

August 6, 2009
OIL prices rose yesterday despite growing crude supplies and more signs of weakness in major sectors like retail and transportation.

Benchmark crude for September delivery gained 55 cents to settle at US$71.97 a barrel on the New York Mercantile Exchange. Prices at one point yesterday morning dipped below US$70.

In London, Brent prices rose US$1.23 to US$75.27 a barrel on the ICE Futures exchange, the first time it's closed above US$75 this year.

Crude prices had jumped from below US$63 a barrel last week on investor optimism the U.S. economy, the world's biggest oil consumer, is recovering from a severe recession.

But oil took a dive yesterday after the Energy Department's Energy Information Administration said crude inventories increased by nearly 2 million barrels. That means that in the past two weeks, about 7 million barrels of crude have been put into storage as consumers and businesses pull back.

Any economic recovery is going to rely heavily on consumers, and energy prices can dip when data suggests that people are tucking money away, rather than spending it.

The Institute for Supply Management reported yesterday that the services sector contracted more sharply than expected in July. The ISM showed that retailers, financial services, transportation and health care sectors experienced the 10th straight month of declines. Those businesses make up 80 percent of U.S. economic activity.

Still, retail gasoline prices continue to rise because refiners are cutting back on production.

Demand for petroleum products was about a million barrels a day greater last year than it is now, so refiners have been trying to prevent a collapse in prices by making less gas, jet fuel and diesel.

Refiners are now are operating at just over 84 percent of their capacity, which is about 9 percent below what is typical at this time of year.

In other Nymex trading, gasoline for September delivery fell half a cent to settle at US$2.0512 a gallon and heating oil gained just over half a cent to settle at US$1.9569. Natural gas for September delivery rose about 4 cents to settle at US$4.042 per 1,000 cubic feet.

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US set $2.4 bln fund to support electric auto related projects

August 6, 2009

U.S. President Barack Obama announced Wednesday 48 new advanced battery and electric drive projects that will receive 2.4 billion U.S. dollars in funding under the American Recovery and Reinvestment Act.

The announcement, made by Obama during his visit in Elkhart, Indiana, marks the single largest investment in advanced battery technology for hybrid and electric-drive vehicles ever made.

"If we want to reduce our dependence on oil, put Americans back to work and reassert our manufacturing sector as one of the greatest in the world, we must produce the advanced, efficient vehicles of the future," said Obama.

These projects, selected through a highly competitive process by the Department of Energy, will accelerate the development of U.S. manufacturing capacity for batteries and electric drive components as well as the deployment of electric drive vehicles, helping to establish American leadership in creating the next generation of advanced vehicles, according to a statement released by the department.

Industry officials expect that the 2.4-billion-dollar-investment, coupled with another 2.4 billion dollars in cost share from the award winners, will result directly in the creation of tens of thousands of manufacturing jobs in the U.S. battery and auto industries.

"These are incredibly effective investments that will come back to us many times over -- by creating jobs, reducing our dependence on foreign oil, cleaning up the air we breathe, and combating climate change," said Energy Secretary Steven Chu. "They will help achieve the president's goal of putting one million plug-in hybrid vehicles on the road by 2015. And, most importantly, they will launch an advanced battery industry in America and make our auto industry cleaner and more competitive."

Vice President Joe Biden and four members of the cabinet also fanned out across the country to discuss the historic announcement.

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Australia to benefit from emissions trading scheme

August 6, 2009

The head of the United Nations climate change agency said on Thursday Australia would benefit from having its emissions trading scheme in place before the upcoming climate summit in Copenhagen.

Yvo de Boer clarified his view by indicating it would not hurt Australia's interests if it arrived at the global talks with its scheme in place despite saying last week it did not matter.

"That's clearly going to give you a much stronger position in that process," he told Australian Broadcasting Corporation Radio.

His original comments sparked debate about the government's rush towards legislation, with a Senate vote scheduled for August 13.

The Australian government maintained it would have the upper hand in Copenhagen negotiations with a scheme in place.

