Oil prices fall in tandem with stocks

Oil futures fell on Monday in tandem with global stock markets amid gathering economic gloom, despite hints that OPEC could cut output next month in a bid to boost prices.

New York's main futures contract, light sweet crude for delivery in April, eased 1.59 dollars from the closing price on Friday to 38.44 dollars per barrel after spending much of the day in positive territory.

In London, Brent North Sea crude for April delivery lost 90 cents to settle at 40.99 dollars.

The market rose in early trading after the US Treasury announced that a new programme aimed at shoring up troubled banks would be launched on Wednesday but the rally fizzled out amid concerns the plan may lead to effective government control.

The plan would begin with a "stress test" to be conducted by the authorities on a number of banks amid persistent speculations that leading banks could be nationalised to contain losses incurred from a home mortgage crisis.

Analysts said oil prices fell in line with the equity market, where investors sharply pulled down share prices amid confusion over the future of financial institutions.

"This week's examination of the nation's largest banks will undoubtedly lead to unsettling and misinterpreted headlines and more volatility, not only for oil markets but all financial markets," said Mike Fitzpatrick of MF Global.

He also noted possible moves by the OPEC cartel to cut production further to boost prices, saying market movements would be subject to policy directions.

"They will very likely decide on more production restraints at their next meeting in March," Fitzpatrick said. "OPEC's current resolve may have prevented oil prices from falling even further though.

"The waxing and waning confidence that policy makers manage to elicit from market participants will carry greater weight in the short term than market fundamental," he said.

Algeria's minister for energy and mines said Sunday that OPEC would probably decide on more cutbacks in output in a bid to prevent further price drops, Algeria's APS news agency reported.

"It is very likely that OPEC will decide on March 15 to reduce production again to stabilise prices that are going down," said Chakib Khelil, referring to the oil cartel's next meeting in Vienna, according to APS.

The minister said OPEC's decision to reduce production by 4.4 million barrels per day in September had prevented oil prices from plummeting even further.

In a slowing global economy, crude oil prices have dropped from record highs above 147 dollars reached last July.

The Organisation of Petroleum Exporting Countries pumps 40 percent of the world's oil and late last year cut output by a total 4.2 million barrels per days as prices slumped.

The cartel will find it "extremely difficult" to boost oil prices by cutting output because of the uncertain economic climate, energy consultancy CGES warned on Monday.

"OPEC would like to cut production further to boost prices, but several members have yet to implement the agreed cuts," the Centre for Global Energy Studies (CGES) said in its latest monthly report.

"The weak state of the global economy will make it extremely difficult for OPEC to sustain higher prices."

Powerful OPEC kingpin Saudi Arabia has stated several times that it regards 75 dollars as a "fair price" for crude.

Read more ...

US dollar rises against euro, yen despite banking concerns

The US dollar rose on Monday against the euro and yen despite persistent concerns over the troubled American banking system.

The euro dipped to 1.2692 dollars as at 2200 GMT in New York trading from Friday's close of 1.2824 dollars.

The dollar also advanced to 94.58 yen from 93.29.

The greenback was lower in early trading on markets concerns of possible nationalisation of leading American banks amid speculations that Citigroup could be the primary candidate for takeover by the government.

But a statement from the US Treasury Department that the government would seek to avoid nationalisation of troubled banks under a new capital aid programme to be launched on Wednesday sent the dollar rising again even if nationalisation concerns persisted, analysts said.

"The initial reaction to nationalisation may continue to prove dollar negative, but we find the argument ... dubious at best," said Boris Schlossberg, director of currency research at Global Forex Trading.

"Under nationalisation, Citi equity and bondholders would be the ones to suffer the most, while the US taxpayer could in fact profit in the long run if the US government were to pick up all of Citi's global infrastructure at pennies on the dollar and then recapitalise that asset ultimately creating value," he said.

