Monday, February 21, 2011

Brent Crude Jumps to Two-Year High of $105.70, Gold Rises on Libya Unrest

By Stephen Kirkland and Boris Korby - Feb 21, 2011 2:35 PM PT

Oil rose to the highest since September 2008 and gold rallied for a sixth day surpassing $1,400 an ounce as tension in the Middle East escalated. Stocks fell the most in a month as Eni SpA led companies with operations in Libya lower.

Brent crude gained 5.3 percent to $107.93 at 5:34 p.m. New York time. Gold climbed 1.2 percent and silver added 3.8 percent. The Stoxx Europe 600 Index declined 1.3 percent, with Eni sinking the most since July 2009. Standard & Poor’s 500 Index futures lost 0.9 percent. Bahrain’s 2020 bond yield increased for a 10th day after S&P cut the nation’s debt rating. The yen and the dollar strengthened against most of their major peers. U.S. markets were closed for the Presidents’ Day holiday.

Libyan security forces attacked anti-government protesters as demonstrations spread across the Middle East and North Africa, a region that accounts for 36 percent of global crude output. Chinese authorities blocked foreign news reports on protests across the country to stamp out any movement toward pro-democracy revolts.

“You’ve got to be very concerned, particularly because it can affect the oil price, and if you have the oil price spike up another $20, $30, you could reenter a global recession,” Bill Belchere, global chief economist at Mirae Asset Securities, said in a Bloomberg Television interview in Hong Kong.

West Texas Intermediate oil for April delivery jumped 6.3 percent to $95.39 a barrel in New York. Gold climbed to as high as $1,408.45 an ounce, and last traded at $1,406.45. The six days of gains is the longest streak since August. Silver rose to a 30-year high of $33.8925 an ounce.
Libya Ties

Eni, the largest foreign oil and gas producer in Libya, lost 5.1 percent, while OMV AG, central Europe’s biggest oil company, which has been in Libya since 1975, slid 4.2 percent. Tekfen Holding AS tumbled 7.9 percent as the Turkish builder suspended work on a Libyan project, saying its priority now is the safe evacuation of 1,197 non-Libyan employees.

Merck KGaA gained 4.5 percent as earnings beat forecasts. Alpha Bank SA rose 5 percent as the shares resumed trading following a takeover bid from National Bank of Greece SA.

The MSCI Emerging Markets Index slid 0.1 percent. Benchmark indexes in Russia and South Africa rose at least 0.9 percent while gauges in Turkey, Dubai and Morocco sank more than 1 percent. Brazil’s Bovespa fell 1.2 percent.
Facing Civil War

Muammar Qaddafi’s son called on protesters to engage in dialogue or face a civil war, as violence escalated amid reports protesters seized control of Libya’s second-biggest city. Violence has flared in Yemen, Djibouti, Iran and Bahrain as governments sought to crack down on demands for change.

Bahrain’s dollar bond due 2020 fell as S&P cut its rating and signaled further downgrades were possible, saying it expected protests to persist.

Default swaps on Dubai jumped 11 basis points to 448, contracts on Qatar increased seven basis points to 113, and those for Saudi Arabia climbed five basis points to 144, according to CMA.

India’s Sensitive Index climbed 1.3 percent on gains by oil shares and Wipro Ltd.’s biggest rally since November after Credit Suisse Group AG recommended the software services provider. Vietnam’s VN Index slumped 4 percent, the most since November 2009, after the government said it will raise electricity prices by a record 15.3 percent.

The yield on Germany’s 10-year bund slid seven basis points to 3.18 percent after Chancellor Angela Merkel’s Christian Democratic Union lost an election in the city-state of Hamburg to the Social Democrats.

The yen strengthened 0.1 percent.

Tuesday, February 15, 2011

Europe Economy Expands Less Than Economists Forecast

By Simone Meier - Feb 15, 2011 6:30 PM GMT+0800

Bayerische Motoren Werke AG this month forecast a “significant” sales increase in the first half and German business confidence surged to a record in January, suggesting the recovery is gathering strength. Photographer: Michele Tantussi/Bloomberg

Europe’s economy expanded less than economists forecast in the fourth quarter as cold weather curbed German output and French growth unexpectedly stalled.

Gross domestic product in the euro region rose 0.3 percent from the previous three months, when it increased at the same rate, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to expand 0.4 percent, the median of 37 estimates in a Bloomberg News survey showed. Exports fell 0.4 percent in December from the previous month, a separate report showed today.

Companies have relied on faster-growing markets to boost sales as governments from Spain to Greece toughened budget cuts, undermining consumer demand. Bayerische Motoren Werke AG, the world’s largest luxury-car maker, this month forecast a “significant” sales increase in the first half and German investor confidence rose for a fourth month in February, suggesting the recovery is gathering strength.

“Weaker growth is no reason for concern because it was mainly to special factors such as bad weather,” said Alexander Krueger, head of capital market analysis at Bankhaus Lampe KG in Dusseldorf. “Germany will remain the role model, while other countries will have slightly weaker growth.”