Rich countries needed to pick up the slack in the fight against climate change, de Boer said.

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UBS warns of further customer losses

August 5, 2009
UBS AG, Switzerland's largest bank by assets, will see further withdrawals by wealthy clients after reporting a third consecutive quarterly loss, Chief Executive Officer Oswald Gruebel said.

UBS fell as much as 6.6 percent in Zurich trading as Gruebel said a halt in redemptions at the wealth management unit will probably lag behind a financial turnaround at the bank. Customers withdrew a net 22.3 billion Swiss francs ($21 billion) in the second quarter, a fifth straight period of redemptions.

"In international net new money we're unlikely to see a quick reversal of the trend," Gruebel said at a press conference yesterday in Zurich. Outflows may persist after UBS lost client advisers and as regulatory pressures reduce growth prospects for wealth management, he said. The market as a whole "will see less growth in European offshore private banking for the foreseeable future."

Gruebel, who cut 7,500 jobs and sold a Brazilian unit since joining in February, said that while markets have improved, a sustainable economic recovery "is not yet visible". The bank reported a net loss of 1.4 billion Swiss francs in the second quarter, wider than the 395 million-franc deficit a year earlier, on costs for job cuts and charges tied to an improvement in its own debt.

UBS declined 96 centimes, or 6 percent, to 15.04 francs by 12:58 pm in Zurich, giving up the gains made since the US and Switzerland said last week they were near a settlement of a US lawsuit seeking data on 52,000 UBS clients.

'Huge burden'

US Justice Department attorney Stuart Gibson said in a telephone conference call with District Judge Alan Gold on July 31 that the US and Switzerland "have reached an agreement in principle on the major issues" related to the lawsuit. Remaining points may be settled before Aug 7, he said.

A settlement "is a huge burden off the share price", said Andy Lynch, who helps manage about $170 billion at Schroder Investment Management Ltd in London. Investors next want to see stabilization in net new money flows, Lynch said. "The story is a long way from being finished."

The US sued UBS on Feb 19, seeking names of 52,000 clients, a day after the bank agreed to pay $780 million to defer prosecution for helping wealthy Americans evade taxes. UBS agreed then to give the US data on more than 250 accounts.

The IRS is seeking the additional names because it suspects American account holders of evading taxes. Switzerland called the case a threat to its sovereignty and said it would force UBS to violate criminal laws protecting bank secrecy. The parties declined to provide any additional information on the agreement.

Client trust

"We look forward to a definitive resolution of the US cross-border matter," Gruebel, 65, and Chairman Kaspar Villiger, 68, said in a letter to shareholders. "This is a positive development in a matter that has adversely affected our efforts to regain the trust of our clients and restore momentum to our businesses."

The bank didn't make any additional provisions for litigation costs related to the US lawsuit in the second quarter, Chief Financial Officer John Cryan told journalists on a conference call.

UBS said the second-quarter earnings included a 1.2 billion-franc charge related to the company's own debt, 582 million francs in reorganization costs and a goodwill impairment of 492 million francs from the sale of Brazil's UBS Pactual unit.

Third quarter

The bank's securities unit reported a pretax loss of 1.85 billion francs, compared with a loss of 5.24 billion francs a year ago. Earnings at the wealth management and Swiss bank halved to 932 million francs, while wealth management Americas had a pretax loss of 221 million francs, compared with a 748 million-franc deficit a year ago. Asset management profit dropped 77 percent to 82 million francs.

Excluding charges, operating earnings in the quarter showed "very encouraging signs", Cryan said.

"The general environment, which obviously in the second quarter of this year was more positive than for some quarters, seems to have continued into the third quarter."

Before the second quarter, UBS had amassed $53.1 billion in writedowns and losses from the financial crisis and had to raise more than $38 billion to replenish capital from investors including the Swiss government, data compiled by Bloomberg show. The bank said in June it expected a loss for the second quarter.

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Int'l reserves of Mexico central bank drop by some $250 mln

August 5, 2009
The Central Bank of Mexico on Tuesday reported a drop of 246 million U.S. dollars in its international reserves due to an increase of near-term debt.

