Sunday, January 30, 2011

Oil Gains a Second Day Amid Concern Egyptian Unrest Will Spread

By Ben Sharples - Jan 31, 2011 8:18 AM GMT+0800

Oil rose for a second day in New York after unrest in Egypt prompted concern that protests may spread to crude-producing parts of the Middle East.

Futures increased 4.3 percent on Jan. 28, the most since September 2009, after clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call.

“The concerns in Egypt are playing on the commodity and financial markets,” said Ben Westmore, a minerals and energy economist at National Australia Bank Ltd. in Melbourne. “The proximity to the Suez Canal and the possibility that there might be some constraints to supply is having an impact on the crude price.”

Crude for March delivery gained $1.53, or 1.7 percent, to $90.87 a barrel, in electronic trading on the New York Mercantile Exchange at 11:14 a.m. Sydney time. The contract increased $3.70 to $89.34 on Jan. 28. Oil was up 0.3 percent last week and is down 1.3 percent this year.

President Mubarak met with top military commanders yesterday as tens of thousands of protesters defied a curfew and gathered in central Cairo, chanting slogans against his new prime minister and vice president. The unrest in Egypt followed an uprising that led to the Jan. 14 overthrow of Tunisian president Zine El Abidine Ben Ali.

Risk Premium’

“Tensions in Egypt and potential spreading tensions to surrounding regions added a risk premium to oil prices,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., said in a note today.

Saudi Arabia is the world’s largest oil exporter. The kingdom and the other seven Middle Eastern and North African countries in the Organization of Petroleum Exporting Countries pumped 78 percent of the group’s oil in January, based on Bloomberg estimates.

The Suez Canal, which connects the Mediterranean and Red Seas, passes through Egypt. About 1 million barrels a day of oil and refined products moved north through the canal to European and other developed economies in 2009, according to the Energy Information Administration, the statistical arm of the U.S. Energy Department.

Crude futures also rose on Jan. 28 as U.S. gross domestic product grew 3.2 percent between October and December, the fastest since the first quarter, according to the Commerce Department. It was up from a 2.6 percent rate in the previous three months. The most recent figure fell short of the 3.5 percent forecast by economists in a Bloomberg News survey.

Brent crude for March delivery rose 29 cents, or 0.3 percent, to $99.71 a barrel on the London-based ICE Futures Europe exchange. It gained $2.03, or 2.1 percent, to $99.42 on Jan. 28.

Dollar, Yen, Swiss Franc Gain Versus Euro on Unrest in Egypt

By Candice Zachariahs and Ron Harui - Jan 31, 2011 7:08 AM GMT+0800

The dollar, yen and Swiss franc advanced for a second day against the euro on concern Egypt’s political turmoil will destabilize the Middle East, spurring demand for safer assets.

The greenback and yen also gained versus higher-yielding currencies such as the Australian and New Zealand dollars after Egyptian President Hosni Mubarak yesterday met with top military commanders as tens of thousands of protesters defied a curfew and gathered in central Cairo. The yen touched a one-week high against the euro as unrest in Egypt fueled concern that Asian stocks will extend a global equity slump.

“The concerns are that we’re going to see contagion from Egypt to other parts of the Middle East,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “As long as these concerns about Egyptian political tensions persist, flight-to-safety flows are likely to favor the dollar, yen and Swiss franc.”

The dollar rose to $1.3581 per euro at 8:01 a.m. in Tokyo from $1.3611 in New York last week. The yen gained to 111.58 per euro from 111.77 after earlier touching 111.28, the most since Jan. 20. The Swiss franc advanced to 1.2794 per euro from 1.2821 after rising 1.3 percent against Europe’s common currency on Jan. 28. The greenback was at 82.16 yen from 82.12.

Egypt’s banks and markets stayed shut yesterday after six days of clashes in the most populous Arab country that left as many as 150 people dead. Markets throughout the Middle East declined yesterday on concern the unrest may spread.

The yen also strengthened as futures signaled most regional stock markets will slide after the Standard & Poor’s 500 Index decreased 1.8 percent on Jan. 28.

“The volatile political situation in Egypt has triggered a bout of investor risk aversion with traders buying the ‘safe haven’ yen, franc and dollar,” analysts including John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note today.

Monday, January 24, 2011

Sentance Says Rate Rise Needed to Tackle Accelerating Inflation

By Jennifer Ryan - Jan 24, 2011 10:00 AM PT

Bank of England policy maker Andrew Sentance said officials need to increase interest rates to keep price pressures from the global recovery and a weaker pound from getting entrenched in the economy.