The euro was little changed against the dollar after the data, trading at $1.3530 at 11:26 a.m. in Frankfurt, up 0.3 percent on the day.
Cold Temperatures

German GDP rose 0.4 percent in the fourth quarter from the previous three months, when it increased 0.7 percent, as unusually cold temperatures hurt construction output. France’s economy maintained its pace, growing 0.3 percent. In Italy, GDP rose 0.1 percent while Finland’s economy grew 2.5 percent.

In Greece and Portugal, the economies contracted from the previous three months, today’s report showed. The statistics office didn’t provide figures for Ireland.

Reviving exports have boosted the region’s expansion as budget cuts and the highest unemployment in more than 12 years prompted consumers to cut spending. The International Monetary Fund raised its global economic forecast on Jan. 25 and projected China’s economy will expand 9.6 percent and Indian GDP will increase 8.4 percent. Euro-area GDP may rise 1.5 percent, the Washington-based fund said.

“We consider the economic recovery becoming more vigorous and more self-reliant,” Luxembourg Prime Minister Jean-Claude Juncker said at a briefing in Brussels late yesterday after chairing a meeting of euro-region finance ministers. “Growth has surprised upwards and prospects remain encouraging.”
Largest Market

The trade report showed that shipments to the U.S. rose 18 percent in the 11 months through November from a year earlier. Exports to the U.K., the region’s largest market, increased 12 percent, while sales to China and Russia surged 38 percent and 29 percent, respectively. Detailed data are published with a one-month lag. The seasonally adjusted trade deficit was 2.3 billion euros ($3.1 billion) in December, down from 3.2 billion euros.

Infineon Technologies AG, Europe’s second-largest chipmaker, on Feb. 1 raised its full-year sales forecast on surging demand. Munich-based BMW expects “double-digit growth” in markets including Brazil, while Europe “will be flat,” Chief Financial Officer Friedrich Eichiner said on Feb. 3.

“There are still many problems in Europe in countries like Spain,” Eichiner said. “What we are intending is not to be heavily dependent on one market.”
Two Decades

From a year earlier, euro-area GDP rose 2 percent, up from 1.9 percent in the previous quarter, today’s report showed. The statistics office will publish a detailed breakdown of the data on March 3. Estonia joined the euro region this year, making it 17 countries sharing the currency.

Adding to signs the recovery is gathering strength, German business confidence surged to a record last month and unemployment dropped to the lowest in almost two decades. European economic sentiment held near the highest in more than three years, while the services and manufacturing industries expanded at a faster pace in January.

LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, said on Feb. 4 that the outlook for 2011 is “excellent” after the Paris-based company reported full- year profit that beat analysts’ estimates. Schaeffler Group, the world’s second-biggest maker of roller bearings, said last month that it may add about 5,000 workers this year to meet orders.

“Business surveys suggest that the economy made a good start to 2011,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “It should remain supported by strong, albeit moderating, global growth during the course of this year, as well as a recovery in investment. Fiscal consolidation and sluggish labor markets should weight on domestic demand, leaving the overall economy growing at a moderate pace.”

EU to Double Rescue Fund in 2013, Takes No Fresh Portugal Steps

By James G. Neuger and Stephanie Bodoni - Feb 15, 2011 8:01 AM GMT+0800

Jean-Claude Juncker, Luxembourg's prime minister and president of the Eurogroup. Photographer: Hannelore Foerster/Bloomberg

European governments agreed to double the lending capacity of the rescue fund for debt-laden countries in 2013, while seeing no need for immediate steps to shield Portugal from the fiscal crisis.

Finance ministers decided that the future emergency aid mechanism will be able to lend 500 billion euros ($675 billion), twice the size of the fund set up in the wake of Greece’s near- default last year.

“The situation on the sovereign-debt markets remains worrying,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing a meeting of European finance ministers in Brussels yesterday. “The Portuguese authorities did take effective actions. If this action would reveal itself as not having been sufficient, other measures will have to be taken, but I have no indications that this has to be done in the short term.”

Bonds in Greece, Italy and Portugal fell as Germany opposed stepping up the rescue effort until European governments take fresh measures to bolster the competitiveness of the 17-nation economy. The maneuverings over longer-term economic policies pushed the near-term crisis management into the background.

“They only want to talk about the future, and not the present,” said Carsten Brzeski, an economist at ING Group NV in Brussels. “EU leaders seem to be trying to ring-fence the current crisis and not address its pressing issues.”

Portugal’s 10-year yield increased 11 basis points to 7.42 percent yesterday. The extra yield over benchmark German bonds, a measure of investors’ doubts about Portugal’s fiscal health, widened to 413 basis points, the highest since Jan. 7.
Deficit Overruns

German Finance Minister Wolfgang Schaeuble said the “stable” situation in the markets enables the European Union to play for time, sticking to a late-March timetable for measures to bolster the current rescue fund and prevent future deficit overruns.

“The markets are so stable right now that it’s better not to unsettle them with superfluous discussions,” Schaeuble told reporters before the meeting.

Germany, the biggest contributor to last year’s 110 billion-euro rescue of Greece and 67.5 billion-euro aid for Ireland, is under domestic pressure to hitch the rest of Europe to Germany’s low-inflation, low-deficit orthodoxy.

