Crude fell after a government report showed that the U.S. added fewer jobs in January than economists forecast, bolstering concern that fuel demand will slip in the world’s biggest oil-consuming country.
Futures dropped 1.7 percent after the Labor Department said employers increased payrolls by 36,000 last month. The number of workers was projected to climb by 146,000, according to the median forecast in a Bloomberg News survey. Gasoline stockpiles rose to the highest level in almost 18 years as demand decreased, according to an Energy Department report on Feb. 2.
“The fuel markets are weighing on crude,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Today’s jobless numbers showed many fewer people got jobs than expected and that many others have simply given up looking for work, which raises concerns about U.S. consumer demand. We already are looking at weak demand and very high stockpiles.”
Crude oil for March delivery declined $1.51 to settle at $89.03 a barrel on the New York Mercantile Exchange. Prices are down 0.3 percent this week and have increased 22 percent over the past year.
Gasoline futures for March delivery tumbled 6.81 cents, or 2.7 percent, to end the session at $2.4353 a gallon in New York.
The unemployment rate dropped to 9 percent in January from 9.4 percent the previous month. The so-called underemployment rate, which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking, decreased to 16.1 percent from 16.7 percent.
‘Poor Number’
“Once you get past the initial headline, the jobs report isn’t very good,” said Kyle Cooper, director of research for IAF Advisors in Houston. “A 9 percent unemployment rate is definitely better than 10 percent, but historically it’s a poor number. This shows that things still aren’t that great.”
The U.S. needs to see faster job growth for a sufficient period of time before policy makers can be assured the economic recovery has taken hold, Federal Reserve Chairman Ben S. Bernanke said yesterday in a speech at the National Press Club in Washington.
Supplies of gasoline rose 6.15 million barrels to 236.2 million last week, the highest level since March 1993, the Energy Department report showed. It was the biggest gain since January 2009. Inventories have climbed in 10 of the past 11 weeks.
Total fuel demand decreased 0.3 percent to 18.8 million barrels a day last week, the lowest level since November, the department said. Gasoline consumption fell 1 percent to 8.55 million barrels a day, the lowest amount since the week ended Feb. 12, 2010.
Egyptian Protest
Futures gained as much as 1.3 percent earlier today as Egyptians poured out of Friday prayer services and into Cairo’s Tahrir Square in the tens of thousands as yesterday’s fighting gave way to a peaceful mass protest.
Other Arab countries gripped by instability include Yemen, where police used tear gas against protesters yesterday, and Jordan, which sacked its government this week. Algeria’s President Abdelaziz Bouteflika said yesterday that a 19-year-old state of emergency will be lifted “in the very near future.” The protests began in Tunisia, where President Zine El Abidine Ben Ali was forced from office last month.
About 2.5 percent of global oil output moves through Egypt via the Suez Canal and the Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc. The waterway is open and operating normally today, Ahmed El Manakhly, head of traffic for the Suez Canal Authority, said by phone.
Egypt’s Revenue
“A significant part of Egypt’s revenue comes from the Suez Canal and tourism,” said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. “Since tourism will be hurt for a while because of the unrest, whoever is in control will definitely want to keep both the Suez Canal and the SuMed pipeline running smoothly.”
The Organization of Petroleum Exporting Countries should only meet if the Suez Canal closes, Venezuelan Energy Minister Rafael Ramirez told reporters today in Caracas. Oil is rising to a “fair price,” he said. OPEC ministers are next scheduled to gather in June at the group’s Vienna headquarters.
Brent crude for March settlement fell $1.93, or 1.9 percent, to end the session at $99.83 a barrel on the London- based ICE Futures Europe exchange. The contract touched $103.37 yesterday, the highest intraday level since Sept. 26, 2008.
Oil volume on the Nymex was 699,437 contracts as of 3:27 p.m. in electronic trading in New York. Volume totaled 682,075 contracts yesterday, 3.4 percent lower than the average of the past three months. Open interest was 1.56 million contracts, the highest level since Sept. 12, 2007.
To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
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Sunday, February 6, 2011
Merkel Makes Euro Indispensable by Turning Crisis Into German Opportunity
Chancellor Angela Merkel is turning Europe’s sovereign-debt crisis into an opportunity to reshape the euro region in Germany’s image.
As Spain raises its retirement age, Greece cuts wages and Portugal imposes the deepest spending reductions in more than three decades, Merkel’s resolve in refusing to aid neighbors unconditionally is showing signs of working.
Seeking to erase doubts that the markets can snuff out the 12-year-old euro, which she has called the “uniting idea” of post-World War II Europe, the 56-year-old scientist who grew up in communist East Germany is set to swap stick for carrot and throw the weight of Europe’s largest and richest economy behind a plan to bolster the area’s rescue effort.
“This is the right time and these are the right ideas,” Helmut Schlesinger, Bundesbank president from 1991 to 1993 when the euro’s founding treaty took effect, said in a telephone interview. Germany, the biggest contributor to bailouts for Greece and Ireland, “has a special responsibility to come up with proposals and see them through,” he said.
By demanding stricter oversight and tougher penalties on fiscal miscreants, Merkel would complete the job begun at the start of the euro. While German leaders in the 1990s equipped the European Central Bank with the same inflation-fighting mission as its Bundesbank, they failed to impose ironclad controls on national budget policies.
The result: a crisis that has frustrated unprecedented efforts by policy makers to calm markets and stoked doubts that the euro would survive.
EU Summit
Merkel and counterparts from the 27-member European Union met in Brussels today to review progress on a package they aim to finish by late March and which may include an increase in the bailout fund’s firepower, a reduction in interest rates on rescue loans and deeper coordination of economic policies.
Her task is two-fold: protect a single currency she views as indispensible and shift the euro-region toward the model of a fiscally virtuous, hard-money, stable-growth economy that underpinned Germany’s post-war recovery.
Still, as Europe prepared to bail out Ireland in November, Merkel’s appeal to her skeptical electorate focused on the euro as a symbol of peace to a nation ravaged by two world wars.
The euro “is about everything. If the euro fails, then Europe fails, the European ideal of common values and unity will fail,” Merkel said in a Nov. 15 speech to members of her party in Karlsruhe, Germany. “This ideal has always given us strength in the face of wars and destruction in Europe for the past centuries -- to fight for peace, for prosperity and for freedom on our continent.”
Merkel’s Task
Merkel is walking a fine line. Her effort could boomerang, raising German borrowing costs and eroding political support among voters hostile to channeling their taxes to those who avoided painful policy choices on their own.
Bunds will suffer whenever “German tax revenue is drawn upon for cross-border purposes” to help weaker euro countries, said Andrew Bosomworth, a Munich-based fund manager at Pacific Investment Management Co. who previously worked for the ECB.
The yield on the benchmark 10-year German bund reached the highest in almost a year this week as euro-area inflation advanced at its fastest pace in more than two years in January.
Germany undercut its own credibility in 2005 by teaming with France to loosen budget rules after both countries overran the EU deficit limit of 3 percent of gross domestic product. No sanctions have ever been slapped on high-deficit states, not even on Greece, a country that never met the targets.
Seeking Payoff
Now Merkel, who gained a degree in physics from the Karl Marx University in Leipzig and a doctorate in quantum chemistry from the Central Institute of Physical Chemistry in East Berlin, is seeking a payoff from a year of crisis-fighting and providing the biggest share of a $1 trillion euro-region bailout package.
A fluent speaker of Russian and English, Merkel, a former aide to Lothar de Maiziere, East Germany’s only democratically elected premier, was picked for Chancellor Helmut Kohl’s post- unification Cabinet. At 36, she became the youngest minister of the post-war era.
Her message of austerity is backed by a personal style recalling life in communist East Germany.
The chancellor and her second husband, Joachim Sauer, reject the sprawling living quarters in the chancellery and instead live in her 19th-century apartment building in Berlin’s central Mitte district. She disdains the official retreat, a restored 18th century Prussian palace, spending weekends at the family country house in the village of Hohenwalde, 80 kilometers (50 miles) northeast of the capital.
Potato Soup
Merkel wheels a shopping cart through her local food store, trailed by her security detail, at least once a month. She even bags her own groceries and during her 2009 re-election campaign she boasted that she makes a “mean potato soup” and does her own laundry when time permits.
For a country where inflation weakened democracy in the 1920s and aided Adolf Hitler’s rise to power, the chancellor says the euro is a pre-requisite for an economically strong, peaceful Europe and protecting it requires the pain of budget cuts in the so-called peripheral economies.
“Indebtedness is the biggest danger for prosperity on this continent,” Merkel told the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 28. Any country that gets aid “must receive this solidarity under certain conditions.”