The debt increase of 27 billion pesos (about 2.1 billion dollars) wiped out a rise in gross international reserves of more than 1.8 billion dollars last week.

Also in last week, the state-run oil giant Petroleos Mexicanos sold 1.2 billion dollars to the central bank.

The bank earned 873 million dollars in interests on international assets. It sold 250 million dollars to financial institutions as parts of the regular dollar auctions.

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US consumer spending increases

August 5, 2009
UNITED States consumer spending rose slightly more than expected in June, a government report showed yesterday, likely pushed up by higher gasoline prices, and incomes saw their biggest drop in four-and-a-half years.

The Commerce Department said spending rose 0.4 percent, boosted by expenditures on nondurable goods, after a revised 0.1-percent increase in May, which was previously reported as a 0.3-percent rise.

That compared with market expectations for a 0.3-percent increase in spending, which accounts for over two-thirds of US economic activity. However, adjusted for inflation, spending fell 0.1 percent after being flat in May.

"I think the data shows that consumer confidence appears to be bottoming and turning higher, though headwinds from job losses remain a significant hurdle," said Alan Gayle, senior investment strategist at Ridgeworth Investments in Virginia.

Personal incomes fell 1.3 percent in June as the effects of one-time government stimulus checks in May wore off.

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Wall Street gains as manufacturing data beat forecast

August 4, 2009

Wall Street extended early gains Monday, sending the Standard &Poor's 500 index briefly above 1,000 for the first time since early November, as manufacturing activities around the world showed signs of improvement.

The U.S. Institute for Supply Management, a trade group of purchasing executives, says its manufacturing index read 48.9 in July, up from 44.8 in June. That's the slowest decline since August 2008 and better than the 46.2 reading analysts had expected.

Latest data from China and Europe also indicated manufacturing is expanding, a sign of support for oil and other commodities like copper. Energy and basic material stocks, therefore, gained momentum and led the market rally.

Financials are among the best performers, after Barclays PLC said its first-half net profit increased 10 percent on stronger earnings from its investment banking division.

Moreover, Ford Motor Co., the only major U.S. automaker to forgo federal aid, also boosted the market sentiment, as the automaker posted its sales climbed 2.3 percent in July, the first monthly sales increase in two years.

The Dow Jones rose 70.44 to 9,242.05. Broader indexes also wenthigher. The Standard &Poor's 500 index added 9.12 to 996.60 and the Nasdaq rose 12.24 to 1,990.76.

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Signs of healing in manufacturing lift US stocks

August 4, 2009
THE Standard & Poor's 500 index is four digits again.

The widely used stock market measure broke above 1,000 yesterday for the first time in nine months as reports on manufacturing, housing and banking sent investors more signals that the economy is gathering strength. The S&P is used as a benchmark for many mutual funds.

Indexes all rose more than 1 percent, including the Dow Jones industrial average, which climbed 115 points.

The market's July rally blew into August on the type of news that might have seemed unthinkable when stocks cratered to 12-year lows in early March. A report predicted U.S. manufacturing activity will grow next month, the government said construction spending rose in June and Ford Motor Co. said its sales rose last month for the first time in nearly two years.

"The market is beginning to smell economic recovery," said Howard Ward, portfolio manager of GAMCO Growth Fund. "It may be too early to declare victory, but we are well on our way."

The day's reports were the latest indications that the recession that began in December 2007 could be retreating. Better corporate earnings reports and economic data propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years and restarted spring rally that had stalled in June.

A report yesterday from the Institute for Supply Management, a trade group of purchasing executives, signaled U.S. manufacturing activity should grow next month for the first time since January 2008 as industrial companies restock shelves. Also, the Commerce Department said construction spending rose rather than fell in June as analysts had expected. The reports and rising commodity prices lifted energy and material stocks.

Ford said sales of light vehicles rose 1.6 percent in July. Other major automakers said sales showed signs of stability. Investors predicted that the government's popular cash for clunkers program would boost overall auto sales to their highest level of the year.