The euro was also weak due to worries over the European financial sector's own problems, offsetting the dollar negative news, Schlossberg said.

Comments by several European Central Bank officials that additional interest rates cuts were likely also kept the euro under pressure.

John Sylvia of PNC bank said further weighing on the euro were concerns over the troubled economies of Eastern Europe, which were largely financed by loans from Western European banks.

Amid a global recession, the booming Eastern European economies have seen a dramatic drop off in demand for their goods, dampening their cash flow and possible repayment of their foreign currency loans, he said.

"If the rising default rate of these foreign currency loans continues, the Western European countries may be forced to further bailout their respective eurozone banks," Sylvia said.

"Such a prospect would surely lead to further downgrades of Western European countries, continuing to pressure the euro lower."

In late New York trading, the dollar rose to 1.1685 Swiss francs from 1.1563 on Friday.

The pound was up slightly to 1.4485 from 1.4421 on speculation of improvements within Britain's financial sector, said Kathy Lien of Global Forex Trading.

"Some banks are showing efforts in the purification of their finances as to improve their positions once economic conditions rebound," she said.

Read more ...

US may boost stakes, wants to keep banks private

US authorities on Monday unveiled details of a new aid plan for struggling banks that could lead to bigger government stakes but with a "strong presumption" that financial firms "remain in private hands."

Amid growing speculation about nationalisation, authorities said the Capital Assistance Programme would offer "mandatory convertible preferred shares," that could be turned into common shares "only as needed over time to keep banks in a well-capitalised position."

Analysts said the plan is the first step in the so-called "stress test" announced by the administration of President Barack Obama for banks hammered by the US housing meltdown and global credit crisis.

Augustine Faucher at Economy.com said the measures "set the stage for the federal government to take a greater ownership role in major US banks that face funding problems, short of total government ownership."

"The Obama administration is trying to avoid completely nationalising banks, while making sure they have enough capital to survive," Faucher said.

A joint statement from the US Treasury, Federal Reserve and banking regulators said that under the new program initiated on Wednesday, "the capital needs of the major US banking institutions will be evaluated under a more challenging economic environment."

The statement added that "because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Programme is that banks should remain in private hands."

The statement provided no details on capital injections to individual banks despite reports that the government might effectively nationalise some large banks on the brink of insolvency.

"The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth," the statement said.

"Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments."

But it said the preferred, nonvoting shares already injected into key banks could be converted into common shares under certain conditions.

"Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital," it added.

"Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis."

The new capital would "provide a cushion against larger than expected future losses."

Any government capital "will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalised position and can be retired under improved financial conditions before the conversion becomes
mandatory," the statement said.

The government could also convert shares obtained from capital injections under the Bush administration's Troubled Asset Relief Program, the statement added.

Kevin Giddis at Morgan Keegan called the plan "a good move for the banks and possibly bondholders, likely bad news for those who own shares in banks because of the dilution" of the shares.

Earlier, reports said the US government was in talks that could lead to a 25-40 percent government stake in Citigroup.

The Wall Street Journal reported Sunday that one plan would allow a portion of the 45 billion dollars in preferred shares held by the US government to be converted to common stock.

The government obtained a 7.8-percent stake in the bank in return for pumping capital into Citigroup.

The stock conversion would not cost the US Treasury additional money, but other Citigroup shareholders would see their shares diluted, the report said.

The paper said the talks reflect a growing fear that Citigroup and other big US banks could be overwhelmed by losses amid the recession and housing crisis.

Read more ...

Obama vows to halve massive budget deficit

President Barack Obama on Monday vowed to halve by 2013 the huge budget deficit bequeathed by the Bush White House, warning inaction would leave Americans wallowing in debt and thwarted dreams.

Obama pivoted from imploring lawmakers to dish out billions of dollars in stimulus funds to warning of the consequences of buckled US government balance sheets, opening yet another high-stakes week for his young presidency.

