European Equity Futures, Asian Stocks Advance

By Lynn Thomasson and Norie Kuboyama - Mar 2, 2012 2:10 PM GMT+0700

European equity futures rose, while the yen weakened and Asian stocks headed for a record 11th weekly gain after U.S. jobless claims matched a four-year low and Europe’s leaders agreed to speed payments to a bailout fund.

Euro Stoxx 50 Index futures added 0.4 percent as of 7 a.m. in London. Standard & Poor’s 500 Index futures slipped less than 0.1 percent and the MSCI Asia Pacific Index (MXAP) climbed 0.3 percent. The yen fell 0.5 percent against the dollar, sliding against all of its major peers. German 10-year bond yields dropped two basis points to 1.85 percent. Industrial metals advanced, led by nickel and tin. Oil declined 0.2 percent after touching $110.55 a barrel yesterday.

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Asian stocks entered a bull market this week and have rallied 20 percent from a two-year low in October. Photographer: Haruyoshi Yamaguchi/Bloomberg

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March 1 (Bloomberg) -- The number of Americans filing first-time claims for jobless benefits fell 2,000 to 351,000, a level matching a four-year low, Labor Department figures showed today. Consumer spending rose 0.2 percent in January, less than forecast, while incomes increased 0.3 percent, according to the Commerce Department. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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March 2 (Bloomberg) -- Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC Holdings Plc, talks about the region's stocks and investment strategy. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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March 2 (Bloomberg) -- Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., talks about the outlook for global stocks and the impact of Europe's Long-Term Refinancing Operation on markets. Rosgen speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Chinese policy makers may introduce proposals to support economic growth at the annual National People’s Congress next week. Euro-area finance ministers authorized the region’s bailout fund to issue bonds for the Greek debt restructuring, while the International Swaps & Derivatives Association said $3.25 billion in Greek credit-default swaps won’t be triggered. U.S. initial jobless claims fell 2,000 to 351,000 last week, less than economist estimates.

“The U.S. economy overall is headed for a mild recovery, and that’s supporting stocks,” said Kiyoshi Ishigane, a Tokyo- based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $84 billion. “The Greek debt crisis isn’t fully resolved yet, but it has calmed down for now.”

U.S. Stocks

S&P 500 futures expiring in March were at 1,373.70. The U.S. equity gauge has the potential to reach a record high of 1,700 this year if economic growth surprises investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said. Reaching that level would mean a 24 percent rally from yesterday’s close of 1,374.09, data compiled by Bloomberg show.

Another round of U.S. monetary stimulus is “definitely not off the table,” said John Williams, president of the Federal Reserve Bank of San Francisco, in Honolulu today.

The euro strengthened 0.4 percent to 108.36 yen. Euro-area finance ministers authorized the region’s bailout fund to raise money for Greece’s bond exchange, the first step in releasing funds from a 130 billion-euro ($173 billion) rescue package. Euro governments might pay the first two annual installments into the 500 billion-euro ($666 billion) fund this year and complete the capitalization in 2015, a year ahead of schedule. A decision will come later today.

“There will be an acceleration,” European Union President Herman Van Rompuy told reporters in Brussels late yesterday. “It could be starting with the payment of two tranches in 2012 but we have to take a definite decision.”

Greek Default Swaps

The yield on Greece’s 10-year bond rose 165 basis points to a record 36.44 percent yesterday. The ISDA made its decision on Greek default swaps after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event. The group will now probably be asked to determine whether collective action clauses, or CACS, being used by Greece to impel investors to participate in a wider exchange of bonds that would trigger the swaps.

The Shanghai Composite Index (SHCOMP) rose 1.3 percent and the Hang Seng China Enterprises Index climbed 1.1 percent. The National People’s Congress, whose meeting will run for a week and a half, is legally the highest governmental body in China. Its members are some of China’s most powerful politicians and executives, wielding power in their home provinces and weighing in on proposals such as whether to impose a nationwide property tax.

China’s Stocks

“Investors are hoping there’ll be more reforms that may boost the market,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Better liquidity these days is also helping the market reach highs.”

Three stocks rose for each that fell in the MSCI Asia- Pacific gauge. The index entered a bull market this week after rallying 20 percent from a two-year low in October. The Nikkei 225 Stock Average (NKY) gained 0.7 and Australia’s S&P/ASX 200 Index increased 0.4 percent.