Tighter control of national finances tops Germany’s list of demands. Narrowing Europe-wide differences in taxes, pay and retirement age is also on the agenda, driven by Merkel and French President Nicolas Sarkozy, a convert to her lobbying.
“Mrs. Merkel and I will never -- do you hear me? -- never let the euro fail,” Sarkozy said in Davos.
Market Gains
Merkel may have pulled ahead for now in her battle to restore policy makers’ mastery over the markets. The euro climbed to a three-month high this week and bond-risk premiums for Spain, Portugal, Italy and Belgium narrowed as investors bet that Europe will agree on ways to strengthen its crisis response.
Governments are already taking Merkel’s medicine. Spain cut public wages 5 percent last year, reduced firing costs, made it easier for firms to opt out of collective-bargaining deals and plan further changes to those pacts by March. All but the lowest pensions have been frozen and the government is increasing the retirement age to match Germany’s 67.
“In my 25 years as an economist I can’t recall another advanced economy having undertaken such an agenda of reforms in such a short period of time,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc.
Loosening Strings
In return, Merkel may be willing to loosen the purse- strings by bolstering a 440 billion-euro ($600 billion) European Financial Stability Facility, whose lending ability is limited by collateral rules to about 250 billion euros.
Merkel’s bailout tactics underscore her response to previous crises. She was criticized for moving too slowly on stimulus spending as the economy sank into recession, on supporting banks after the collapse of Lehman Brothers Holdings Inc. rocked the global financial system and on extending a lifeline to Greece.
Those who know her say that represents a scientific cast that differs from most of her political counterparts who are mainly lawyers or businessmen.
“It’s policy by trial and error. She passionately takes a position, then turns 180 degrees and changes her mind,” Gerd Langguth, political scientist at University of Bonn and Merkel biographer, in a phone interview today. “She doesn’t do politics from the gut. Sure, therein lies a danger, because those politicians often have a feel for getting it right. Merkel just wants all the facts on the table.”
Debt Limits
Merkel points to constitutional debt limits adopted by Germany in 2009 as a model for the rest of Europe and views the Sweden’s revamping of its welfare state in the 1990s as another inspiration. Years of wage restraint in Germany and cuts in social programs by Gerhard Schroeder, the previous chancellor, further strengthen her hand.
European Commission statistics show unit labor costs shrank in Germany each year from 2004 through 2007 and grew less than 1 percent in each of the six previous years. In that period, the euro-area average was only lower in 1998 and never contracted.
“Germany went through a difficult and painful restructuring,” said Klaus Baader, co-chief European economist at Societe Generale SA in London. “The fruits are clear to see and that’s what Germany expects of other euro member countries.”
German Expansion
Powered by exports, Germany had its fastest economic expansion in two decades last year with gross domestic product jumping 3.6 percent. Unemployment fell to an 18-year low of 7.4 percent in January -- the second lowest among the Group of Seven economies after Japan -- and business confidence reached a record high.
Continental AG, the second-biggest tire maker in Europe, last month reported sales and earnings that beat its 2010 goals, while Siemens AG, Europe’s largest engineering company, said fiscal first-quarter profit increased more than estimated.
Since spooking markets in October by saying bondholders will have to pay in future bailouts and again in November by calling the euro’s condition “exceptionally serious,” Merkel has shifted her public stance to a come-what-may defense of the currency. “We support whatever is needed to support the euro,” she said in Berlin on Jan. 12.
She may have other aims. Merkel may nominate Bundesbank President Axel Weber to replace Jean-Claude Trichet as president of the ECB after his term ends in October, a move that would install a so-called inflation hawk to keep a lid on prices.
Roubini’s Doubts
Merkel will ultimately fail if she attempts to impose the German diet on Europe without giving more in return, said Nouriel Roubini, chairman of Roubini Global Economics LLC. Germany and other countries should slow their deficit cuts and Greece should restructure its debt now, he said.
Germany’s message is “we don’t care about pain and the only solutions are austerity and structural reforms, and anything else has to wait for 2013,” when the EU aims to have a permanent defense system for the euro in place, said Roubini. “You need a more comprehensive solution sooner.”
Most international investors predict at least one of the 17 nations will leave the euro area within five years and that Greece and Ireland will default, according to the January 2011 Bloomberg Global Poll that underscored the urgency leaders face in calming markets. The same poll ranked Merkel as the most favored of nine global policy makers.
State Elections
Constraining Merkel are elections in seven of Germany’s 16 states this year -- with Baden-Württemberg’s on March 27 -- and public resistance to putting more taxpayer money on the line for bailouts, tinged with nostalgia for the deutsche mark. Within her governing coalition, the Free Democratic Party in January rejected any increase in the bailout fund.
Greater financial support for indebted euro-area countries was opposed by 64 percent of German respondents in a Jan. 28 FG Wahlen poll. About half of Germans would ditch the euro and return to the deutsche mark, a Dec. 26 YouGov survey for the Bild newspaper showed.
That underscores the need for her to keep both euro-region neighbors and her own voters on side, said Harvard University historian Niall Ferguson, who has written about Germany’s economy and yesterday met Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero in Madrid.
“The euro has to survive because it’s in Germany’s interest and the German voters are gradually coming to see they can’t afford to see this fall apart,” Ferguson told Bloomberg Television. Merkel’s strategy means the “outlook for the euro has definitely improved.”
To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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As Spain raises its retirement age, Greece cuts wages and Portugal imposes the deepest spending reductions in more than three decades, Merkel’s resolve in refusing to aid neighbors unconditionally is showing signs of working.
Seeking to erase doubts that the markets can snuff out the 12-year-old euro, which she has called the “uniting idea” of post-World War II Europe, the 56-year-old scientist who grew up in communist East Germany is set to swap stick for carrot and throw the weight of Europe’s largest and richest economy behind a plan to bolster the area’s rescue effort.
“This is the right time and these are the right ideas,” Helmut Schlesinger, Bundesbank president from 1991 to 1993 when the euro’s founding treaty took effect, said in a telephone interview. Germany, the biggest contributor to bailouts for Greece and Ireland, “has a special responsibility to come up with proposals and see them through,” he said.
By demanding stricter oversight and tougher penalties on fiscal miscreants, Merkel would complete the job begun at the start of the euro. While German leaders in the 1990s equipped the European Central Bank with the same inflation-fighting mission as its Bundesbank, they failed to impose ironclad controls on national budget policies.
The result: a crisis that has frustrated unprecedented efforts by policy makers to calm markets and stoked doubts that the euro would survive.
EU Summit
Merkel and counterparts from the 27-member European Union met in Brussels today to review progress on a package they aim to finish by late March and which may include an increase in the bailout fund’s firepower, a reduction in interest rates on rescue loans and deeper coordination of economic policies.
Her task is two-fold: protect a single currency she views as indispensible and shift the euro-region toward the model of a fiscally virtuous, hard-money, stable-growth economy that underpinned Germany’s post-war recovery.
Still, as Europe prepared to bail out Ireland in November, Merkel’s appeal to her skeptical electorate focused on the euro as a symbol of peace to a nation ravaged by two world wars.
The euro “is about everything. If the euro fails, then Europe fails, the European ideal of common values and unity will fail,” Merkel said in a Nov. 15 speech to members of her party in Karlsruhe, Germany. “This ideal has always given us strength in the face of wars and destruction in Europe for the past centuries -- to fight for peace, for prosperity and for freedom on our continent.”
Merkel’s Task
Merkel is walking a fine line. Her effort could boomerang, raising German borrowing costs and eroding political support among voters hostile to channeling their taxes to those who avoided painful policy choices on their own.
Bunds will suffer whenever “German tax revenue is drawn upon for cross-border purposes” to help weaker euro countries, said Andrew Bosomworth, a Munich-based fund manager at Pacific Investment Management Co. who previously worked for the ECB.
The yield on the benchmark 10-year German bund reached the highest in almost a year this week as euro-area inflation advanced at its fastest pace in more than two years in January.
Germany undercut its own credibility in 2005 by teaming with France to loosen budget rules after both countries overran the EU deficit limit of 3 percent of gross domestic product. No sanctions have ever been slapped on high-deficit states, not even on Greece, a country that never met the targets.
Seeking Payoff
Now Merkel, who gained a degree in physics from the Karl Marx University in Leipzig and a doctorate in quantum chemistry from the Central Institute of Physical Chemistry in East Berlin, is seeking a payoff from a year of crisis-fighting and providing the biggest share of a $1 trillion euro-region bailout package.