He warned that trying to revive the crisis-wracked US economy with his 787 billion dollar economic kick-start plan would be futile without a determined drive to also bring deficits already topping a trillion dollars under control.

"Today, I am pledging to cut the deficit we inherited by half by the end of my first term in office," Obama said, as he opened a "Fiscal Responsibility Summit" with lawmakers, business figures and academics at the White House.

"If we confront this crisis without also confronting the deficits that help cause it, we risk sinking into another crisis down the road," Obama said.

The president warned that years of deficits would undermine confidence in the US economy, cause interest payments on US debt to go up and saddle future generations of Americans with huge debts.

On Tuesday, Obama will take centre stage in a primetime address to a joint session of Congress in a priceless opportunity to directly lay out his political programme and recovery plans to Americans outside Washington.

On Thursday, the president will take the wraps of his first budget, ushering in a prolonged period of political horse-trading on Capitol Hill.

Public attempts to curtail runaway budget deficits come with Obama facing a barrage from critics who say the stimulus plan signed into law last week is packed with bloated, budget-busting spending.

The federal budget deficit is already projected to grow to 1.2 trillion dollars this year, without the stimulus spending, and there are fears a new and era of mushrooming government debt could undermine any economic recovery.

In a concerted political offensive, Obama earlier called on governors from most of the 50 US states to work with him to prevent waste in disbursing the billions of dollars in stimulus funds, at a meeting at the White House.

"We are addressing the greatest economic crisis we have seen in decades by investing unprecedented amounts of the American people's hard-earned money," he said.

"With that comes an unprecedented obligation to do so wisely, free from politics and personal agendas.

"On this, I will not compromise or tolerate shortcuts."

The president also rebuked Republicans, including governors in the room with him on Monday, who raised red flags at aspects of the stimulus plan, warning they must not exploit America's economic plight for political gain.

"I just want to make sure that we're having an honest debate in presenting to the American people a fulsome accounting of what is going on in this programme," Obama said.

Then, looking towards Louisiana Governor Bobby Jindal, a critic of the stimulus plan and a possible future Republican presidential candidate, Obama added: "What I don't want us to do, though, is to just get caught up in the same old stuff that inhibits us from acting effectively and in concert.

"There's going to be ample time for campaigns down the road."

Obama also announced the appointment of veteran government cost-cutter Earl Devaney to scythe through any wasteful spending of stimulus funds and warned he would call governors to account for funds that were frittered away.

He unveiled the release of 15 billion dollars in stimulus funds to help safeguard medical payments for low income patients, in an attempt to alleviate the financial burden on states hammered by the economic crisis.

And he put Vice President Joe Biden in charge of implementing the stimulus law.

Obama aides said at the weekend that the president planned to use raised taxes on the rich and cut war spending in a bid to halve the deficit by 2013.

According to The New York Times, the president is proposing to tax investment income of hedge fund and private equity partners at ordinary income tax rates instead of the capital gains rate, which does not exceed 15 percent.

Read more ...

Stocks plunge, bank plan fails to calm Wall Street

Wall Street stocks plunged to their lowest close in nearly 12 years on investor disappointment with the latest plan from Washington to prop up the ailing US banking system.

The Dow Jones Industrial Average sank 250.89 points (3.41 percent) to 7,114.78, crashing below its November bear market low and hitting its lowest close since May 1997.

The blue-chip index has fallen by nearly half since its record in October 2007 of 14,198.10.

The broad-market Standard & Poor's 500 index shed 26.72 points (3.47 percent) to 743.33, its lowest finish since April 1997.

The tech-heavy Nasdaq composite slid 53.51 points (3.71 percent) to 1,387.72, its lowest level since November 2008.

Market action came as US authorities unveiled plans for a "capital buffer" for ailing banks but said the programme would seek to avoid nationalisation.

A joint statement from the US Treasury, Federal Reserve and banking regulators said the new lifeline being offered could lead to bigger government stakes but with a "strong presumption" that banks "remain in private hands."