“When it is clear that global inflationary pressures, coupled with a substantial decline in the exchange rate and reasonably healthy growth of domestic demand are all contributing to a sustained period of above-target inflation, then the time has come to act,” Sentance said in a speech in London today.

While food and fuel prices pushed U.K. inflation to 3.7 percent in December, the 10th month above the government’s 3 percent upper limit, the Monetary Policy Committee held the key rate at 0.5 percent this month to support growth. The central bank targets a 2 percent inflation rate and Sentance said officials’ refusal to curtail emergency stimulus may undermine their credibility and stoke further price gains.

“The lack of a substantive policy response” to consumer- price gains “enhances the risk of a loss of credibility in the inflation target itself and a loss of belief in the commitment of the MPC to achieving it,” he said.

The panel has split three ways since October, when Adam Posen said the bank should expand its bond-purchase plan to prevent inflation from slowing too much once a government spending squeeze takes hold. Posen last week described recent price gains as temporary, indicating he may keep pushing for more stimulus.

The Office for National Statistics may say tomorrow that U.K. economic growth slowed to 0.5 percent in the fourth quarter from 0.7 percent in the previous three months, according to a Bloomberg News survey of economists.

Sunday, January 23, 2011

Trichet Expects EU to Agree on More Automatic Enforcement of Budget Rules

By Martijn van der Starre and Jurjen van de Pol - Jan 23, 2011 4:41 AM PT

European Central Bank President Jean-Claude Trichet expects the European Union to agree on more automatic sanctions for violations of its budget rules.

“I hope very much and I would say I expect that this governance will be reinforced and that the quasi-automaticity for the start of the adjustment procedure and for the sanctions will be incorporated in the future governance,” Trichet said in an interview with Dutch television program “Buitenhof” broadcast today.

ECB policy makers are increasing the pressure on governments to adopt stricter rules after swelling budget deficits helped trigger Europe’s sovereign-debt crisis, which so far has forced bailouts of Greece and Ireland. EU governments plan to sign off on their version of revamped crisis-fighting- rules by the end of March.

Separately, Trichet said officials have to be “alert” to avoid second-round effects on inflation. “When you have such increase of commodity prices you have an immediate increase of CPI, which is unavoidable of course,” he said.

European inflation accelerated to the fastest pace in more than two years in December, led by surging energy costs, complicating the ECB’s efforts to deal with the sovereign debt crisis. Inflation quickened to 2.2 percent in December, the fastest since October 2008.

“What is important for us is to avoid that there is any increase of the other prices that would create a problem for price-stability in the medium term,” Trichet said.

When asked about a possible debt restructuring by Portugal, Greece or Ireland this year, Trichet said “this not the assumption that we have in mind.”

Sunday, January 16, 2011

Inflation Fight Won't Drive Yuan Appreciation, Hu Says Ahead of U.S. Visit

By Sandrine Rastello - Jan 17, 2011 3:04 AM GMT+0800

Jan. 14 (Bloomberg) -- U.S. Senator Richard G. Lugar of Indiana, the top Republican on the Foreign Relations Committee, talks with Bloomberg's Al Hunt about U.S.-China relations and his concern that China isn’t doing enough to control the spread of nuclear material. Bloomberg's Hans Nichols and Mike Forsythe preview Chinese President Hu Jintao's Jan. 18-19 visit to the U.S. Mike Tackett discusses President Barack Obama's speech at the memorial for the victims of the Jan. 8 shooting spree in Tucson, Arizona. Commentators Margaret Carlson and Kate O'Beirne speak about reaction to the shooting spree including an Internet video by Sarah Palin, former Republican governor of Alaska. (Source: Bloomberg)

Chinese President Hu Jintao rejected U.S. arguments that allowing the yuan to appreciate against the dollar would help the government in Beijing tame inflation.

Hu, who will meet President Barack Obama in Washington this week, made the comments in responses to written questions from the Wall Street Journal and the Washington Post, the newspapers reported on their websites.

The Chinese president said his government is fighting inflation with a package of policies, including interest rate increases, and that rising prices can “hardly be the main factor in determining the exchange rate policy,” according to a transcript of the answers. He said the increase in the cost of living is “on the whole moderate and controllable,” according to the transcript.

Prices are climbing faster in China than in the U.S., making Chinese goods less competitive, Treasury Secretary Timothy F. Geithner said last week. Speaking in Washington on Jan. 12, he said that, while the yuan was still “substantially undervalued,” the “fundamental forces that are pushing Chinese productivity growth and are pushing inflation higher will bring about the necessary adjustment in exchange rates.”