A fluent speaker of Russian and English, Merkel, a former aide to Lothar de Maiziere, East Germany’s only democratically elected premier, was picked for Chancellor Helmut Kohl’s post- unification Cabinet. At 36, she became the youngest minister of the post-war era.
Her message of austerity is backed by a personal style recalling life in communist East Germany.
The chancellor and her second husband, Joachim Sauer, reject the sprawling living quarters in the chancellery and instead live in her 19th-century apartment building in Berlin’s central Mitte district. She disdains the official retreat, a restored 18th century Prussian palace, spending weekends at the family country house in the village of Hohenwalde, 80 kilometers (50 miles) northeast of the capital.
Potato Soup
Merkel wheels a shopping cart through her local food store, trailed by her security detail, at least once a month. She even bags her own groceries and during her 2009 re-election campaign she boasted that she makes a “mean potato soup” and does her own laundry when time permits.
For a country where inflation weakened democracy in the 1920s and aided Adolf Hitler’s rise to power, the chancellor says the euro is a pre-requisite for an economically strong, peaceful Europe and protecting it requires the pain of budget cuts in the so-called peripheral economies.
“Indebtedness is the biggest danger for prosperity on this continent,” Merkel told the World Economic Forum’s annual meeting in Davos, Switzerland, on Jan. 28. Any country that gets aid “must receive this solidarity under certain conditions.”
Tighter control of national finances tops Germany’s list of demands. Narrowing Europe-wide differences in taxes, pay and retirement age is also on the agenda, driven by Merkel and French President Nicolas Sarkozy, a convert to her lobbying.
“Mrs. Merkel and I will never -- do you hear me? -- never let the euro fail,” Sarkozy said in Davos.
Market Gains
Merkel may have pulled ahead for now in her battle to restore policy makers’ mastery over the markets. The euro climbed to a three-month high this week and bond-risk premiums for Spain, Portugal, Italy and Belgium narrowed as investors bet that Europe will agree on ways to strengthen its crisis response.
Governments are already taking Merkel’s medicine. Spain cut public wages 5 percent last year, reduced firing costs, made it easier for firms to opt out of collective-bargaining deals and plan further changes to those pacts by March. All but the lowest pensions have been frozen and the government is increasing the retirement age to match Germany’s 67.
“In my 25 years as an economist I can’t recall another advanced economy having undertaken such an agenda of reforms in such a short period of time,” said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc.
Loosening Strings
In return, Merkel may be willing to loosen the purse- strings by bolstering a 440 billion-euro ($600 billion) European Financial Stability Facility, whose lending ability is limited by collateral rules to about 250 billion euros.
Merkel’s bailout tactics underscore her response to previous crises. She was criticized for moving too slowly on stimulus spending as the economy sank into recession, on supporting banks after the collapse of Lehman Brothers Holdings Inc. rocked the global financial system and on extending a lifeline to Greece.
Those who know her say that represents a scientific cast that differs from most of her political counterparts who are mainly lawyers or businessmen.
“It’s policy by trial and error. She passionately takes a position, then turns 180 degrees and changes her mind,” Gerd Langguth, political scientist at University of Bonn and Merkel biographer, in a phone interview today. “She doesn’t do politics from the gut. Sure, therein lies a danger, because those politicians often have a feel for getting it right. Merkel just wants all the facts on the table.”
Debt Limits
Merkel points to constitutional debt limits adopted by Germany in 2009 as a model for the rest of Europe and views the Sweden’s revamping of its welfare state in the 1990s as another inspiration. Years of wage restraint in Germany and cuts in social programs by Gerhard Schroeder, the previous chancellor, further strengthen her hand.
European Commission statistics show unit labor costs shrank in Germany each year from 2004 through 2007 and grew less than 1 percent in each of the six previous years. In that period, the euro-area average was only lower in 1998 and never contracted.
“Germany went through a difficult and painful restructuring,” said Klaus Baader, co-chief European economist at Societe Generale SA in London. “The fruits are clear to see and that’s what Germany expects of other euro member countries.”
German Expansion
Powered by exports, Germany had its fastest economic expansion in two decades last year with gross domestic product jumping 3.6 percent. Unemployment fell to an 18-year low of 7.4 percent in January -- the second lowest among the Group of Seven economies after Japan -- and business confidence reached a record high.
Continental AG, the second-biggest tire maker in Europe, last month reported sales and earnings that beat its 2010 goals, while Siemens AG, Europe’s largest engineering company, said fiscal first-quarter profit increased more than estimated.
Since spooking markets in October by saying bondholders will have to pay in future bailouts and again in November by calling the euro’s condition “exceptionally serious,” Merkel has shifted her public stance to a come-what-may defense of the currency. “We support whatever is needed to support the euro,” she said in Berlin on Jan. 12.
She may have other aims. Merkel may nominate Bundesbank President Axel Weber to replace Jean-Claude Trichet as president of the ECB after his term ends in October, a move that would install a so-called inflation hawk to keep a lid on prices.
Roubini’s Doubts
Merkel will ultimately fail if she attempts to impose the German diet on Europe without giving more in return, said Nouriel Roubini, chairman of Roubini Global Economics LLC. Germany and other countries should slow their deficit cuts and Greece should restructure its debt now, he said.
Germany’s message is “we don’t care about pain and the only solutions are austerity and structural reforms, and anything else has to wait for 2013,” when the EU aims to have a permanent defense system for the euro in place, said Roubini. “You need a more comprehensive solution sooner.”
Most international investors predict at least one of the 17 nations will leave the euro area within five years and that Greece and Ireland will default, according to the January 2011 Bloomberg Global Poll that underscored the urgency leaders face in calming markets. The same poll ranked Merkel as the most favored of nine global policy makers.
State Elections
Constraining Merkel are elections in seven of Germany’s 16 states this year -- with Baden-Württemberg’s on March 27 -- and public resistance to putting more taxpayer money on the line for bailouts, tinged with nostalgia for the deutsche mark. Within her governing coalition, the Free Democratic Party in January rejected any increase in the bailout fund.
Greater financial support for indebted euro-area countries was opposed by 64 percent of German respondents in a Jan. 28 FG Wahlen poll. About half of Germans would ditch the euro and return to the deutsche mark, a Dec. 26 YouGov survey for the Bild newspaper showed.
That underscores the need for her to keep both euro-region neighbors and her own voters on side, said Harvard University historian Niall Ferguson, who has written about Germany’s economy and yesterday met Merkel and Spanish Prime Minister Jose Luis Rodriguez Zapatero in Madrid.
“The euro has to survive because it’s in Germany’s interest and the German voters are gradually coming to see they can’t afford to see this fall apart,” Ferguson told Bloomberg Television. Merkel’s strategy means the “outlook for the euro has definitely improved.”
To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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Wednesday, December 22, 2010
Most Asia Stocks Climb on Rising Commodities, U.S. Sales Data; Sanyo Falls
Most Asian stocks advanced, with the regional index near a 2 1/2-year high, as commodity producers gained after copper climbed to a record, crude oil rose and U.S. retail sales increased last week, adding to signs the economic recovery is on track.
Canon Inc., the world’s largest maker of cameras that gets about 28 percent of sales from the U.S., increased 1.9 percent in Tokyo. BHP Billiton Ltd., the world’s biggest mining company and Australia’s largest oil and has produced, climbed 0.9 percent in Sydney. Mitsui & Co., which counts commodities as its biggest source of profit, gained 0.7 percent. Sanyo Electric Co., a maker of rechargeable batteries, slumped 5.1 percent after its parent Panasonic Corp. announced plans to delist the company.
“The world economy is recovering moderately,” said Naoki Fujiwara, who helps oversee $6 billion in Tokyo at Shinkin Asset Management Co. “Investors see money is flowing into stocks and commodities, boosting confidence in the market.”
The MSCI Asia Pacific Index rose 0.1 percent to 134.94 as of 4:37 p.m. in Tokyo, with about the same number of stocks rising and falling. The gauge climbed to its highest level since July 2008 on Dec. 14 as U.S. economic reports boosted confidence in a global recovery, easing concerns that Europe’s debt crisis and China’s measures to slow inflation will hurt growth.
Japan’s Nikkei 225 Stock Average dropped 0.2 percent, erasing gains of as much as 0.2 percent, after the government said it is becoming more pessimistic about exports and business sentiment. Japan’s export growth accelerated for the first time in nine months in November, data released today showed.
South Korea’s Kospi Index, Australia’s S&P/ASX 200 Index and New Zealand’s NZX 50 Index climbed each climbed 0.1 percent. Taiwan’s Taiex Index gained 0.4 percent. China’s Shanghai Composite Index declined 0.9 percent as an increase in gasoline and diesel prices sparked concern inflation will accelerate.
