Archive for January, 2009

Oil surges over 3 percent on Gaza, Russian gas row (Reuters)

Sunday, January 4th, 2009 | Finance News

SINGAPORE (Reuters) –
Oil jumped more than 3 percent on Monday after an Iranian military commander reportedly called for an oil boycott over Israel's ground offensive in the Gaza Strip and on concerns over the deepening Russian gas supply row.

Wall Street's strong start to the new year on Friday and mounting evidence of OPEC's compliance with deep production cuts also helped oil to a third day of strong gains, driving prices to their highest in over two weeks.

U.S. light, sweet crude for February delivery rose $1.47 a barrel to $47.81 by 2330 GMT, with some traders beginning to reckon that the over $110 slump in prices from their $147 record high last July had been overdone.

"The Gaza conflict added to the geo-political risk premium...in the oil price," Commonwealth Bank of Australia analyst David Moore said in a note. "Oil markets may also have a sense that the implementation of earlier announced production cuts by OPEC countries will ultimately tighten oil supplies."

Israeli troops and tanks split the Gaza Strip and ringed its main city on Sunday in an offensive against Hamas that has killed 500 Palestinians, including a growing number of civilians.

Israeli tanks poured shells and machinegun-fire into suspected militant positions and war planes struck as Hamas fighters fought back with mortars and rockets.

While the violence does not directly threaten any oil supplies, the risk is it could engulf other Middle East countries that produce a third of the world's crude, with No. 4 oil producer and OPEC member Iran typically the most vocal.

An Iranian military commander called on Islamic countries to cut oil exports to Israel's supporters in response to the offensive in Gaza, the official IRNA news agency reported.

"Pointing at Westerners' dependence on the Islamic countries' oil and energy resources, he (Bagherzadeh) called for cutting the export of crude oil to the Zionist regime's supporters the world over," IRNA said, referring to Israel.

IRNA gave only the commander's last name but it may have been referring to Mirfeysal Bagherzadeh, a brigadier-general of Iran's elite Revolutionary Guards.

There was no immediate comment from other Iranian officials, and many analysts doubted whether Tehran would be prepared to follow words with action, or whether other countries with closer ties to the West would be willing to follow.

"You would expect hardliners to issue such words but as a practical policy I don't think it would be very effective," independent analyst Mehdi Varzi said.

Adding to geopolitical concerns, Russian natural gas supplies fell by five percent to the Czech Republic as a result of Russia's stand-off with Ukraine over gas prices, which began on New Year's day. The two sides blame each other for the dispute.

European energy firms, which received about a fifth of their gas via pipelines through Ukraine, said they had enough gas stockpiled to maintain supplies for several days, but analysts said Europe could face problems if the row dragged on.

The gas row, which mirrors a similar dispute three years ago that also disrupted supplies, is likely to raise new questions in Europe about Russia's reliability as a gas supplier.

(Reporting by Jonathan Leff; Editing by Anshuman Daga)

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Market rally faces first New Year tests (Reuters)

Sunday, January 4th, 2009 | Finance News

NEW YORK (Reuters) –
Wall Street's bid to rally from its worst year since the 1930s will be tested this week by the new year's first wave of likely dismal corporate news and possible roadblocks to President-elect Barack Obama's stimulus plan.

Investors will also contend with a spate of economic news also expected to be grim, including unemployment figures.

Still, analysts were cautiously optimistic that stocks might extend their three-day rally on hopes that the stimulus package would pass quickly in Congress, despite Republican concerns over its price tag.

The end of hedge fund redemptions and tax-related selling pressure on stocks could help the market, they said.

"There's hope that a change in government leadership to President-elect Obama will mean things will be different for the economy as well," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

But he warned: "The economic backdrop is still too negative."

Last week closed out a brutal year for stocks, pockmarked by a string of financial disasters and the destruction of more than $5 trillion in market value on the S&P 500 index.

The week, however, ended on an uptick as stocks gained for three straight trading days on optimism about 2009, despite the continuing bleak economic outlook. Volume was light during the holiday-shortened week.

For the week, the Dow was up 6.1 percent, the S&P 500 gained 6.8 percent and the Nasdaq rose 6.7 percent.

Outlooks from companies including Chevron Inc (CVX.N) could pose a possible stumbling block for stocks this week, ahead of earnings from some of the world's biggest companies.

Traders and analysts expect pre-announcements from companies revising their earnings downward to reflect a dismal fourth quarter.

"A lot of companies have been really quite quiet about how their quarter is shaping up," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. "We're likely to see earnings that are going to contain big write-downs, especially from financials. We're bracing for it."

Chevron, a Dow component and a bellwether of the powerful energy sector, will report interim fourth-quarter forecast on Thursday.

Other companies expected to report earnings this week include retailer Bed Bath & Beyond Inc (BBBY.O) and Monsanto Co (MON.N), the agricultural products maker.

Investors will also be watching out for prospects for Obama's proposed stimulus plan that he hopes will create or save up to 3 million jobs.

Obama plans to meet congressional leaders on Monday, a day before the newly elected Congress is due to be sworn in.

Democrats hope to put a bill on Obama's desk by January 20 when he takes office, but some Republicans could stand in the way over concerns that it could grow to up to $1 trillion.