U.S. lawmakers argue that an undervalued yuan hurts U.S. manufacturers and widens the U.S. trade deficit by artificially holding down the price of exported Chinese goods.

While “there are some differences and sensitive issues” between the two countries, Hu said, “we both stand to gain from a sound China-U.S. relationship, and lose from confrontation.”

‘Product of the Past’

The current international currency system, with the dollar’s primacy in as a reserve currency and in trade is “the product of the past,” Hu also told the newspapers.

He pointed to China’s effort to expand the role of the yuan in cross-border trading and investment, while acknowledging it “will be a fairly long process” to make it a fully fledged international currency.

In an allusion to the Federal Reserve’s policy of buying $600 billion of Treasuries to stimulate the economy, Hu told the newspapers that U.S. monetary policy has a “major” impact on global liquidity and on capital flows.

Hu pledged to “continue to improve laws and regulations concerning foreign investment,” and offer “a stable and transparent legal and policy environment.” He said U.S. companies have a level playing field in his country and their “innovation, production and business operations in China enjoy the same treatment as Chinese enterprises.”

Socialist Democracy

Hu said China will continue to develop a “socialist democracy. He called for an “increased dialogue and contact” with the U.S. and said the countries should “abandon the zero- sum Cold War mentality” and “respect each other’s choice of development path.”

Hu answered only some of the questions submitted by the newspapers, not addressing one about Nobel Peace Prize winner Liu Xiaobo and another on China’s growing naval power, among others, according to the Journal.

Hu said that China, which “made relentless efforts to help ease the tension” between South Korea and North Korea, “pays a great deal of attention to the Korean nuclear issue” and stands “for achieving denuclearization of the peninsula in a peaceful way through dialogue and consultation to maintain peace and stability of the peninsula and Northeast Asia.”

Thursday, January 13, 2011

Bernanke Says Higher Interest Rates Reflect Improved Economy

By Scott Lanman and Joshua Zumbrun - Jan 13, 2011 11:58 AM PT

Federal Reserve Chairman Ben S. Bernanke said increased interest rates since the central bank expanded record monetary stimulus reflect an improved economic outlook, not a failure in the Fed’s program of buying bonds.

“Interest rates are higher, but I think that’s mostly because the news is better,” Bernanke said today at a forum in Arlington, Virginia, hosted by the Federal Deposit Insurance Corp. “It’s responding to a stronger economy and better expectations. So I think that the policy has helped.”

Yields on 10-year Treasuries have risen to 3.31 percent today from 2.57 percent on Nov. 3, when the Fed approved buying $600 billion of Treasuries in a move criticized by Republican lawmakers and some foreign governments. Bernanke said he’s more optimistic for a pickup in U.S. growth this year that may boost credit to small businesses, as well as their sales.

“We see the economy strengthening,” Bernanke said as part of a panel discussion on boosting lending to small businesses. “It looks better in the last few months. We think that a 3 to 4 percent-type of growth number for 2011 seems reasonable.”

“Now you’re not going to reduce unemployment at the pace that we’d like it to,” Bernanke said. “But certainly it would be good to see the economy growing. That means more sales, more business for companies of all sizes.”

Treasuries extended gains after Bernanke said joblessness may not fall as quickly as Fed officials would like. The 10-year Treasury yield declined to 3.31 percent from 3.37 percent. Stocks extended their drop, with the Standard & Poor’s 500 Index falling 0.2 percent to 1,283.91 at 2:32 p.m. in New York. The dollar remained lower against the euro.

Weak Flow

Bernanke and his Fed colleagues are trying to determine the reasons for a weak flow of credit to small companies and to identify ways other than continued record monetary stimulus to reduce an unemployment rate close to a 26-year high.

“If the sales come, that will make these businesses stronger, make them more creditworthy and be a virtuous circle,” Bernanke said on a panel that included FDIC Chairman Sheila Bair and Senator Mark Warner, a Democrat from Virginia.

Fed officials last year joined more than 40 meetings around the U.S. with small businesses, lenders, bank examiners and local government officials. Bernanke said in a Jan. 7 Senate hearing that “we are working very hard in our role as a regulator to try to improve the availability of credit to small businesses and to other borrowers.” He said the issue was “our top priority.”

Bernanke, in the hearing, attributed the decline in credit to bank losses and lower values of collateral. He said the Fed won’t criticize a bank for lending to a small business or a company where the collateral value has dropped.