Stronger earnings reports from European banks drove buying of financial companies.

Even with promising economic signs, it's too soon to celebrate. Major indexes are still down 35 percent from their peak in October 2007. But investors' confidence - or, for some, fear of missing a rally that has pulled stocks up 14 percent in only 16 days - is keeping buyers in the market.

"It would take a lot to derail the emerging optimism," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

The Dow rose 114.95, or 1.3 percent, to 9,286.56. The S&P 500 index rose 15.15, or 1.5 percent, to 1,002.63. It was the first finish above 1,000 since early November.

The Nasdaq composite index rose 30.11, or 1.5 percent, to 2,008.61, its first close above 2,000 since October.

In other signs of investors' growing confidence, safe-haven assets like Treasurys and the U.S. dollar fell, while oil and other commodities prices surged. The yield on the 10-year Treasury note surged to 3.63 percent from 3.48 percent late Friday as its price fell more than a point.

The ISM's manufacturing report fanned hopes for a hard-hit industry. The group said manufacturing activity slowed in July at the slowest pace in nearly a year.

"We're past the worst of it on the manufacturing side, and we could even be getting back to growth by the third quarter of this year," said Jill Evans, co-portfolio manager, Alpine Dynamic Dividend Fund.

Reports from European banks eased concerns about the effect that the credit crisis and recession have had on the global banking system. Barclays PLC said its first-half net profit increased 10 percent. HSBC Holdings PLC reported a 57 percent drop in its first-half profit, but results were better than anticipated.
Earnings reports have shown that companies aren't losing money at the rapid pace they were last fall and earlier this year. Though there are concerns that the aggressive cost-cutting measures businesses have undertaken to boost profits are not sustainable, forecasts in recent weeks from companies like Intel Corp. and Caterpillar Inc. suggest business conditions are improving.

Still, the market is keeping watch on unemployment levels and consumer spending, as well as rising commodity prices and interest rates that could outpace the economy's recovery.

In other trading, oil, gold and other commodities rose. Commodities traders were heartened by news that manufacturing in China and Europe is expanding, a sign of support for industrial materials like copper. Copper prices, which have nearly doubled this year thanks in large part to unrelenting demand from China, hit a 10-month high.

Light, sweet crude soared US$2.13 to settle at US$71.58 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 9.07, or 1.6 percent, to 565.78.

Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 1.2 billion shares, compared with 1.5 billion Friday.

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Economists pessimistic about Mexican economy: poll

August 4, 2009
Mexico's economists grew more pessimistic about the country's economy in July and were preparing for a deeper recession, according to a survey published on Monday by the Bank of Mexico.

"Specialists estimated increased contraction rates, as compared with the previous survey, and reduced production and private sector demand estimates," the bank said in a statement.

They were expecting a 10.2 percent decline in gross domestic product (GDP) for the second quarter, 6.4 percent for the third and 3 percent for the fourth quarter. The average full year decline was forecasted at 6.9 percent, compared with 6.3 percent in a survey one month earlier. Earlier this month, Mexico's National Statistics Agency said the nation's economy shrank by 11.1 percent in May from a year earlier.

According to Monday's survey, economists now expect the peso to end the year with a value of 13.48 pesos to a U.S. dollar. In March, the estimate was for 14.25 pesos to a dollar. The peso was traded at around 13.2 pesos to a dollar on Monday.

Those surveyed expected a cut of 658,000 formal jobs by the end of the year, an estimate that has remained steady in recent months.

Some 25 percent of the experts consulted by the bank were concerned about weaker-than-expected export markets, due to sluggish growth in the U.S. economy, which is responsible for 80 percent of the nation's exports.

They were also worried that the government might be unable to implement planned structural changes needed to boost the economy.

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WordBank official: Bolivian, Panamanian, Peruvian economy to keep growing in 2009 despite crisis

August 3, 2009
The economy of Bolivia, Panama and Peru will keep growing in 2009 despite the global economic crisis, a World Bank official said Sunday.