Recovery Trend
Futures on the Standard & Poor’s 500 Index were little changed today after Nike Inc., the world’s largest maker of athletic shoes, reported orders that fell short of analysts’ estimates and chip maker Xilinx Inc. forecast sales will drop.
The measure rose 0.6 percent yesterday in New York to 1,254.60, surpassing its closing level on Sept. 12, 2008, the last trading day before Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy.
Same-store sales at a selection of U.S. retailers rose 4.2 percent last week, the biggest jump of this holiday season, as more consumers finished shopping, according to a survey of retailers released yesterday.
“U.S. economic indicators continue to exceed expectations and the U.S. economy is on a recovery trend,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc. “The global economic recovery, surplus money and confidence in government measures are boosting commodity prices.”
Canon, HTC
Gauges of information technology companies, energy and raw material producers led the advance among the 10 industry groups in the MSCI Asia Pacific Index.
Canon climbed 1.9 percent to 4,265 yen. HTC Corp., the Taiwanese mobile phone maker that counts America as its biggest market, increased 4.1 percent to NT$914. Hyundai Motor Co., South Korea’s biggest carmaker, gained 2.3 percent to 181,500 won in Seoul.
BHP Billiton advanced 0.9 percent to A$45.82 in Sydney. Mitsui & Co. climbed 0.7 percent to 1,325 yen. Noble Group Ltd., a Hong Kong-based supplier of agricultural and industrial commodities, rose 1 percent to S$2.09 in Singapore.
Crude oil for February delivery gained 45 cents to $89.82 a barrel in New York yesterday, the highest settlement since Oct. 7, 2008. The London Metal Exchange Index of six metals including copper and aluminum climbed 1.8 percent yesterday, rising for a third day. Copper, rubber and cotton prices rose to record levels overnight.
Rig Order
In Singapore, Sembcorp Marine Ltd., the world’s second- largest oil-rig builder, climbed 2 percent to S$5.09. The company said it won an order two build two jack-up rigs, valued at $400 million, from Noble Corp., the world’s third-largest deep-water oil and gas driller.
The MSCI Asia Pacific Index increased 12 percent this year through yesterday, compared with gains of 13 percent by the S&P 500 and 11 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark were valued at 14.8 times estimated earnings on average at yesterday’s close, versus 14.7 times for the S&P 500 and 12.4 times for the Stoxx 600.
Among stocks that fell, Sanyo Electric slumped 5.1 percent to 130 yen in Tokyo, its lowest close since July 28. Controlling shareholder Panasonic Corp. said it will give minority shareholders 0.115 shares each Sanyo share as part of plans to delist its 81 percent-owned subsidiary. Panasonic fell 1.5 percent to 1,152 yen.
Australian Luxury Homes
Lend Lease Group, Australia’s No.1 developer, dropped 1.1 percent to A$8.65 in Sydney after Deutsche Bank AG lowered its rating to “hold” from “buy.”
The stock also fell after the Real Estate Institute of Australia predicted that prices of luxury homes in the country will drop next year as homes worth at least A$1 million ($1 million) listed for sale increase. Leighton Holdings Ltd., Australia’s largest construction company, fell 2 percent to A$31.52.
Wilmar International Ltd., the world’s biggest palm-oil trader, dropped 4.6 percent to S$5.65 in Singapore after saying it will invest 889.2 million yuan ($134 million) in a joint venture with Kerry Properties (China) Ltd. and Shangri-La China Ltd. to develop a hotel in China’s Liaoning province.
“We believe that the market may take this announcement negatively,” Goldman Sachs Group Inc. analysts Patrick Tiah and Nikhil Bhandari wrote in a note to clients today. “This appears to be a sharp departure from Wilmar’s agri-processing core business and there may be concerns on management losing focus.”
To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@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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U.S. Stocks Erasing Loss Since Lehman Failure Fuels 2011 Bulls
The benchmark gauge for American stocks rose 0.6 percent to 1,254.6 yesterday, surpassing its closing level of 1,251.70 on Sept. 12, 2008. Photographer: Jin Lee/Bloomberg
Dec. 21 (Bloomberg) -- Bloomberg's Courtney Donohoe reports on the performance of the U.S. equity market today. Stocks rose, completing the Standard & Poor’s 500 Index’s recovery from the plunge that followed Lehman Brothers Holdings Inc.’s collapse in 2008, after Adobe Systems Inc.’s forecast added to speculation that the fastest profit growth in 22 years makes equities a bargain. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)
The advance that lifted the Standard & Poor’s 500 Index above its level before the collapse of Lehman Brothers Holdings Inc. in September 2008 is an encouraging sign for bulls, technical analysts said.
The benchmark gauge for American stocks rose 0.6 percent to 1,254.6 yesterday, surpassing its closing level of 1,251.70 on Sept. 12, 2008, the last trading session before Lehman Brothers filed the world’s biggest bankruptcy. After closing within 1 percent of the milestone on five of the six previous days, the index may now have room to rise, according to analysts who base forecasts on price charts.
“It’s a psychological and technical victory for the market,” said Christopher Verrone, lead technical analyst at New York-based Strategas Research Partners. “It strengthens the case that 2011 might be better than a lot of people expect.”
U.S. government and Federal Reserve spending to stimulate the economy and 70 percent of S&P 500 companies beating profit estimates for a record six straight quarters pushed the S&P 500 up 85 percent since March 2009. The index will end 2011 at 1,374, according to the average projection of 11 strategists at Wall Street’s biggest banks, producing the biggest three-year rally since 1997-1999.
Losses for the S&P 500 totaled 46 percent between Lehman’s failure and March 9, 2009, as the worst recession since the 1930s intensified. The index started to rebound three months before the contraction ended in June 2009, according to the National Bureau of Economic Research. It has to climb 25 percent to surpass its October 2007 record high of 1,565.15.
‘Starting Gun’
In the week of Lehman’s bankruptcy, Bank of America Corp. took over Merrill Lynch & Co. as it teetered on collapse and the government seized American International Group Inc. The S&P 500 surged in the final two days of that week after the government announced a plan to purge banks of bad assets and crack down on short sellers.
“Lehman Brothers was really the starting gun for creating this sense of fear, and we still haven’t fully overcome that fear but we’re in a healing process,” said Jeffrey Coons, president of Manning & Napier Advisors Inc. in Fairport, New York, which manages $35 billion. “The aggressive moves of the Fed right after Lehman and ongoing today have been an important driver for the stabilization of stock prices.”
The S&P 500, up 13 percent in 2010, has advanced 6.3 percent in December after losing 0.2 percent in November and posting a combined gain of 13 percent in September and October, the biggest increases during those months since 1998. The measure has rallied 20 percent since Fed Chairman Ben S. Bernanke suggested on Aug. 27 that he was prepared to purchase bonds to spur economic growth.
Tax Cuts, GE
The MSCI World Index, a gauge of 1,660 shares in 24 developed nations from the U.S. to Hong Kong, is within 1 percent of wiping out its 46 percent drop since Lehman’s collapse. The index has gained 85 percent since March 2009 as central banks worldwide maintained record-low interest rates and governments spent trillions of dollars to spur growth.
Should the MSCI World erase its loss, “it would be a positive and bullish development,” said Christian Bendixen, director of technical research at New York-based Bay Crest Partners LLC. “It has psychological and anecdotal significance.”
The S&P 500 has risen 13 of the past 16 weeks. The last time that happened was in 2004, according to Howard Silverblatt, S&P’s New York-based senior index analyst. The December advance was buoyed by an agreement between President Barack Obama and Republican lawmakers to extend tax breaks, and by reports showing consumer confidence, retail sales and manufacturing beat economists’ forecasts.
Priceline, Ford
Consumer stocks in the S&P 500 such as online travel agency Priceline.com Inc. and Dearborn, Michigan-based Ford Motor Co., had recovered all their losses from New York-based Lehman Brothers by March 4. The S&P 500 Consumer Discretionary Index has surged 21 percent since then.
Priceline, based in Norwalk, Connecticut, has surged almost five-fold since September 2008 to $407, bolstered by a rebound in hotel stays and international travel. Ford, the world’s most profitable automaker and the only major U.S. car company to avoid bankruptcy last year, more than tripled to $16.99 as demand for pickups and sport-utility vehicles revived.
Analysts forecast that S&P 500 earnings will total $85.33 a share in 2010, up 38 percent from $61.77 a share in 2009, according to the average projection in a Bloomberg survey. That’s the biggest increase since 1988, Bloomberg data show.