With her party facing elections in seven of Germany’s 16 states this year, Chancellor Angela Merkel is seeking to reassure voters that Europe’s largest economy is getting something in return for handouts to debt-strapped governments.
Distressed Countries

Merkel’s coalition allies, the Free Democrats, are trying to counter a slump in the polls by opposing more generous bailout terms or using the fund to enable distressed countries to retire debt at a discount.

Backed by French President Nicolas Sarkozy, Merkel struck a blow for German-style economic management with a Feb. 4 proposal for a “competitiveness pact” including caps on wages and spending as well as a lengthening of the retirement age. The proposal, one of Germany’s conditions for expanding the euro- support operations, was criticized for overlapping with policies already pursued at the European level.

“Almost everybody is in favor to improve competitiveness, but what’s the way to do it? I’m not sure the Franco-German proposal is the best way,” Finnish Finance Minister Jyrki Katainen said.

The pact will be aired at a special March 11 summit called at Merkel’s bidding. Finance ministers may hold an extra meeting on March 21 to prep for a March 24-25 summit designed to unveil a “global response” to the debt crisis, Juncker said.
Collateral Rules

Germany has put the focus on getting the full potential out of the temporary fund, known as the European Financial Stability Facility. While nominally worth 440 billion euros, collateral rules that underpin its AAA credit rating limit the fund’s lending capacity to about 250 billion euros.

The permanent fund will take effect in mid-2013, with its size adjustable at two-year intervals. As with the current mechanism, the International Monetary Fund will kick in 50 cents for every euro from European governments, under what EU Economic and Monetary Commissioner Olli Rehn called an “unwritten understanding.”

German politics will complicate the permanent rescue facility as well, after legal experts in the lower house of parliament concluded yesterday that it will require a two-thirds majority to win Germany’s endorsement. Merkel would have to fall back on opposition support.
Upgraded Toolkit

While European officials have said direct purchases of struggling countries’ bonds in the primary market are likely to be part of the current fund’s upgraded toolkit, other pieces -- such as Ireland’s plea for lower interest rates on aid -- have yet to fall into place.

“The interest-rate facility is higher, is designed to give a profit to other member states, and there is an issue about whether the interest rate should be reduced to reflect the need to have sustainability,” Irish Finance Minister Brian Lenihan said in Brussels.

The opposition in Ireland’s Feb. 25 election has made the average 5.8 percent rate a campaign issue, promising to cut it in case of victory. The EU might approve lower rates starting next year, not for 2011, Rehn said.

It is “essential to respect” the arrangements for this year, Rehn said. “Concerning outer years, there is more room for maneuver.”

The European Central Bank, which has propped up markets by buying 76.5 billion euros of weaker countries’ bonds, is looking to hand over that job to governments as it pivots to its main mission of combating inflation.
‘Their Responsibility’

“Governments have to take on their responsibility,” ECB President Jean-Claude Trichet said in an interview with Les Echos. “I’ve asked for an improvement in the interventions of the EFSF, qualitatively and quantitatively. The possibility of the EFSF buying sovereign bonds forms part of this logic.”

Separately, the ministers picked Belgium’s Peter Praet to fill the next opening on the central bank’s Executive Board. Praet, 62, will take the seat set to be vacated on May 31 by Gertrude Tumpel-Gugerell of Austria, currently the only woman on the board.

The selection collides with intensified speculation over who will succeed Trichet when his term ends in October. A top candidate for that post, German Bundesbank President Axel Weber, took himself out of the running by announcing last week that he will step down and return to academia.

Thursday, February 10, 2011

Weber Says ECB Will Act If Inflation Expectations Increase

By Christian Vits and Gabi Thesing - Feb 10, 2011 9:16 PM GMT+0800

Bundesbank President Axel Weber said the European Central Bank will raise interest rates if inflation expectations pick up.

While rates are “appropriate” for now and the ECB still expects the inflation rate to fall below 2 percent, “we will very closely monitor any potential deviation” to consumer price expectations “and act appropriately,” Weber said in a speech in Vienna today.

“There should be no doubt about the Eurosystem’s determination to continue to secure price stability in the euro area,” he said.

A survey of professional forecasters, published in the ECB’s monthly bulletin today, predicted that inflation in the longer term would breach the ECB’s limit. The ECB, which tries to keep annual price gains just below 2 percent, has signaled concern about faster inflation feeding into wage demands. Economists forecast the bank to start raising borrowing costs from the fourth quarter, a Bloomberg survey shows

Euro-area inflation accelerated to 2.4 percent last month after energy and food costs surged. Economists surveyed by the ECB forecast annual price gains of 1.9 percent in 2011, compared with a previous projection of 1.5 percent. They predict 1.8 percent for 2012, compared with 1.6 percent before.

Weber said the increase in the inflation rate has been boosted by “one-off factors” and should be “even if they remain for a few months of a temporary nature.”

Weber’s appearance in Vienna was overshadowed by reports that he will step down as Bundesbank President and has dropped out of the race to succeed ECB President Jean-Claude Trichet.

Weber said he won’t comment on his plans for the future, having spoken with German Chancellor Angela Merkel.