Compared with the United States, Europe and Japan, the economy of the Latin American region is more stable as it has adopted appropriate protection measures, Oscar Avalle told the La Razon newspaper.

"The deficits of last year do not exist now. It appears that we could teach the world a lesson about how to handle a crisis," Avalle said.

According to Avalle, the crisis has triggered a reform in the country's role in market.

He also praised the World Bank for its support to the National Development Plan of the Bolivian government.

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Japan jobless rate hits 5.4%, nears record

August 3, 2009
 Japan, the jobless rate in June rose to 5.4 percent, just shy of the all-time high of 5.5 percent, while the core consumer price index (CPI) marked a record year-on-year decline of 1.7 percent.

Government statistics released Friday showed that the deteriorating labor situation and the possible resurgence of deflation are now two principle concerns for the economy.

It was the fifth straight monthly rise in the seasonally adjusted jobless rate, from 5.2 percent in May, the Ministry of Internal Affairs and Communications said.

The record jobless rate of 5.5 percent was recorded in June and August 2002, as well as in April 2003.

The ratio of job offers to job seekers fell to 0.43 in June--meaning there were just 43 openings for every 100 applicants--the lowest figure on record, the Ministry of Health, Labor and Welfare said.

The jobless rate for men climbed to 5.7 percent, up 0.3 percentage point from the previous month, and for women to 5.0 percent, up 0.1 point.

The labor ministry said the number of jobless had increased by 830,000 from a year earlier to 3.48 million. It was the steepest year-on-year increase on record.

However, the fall in the ratio of job offers to job seekers has been slowing in recent months, from 0.06 percentage point or more earlier this year to 0.02 point in May, and 0.01 point to June.

The ratio of regular job offers to job seekers stayed at a record low 0.24 for the second straight month, meaning more than four applicants competed for every regular position available.

Meanwhile, the core CPI excluding volatile perishables sank to 100.3 in June against the base of 100 for 2005, the internal affairs ministry said.

It was the fourth consecutive month that the index fell from a year earlier, a trend attributable not only to the drop in crude oil prices but also to intensifying price competition. The year-on-year decline was 1.1 percent in May.

There are fears further competition could drag Japan back to a deflationary cycle that will shrink corporate and personal incomes.

Energy prices for gasoline, electricity and gas fell as much as 14.7 percent from a year earlier due to the sharp drop in crude oil prices.

The price of U.S. crude oil futures, which topped $140 per barrel in June last year, has fallen to between $60 and $70.

Prices of food excluding perishables rose a modest 0.5 percent from a year earlier. The increase was smaller than for May, when the prices rose 1.4 percent.

However, prices for bread, spaghetti and other items fell due to the drop in the cost of wheat and other grains.

The CPI excluding energy and food also slid 0.7 percent from a year earlier, reflecting declines in a wide range of products, such as household goods and clothing.

The preliminary CPI in central Tokyo, which serves as a leading index of nationwide changes, declined a record 1.7 percent in July from a year earlier.

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Japan Banks send mixed messages of economic recovery

August 2, 2009
Japan's second largest banking group, Mizuho Financial Group Inc., on Friday announced sharp losses for the first fiscal quarter of 2009, while the country's largest banking group, Mitsubishi UFJ Financial Group Inc., announced in the day stark profits for the same period, sending mixed messages of economic recovery.

Mitsubishi UFJ Financial Group Inc.'s net profits for April - June 2009 climbed 48 percent from those of 2008. This net profit amounts to 75.94 billion yen for the fiscal quarter of 2009, which compares favorably with figures released last year of 51.20 billion for the corresponding months.

Profits for this year are already at 136.33 billion yen, a figure above those of last year by 40.7 percent despite revenues falling by 7.1 percent to 1.34 trillion yen.

At odds with figures released by Mitsubishi UFJ Financial Group Inc. are the quarterly losses posted on Friday of 4.49 billion yen by Mizuho Financial Group Inc. -- the bank's losses were attributed to derivatives trading and credit default swaps.

This comes as a bit of a surprise as last year the company turned a profit of 133 billion yen for the first fiscal quarter.