Shipping companies advanced after container freight rates on Asia to Europe routes more than doubled, according to estimates by Drewry Shipping Consultants Ltd. STX Pan Ocean Co. (028670), a South Korean shipper, jumped 9 percent. Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest carrier, climbed 7.6 percent.

The yen traded near a nine-month low against the dollar after a government report showed Japanese consumer prices fell for a fourth month, boosting speculation the central bank will expand monetary easing. Japan’s 10-year rate rose one basis point to 0.985 percent, the highest since Feb. 10.

Oil, Copper

Oil for April delivery declined 0.2 percent to $108.63 a barrel in electronic trading on the New York Mercantile Exchange. Crude yesterday climbed above $110 a barrel for the first time since May after Iran’s Press TV reported an explosion on a pipeline in Saudi Arabia. There was no sabotage at oil facilities in the Qatif area, Major General Mansour Al-Turki, a spokesman for Saudi Arabia’s Interior Ministry, said after the report.

Copper rose 0.3 percent after inventories tracked by the London Metal Exchange fell to the lowest since August 2009, bourse data showed yesterday. Nickel climbed 1.6 percent to $19,800 a ton and tin advanced 1 percent to $24,000 a ton.

Ten-year Treasury yields held at 2.03 percent. Government securities have dropped 0.5 percent in 2012, while U.S. company debt returned 3.3 percent, Bank of America Merrill Lynch data show.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Romney Names Oklahoma Oil Billionaire Hamm as Energy Adviser

By Joe Carroll - Mar 2, 2012 12:25 AM GMT+0700

Mitt Romney, the front-runner for the Republican Party’s presidential nomination, appointed Oklahoma oil billionaire Harold Hamm as energy adviser to his campaign.

Hamm, the 66-year-old founder, chairman and chief executive officer of Continental Resources Inc. (CLR), will be chairman of Romney’s Energy Policy Advisory Group, the candidate’s campaign office said in a statement today.

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Mitt Romney in Detroit on Feb. 24, 2012. Photographer: Yana Paskova/The New York Times/Redux

Hamm ranked 36th on Forbes magazine’s list last year of the 400 wealthiest Americans. His 68 percent stake in Enid, Oklahoma-based Continental, the largest leaseholder in the Bakken oil formation, had a value of $11.2 billion as of yesterday’s close.

Romney has attacked President Barack Obama for policies he says increased energy prices. Gasoline prices averaged $3.56 a gallon last month in the U.S., the highest ever for this time of year.

“Mitt’s goal of cheap, plentiful energy for the American economy offers the American people a stark alternative to President Obama’s goal of driving prices higher,” Hamm said in the statement.

With nine months to go before U.S. voters choose a president, Romney has won an estimated 151 of the 1,144 delegates needed to get his party’s nomination to oppose incumbent President Barack Obama, more than all three of his opponents combined.

‘Streamlined’ Regulation

Romney’s energy plan calls for establishing fixed timetables for federal decisions on oil, natural-gas and nuclear projects, and a “streamlined approach” to regulation, his campaign said in the statement. He also would urge Congress to amend the Clean Air Act to exclude carbon dioxide from the list of regulated pollutants.

The U.S. should abandon Obama’s “course of restricting supply, increasing regulation, and hoping for miraculous new technologies to save the day,” Romney said in the statement.

Continental is the largest leaseholder in the Bakken shale, a geologic formation beneath the northern Great Plains that holds more crude than any other deposit in the contiguous U.S.

Hamm began exploring the Bakken almost two decades ago and now controls more than 350 wells. Using intensive drilling and rock-fracturing techniques, Hamm pioneered the oil boom that last year pushed North Dakota’s output to a record, exceeding production of Ecuador, an Organization of Petroleum Exporting Countries member.

The Bakken shale and two nearby formations known as the Three Forks and Sanish have the potential to become some of the largest oil-producing zones in the next 30 years, said Christian O’Neill, an analyst with Bloomberg Industries.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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U.S. Stocks Rise on Bank Rally as Jobless Claims Decline

By Rita Nazareth - Mar 2, 2012 5:00 AM GMT+0700

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since 2008, amid a rally in financial shares and after government data showed that jobless claims declined to a four-year low.

JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) climbed at least 1.8 percent as Spanish and French borrowing costs fell. ConocoPhillips (COP) added 2.2 percent, pacing gains in energy producers, as crude oil traded near $110 a barrel. Gap Inc. (GPS), the largest U.S. apparel chain, increased 7.2 percent as same-store sales exceeded estimates. General Motors Co. (GM) jumped 1.7 percent after the automaker reported a surprise U.S. sales gain.

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March 1 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since 2008, amid a rally in financial shares and after government data showed that jobless claims declined to a four-year low. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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March 1 (Bloomberg) -- Jeffrey Hirsch, president of the Hirsch Organization and editor of the "Stock Trader's Almanac," talks about the outlook for U.S. stocks markets and his advise for investors. He speaks with Adam Johnson, Lisa Murphy and Stephanie Ruhle on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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March 1 (Bloomberg) -- David Gerstenhaber, president and founder of Argonaut Management LP, talks about investment strategy and the economy. Gerstenhaber speaks with Sara Eisen and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The S&P 500 added 0.6 percent to 1,374.09 at 4 p.m. New York time, after a three-month gain. The Dow Jones Industrial Average rose 28.23 points, or 0.2 percent, to 12,980.30.

“We’re not lighting the world on fire, but we’re seeing improvement in the economy,” said Mark Masterson, managing director and partner at HighTower’s Masterson, Emma & Associates in Naples, Florida. Hightower has over $25 billion in assets. “The risk from the European situation has been reduced. I don’t know that it’s been eliminated. Best I can say at this point is that it appears to have been postponed.”

Equities rose as the number of Americans filing first-time claims for jobless benefits fell to a level matching a four-year low, more evidence the labor market is healing. Gains in Europe also helped lift the S&P 500 after Spain and France sold 12.5 billion euros ($16.7 billion) of bonds as the European Central Bank’s long-term refinancing operation of lending to banks helped spur demand.

Banks Rally

Financial shares had the biggest gain in the S&P 500 among 10 industries, adding 1.2 percent. JPMorgan increased 2.9 percent, the most in the Dow, to $40.37. Bank of America had the second-largest advance in the 30-stock gauge, climbing 1.9 percent to $8.12.

Goldman Sachs Group Inc. (GS) jumped 5.2 percent to $121.13. The fifth-biggest U.S. bank by assets agreed to buy Ariel Holdings Ltd.’s Bermuda-based insurance and reinsurance businesses to expand property and casualty coverage.

Benchmark gauges briefly pared gains as oil jumped after a report of an explosion on a pipeline in Saudi Arabia. A government official said late today there was no sabotage to its oil facilities in the Qatif region. Energy shares in the S&P 500 added 0.9 percent as a group. ConocoPhillips gained 2.2 percent to $78.22.

‘Two Steps Forward’

“U.S. stocks and economic data appear to be moving at least two steps forward for every step back which, we believe, leads to a strengthening trend for both,” said Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.6 trillion of assets globally. “Rising oil prices are a risk to global growth, but we’re optimistic the improved environment will keep the recovery in motion.”

Gap surged 7.2 percent, the most in the S&P 500, to $25.05. Sales climbed 4 percent, beating the average projection for a 1.4 percent drop from analysts surveyed by Retail Metrics Inc. Unseasonably warm weather boosted purchases of spring merchandise.

Car companies had the biggest gain in the S&P 500 among 24 industries, rallying 2.1 percent. GM added 1.7 percent to $26.47 as deliveries rose 1.1 percent in February to 209,306 cars and light trucks, beating analysts’ estimates for a 4.8 percent drop. Ford Motor Co. (F) climbed 2.3 percent to $12.66 after sales also topped analysts’ estimates.

Adding Technology

Advanced Micro Devices Inc. (AMD) climbed 2.2 percent to $7.51. The second-largest maker of processors for personal computers said it will pay $334 million to buy SeaMicro Inc., a chip designer with expertise in servers, adding technology that can help it compete with Intel Corp. in the market for data centers.

Monster Worldwide Inc. (MWW) surged 15 percent to $8.01. The world’s largest online-recruiting company said it’s considering “all other strategic alternatives” to boost shareholder value.