“The market is responding to earnings,” said Hayes Miller, the Boston-based head of asset allocation in North America at Baring Asset Management Inc., which oversees about $50.6 billion. “It’s a commentary on corporate flexibility, the ability of companies to cut costs and increase productivity. This looks like it can last through 2011.”
To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.
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Oil Rises for a Fourth Day as U.S. Economic Recovery May Spur Fuel Demand
Crude rose for a fourth day as signs of U.S. economic recovery stoked speculation that fuel demand will increase in the world’s largest oil consumer.
Futures climbed as much as 0.5 percent to trade near the highest in two years before a report forecast to show the U.S. economy expanded more than estimated earlier. Holiday-season retail sales jumped, according to data released yesterday. Prices also gained after the American Petroleum Institute said crude inventories shrank a fourth week.
“Oil prices have been well supported above $80 a barrel since around October,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp. in Singapore. “People are growing more confident that the U.S. is not entering a double dip recession.”
Crude oil for February delivery rose as much as 45 cents to $90.27 a barrel in electronic trading on the New York Mercantile Exchange and was at $90.24 at 4:14 p.m. Singapore time. Prices have climbed 14 percent this year.
Yesterday, futures gained 1.1 percent to $89.82 a barrel, the highest settlement since Oct. 7, 2008. That was 2 cents below a long-term resistance level on technical charts, the 50 percent Fibonacci retracement of the drop to $32.40 in December 2008 from a record high of $147.27 in July that year.
U.S. GDP grew 2.8 percent in the third quarter, up from an estimate of 2.5 percent last month, based on the median forecast economists surveyed by Bloomberg before a Commerce Department report.
Crude Supplies
Prices gained after the industry-funded American Petroleum Institute reported yesterday that U.S. crude-oil supplies declined 5.8 million barrels to 342 million last week. Gasoline inventories dropped 2.9 million while middle distillates increased 16,000 barrels, the API said.
“There’s no doubt that we’ve seen a tightening in the market’s balance over the last few months,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne, said in a Bloomberg Television interview. “A lot of it does depend on what you see for the demand picture going forward.”
Crude also rose after U.S. holiday retail sales data, a key economic indicator, advanced. Same-store sales at a selection of U.S. retailers posted their biggest holiday jump, according to a chain-store sales index released yesterday by the New York-based International Council of Shopping Centers and Goldman Sachs Group Inc.
Heating Oil
The Department of Energy will release its own oil-inventory report in Washington today. The data may show U.S. crude stockpiles fell last week as refiners on the Gulf Coast reduced their assets for tax savings at the end of the year, according to a Bloomberg survey.
Supplies dropped 3.4 million barrels in the seven days ended Dec. 17 from 346 million, based on the median estimate of 14 analysts. Stockpiles in the previous week slumped 9.85 million as imports fell.
Gasoline inventories may have increased 1.5 million barrels from 214.8 million, the survey showed. Analysts were split over whether stockpiles of distillate fuel, a category that includes heating oil and diesel, declined or gained.
Brent crude oil for February settlement rose as much as 46 cents, or 0.5 percent, to $93.66 a barrel on the London-based ICE Futures Europe exchange. It gained 46 cents, or 0.5 percent, to end the session at $93.20 a barrel yesterday, the highest settlement since Oct. 1, 2008.
To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net
To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net
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Stocks Rising 17% Since Bernanke Disclosed QE2 Disarms Fed's Worst Critics
Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Joshua Roberts/Bloomberg
Dec. 16 (Bloomberg) -- John Taylor, a professor of economics at Stanford University and a former Treasury undersecretary, discusses Federal Reserve monetary policy and the outlook for U.S. economic recovery. Taylor speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Republican leaders in Congress say they have “deep concerns” about Ben S. Bernanke’s second round of quantitative easing. The U.S. stock and credit markets don’t share those reservations.
The Standard & Poor’s 500 Index has climbed 17 percent since the Federal Reserve chairman first indicated on Aug. 27 that the central bank might buy more securities to boost the economy. Junk bonds rallied, with the extra yield that investors demand to own the securities instead of government debt shrinking to 5.45 percentage points yesterday from 6.81 points, according to Bank of America Merrill Lynch index data.
“It has been successful,” Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York, said of Bernanke’s policy of pumping money into the financial system, dubbed QE2. “It’s contributed to the rally in the stock market” and has “been important in reducing substantially the downside risk of deflation.”
Economic reports signal the recovery is gaining strength. A bigger-than-projected increase in retail sales in November prompted Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, to raise his outlook for fourth-quarter consumer spending. Industrial production in November also exceeded forecasts, and a gauge of consumer confidence rose to a six-month high in December.
The data, coupled with the prospect Congress will pass an $858 billion plan to extend Bush-era tax cuts, has prompted economists to boost their estimates for growth next year. The economy will expand by 2.6 percent in 2011, according to the median forecast in a Bloomberg News survey of 66 economists this month, up from a 2.5 percent prediction in November.
Confidence Grows
“As people get more confident about the economy, money is coming into the stock market,” said Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia. “The most important way quantitative easing works is the provision of liquidity.”
New York Fed President William Dudley said Oct. 1 that asset purchases would reduce borrowing costs and support the value of homes and stocks, leaving consumers with more money to spend and lowering the cost of capital for businesses.
The extra yield investors demand to own investment-grade corporate bonds instead of government debt narrowed to 1.7 percentage points yesterday from 1.91 percentage points on Aug. 27, Bank of America Merrill Lynch index data show.
“Markets in general have moved in a growth-friendly direction,” said Dean Maki, chief U.S. economist at Barclays Capital in New York.
Contrast With Summer
The latest economic data are in contrast to a drumbeat of negative economic reports last summer, including declines in home sales and payrolls, that prompted economists such as Harvard University’s Martin Feldstein to warn that the risks of a renewed recession were rising.
On Aug. 27, Bernanke said the Fed “will do all that it can” to support the recovery and signaled it was ready to start a second round of securities purchases, in addition to the $1.7 trillion it bought through last March to pull the nation out of the worst recession since the Great Depression.
The Fed’s Nov. 3 announcement that it will buy $600 billion of Treasuries through June came a day after Congressional elections gave Republicans a majority of seats in the House of Representatives.
‘Dangerous Experiment’
Sarah Palin, the 2008 vice presidential nominee who says she’s considering a run for president in 2012, wrote to the Wall Street Journal last month, saying “it’s time for us to ‘refudiate’ the notion that this dangerous experiment in printing $600 billion out of thin air, with nothing to back it up, will magically fix economic problems.”
Representative John Boehner of Ohio, nominated to be House speaker, and three other Republican leaders sent Bernanke a letter Nov. 17 expressing “our deep concerns over the recent announcement that the Federal Reserve will purchase additional U.S. Treasury bonds.”
“Such a measure introduces significant uncertainty regarding the future strength of the dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions,” they wrote.
Since then, the dollar has gained about 1.8 percent against the currencies of six major trading partners as measured by IntercontinentalExchange Inc.’s Dollar Index as of 1:19 p.m. in New York. The dollar is down 2.9 percent since Aug. 27.
The cost of living increased 0.1 percent in November, less than forecast, indicating higher prices for commodities aren’t filtering through into other goods and services, according to a Dec. 15 Labor Department report.
Seen as Favorable
“We don’t expect a rapid move higher in inflation anytime soon,” said Maki, who was the No. 2 forecaster overall for the U.S. economy in the two-year period ended on Sept. 30, according to data compiled by Bloomberg. “What we’re expecting is a very gradual upward trend that is likely to be seen by the Fed as favorable.”
Policy makers are concerned that too-low inflation will push up borrowing costs and increase the risk of deflation, or a debilitating decline in prices that boosts debt and reduces wages and profits.
The Fed’s policies have led inflation expectations to increase. The breakeven rate for 10-year Treasury Inflation Protected Securities, the yield difference between the inflation-linked debt and comparable maturity Treasuries, has risen to 2.3 percentage points from 1.63 percentage points on Aug. 27, according to data compiled by Bloomberg. The rate is a measure of the outlook for consumer prices over the life of the securities.
Diminished Risk
“Because the Fed is acting, I would say the risk is pretty low” of deflation, Bernanke said in an interview with CBS Corp.’s “60 Minutes” program broadcast Dec. 5. “But if the Fed did not act, then given how much inflation has come down since the beginning of the recession, I think it would be a more serious concern.”
Not every indicator is going Bernanke’s way. Payrolls in November increased by 39,000 jobs, less than the most pessimistic forecast in a Bloomberg News survey of economists, and the unemployment rate rose to 9.8 percent from 9.6 percent.