"The government's reassurances contributed to an early morning rally, but the buying mood didn't last long," said Elizabeth Harrow at Schaeffer's Investment Research.

Marc Pado, a stock analyst at Cantor Fitzgerald, said the market had hoped for more clarity on the Obama administration's plan to rescue the banking system.

"The market is still having trouble with the idea that we're not getting the clarity that its needs for the financial system," he said.

"It's good news for the banks that the government is saying that they approved more bailout funds, but that's not a plus for the market that the banks need bailout funds."

Some key banking shares rose on the news but the overall market sank amid growing fears that the financial system would remain hobbled, stifling economic growth.

"The 'no nationalisation' talk failed to help keep the broad market afloat," said Jon Ogg at 24/7 Wall Street.

"The breath of relief was quickly replaced by more flight," he said.

"It feels as though the rest of the air is coming out of the market as Joe Public throws in the towel."

Tech shares weakened on economic fears, with Hewlett-Packard off 6.27 percent at 29.28 dollars and IBM down 4.98 percent at 84.37.

General Electric slumped 5.65 percent to 8.85 dollars after Deutsche Bank analysts said it used a presumption that the GE financial services arm would have to be valued at "zero" due to the credit crisis.

In the banking sector, Citigroup rallied 9.74 percent to 2.14 in a positive reaction to reports that the government could boost its stake in the troubled giant to up to 40 percent to avert its collapse.

Bank of America rose 3.17 percent to 3.91 dollars.

Ailing auto giant General Motors ended unchanged at 1.77 dollars following reports that advisors of US Treasury have started lining up tens of billions of dollars in bankruptcy financing for it and Chrysler.

Ford surged 9.5 percent to 1.73 dollars after it reached an agreement with the United Auto Workers union on changes to pension benefits of workers.

Bonds were mixed. The yield on the 10-year US Treasury bond rose to 2.777 percent from 2.772 percent on Friday while that on the 30-year bond dropped to 3.525 from 3.565 percent.

Read more ...

Advisers readying bankruptcy financing for US automakers

Talks are underway to secure what would be the largest-ever US bankruptcy loan for General Motors and Chrysler, in the event that the struggling US automakers opt to file for Chapter 11 protection, The Wall Street Journal reported Monday.

The daily reported that discussions are underway between lenders and advisers to the US Treasury Department, who work outside the US government.

Citing "people familiar with the matter," the newspaper said the package could exceed 40 billion dollars.

The two automakers received more than 17 billion dollars in bailout money from the US government last year and have publicly said that bankruptcy was not on the table.

But people involved in talks with senior Obama officials said the administration believes that Chapter 11 filings are an option that should be given serious consideration.

"Everything is on the table right now," the paper quotes one unnamed person involved in the matter as saying.

The discussions call for private banks to provide financing -- known as a debtor-in-possession loan -- with the government guaranteeing it, the report said.

Under this scenario, some of the financing would be used to repay the 17.4 billion the government lent GM and Chrysler last year.

Read more ...

European economies agree on need for greater regulation

The heads of Europe's largest economies agreed on Sunday on the need for greater regulation of stock markets and to double the IMF's funding in order to avoid a repeat of the finance crisis.

The leaders of Britain, France, Germany, Italy, Spain and the Netherlands met in Berlin to hammer out a joint European stance for the Group of 20 meeting of developed and developing countries in London on April 2.

They agreed that "all financial markets, products and participants - including hedge funds and other private pools of capital which may pose a systemic risk - must be subjected to appropriate oversight or regulation," a summary of the meeting said.

The leaders also agreed to add an extra 250 billion dollars, doubling the current level of funding, to the International Monetary Fund (IMF) budget to allow it to intervene to prevent future financial crises.

British Prime Minister Gordon Brown said such a reinforced IMF would be able to help countries in central and eastern Europe which are swept up in a growing economic crisis as western European banks withdraw credit.