In the next nine months, the largest and second largest banks both expect to make a profit. Mizuho Financial Group Inc. forecasts profit for the year of 2009 to be 300 billion yen. Mizuho Financial Group Inc. predicts to pull in a target net profit of 200 billion yen for the fiscal year.

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Brazil's Vale announces oil and gas discovery

August 2, 2009
Vale, Brazil's largest private company, on Friday reported the discovery of hydrocarbons in an exploratory block off Brazil's southeastern coast.

The hydrocarbons were located in the Vampira exploration well in the Santos Basin, Vale said.

The global mining company said traces of light oil and natural gas were found in the Vampira well and that the exact volume will known after further tests.

Vale in May announced the discovery of natural gas in the Panoramix well, also in the same exploratory block.

Vale has a 12.5 percent participation in the block's exploration consortium. Brazil's state-run oil giant Petrobras has 35 percent, while Spain's Repsol, the block's operator, has 40 percent, and Australia's Woodside has 12.5 percent.

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Dollar falls as U.S. economic contraction slows

August 1, 2009
The dollar fell against major currencies on Friday after a report showed that U.S. economy contracted less than expected in the second quarter.

The pace of decline in real GDP decelerated substantially in the second quarter to 1.0 percent from 5.5 percent in the first quarter, according to the U.S. Commerce Department. Most analysts have expected a decline of 1.5 percent.

But the report also showed some negative signs that the U.S. economic recession was deeper than previously estimated. The economic growth rate of 2008 was revised down from 1.1 percent to 0.4 percent.

With the exception of federal government spending, all the major components of real GDP were revised downward for 2008. In particular, personal consumption expenditures were revised down to show a drop of 0.2 percent in 2008 instead of an increase of 0.2 percent.

The Commerce Department also reported that U.S. personal consumption expenditures fell by 1.2 percent in the second quarter, worse than expected. Personal consumer spending accounts for two-thirds of U.S. economic activities.

The euro bought 1.4250 dollars in late New York trading compared with 1.4078 dollars it bought late Thursday. The pound rose to 1.6686 dollars from 1.6489 dollars.

The dollar fell to 1.0789 Canadian dollars from 1.0830 Canadian dollars, and fell to 1.0689 Swiss francs from 1.0880 Swiss francs. It fell to 94.79 Japanese yen from 95.60 Japanese yen.

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US economy dips at slower pace in Q2

August 1, 2009
THE United States economy shrank at a slower-than-expected pace in the second quarter, government data showed yesterday, but a sharp drop in consumer spending fanned fears that recovery would be sluggish.

Gross domestic product, which measures total goods and services output within US borders, fell at a 1-percent annual rate, the Commerce Department said, after tumbling 6.4 percent in the January-March quarter, the biggest decline since a matching fall in the first quarter of 1982.

With the drop in the second quarter, the US economy has fallen for four straight quarters for the first time since records started in 1947.

"It's still a shaky outlook for the economy, but no shakier than before. No one's world view will shift. Consumer spending is very shaky now. That's the major risk in the economy," said Pierre Ellis, senior economist at Decision Economics in New York.

Consumer spending, which accounts for more than two-thirds of US economic activity, fell at a 1.2-percent rate in the second quarter after rising 0.6 percent in the previous quarter. That sliced 0.88 percentage points from second quarter GDP, the department said.

Analysts polled by Reuters had forecast GDP falling at a 1.5-percent rate in the second quarter.

In contrast to the weak consumer reading, business investment improved in the second quarter.

The report showed business investment fell at an 8.9-percent rate in the second quarter after diving 39.2 percent in the previous quarter. Investment in nonresidential structures fell at an 8.9-percent rate from a 43.6-percent drop in the first quarter. Residential investment, which is at the core of the longest recession since the Great Depression, tumbled by 29.3 percent in the April-to-June period after plunging 38.2 percent in the first quarter.

"This report has written all over it the continued divergence between consumers and businesses," said Ashraf Laidi, chief market strategist at CMC Markets in London.

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