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Markets News Friday: US dollar rises; OECD leading indicators signal strong signs of recovery; IEA revises oil forecast up
By Finfacts Team
Oct 9, 2009 - 12:18:10 PM
Nobel Peace Prize 2009 - -President Barack Obama - - The President, Secretary of State Hillary Rodham Clinton, and other members of the Cabinet listen to Nancy-Ann DeParle, Director of the White House Office for Health Reform, center-left, during a meeting in the Cabinet Room of the White House, the day after the President delivered a major address on health care reform to a joint session of Congress, Sept. 10, 2009.
US dollar rises
On Friday, the dollar rose against the yen and the euro and government bonds fell after Federal Reserve Chairman Ben Bernanke said on Thursday that the bank will tighten monetary policy once the economy improves.
Commodities fell.
The greenback advanced as much as 1.2% versus the yen and was up 0.5% mid-morning in London. Yields on two-year Treasuries and German notes jumped as much as eight basis points. Copper fell 1.1%.
The euro fell to $1.4727 dollars from $1.4791 dollars late in New York on Thursday.
Against the Japanese currency, the dollar jumped to ¥89.22 from ¥88.39 yen Thursday.
The euro is trading at £0.92224
OECD
OECD composite leading indicators (CLIs) for August 2009 continue to point to recovery in all major economies with CLIs for France and Italy pointing to a potential expansion; however these expansion signals should be interpreted with some care as the CLIs are less precise in differentiating between expansion and recovery than in identifying turning points.
The CLI for the OECD area increased by 1.5 point in August 2009 and was 0.6 point higher than in August 2008. The CLI for the United States increased by 1.6 point in August, 1.6 point lower than a year ago. The Euro area’s CLI increased by 1.7 point in August, 4.1 points higher than a year ago. The CLI for Japan increased by 1.3 point in August, 3.9 points lower than a year ago.
The CLI for the United Kingdom increased by 1.6 point in August 2009 and was 1.7 point higher than a year ago. The CLI for Canada increased by 1.7 point in August, 1.5 point higher than a year ago. The CLI for France increased by 1.3 point in August, 6.6 points higher than a year ago. The CLI for Germany increased by 2.4 points in August, 2.1 points higher than a year ago. The CLI for Italy increased by 2.0 points in August, 10.4 points higher than a year ago.
The CLI for China increased 1.5 point in July 2009, 0.7 point lower than a year ago (unchanged). The CLI for India increased by 0.9 point in August, 0.1 point higher than a year ago. The CLI for Russia increased by 1.1 point in August, 10.2 points lower than a year ago. The CLI for Brazil increased by 0.4 point in August, 8.5 points lower than a year ago.
The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.
The OECD CLI is designed to provide early signals of turning points in business cycles – fluctuations of economic activity around its long term potential level. The approach, focusing on turning points (peaks and troughs), results in CLIs that provide qualitative rather than quantitative information on short-term economic movements. Four cyclical phases form the basis of this qualitative approach: expansion – CLI increasing and above 100; downturn – CLI decreasing and above 100; slowdown – CLI decreasing and below 100; recovery – CLI increasing and below 100. Although the CLIs attempt to predict movements in the output gap, they should not be interpreted as providing exact forecasts.
James Paulsen, chief investment strategist at Wells Capital Management, discusses the impact of a weak dollar.
IEA revises oil demand up
The International Energy Agency, the energy watchdog of 28 developed countries including Ireland, said world oil demand will rise at a better-than-expected rate by the end of this year and in 2010 as economic activity picks up.
At the same, the Organization of Petroleum Exporting Countries (OPEC) is pump more crude, leaving the world market with more than enough supply to satisfy the rise in in consumption, the Paris-based agency said in its monthly oil market report.
The IEA said 2009 world oil demand is expected at 84.6 million barrels a day, up 200,000 barrels a day compared with its previous forecast but still representing a fall of 1.7 million barrels a day versus 2008.
Global oil demandhas been revised up by 200 kb/d for 2009 and by 350 kb/d for 2010, given more optimistic IMF economic prognoses and stronger preliminary data from the Americas and Asia. Global oil demand now averages 84.6 mb/d in 2009 and 86.1 mb/d in 2010, implying yearly growth of -1.7 mb/d and +1.4 mb/d, respectively.
Crude oil pricesin September continued to trade in a $65-75/bbl range, although high distillate stocks ahead of winter and worries about the global economic recovery added a downward bias, with WTI and Brent trading at around $68-72/bbl in early October. Market concerns over Iran’s nuclear programme have been muted, partly because OPEC’s spare production capacity currently exceeds 5.4 mb/d.
OECD industry stocksdecreased by 3.9 mb in August to 2,750 mb, 2.8% above last year’s level. Crude draws in North America and the Pacific outweighed middle distillate increases in all three regions. End-August forward demand cover decreased to 60.7 days, 3.7 days higher than a year ago.
Global oil supplyrose by 310 kb/d in September to 84.9 mb/d, driven by non-OPEC growth. Compared with September 2008, global supply was nearly flat, as a non-OPEC recovery of 1.6 mb/d relative to last year’s hurricane-hit base was offset by OPEC curbs. That said, OPEC supply has continued to rise from early 2009 lows.
Non-OPEC outputprojections are left largely unchanged, and production should continue to rise towards the end of 2009. Output is expected to average 51.0 mb/d this year, rising to 51.6 mb/d next year. Total annual growth stands at +380 kb/d in 2009 and +550 kb/d in 2010, augmented by OPEC NGL growth of 550 kb/d and 850 kb/d, respectively.
Global refinery crude throughputin 4Q09 is reduced by 0.2 mb/d to 73.2 mb/d, as further weakness in refining margins undermines the outlook. Declines in OECD Europe and North America compound lower Latin American projections, only partially offset by higher Other Asian estimates resulting from stronger 3Q09 data.