"We need international action to help for example in central and eastern Europe where a number of foreign banks have withdrawn to their home banking territories and where it is difficult to recapitalise the rest of the banking system and restructure it without the support of the international financial institutions," Brown told a news conference with his European counterparts.

"So we are proposing today... a 500-billion-dollar (390-billion-euro) IMF fund that enables the IMF not only to deal with crises when they happen but to prevent crises."

French President Nicolas Sarkozy said the stakes for the April summit - which will be attended by US President Barack Obama - were high.

"By April 2, we have to succeed and we cannot accept that anything or anyone gets in the way of that summit which will bear a historical responsibility... if we fail there will be no safety net," he said.

German Chancellor Angela Merkel said the Europeans were determined that a strengthened, better-regulated financial system would emerge from the wreckage of the deepest financial crisis for decades.

"It's not a case of talking up the situation but we want to send the message that we have a real opportunity to come out strengthened from this crisis," she said.

Merkel admitted that details of how hedge funds and complex financial products would be regulated still needed to be worked out.

But the stance on hedge funds - highly speculative and lightly regulated entities that have been accused of fuelling instability in financial markets - represents a shift in the long-held position of countries such as Britain.

London had previously resisted greater regulation of such funds, which supporters say benefit the economy by bearing risks that others are unwilling to take, although Brown has recently called for stronger rules.

A German government source said the need for direct regulation of hedge funds "is no longer questioned by any of the participants."

The world's major economic powers are under pressure to build on pledges made at the G20 summit in Washington in November, where they formulated an action plan for fighting the crisis.

But the global recession has worsened since then, prompting governments to push through massive economic stimulus packages and overshadowing efforts to reform the global financial system.

The national stimulus plans have sparked fears of protectionism which could hinder efforts to present a united European front.

The end-of-meeting statement however gave a watered-down assessment of protectionism, saying that Europe would only take "measures that keep distortions to competition to an absolute minimum, and we expect the other G20 states to behave likewise."

The results of Sunday's meeting will be discussed by all 27 European Union members at summits in March.

Read more ...

China's fiscal deficit set to hit record high in 2009

China's fiscal deficit is set to hit a record high this year, as the global crisis shrinks revenues while forcing the government to spend more on pump-priming, local media said.

The finance ministry has foreseen a deficit of 950 billion yuan (US$139 billion) in its draft budget for 2009, the China Business newspaper reported over the weekend.

The figure is nine times higher than a deficit of 111 billion yuan in 2008, and it accounts for about three per cent of the overall economy, which is an internationally recognised alarm level, the paper said.

"It's absolutely possible," said Wang Qian, an economist with JP Morgan in Hong Kong, when asked if the deficit sounded realistic.

"This year, there's nothing surprising in a fiscal deficit of three per cent of the economy," she said.

China Business said the deficit will result from fiscal spending in 2009 topping 7.6 trillion yuan, up 22.1 per cent from 2008, as the government plans to raise investment in 15 sectors including housing and transportation.

Meanwhile, the finance ministry forecasts fiscal revenue to reach 6.6 trillion yuan this year, as the growth rate is expected to slow sharply from last year's 19.5 per cent to eight per cent this year.

China unveiled a massive four-trillion-yuan spending programme in late 2008 to revive the economy and this year has issued or is expected to soon introduce more incentives for 10 sectors such as autos and petrochemicals.

The 2009 budget, with is record-breaking deficit, will be up for a vote at China's parliament, the National People's Congress, which opens next week.

No budget has ever been passed by anything but a crushing majority by the nation's 3,000-member rubberstamp legislature.

Read more ...

39,000 lose jobs in Philippines in four months

At least 39,000 Filipinos have lost their jobs since October last year as factories and companies slash jobs amid the deepening global financial crisis, an official said Monday.