Apple Inc. (AAPL) rose 0.4 percent to a record $544.47, gaining for a sixth day. Now that its market value has exceeded $500 billion, the biggest challenge for the maker of iPads may be staying there. It’s the sixth U.S. company crossing the threshold, data compiled by S&P show. The others are Microsoft Corp. (MSFT), General Electric Co., Cisco Systems Inc., Intel Corp. and Exxon Mobil Corp., in chronological order.

All five companies were below $500 billion a year after reaching that pinnacle, according to data compiled by Bloomberg. GE was the only one to surpass that value afterward.

Extending a Rally

Today’s advance extended this year’s rally in the S&P 500 to 9.3 percent. Yet the index trades at about 14.2 times reported earnings, compared with the average since 1954 (SPX) of 16.4 times, according to data compiled by Bloomberg.

The S&P 500 has the potential to reach 1,700 before the end of the year should the economy surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

An expansion that beat forecasts would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote. “We would encourage a more aggressive posture.”

‘Dramatic Improvement’

UBS AG raised its forecasts for the S&P 500 and its companies earnings amid a “dramatic” improvement in the economy. Jonathan Golub’s year-end forecast for the benchmark gauge rose to 1,475 from 1,325. He estimates earnings-per-share of $103 this year and $112 in 2013. The previous forecasts were $99 and $111, respectively.

A measure of homebuilders in S&P indexes lost 0.9 percent. PulteGroup Inc. slumped 2.6 percent to $8.59. KB Home (KBH) fell 1.3 percent to $11.27.

Sotheby’s (BID) tumbled 9.1 percent to $35.75. The publicly traded auctioneer of fine arts and collectibles said fourth- quarter profit fell 26 percent as sales slid.

Smaller companies trailed larger stocks in the U.S. in February, a sign that the S&P 500’s longest monthly rally in a year may be losing momentum, according to Bespoke Investment Group LLC.

The Russell 2000 Index (RTY), which tracks companies with an average market value of $738 million, added 2.3 percent last month, compared with a 4.1 percent gain in the S&P 500, whose members average $25.9 billion in value. The underperformance accelerated in the second half of the month, with the Russell 2000 rising on two of the last nine days and the S&P 500 gaining during seven.

“Small caps are cyclical in nature, and typically perform better during market rallies,” Justin Walters, Bespoke’s co- founder, wrote in a note yesterday. “They haven’t been rallying recently, which should be cause of concern for market bulls.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Birinyi: S&P 500 May Reach 1,700 by Year End

By Whitney Kisling - Mar 2, 2012 4:20 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) has the potential to reach a record high of 1,700 this year should economic growth surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

Reaching that level would mean a 24 percent rally from today’s close of 1,374.09, data compiled by Bloomberg show. The benchmark gauge for U.S. equities gained 103 percent since it reached a 12-year low on March 9, 2009. In 2012, it’s off to the best start to a year since 1991. The measure’s all-time high of 1,565.15 was set in 2007.

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Laszlo Birinyi, president of Birinyi Associates, Inc.. Photographer: Jin Lee/Bloomberg

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Feb. 13 (Bloomberg) -- Laszlo Birinyi, president and founder of Birinyi Associates Inc., talks about the outlook for equities and his stock recommendations He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

An expansion that exceeded forecasts in the world’s largest economy would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in March 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain, according to a report from the Westport, Connecticut-based firm.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote in the note today. “We continue to be bullish and would encourage a more aggressive posture.”

1982, 1990

Should economic data show signs of improvement, the S&P 500 may post a rally similar to the bull market that started in 1982, when the index advanced 229 percent, or the one that began in 1990, when it surged 302 percent, according to Birinyi. Reports on home sales and jobs have been better than estimated so far in 2012. The Citigroup Economic Surprise Index (CESIUSD) for the U.S. is at 45.1, up from negative 117.2 in June.

“If the market is right and the economy surprises us on the upside, gains similar to 1982 and 1990 are a distinct possibility and one which no one has entertained,” he wrote.

He stood by his bullish calls last year even as the S&P 500 fell five straight months starting in May. He said on Sept. 12 that U.S. companies were earning too much for the bull market to be derailed by Europe’s debt crisis. The S&P 500 is up 19 percent since then. Birinyi advised investors to “be in the market” during a Dec. 6 interview with Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

In January 2011, Birinyi said the average length and size of bull markets suggested the S&P 500 would rally to 2,854 on Sept. 4, 2013.