A look at the real cost of the finance committee's health care reform plan will be, with CNBC's John Harwood & Sen. Evan Bayh, (D-IN):
US markets
On the markets, the Dow Jones Industrial Average gained 61.29 points, or 0.6%, to 9786.87.
Alcoa rose 1.1% after the aluminum giant reported a $77 million profit for the third quarter after three quarters of losses.
The Nasdaq Composite Index added 0.6% and the S&P 500 rose 0.8%.
Thursday's rise resulted in hundreds of stocks hitting 52-week highs.
It was reported that as of 4 p.m. EDT, 416 stocks had hit new highs on the New York Stock Exchange. On the Nasdaq, 177 stocks hit new highs.
General Motors reported Friday that it sold 1.29 million vehicles during January-September in China, its second-biggest market.
For September, its sales totalled 181,148 vehicles. It gave no year-ago figure or percentage comparisons for the month.
The US car giant and its Chinese joint venture had an estimated market share of 13.4% in the country as of the end of September, it said, without providing comparative data.
Asia
The MSCI Asia Pacific Index rose 0.2% Friday.
China’s Shanghai Composite Index rose 4.8%, following the 8-day national day holidays.
South Korea’s Kospi Index rose 1.9% as did the Nikkei 225.
The index gained 8% last week - - the most since the week ended July 17th. It rose 73 points last Friday, or 3.2% to 2,357 points. On Thursday, a rise of 101 points or 4.0%, pushed the index up to to 2,647..
Gold is trading at $1,049.00 down $5.80 from Thursday's spot price close in New York.
Davy chief economist Rossa white comments: Irish price level keeps falling faster than elsewhere, but currency trends no help for now - - "The Irish price level fell again in September. Both Ireland's Consumer Price Index and its Harmonised Index of Consumer Prices (HICP, the standard measure in the EU) dropped 0.4% month-on-month. Prices in the rest of Europe are not falling as fast; in fact they are rising in the UK. So Ireland is regaining competitive ground in terms of underlying prices, but the sterling euro exchange rate is hurting.
Ireland's price level peaked in June 2008. Since then, the HICP (which has no mortgage interest component) is down 3.2%. In the euro area, prices have dropped only 0.4% since then. But they have risen 2.2% in the UK over the same timeframe using the equivalent HICP measure. Ireland has closed the gap with the euro area by 2.8% and it has made up 4.9% worth of ground vis-à-vis the UK. The only problem is that the euro has strengthened by 20% since June 2008, delivering a blow four times as big as the underlying competitiveness regained. (We ignore the US in this short comment, but note that most exports to the US from Ireland come from American-owned firms that price in dollars).
Of course, the 'underlying' price gain is not quite all it seems. About one-third of our consumer goods imports, accounting for one-sixth of the price basket, originate in the UK (less than 20% of Irish exports go to the UK). So a stronger euro has helped lower import prices. Nonetheless, let's say that the sustainable consumer price gap made up against the UK is about 4%. For the benefit to accrue, sterling will have to strengthen. It looks undervalued versus the euro on a purchasing power parity basis. But the Bank of England's large quantitative easing programme is here to stay for now. That may keep sterling weak for the next few months. But over the medium term, the Irish price adjustment will bear fruit as foreign exchange trends reverse."
Goodbody's Anna Lalor comments: Irish Financials; Possible implications to risk transfer from NAMA due to legally binding levy - - "The Irish Times reports that the Green Party had achieved cabinet agreement on the inclusion in the NAMA bill of a legally binding bank levy should NAMA make a loss, despite “considerable reluctance” from the Department of Finance. The Department’s dislike for such an explicit legally binding measure may stem from the uncertainty it creates over the level of risk transfer achieved by the transfer of assets to NAMA both from an accounting and regulatory perspective, which could have implications for the level of capital the banks may need to raise over the medium term.
The Greens are in the process of agreeing a new programme for Government ahead of its party member’s vote on NAMA and other items this weekend, with the survival of the coalition at stake. The Department of Finance highlighted that it does not expect NAMA to make a loss. While this explicit levy amendment to the legislation may make no difference to the amount of capital that will need to be raised by the banks in the coming years, it does slightly raise uncertainty around capital levels, with auditors, regulators and rating agencies likely to be the deciding parties."
Goodbody chief economist Dermot O’Leary comments: Economic View; Falling prices are part of the economic solution in Ireland - - "These are pretty extraordinary times in Ireland, with yesterday bringing yet another example of that. In the twelve months to September, the general level of consumer prices fell by 6.5%, a fall unsurpassed on the annual data that we have going back to 1922. Excluding the effect of the dramatic falls in interest rates on the data by using the European HICP measure instead, prices fell by a still very significant 3% over the past 12 months.
Although many might have preconceptions about what deflation means, it is worth asking the question as whether falling prices is a good thing or a bad thing for an economy. The answer depends on a number of things: (1) what sectors are the price declines stemming from; (2) is the economy in need of a competitive boost in the context of fixed exchange rates and; (3) will falling wage rates affect the ability of households to service their debt. The final point is obviously the most dangerous for Ireland Inc, but it is probably outweighed by the first two. The major reason why falling prices are seen to be bad for an economy is because it means that consumers are in no rush to spend because the good will be cheaper tomorrow. This surely applies to things like cars for example.
However, the largest price declines are being witnessed in necessities like food and clothing, which are not purchases that can be deferred indefinitely. Finally, given the need to improve Ireland’s competitive position, prices need to fall across the board, and the falling CPI is a reflection of the speed at which this is happening. It is indeed painful, but the cons of falling price are unlikely to outweigh the pros in Ireland’s situation."