More Lending

As the economy expands “we’re going to see more lending take place,” Bernanke said on Jan. 7.

Yesterday the Fed said in its anecdotal Beige Book report that holiday-season spending and increased manufacturing drove an economic expansion across the U.S. in November and December, with businesses cautiously optimistic about their 2011 outlooks.

Since the last meeting of Fed policy makers on Dec. 14, indicators have been “somewhat stronger,” and the “holiday season seemed to be particularly strong” across large and small businesses, St. Louis Fed President James Bullard said yesterday in a telephone interview.

Monday, January 10, 2011

Trichet Says Emerging Economies Face `Inflationary Threats' Amid Recovery

By Jana Randow and Simone Meier - Jan 10, 2011 5:43 AM PT

European Central Bank President Jean-Claude Trichet said growth is stronger in emerging economies, though euro-area data have also been better than expected. Photographer: Denis Doyle/Bloomberg

European Central Bank President Jean-Claude Trichet, speaking on behalf of the world’s central bankers, said the global economy has recovered better than expected, boosting inflation pressures in emerging markets.

“Inflationary threats present some kind of general feature in the emerging world; it’s something you don’t see necessarily in advanced economies,” Trichet said today at a briefing in Basel, Switzerland, after chairing the Global Economy Meeting. “It’s clear that it is extremely important that we all keep control of inflation expectations, and that calls for appropriate decisions.”

Global rate setters are growing more concerned about inflation threats as the world economy gathers strength and surging food and oil prices fuel price gains. Trichet said growth is stronger in emerging economies, though euro-area data have also been better than expected.

“Since the start of the recovery, we were observing results in terms of facts and figures, in terms of real economic evolution, that were better than forecast,” Trichet said. “I would say that it’s also the case until now in the euro area.”

John Lipsky, the International Monetary Fund’s first deputy managing director, said on Jan. 4 that this year will be “pivotal” for the global recovery. The outlook for the world economy, while “promising,” is still “clouded” by risks of more turmoil in sovereign debt markets, failure to reduce unemployment in some advanced economies and overheating in some developing countries, Lipsky said.

IMF Forecasts

The Washington-based institution forecasts growth in the world economy will slow to 4.2 percent from 4.8 percent in 2010. While advanced economies will expand 2.2 percent, developing nations will grow 6.4 percent this year, driven by strong expansion in China, which last year overtook Japan as the world’s second-largest economy, the IMF said.

Speculation central banks from China to India and Indonesia will raise rates to curb inflation drove Asian stocks lower today. Emerging-market stocks fell the most in a month, with the MSCI Emerging Markets Index declining as much as 1.2 percent. Food-price inflation in Asian countries excluding Japan in November was at its highest level in the past decade except for the 2007-2008 period, according to Credit Suisse Group AG.

Food Prices

“The reasons that are behind the food price increases were considered important” at today’s meeting, Trichet said. “It’s an element of the possible threat to inflation,” he added. “There is a unity of purpose at the level of the global economy meeting, which is that we have to deliver price stability and need to be credible in this delivery.”

Brazil’s consumer prices rose more than economists expected in December, pushing last year’s inflation rate to the highest since 2004. Central bank President Alexandre Tombini, who attended the Basel meeting after being sworn in on Jan. 3, may raise borrowing costs when he chairs his first policy meeting this month, according to Bloomberg estimates based on interest- rate futures contracts.

In the euro area, inflation accelerated to 2.2 percent in December, exceeding the ECB’s 2 percent limit for the first time in more than two years. Economists forecast the bank will raise its key interest rate from a record low of 1 percent in the fourth quarter of this year, a Bloomberg survey shows. Trichet declined to speak in his role as ECB President.

Debt Crisis

Euro-region governments are struggling to contain a sovereign-debt crisis that’s spread from Greece to Ireland and is threatening to force other highly-indebted countries into seeking international aid.

While there was “an absolutely clear understanding” that sound fiscal policies are “very important” at the global level, central bankers didn’t discuss Portugal’s situation, Trichet said. The ECB today purchased bonds issued by the Iberian nation, which is struggling to convince investors that it can push down its budget deficit, according to three traders with knowledge of the transactions.

Trichet met in Basel with his counterparts from the world’s largest central banks including Federal Reserve Chairman Ben S. Bernanke, China’s Zhou Xiaochuan, Japan’s Masaaki Shirakawa, and Germany’s Axel Weber. The meeting is held every two months under the auspices of the Bank for International Settlements, which oversees central banks.