“That number hasn’t gone away,” Jeffrey Yale Rubin, director of research at Birinyi Associates, said during a phone interview today. “It’s not like Birinyi is lowering the target, because that’s way out there, almost to 2014.”

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Apple Has $500 Billion Challenge Others Failed: Chart of the Day

By David Wilson - Mar 1, 2012 12:00 PM GMT+0700

Now that Apple Inc. (AAPL)’s market value has exceeded $500 billion, the biggest challenge for the maker of iPhones and iPad tablet computers may be staying there.

Apple is the sixth U.S. company that has ever crossed the threshold, according to data compiled by Standard & Poor’s. The others are Microsoft Corp. (MSFT), General Electric Co. (GE), Cisco Systems Inc. (CSCO), Intel Corp. and Exxon Mobil Corp. (XOM), in chronological order.

As the CHART OF THE DAY shows, all five companies were below $500 billion a year after reaching that pinnacle, according to data compiled by Bloomberg. GE was the only one to surpass that value afterward.

“Getting there is hard,” Howard Silverblatt, a New York- based senior index analyst at S&P, wrote yesterday in an e-mail. “Staying there is harder.”

GE’s market value exceeded half a trillion dollars for the first time on Dec. 20, 1999, based on closing stock prices. The capitalization of the industrial-products and financial-services company fell below that level on Dec. 19, 2000. It was above the threshold in May and June 2001, peaking at $530.4 billion before dropping again.

Exxon Mobil had the second-longest time gap, nine months, between its first and last close at more than $500 billion. The comparable gap for Microsoft was 8 1/2 months, while Cisco’s was two weeks. Intel only surpassed that amount twice, on Aug. 23 and Aug. 31, 2000.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Oil Rises to $110 on Report of Pipeline Explosion

By Mark Shenk and Moming Zhou - Mar 2, 2012 5:35 AM GMT+0700

Oil climbed over $110 a barrel for the first time since May after an Iranian state-run news channel reported an explosion on a pipeline in Saudi Arabia. A Saudi official said no oil facilities were sabotaged.

Futures reached $110.55 at 3:17 p.m. in New York after Iran’s Press TV reported on its English-language website that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awwamiya,” then fell back below $109. Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged after reports of a fire near the Ras Tanura refinery.

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Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. Photographer: George Esiri/EPA/Landov

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Abu Dhabi Securities Exchange. Photographer: Matilde Gattoni/Bloomberg

“It looks like it’s a rumor but it shows you how sensitive the oil market is to any kind of supply constraint,” said Phil Streible, a Chicago-based commodities broker at RJO Futures.

Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. The price was $108.73 at 5:11 p.m. Futures settled at a nine-month high of $109.77 on Feb. 24.

Brent oil for April settlement climbed $3.54, or 2.9 percent, to a 10-month high of $126.20 a barrel on the London- based ICE Futures Europe exchange. Brent rose as high as $128.40 after the settlement and dropped back to $126.15.

Clashes between Saudi police and armed Shiite protesters in Awwamiya and al-Qatif, both cities in the oil-producing eastern region, have intensified since October when 11 police were injured in an attack. Saudi authorities accuse Iran of stirring up the unrest. The protesters have cultural and family ties with Shiite-led Iran. Saudi Arabia’s royal family is Sunni.

Regular Trading

Futures in New York rose 1.7 percent in regular trading as U.S. officials escalated warnings that the nation may join Israel in attacking Iran to stop the development of nuclear weapons and on economic reports signaling growth. The number of Americans filing first-time claims for jobless benefits fell and the Federal Reserve said yesterday that the housing market has shown improvement.

“The next few days could be very important as far as Iran is concerned,” said Matthew Dougherty, a managing director at Advisory Research Inc. in Chicago, which oversees $6 billion. “The labor market is improving and we’re starting to see some sparkles of hope in the housing market. These two sectors have been weighing on the economy for the last several years.”

Brent’s premium to New York-traded West Texas intermediate oil widened to $17.36 based on settlements. The premium has climbed with Iranian tensions and supplies in the U.S. Stockpiles at Cushing, Oklahoma (DOESCROK), the delivery point for WTI, rose 1.65 million barrels to 33.8 million last week, the most since August, the Energy Department said yesterday.

