Thursday, April 21, 2011

Obama Says U.S. Probing Speculators, Traders in Oil Markets

By Nicholas Johnston and Roger Runningen - Apr 21, 2011 12:29 PM PT

President Barack Obama said a Justice Department probe will examine the role of “traders and speculators” in oil markets and how they contribute to high gas prices.

“The attorney general’s putting together a team whose job it us to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators,” Obama said today in Reno, Nevada. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”

The administration today created a working group to explore whether oil and gasoline prices are being driven higher by illegal manipulation.

The group, which includes representatives of federal agencies and state attorneys general, will check for fraud, collusion or misrepresentation at the retail and wholesale level, the Justice Department said in a statement today. The group also will examine investor practices and the role of speculators and index traders in oil futures markets.

Obama faces political pressure over rising gasoline prices. Crude oil futures have increased 22 percent and gasoline surged 34 percent this year as Middle East unrest reduced supply and the global economic rebound bolstered fuel demand. Both futures contracts touched the highest levels this month since the records reached in 2008.
Gasoline Prices

The average price nationwide of regular gasoline at the pump was $3.84 a gallon yesterday, the highest since Sept. 16, 2008, AAA said on its website.

“It hurts. Every time you go to work a big chunk of your paycheck is eaten up,” Obama said. “This gas issue is serious.”

The president is on a cross-country trip to sell his deficit reduction plan, speaking today in Reno after earlier holding town-hall discussions in Palo Alto, California and Annandale, Virginia.

The White House and House Republicans have offered separate plans to reduce cumulative budget deficits by $4 trillion, over 12 years and 10 years respectively.

“We have to tackle this challenge,” Obama said today in Reno. “We’re going to cut spending in a way that’s fair” without damaging investments in such items as medical research and basic science, he said.
Bond Yields

While the deficit dominates political debate in Washington, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago even as Treasury Department data show that the amount of marketable debt outstanding has risen to more than $9 trillion from about $4.3 trillion in mid-2007. The yield on the benchmark 10-year note is below the average of about 7 percent since 1980 and the average of 5.48 percent in 1998 through 2001, the last time the U.S. had a budget surplus, according to Bloomberg Bond Trader prices.

Ten-year yields fell 1 basis point, or 0.01 percentage point, to 3.40 percent at 2:32 p.m. in New York, according to Bloomberg Bond Trader prices. The Dow Jones Industrial Average rose 0.2 percent to 12,481.69 at 3:14 p.m., after surging 1.5 percent yesterday to its highest closing level since June 2008.

In addition to negotiations between the administration and Congressional Republicans over long-term federal spending, Congress must soon act to raise the federal debt limit.
‘Immediate Spending Cuts’

Virginia Representative Eric Cantor, the No. 2 Republican in the U.S. House, said today that his party won’t agree to a debt-limit increase “without binding budget reforms and immediate spending cuts.”

Asked about Cantor’s comment, White House press secretary Jay Carney told reporters traveling with Obama on Air Force One that it’s “risky” for Cantor to suggest that “if he or others did not get what they wanted, that they would then throw the government into default.”

While traveling in the western U.S., Obama is attending fundraising events in San Francisco and Los Angeles that are expected to bring in between $4 million and $5 million. The president returns to Washington tomorrow.

Dollar Weakens as Global Growth Optimism Buoys Riskier Assets

By Catarina Saraiva - Apr 21, 2011 1:05 PM PT

April 20 (Bloomberg) -- Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., talks about the outlook for the dollar and euro. Bennenbroek, speaking with Julie Hyman on Bloomberg Television's "Fast Forward," also discusses Federal Reserve monetary policy. (Source: Bloomberg)

The dollar slid to a record against the Australian dollar and touched the lowest level in 16 months versus the euro as signs of sustained global growth boosted demand for higher-yielding assets.

The greenback depreciated to the weakest in at least 40 years versus the Swiss franc and lows of two years or more against the Swedish krona, the South Korean won and the New Zealand dollar on speculation the Federal Reserve will lag behind other central banks in raising interest rates.

“Fed policy is going to stay the way it is for some time,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “You’re looking to capture yield, so you’re going to move out of the dollar, which is lower-yielding, and move into something that’s higher-yielding.”

The dollar depreciated 0.2 percent to $1.4556 versus the euro at 3:59 p.m. in New York, from $1.4523 yesterday, extending this week’s decline to 0.9 percent. It earlier slid to $1.4649, the weakest level since December 2009. The greenback dropped 0.9 percent to 81.82 yen, from 82.56, after touching 81.62, the lowest level since March 29. The yen appreciated 0.7 percent to 119.10 versus the euro, from 119.90.

Sterling rallied against the dollar as a report showed retail sales unexpectedly rose 0.2 percent in March as spending on food surged. The median forecast of 20 economists in a Bloomberg News survey was for a 0.5 percent decline.
Gain in Pound

The pound gained 0.5 percent to 88.07 pence against the euro and advanced 0.7 percent to $1.6528 after touching $1.6599, the highest level in 16 months.

Australia’s dollar climbed as much as 0.6 percent to $1.0775, the strongest level since it was freely floated in 1983, before trading at $1.0745, compared with $1.0714.

Producer prices in Australia rose 1.2 percent in the first quarter after a 0.1 percent gain in the prior three months, the Bureau of Statistics said. The median forecast of 14 economists in a Bloomberg News survey was for a 1 percent gain.

Australian Foreign Minister Kevin Rudd ruled out intervention in the Aussie, which has gained 16 percent in the past year against the greenback. Spurred by revenue from shipments of coal and iron ore to China, the currency’s surge has hurt Australian tourism, manufacturing and education.

“We are not in the business of regulating exchange rates,” Rudd told Bloomberg Television at his Brisbane office yesterday. “We don’t intend to drift back to anything which seeks to manipulate our exchange rate.”
ECB Rate Outlook

The euro rose earlier against the dollar on speculation the European Central Bank will boost its main refinancing rate further after increasing it on April 7 for the first time since the financial crisis.

Spain’s 2.49 billion euros ($3.63 billion) offering yesterday of 10-year bonds drew higher demand, damping speculation the nation will require a bailout.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, dropped as much as 0.9 percent to 73.735, the lowest level since August 2008.

The Fed isn’t expected to increase its target lending rate until the first quarter of 2012, according to the median forecast in a Bloomberg News survey of economists.

“The dollar is paralyzed, absolutely paralyzed by the low-rate structure here while the rest of the world is hiking rates,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Multiyear Lows

The dollar fell to multiyear lows against the Swiss franc, Sweden’s krona, the South Korean won, New Zealand’s kiwi and Canada’s dollar.

The U.S. currency sank to a record low against the franc, touching 87.81 centimes, the weakest level since at least 1971, when Bloomberg records start.

Sweden’s krona appreciated as much as 0.9 percent to 6.0736 versus the dollar, the strongest level since August 2008, a day after the Riksbank raised its benchmark lending rate by a quarter-percentage point to 1.75 percent.

The won reached 1,078.30 per dollar, the strongest level since September 2008. The kiwi, as New Zealand’s currency is known, reached 80.38 U.S. cents, the highest since March 2008, and the loonie touched 94.55 cents per U.S. dollar, the strongest level November 2007.

The euro pared its gain on reduced risk demand as reports showed the U.S. economic recovery may be losing momentum. Initial claims for jobless benefits fell less than economists forecast, the Labor Department reported. Manufacturing in the Philadelphia region slowed more than forecast as measures of orders and sales dropped, the Philadelphia Fed reported.

“The slight disappointment on the U.S. data side led to a little bit less optimism and a little bit of a decline in risk appetite,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.