The 39,000 included more than 5,400 overseas-based Filipinos who had lost their jobs in the Middle East and Taiwan, which accounted for the bulk of the returning expatriates, Labour Secretary Marianito Roque said.

He said the figure was based on official reports by industry leaders as well as trade groups, he said.

He said the government has allotted seven billion pesos (US$149 million) to create 180,000 "emergency jobs" this year as a stop-gap measure to prevent unemployment from ballooning.

"As of last Friday we have about 39,000 fall outs. These are workers who have lost their jobs mainly in the electronics and manufacturing sector," Roque told the Foreign Correspondents Association of the Philippines.

He said the government has enough resources to create temporary employment opportunities in the next two years, but will be hard pressed if the crisis extends beyond that.

Roque noted that many Filipinos lost their jobs in the real estate and services sector in Dubai, but have managed to find employment elsewhere in the United Arab Emirates.

He said of the estimated 300,000 Filipinos in the Emirates, 2,000 were now out of work.

Job orders for Filipino nurses in the United States is also "dropping" with only 700 contracts up for grabs last year, compared with up to 8000 available three years ago, he said.

Read more ...

Asian finance meeting agrees to expand crisis fund

Asian finance ministers meeting here agreed to boost by 50 percent a multi-billion dollar emergency fund to fight off the global downturn, officials said Sunday.

The proposal was agreed at a ministerial meeting of the Association of Southeast Asian Nations (ASEAN) and China, Japan and South Korea and will be finalised later this year, they said.

"The total size of the Multilateralised Chiang Mai Initiative will be increased from the initially agreed level of 80 billion dollars to 120 billion dollars," an official statement said.

The meeting was called to discuss ways of softening the impact of the economic crisis, with expanding the Chiang Mai Initiative foreign exchange pool -- an emergency credit line for ASEAN countries -- at the top of the agenda.

The statement said the move to expand the fund aimed "to ensure regional market stability and to foster confidence in the markets," and would be finalised at another meeting of finance officials this year in Bali, Indonesia.

The proposal will also likely be discussed at the annual ASEAN summit, which will be held from Friday in the Thai resort town of Hua Hin, although there is no time frame for when the expanded fund will be operational.

Ministers and officials from ASEAN's Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam met Sunday with Chinese and South Korean finance ministers and a top Japanese official.

ASEAN's 10 member states plus China, Japan and South Korea agreed after the 1997-98 Asian financial crisis to set up the Chiang Mai Initiative bilateral currency scheme to prevent a repeat of the turmoil.

The Asian nations now want to expand that agreement into a multilateral reserve pool, as the current economic climate threatens millions of jobs as well as recent robust growth in the developing economies.

A multi-nation scheme of currency swaps aims to make it easier for countries to borrow emergency funds.

The statement said the ASEAN members would contribute 20 percent of the pool with larger economies Thailand, Malaysia, Indonesia, Singapore and the Philippines giving a bigger share.

The remaining 80 percent will come from the big three Asia economies, and Chinese Finance Minster Xie Xuren told reporters that China, South Korea and Japan were still discussing how they would divide up the sum.

ASEAN Secretary General Surin Pitsuwan said earlier the regional fund would be used to help members "badly affected" as the downturn hits Asia's key trading partners in the United States and Europe.

"It is one of the mechanisms -- it is not to replace or compete with the IMF (International Monetary Fund), but it will be an alternative for Asian countries," Surin said on Thai television.

"If it materialises, it will be one of ASEAN's most tangible achievements."

Thai premier Abhisit Vejjajiva said earlier the fund would "serve as a cushion against future weaknesses at the time of the crisis."

Sunday's meeting also agreed to strengthen the region's monitoring and surveillance of the world economic climate, and stressed the importance of expanding bond markets in ASEAN.

"We believe that proactive and decisive policy actions are required in order to restore confidence, financial stability and promote a sustainable economic growth in the region," the statement said.

Read more ...