The pace of economic growth is “insufficient to bring down unemployment,” the Federal Open Market Committee said this week as it affirmed its bond-buying plan and renewed a pledge for an “extended period” of low interest rates.
An increase in Treasury bond yields has provided fodder to critics such as Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut.
‘Dismal Failure’
“Their effort to achieve the stated objective of pressing long-term yields lower has been a dismal failure,” Stanley said in a Dec. 14 report. The yield on the benchmark 10-year Treasury note has climbed to 3.36 percent from 2.64 percent on Aug. 27, according to data compiled by Bloomberg.
Kevin Hassett, director of economic-policy studies at the American Enterprise Institute in Washington and a former Fed economist, said the central bank can’t take sole credit for the stock rally, which he said was caused by “a slew of slightly better economic data.”
Hassett, one of 23 mainly Republican academics and former policy makers who signed a letter last month to Bernanke telling him to arrest his expansion of monetary stimulus because it will cause a surge in inflation, also questioned whether stock gains will spur consumer spending through the so-called wealth effect.
While consumers’ stock investments have gained in value, “their bonds are going down,” said Hassett, who is also a columnist for Bloomberg News.
Too Early to Judge
Former Fed Governor Lyle Gramley said it’s “too early to make any definitive judgment” on the Fed’s bond purchases.
“I don’t know how you parse out the effects of QE2 given the changes in the environment,” including the sovereign-debt crisis in Europe and prospects for an extension of tax cuts in the U.S., said Gramley, senior adviser at Potomac Research Group in Washington.
Others say the rise in bond yields is a positive signal that reflects the outlook for faster economic growth and rising inflation expectations.
Fed asset purchases are keeping yields lower than they otherwise would be, Citigroup Inc. analysts led by Robert DiClemente said in a Dec. 10 report. At 3.36 percent, the yield on the 10-year Treasury note is below its 10-year average of about 4.16 percent, Bloomberg data show.
‘Bad Mistake’
“Looking only at the long-term rate is a bad mistake on those interpreting this policy” because quantitative easing works by increasing liquidity, University of Pennsylvania’s Siegel said.
Siegel pointed to the rise in commodity prices as another sign of increased confidence in the economy. Oil futures increased 17 percent since Aug. 27 to settle at $87.70 yesterday on the New York Mercantile Exchange.
“What the Fed is trying to do is reflate the economy,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “To the extent it has prevented expectations of outright deflation and encouraged an increase in the stock market, then it’s been a success.”
To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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Gold Climbs After IMF Says Sales of Reserves Conclude; Platinum Advances
Gold gained after the International Monetary Fund said that it had finished a program of sales of the metal to boost its finances, removing a source of supply from the global market. Platinum prices also rose.
Immediate-delivery gold advanced as much as 0.4 percent to $1,391.02 an ounce and traded at $1,389.25 at 2:53 p.m. in Singapore. The IMF concluded sales of about 403.3 metric tons, or 13 percent of its reserves, to central banks and other market participants, it said yesterday in a statement, without disclosing the total amount raised.
“The last of the overhang has now gone,” Peter Richardson, chief metals economist at Morgan Stanley in Melbourne, said by phone today. “The market will take that as a positive development,” said Richardson.
More than half of the IMF gold was acquired by the central banks of India, Sri Lanka, Mauritius and Bangladesh, according to past announcements. The disposal plan was announced in September 2009.
Gold has climbed 27 percent this year, gaining to a record $1,431.25 an ounce this month, and is poised to rise for a 10th consecutive year. Purchases by central banks as part of their efforts to diversify their reserves away from currencies have contributed to the metal’s advance.
The contract for February delivery on the Comex in New York was little changed at $1,390.10 an ounce.
‘In the Wings’
“It’s not clear whether there are new sellers waiting in the wings,” said Morgan Stanley’s Richardson. “The official sector is likely to be net buyers,” he said, referring to central banks.
Gold assets held in exchange-traded products fell about 1 ton to 2,113.7 tons as of Dec. 21 from a record the day before, according to data collected by Bloomberg from 10 providers. Holdings have climbed more than 17 percent this year.
U.S. gross domestic product may have expanded 2.8 percent in the third quarter on an annualized basis, according to the median of a 71-analyst survey by Bloomberg News. That would be more than a previously calculated 2.5 percent gain for the period. The Commerce Department will publish the data today.
“We could see some of today’s gold rally cut by a strong U.S. GDP,” Jeremy Friesen, an analyst at Societe Generale SA in Hong Kong, said today in an e-mail. “But I think global uncertainty on the fiscal, monetary and geopolitical front will remain supportive for gold well into 2011.”
The Dollar Index, which gauges the currency’s movement against six major counterparts, dropped as much as 0.3 percent today, declining for the first day in four. Precious metals usually move inversely to the dollar.
Immediate-delivery silver was little changed at $29.3312 an ounce. The metal, which has gained 74 percent this year, is likely to gain more than gold in 2011 as industrial demand strengthens, Credit Agricole SA said in a report yesterday.
Platinum rose 0.3 percent to $1,728.10 an ounce and palladium was little changed at $753.70 an ounce.
-- With assistance from Sandrine Rastello in Washington. Editor: Jake Lloyd-Smith
To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@Bloomberg.net
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Wednesday, November 17, 2010
Copper, Sugar, Rubber Futures Drop Limit in China as Wen Vows Price Curbs
Copper, sugar and rubber futures slumped their daily limit in China, with copper set for its biggest four-day slide since 2008, on speculation the government will take steps to cool inflation, damping commodity demand.
Copper for February delivery dropped 5 percent, the maximum allowed by the Shanghai Futures Exchange, to 61,550 yuan ($9,259) per metric ton before trading at 61,560 yuan. Soybeans fell 4 percent and cotton, sugar and rubber declined 5 percent.
China is drafting measures to curb excessive price gains, Premier Wen Jiabao said yesterday, suggesting the government may raise interest rates and introduce price controls. Inflation in October was 4.4 percent, boosted by a 10.1 percent increase in food costs, statistics bureau data show. The futures exchanges have already announced moves to cool speculation.
“The precipitous fall indicates investors have become increasingly risk-averse, as the strong rally in the past few months seems vulnerable,” Wang Ning, an analyst at Xiangyu Futures Co., said by phone from Shanghai.
Commodities worldwide capped the biggest five-session slide since July 2009 yesterday. The Thomson Reuters/Jefferies CRB Index of 19 raw materials fell 3.2 percent to 296.22, bringing its decline since Nov. 9 to 7.2 percent. Three-month copper lost 0.3 percent to $8,124 a ton today on the London Metal Exchange after tumbling 5.7 percent yesterday.
Investor Retreat
A Chinese consumer confidence index fell for the first time in six quarters on expectations that the price of goods and services will keep increasing. The measure dropped to 104 in the third quarter from 109 in the previous three months, according to a statement from Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center.
“What I’ve seen was a lot of liquidation of long positions as investors retreat from the market and wait until they get a clearer macro picture,” Wang said.
Soybean futures jumped as much as 12 percent in Dalian this month and dropped 9.2 percent in the past four days, the biggest such decline since October 2008. Rubber soared as much as 28 percent in Shanghai, and fell 12 percent in the past four days, the most since December 2008.
Copper futures in Shanghai declined 10.4 percent in the past four sessions, heading for the biggest four-day slide since December 2008. Zinc slid 15 percent in the period, and was poised for the largest drop since November 2007.
Rate Speculation
China’s central bank may raise rates as soon as Nov. 19 because of sustained inflationary pressure, the China Securities Journal said today. Earlier announcements also indicate that rate decisions are often released on Fridays or around the 20th of the month, the newspaper reported.
Exchanges have introduced measures to cool speculation. The Dalian bourse said last week it will curb “abnormal” trading to prevent price manipulation and other activities that disrupt an orderly market. The Zhengzhou Commodity Exchange and Shanghai Futures Exchange have announced similar steps.
Stocks in China declined, with the Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, down 1.3 percent to 2,856.96. Aluminum in London gained 0.5 percent to $2,254 a ton, while zinc declined 1.8 percent to $2,100 a ton.
Corn for March delivery on the Chicago Board of Trade fell as much as 3.3 percent to $5.22 a bushel today, the lowest level for the most-active contract since Oct. 8, and traded at $5.29.
--Helen Sun, William Bi. Editor: James Poole
To contact the Bloomberg News staff on this story: Helen Sun in Shanghai at hsun30@bloomberg.net
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Gold Imports by India Already Surpass 2009 Levels, World Gold Council Says
Gold imports this year by India, the largest consumer, have already exceeded 2009 levels as consumers boost jewelry purchases, according to the World Gold Council.