Iranian Source

“Brent is stronger because that’s where any disruption in supply is going to be felt,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The news came from an Iranian source, which is problematic.”

While Iran has said its atomic program is for civilian purposes, the U.S. and its allies say the country is trying to develop the capacity to produce nuclear weapons.

General Norton Schwartz, the Air Force chief of staff, said yesterday that the Joint Chiefs of Staff have prepared military options to strike Iranian nuclear sites in the event of a conflict.

Israeli Prime Minister Benjamin Netanyahu is scheduled to address the American Israel Public Affairs Committee in Washington on March 5, a day after President Barack Obama speaks to the group, the main pro-Israel lobby in the U.S.

“We’re waiting to hear what Obama says to Aipac Sunday and to Netanyahu on Monday,” Dougherty said. “It wouldn’t take much to spook the market.”

Supply, Demand

Excluding Iran from the crude market would add to the shortfall between global supply and demand, according to U.S. Energy Department calculations using February estimates. Fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed.

Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey.

“The jobs numbers were good, which is a great boost for the energy market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Employment data is a good predictor of demand.”

Electronic trading volume on the Nymex was 804,930 contracts as of 5:11 p.m. in New York. Volume totaled 691,115 contracts yesterday, 13 percent above the three-month average. Open interest was 1.54 million contracts, the highest level since Aug. 16.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Moming Zhou in New York at Mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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Greece May Default on Governments, Peterson’s Kirkegaard Says: Tom Keene

By John Detrixhe and Tom Keene - Mar 2, 2012 12:12 AM GMT+0700

Greece will probably default this year on European governments’ holdings of its sovereign debt, according to Jacob Kirkegaard of the Peterson Institute for International Economics.

The country published the formal offer last week for its agreement to exchange bonds for new securities, with private- sector investors taking a loss of 53.5 percent. While the European Central Bank won’t take direct losses from the swap agreement, the writedown may make it more politically feasible for governments to lose money on Greek debt, Kirkegaard said.

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A protest against austerity measures in Athens on Feb. 7, 2012. Photograph: Imago/ZUMAPRESS.com

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Protests in front of parliament in Athens on Feb. 22, 2012. Photograph: DPA/LANDOV

“The key thing about this is it’s a political issue, and therefore sequencing matters tremendously,” Kirkegaard, a research fellow at the Peterson Institute in Washington, said today in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “It’s going to be essentially one government defaulting against the taxpayers of another.”

Default insurance on Greek debt won’t be paid out even after the nation negotiated the biggest sovereign-debt restructuring in history, the International Swaps & Derivatives Association ruled today.

The ECB’s exchange of Greek bonds for new securities that are exempt from losses being imposed on private investors hasn’t triggered $3.25 billion of outstanding credit-default swaps. ISDA’s determinations committee said the switch didn’t constitute subordination, one of the criteria for a payout under a restructuring credit event.

The ISDA decision may undermine investors’ willingness to use the derivatives, Kirkegaard said.

‘Begin to Doubt’

“If I were a buyer of industrialized sovereign credit- default swaps, I would strongly begin to doubt that I would ever get a payout,” he said.

Euro-area finance ministers cleared the issuance of bonds for the Greek debt swap as they reviewed the nation’s progress on meeting the conditions for the aid.

The officials, gathering in Brussels today before a summit of leaders from the 27-nation European Union, approved the 130 billion-euro ($173 billion) package last week and are maintaining pressure on officials in Athens before releasing cash. Luxembourg Prime Minister Jean-Claude Juncker said the payment would be made before a March 20 bond redemption.

The ministers authorized the European Financial Stability Facility to issue bonds for the debt swap, Juncker said today in a statement.

Pension Cuts

Greek lawmakers approved cuts in pensions and health care a day after ratifying 3.2 billion euros of spending reductions, trying to meet conditions for the bailout.

Forcing Greece to leave the monetary union isn’t “really a viable strategy,” Kirkegaard said.

“If you sent the signal that a country could be summarily pushed out of a monetary union, I think that would be the de- facto reintroduction of foreign-exchange risk into the euro area,” he said. “If you were to initiate such a process, would you keep your deposits in a Portuguese bank? I’m not sure you would, and that’s the issue.”

The Peterson Institute was established by Peter G. Peterson, co-founder of Blackstone Group LP.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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