Imports totaled 624 metric tons by the end of the third quarter, compared with 559 tons in all of 2009, according to data released in a report by the London-based industry group today. India bought 214 tons in the third quarter, up from 176 tons a year earlier, it said.
Jewelry demand in India surged 36 percent in the third quarter even as gold prices gained, the council said. Bullion futures in New York reached a record $1,424.30 on Nov. 9 and are up 22 percent this year.
“Given the dual purpose of Indian jewelry, as both an adornment and an investment, the rising price helped to support demand for jewelry,” the council said in the report. “Furthermore, consumers have adjusted their price expectations and are anticipating yet higher prices.”
Consumers in India purchased 184.5 tons of gold in the third-quarter for jewelry, up from 135.2 tons a year ago, the report said. Total gold demand in India rose 28 percent in the period, it said.
To contact the reporter on this story: Madelene Pearson in Mumbai on mpearson1@bloomberg.net
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Oil Declines a Fourth Day on China Rate Speculation, Europe Debt Concerns
Oil fell for a fourth day as speculation that fuel demand will drop on China’s steps to cool its economy outweighed signs that U.S. consumption is rising.
Futures retreated as much as 1.4 percent, extending the biggest three-day decline since August, after Chinese Premier Wen Jiabao said the government was drafting measures to counter inflation in the world’s biggest energy consumer. Prices also fell on concern Europe’s debt crisis is worsening as ministers considered a rescue package for Irish banks. U.S. crude inventories dropped the most since September 2008 and gasoline demand increased, reports showed yesterday.
“Finally we have some good news on the fundamental front and everything else is undermining it,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “Part of it seems to be some concern that China might tighten policy. You have what markets perceive to be an increased probability of a further loss of global confidence with the European debt concerns resurfacing.”
Crude for December delivery fell as much as $1.16 to $81.18 a barrel in electronic trading on the New York Mercantile Exchange. It was at $81.46 at 3:52 p.m. Singapore time. Yesterday, the contract fell $2.52 to $82.34, the lowest settlement since Oct. 29. Prices are up 2.7 percent this year.
Oil dropped as Wen’s comments, broadcast yesterday on state television, stoked speculation the government may raise interest rates to damp economic growth. The Bank of Korea yesterday increased borrowing costs after inflation surged past the central bank’s ceiling.
Europe’s Crisis
European finance ministers started work on possible aid for Ireland’s debt-laden banks, stopping short of an immediate bailout package. The country’s crisis is stoking concern that Europe’s debt problems are spreading, weakening the euro versus the dollar and reducing investor demand for commodities priced in the U.S. currency.
The dollar climbed as much as 1 percent to $1.3448 against the euro yesterday, the highest level since Sept. 28. It was little changed today.
Brent crude for January settlement traded at $83.81, down 92 cents, on the ICE Futures Europe exchange in London. Yesterday, the contract lost $2.03, or 2.3 percent, to $84.73.
U.S. Demand
Crude inventories dropped 7.7 million barrels last week, the American Petroleum Institute said yesterday. An Energy Department report today will probably show that supplies were unchanged, according to a Bloomberg News survey. Oil-supply estimates from the two organizations have moved in the same direction in seven of the past eight weeks.
U.S. travel during the Thanksgiving holiday weekend will rise 11 percent from last year on improved economic conditions, AAA, the nation’s biggest motoring organization, said yesterday. Gasoline consumption at the pump climbed for the first time in four weeks, MasterCard Inc. said in its SpendingPulse report.
U.S. gasoline inventories dropped 1.65 million barrels to 214.6 million last week, the API report showed. Supplies probably fell by 750,000 barrels, according the survey of the Energy Department report.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Christian Schmollinger in Singapore at christian.s@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
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S&P 500 Drops Most Since August on Concern Over Irish Debt, China Growth
U.S. stocks sank, sending the Standard & Poor’s 500 Index to the biggest slump since August, amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy.
Freeport-McMoRan Copper & Gold Inc. and Nucor Corp. fell at least 3.5 percent as metals plunged. Travelers Cos. dropped 3.6 percent, leading losses in the Dow Jones Industrial Average as it slipped below 11,000 for the first time in a month, after declines in municipal bonds hurt its investments. Regions Financial Corp. slumped 4.5 percent after three executives overseeing risk and souring assets at the bank quit.
The S&P 500 decreased 1.6 percent to 1,178.34 at 4 p.m. in New York. The drop follows a late-day selloff yesterday triggered by growing criticism of the Federal Reserve’s plan to spur growth using a technique called quantitative easing. The Dow fell 178.47 points, or 1.6 percent, to 11,023.50. The MSCI World Index of shares in 24 developed nations slumped for a seventh straight day, the longest losing streak since January.
“It will be a choppy ride before we find some footing,” said Burt White, who helps oversee $284 billion as chief investment officer at LPL Financial Corp. in Boston. “The market is really trying to get its arms around a few lingering questions -- China, Europe, or whether or not QE2 is going to work or if it’s even necessary.”
Restraining Prices
The S&P 500 slid to the lowest level since Oct. 20 after the China Securities Journal reported that the country will introduce measures to control rising food prices in the world’s fastest-growing major economy. Equities extended losses as Austria threatened to block its next transfer of financial rescue funds to Greece.
The Fed has begun a second round of quantitative easing, known by investors as QE2, with plans to buy as much as $600 billion of Treasuries in coming months to lower long-term interest rates and boost the economy.
Fed Bank of Boston President Eric Rosengren said today in an interview with Bloomberg News that he expects the central bank to buy the entire $600 billion of Treasuries authorized Nov. 3, while St. Louis Fed President James Bullard said there’s a possibility that all of the purchases may not be needed or the Fed could even add to the easing program.
On U.S. stock exchanges, 5.7 companies fell for each that rallied, the most since Oct. 19, according to data compiled by Bloomberg. Declines in the 10 main S&P 500 industries ranged between 2.2 percent for raw-material companies and 1.1 percent for consumer staples.
Freeport, Nucor
Freeport, the largest publicly traded copper producer, slumped 4.3 percent to $97.61. Nucor, the biggest U.S. steelmaker, sank 3.5 percent to $37.97.
Stocks also fell on growing concern that Europe’s debt crisis is worsening.
Ireland is in talks with European and International Monetary Fund officials about a bailout that would enable it to inject capital into the country’s banks, said a European official with direct knowledge of the talks. The two-part funding package would mean Ireland wouldn’t have to tap the bond market for an extended period as it tries to cut the budget deficit, said the person, who spoke on condition of anonymity.
“Concern about China tightening and the Ireland debt situation is hitting sentiment big-time,” said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust Co. in Boston. “We’re in the middle of a pullback.”
Austria Threat
Stocks extended declines as Austria threatened to block its next transfer of rescue funds to Greece unless the government gets a deficit-cutting plan back on track.
“We are getting indications that the Greeks can’t stick to their plan in a sufficient manner, in particular on the revenue side,” Finance Minister Josef Proell said, according to a government e-mail that confirmed remarks made after a cabinet meeting today. “The data we have at the moment doesn’t give any reason to approve the December tranche from the Austrian point of view.”
Travelers sank 3.6 percent to $54.73 after a selloff in municipal bonds. The New York-based insurer held municipal debt valued at $41.4 billion at the end of third quarter.
Regions Financial dropped 4.5 percent to $5.92. The lender said Chief Risk Officer Bill Wells resigned. The Birmingham, Alabama-based company also said Michael Willoughby, director of credit risk, retired and Tom Neely, head of problem asset management, left the company. Chief risk officer duties are being divided between Barb Godin and John Haley.
Wal-Mart, Home Depot
Wal-Mart Stores Inc. rose 0.6 percent to $54.26 after the world’s largest retailer reported a 9.3 percent gain in third- quarter profit as growth abroad helped make up for sales declines at U.S. stores.
Home Depot Inc. advanced 1 percent to $31.71 after reporting third-quarter profit that topped analyst estimates and increasing its earnings forecast for the year after curbing expenses.
U.S. closed-end funds fell the most in five months as a weeklong selloff in stocks and bonds convinced buyers they were paying too much for the assets that underlie the investment products.
The S-Network Composite Closed-End Fund Index lost 1.7 percent, the biggest retreat since June 4 and its seventh day of declines, data compiled by Bloomberg show. John Hancock Investors Trust dropped 6.3 percent, the most since Nov. 21, 2008, and Pimco Corporate Income Fund fell 3.7 percent, the biggest decrease since May 6.
Closed-end mutual funds, unlike their open-ended competitors, sell common shares to investors that are publicly traded on exchanges and often borrow to boost returns. The tumble over the last week reflected declines in their holdings as well as a widening discount in the funds’ market price compared with the value of the assets they own.
“It’s like a fire spreading,” said Richard A. Barone, chairman of Cleveland-based The Ancora Group Inc. which manages about $3 billion. “There’s a general sense that risk is coming back into to certain areas of the bond market, and perhaps that we’ve come to the end of the line in terms of interest rates coming down. So there’s profit-taking going on.”
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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McDonald's Raises Prices in China Restaurants on Higher Raw Material Costs
McDonald's employees serve a customer in Shenzhen. Photographer: Kevin Lee/Bloomberg
Product prices were raised by 0.5 yuan to 1 yuan (15 cents) today at the more than 1,200 McDonald’s restaurants in the country because of higher raw material costs, said Sophia Luan, the Oak Brook, Illinois-based company’s China spokeswoman. She declined to provide an average percentage increase when interviewed by phone today.
Premier Wen Jiabao said China’s Cabinet is drafting measures to counter excessive price increases, according to state television yesterday, and inflation grew to 4.4 percent last month, the highest in more than two years. McDonald’s opened its first 1,000 restaurants in China in 19 years, faster than in any other country outside the U.S., and plans to have 2,000 within four years, according to Asia President Tim Fenton.
“Everybody is getting used to price increases nowadays,” said Zhang Chen while ordering a fish burger and grapefruit tea at a McDonald’s restaurant at the Shanghai International Finance Center. “One yuan or half a yuan isn’t a big deal.”
Big Mac Index
Zhang, a 27-year-old administrative assistant at a financial company, said she didn’t notice the increase in prices. The restaurant raised the price of its cheese burger by 0.5 yuan while a corn cup was 1 yuan more expensive than yesterday.
McDonald’s fell 2.1 percent to $77.42 yesterday in New York trading.
China has the world’s cheapest Big Mac burgers partly because of a weak yuan, according to The Economist’s Big Mac Index as of Oct. 14. The sandwiches cost $2.18 each on average in Beijing and Shenzhen, compared with $3.71 in the U.S.
Big Macs are most expensive in Switzerland at $6.78, according to the magazine’s index, which uses the concept of purchasing power parity that states the dollar should buy the same amount in all countries.
“If consumers see justifications for price increases, such as value and product safety, they will be willing to pay for it,” Vinay Dixit, senior director of Asia consumer centers at McKinsey & Co., said in an interview in Shanghai.
Consumer Confidence
A Chinese consumer confidence index fell in the three months ended September, the first decline in six quarters, on expectations the costs of goods and services will keep rising.
A total of 76 percent of Chinese consumers expect prices will increase over the next year, up from 70 percent in the previous quarter, according to a statement from Nielsen Co. and the Chinese statistics bureau’s Economic Monitoring and Analysis Center today. Concerns about inflation are strongest among rural and first-tier city consumers, the survey said.
China may impose price limits on food and toughen punishment of those found speculating on agriculture futures including corn and cotton, the China Securities Journal reported, citing an unidentified person.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 1.9 percent to 2,838.86 at the 3 p.m. close of trading, the lowest level in a month.
--Michael Wei, Li Yanping and Stephanie Wong. Editors: Frank Longid, Stephanie Wong
To contact the Bloomberg News staff on this story: Michael Wei in Beijing at mwei13@bloomberg.net
To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net
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Euro Trades Near Seven-Week Low on Concern Ireland Debt Crisis May Spread
The euro traded near a seven-week low against the dollar amid concern a failure to craft a rescue package for Ireland will allow the nation’s banking crisis to spread to other member states of the common currency.
The dollar rose versus the yen for a seventh straight day, marking a six-week high and the longest run of gains since 1995. The Australian and New Zealand dollars traded near the lowest levels in more than two weeks as declines in stocks and concern that China will take measures to cool inflation damped demand for higher-yielding assets.
“Concerns about the region’s debt crisis weigh on the euro,” said Jeremy Stretch, executive director of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “That’s given the dollar a boost, and the euro stays under pressure. Ireland’s problem is not so much a sovereign issue as a banking issue.”
The euro was at $1.3487 as of 8:01 a.m. in London from $1.3489 in New York yesterday, when it touched $1.3448, the weakest level since Sept. 28. The shared currency traded at 112.55 yen from 112.38 yen after dropping 0.4 percent yesterday. The greenback fetched 83.43 yen from 83.29 yen. Yesterday, it reached 83.59 yen, the highest level since Oct. 5.
“The rebound in the dollar is beneficial for the Japanese economy,” Stretch said. “Dollar-yen is squeezing up and that will help alleviate some of the nation’s export pressures.”
EU, IMF Talks
Ireland is negotiating with the European Union and International Monetary Fund about aid to shore up the state’s finances, furnish capital for the country’s banks and spare the nation from tapping the bond market for an extended period, a European official said on condition of anonymity.
European finance ministers started work on possible aid for Ireland’s debt-laden banks, stopping short of an immediate bailout package. Finance chiefs from the 16-country euro region lauded Ireland’s budget cuts, echoing the rhetorical support offered in the early stages of Greece’s debt trauma before a rescue became necessary. Ireland said it doesn’t need EU money.
Irish Prime Minister Brian Cowen told Parliament in Dublin the nation hasn’t lodged an aid request and the goal is “a credible, efficient and above all workable solution that will provide assurance to the markets.”
Dollar ‘Bias’
“Investors are poised to unwind their positions rather than adding new ones amid Europe’s lingering issues, and the bias is for the dollar to be bought,” said Kuniyuki Hirai, manager of foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest lender. “The euro will struggle to rise toward year-end.”
Austrian Finance Minister Josef Proell said he’s considering withholding his country’s share of the next part of Greece’s 110 billion-euro ($148 billion) rescue, saying the Athens government missed a revenue-raising target. Greece’s near-default in May triggered Europe’s sovereign-debt crisis.
The euro has lost 7.4 percent this year against its developed-nation counterparts, Bloomberg Correlation-Weighted Currency Indexes show. The dollar is down 1 percent, while the yen has gained 12 percent, the indexes show.
The dollar was supported as Atlanta Federal Reserve President Dennis Lockhart said additional bond purchases by the central bank aren’t intended to weaken the greenback.
Fed Outlook
Lockhart said the program to buy $600 billion in Treasuries is not intended to weaken the dollar or monetize the debt. The effect of the policy would be “measured,” Lockhart said in remarks prepared for a speech in Montgomery, Alabama.
The Fed announced on Nov. 3 it would make the bond purchases, a program known as quantitative easing, through June. Boston Fed President Eric Rosengren is set to speak at a chamber of commerce breakfast in Providence, R.I., and St. Louis Fed President James Bullard will speak in St. Louis today.
The dollar’s gains may be limited as reports today are forecast to show U.S. inflation was contained and housing starts dropped to a three-month low.
“Employment and housing haven’t recovered much at all,” said Tetsuya Inoue, chief researcher for financial markets at Nomura Research Institute in Tokyo, a unit of Japan’s largest brokerage. “Weak credit conditions in the U.S. may prompt people to invest money abroad. As a result, the dollar will be under downward pressure.”
Inflation, Housing
U.S. consumer prices, excluding food and fuel costs, rose 0.7 percent in October from a year ago after gaining 0.8 percent in September, according to the median estimate of economists in a Bloomberg News survey before today’s data. Housing starts grew at a 598,000 annual rate last month, the least since July and down from a 610,000 rate in September, another survey showed.
The euro gained against the yen as the common currency climbed above the so-called cloud of the daily ichimoku chart after entering it yesterday.
Ichimoku analysis, developed by a Japanese journalist, is used to predict a currency’s direction through analyzing the midpoints of historical highs and lows.
Australia’s currency touched 97.25 U.S. cents yesterday, the weakest since Oct. 29, after Chinese Premier Wen Jiabao said the cabinet is drafting steps to counter excessive price gains.
“The Aussie dollar has been directly affected by the movement we’ve seen in risk appetite because of China tightening concerns and news from the euro zone,” said Ray Attrill, head of macro strategy in Sydney at Tallship Investments, a currency fund manager.
Australia’s currency traded at 97.38 U.S. cents from 97.67 cents. New Zealand’s dollar was at 76.41 cents from 76.78 cents. The so-called kiwi reached 76.39 cents earlier today, the lowest since Nov. 2.
The MSCI World Index of shares fell for the eighth straight day, dropping 0.3 percent.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
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