Pado dismissed the Republicans' stance as "talking tough" and said: "Right now everybody knows we need a stimulus plan. We know we need jobs."

Investors will get a clearer picture of just how many jobs the United States will need this week after reports on the labor market on Wednesday, Thursday and Friday, when the closely watched monthly payrolls figures for December are due.

Other key data will be total vehicle sales and a retail sales report, both for December, already one of the worst holiday shopping seasons in recent memory.

According to Reuters estimates, car sales will fall to 10 million on an annualized rate, down from 10.3 million in November. The lower end of analysts' forecasts anticipate a drop to 8.9 million.

Investors will also hone in on developments of a rescue of beleaguered automaker Chrysler LLC, which is still in talks with the U.S. Treasury to finalize its $4 billion loan agreement. Chrysler's fate is important for auto parts makers, which got a boost from a rescue loan for General Motors Corp(GM.N)

Retail same-store sales, an industry benchmark, due out on Thursday are expected to fall 1.1 percent, the second-weakest result since at least 2000, according to economists polled by Reuters.

"Trends on these macro factors are not likely to change abruptly," said Bart Geer, portfolio manager of the $2.8 billion Putnam Equity Income Fund. "Employment continues to get worse, construction spending continues to be weak, pending home sales aren't going to be any good.

"But I would say a lot of economic statistics are lagging indicators. The fact that some of these numbers are not going to be good is not surprising."

(Editing by Leslie Adler and Maureen Bavdek)

(The Stocks Outlook column appears every Sunday. Comments or questions on this one can be e-mailed to deepa.seetharaman@thomsonreuters.com)

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Obama takeover augurs financial regulator shakeup (Reuters)

Sunday, January 4th, 2009 | Finance News

WASHINGTON (Reuters) –
President-elect Barack Obama and Democrats in Congress will take over the government this month with big plans to overhaul U.S. financial regulation and a surge of momentum behind them.

From the mortgage meltdown to the Bernard Madoff scandal, the financial system is in crisis. Critics are hammering the federal bureaucrats who are supposed to manage the economy, police Wall Street and protect investors.

Some of the agencies under fire have familiar names -- the Fed, Treasury, SEC, FDIC; some less so -- CFTC, OCC, OTS.

All are under scrutiny by reformers who are talking about shutdowns, combinations and reshaping basic missions.

"We're going to have a significant shake-up," said Norman Ornstein, a resident scholar at the American Enterprise Institute, a Washington, D.C., policy think tank.

Obama, who will be sworn in on January 20, has moved quickly in nominating a new Treasury secretary and chiefs for the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

He has called for adoption of "new common-sense rules of the road that will protect investors, consumers and our entire economy from fraud and manipulation by an irresponsible few."

The early signals point to "a very new and different and activist era," Ornstein said.

Of course, Obama is not the first president to target this issue. The streets of Washington are littered with bold blueprints to reform the financial oversight bureaucracy.

Past efforts have crumpled, victims of agency turf battles and attacks from industry lobbyists defending the status quo.

Even 2002's post-Enron Sarbanes-Oxley reforms mainly confined to limited corporate governance and auditing issues. This time around, more basic changes look likely.

YEARS OF SCANDALS

Americans dealing with a deep recession are looking back on years of business scandals and soaring pay packages for a corporate elite that seems detached from economic reality.

The government is greatly expanding its role in the economy. By bailing out the billionaire financiers who drove the financial system to the edge of disaster, the Bush administration and Congress are giving all taxpayers a stake in the financial services industry and its supervision.

Banking giants once emblematic of free-wheeling capitalism, such as Goldman Sachs, are now voluntarily seeking to become more tightly regulated bank holding companies.

Over just a few months in 2008, the balance of power at the economy's financial heights seemed to shift away from New York's plutocrats and to Washington's politicians.

If that lasts, Obama and the Democrats just might push through meaningful reforms, say some policy analysts.

More than 15,000 federal employees, scattered across seven primary agencies, regulate the banks, the economy, financial markets and corporations, often with limited success.

The White House is at the system's center, but presidents historically delegate much responsibility to agency heads.

Banks are supervised by a patchwork of agencies including the Treasury Department and two of its units -- the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) -- as well as the Federal Reserve, the Federal Deposit Insurance Corp and state governments.

The government also regulates markets for stocks, bonds, commodities, futures and options. These jobs are done chiefly by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).

TORN AT SEAMS

The patchwork quilt of oversight represented by these seven agencies and a few smaller ones is badly torn at the seams where duties have been unclear and abuses have accumulated.

From subprime mortgage-backed securities to collateralized debt obligations, the financial system innovated and exploded in size in recent years amid political zeal for deregulation.

Reform attempts have frequently focused on centralizing oversight. Some have suggested steps such as merging the SEC and CFTC, and closing the OTS.

Vital to any new approach will be the Fed. Months ago, Treasury Secretary Henry Paulson proposed transforming the Fed from a monetary policy center into a kind of super-guardian against "systemic risk" in the economy.

Since then, the Fed has nearly become just that. In trying to fix the markets, it has extended billions of dollars in credit to banks and businesses, making it the lender of last resort for large swathes of the entire economy.

Dealing with the Fed's expanding scope will be key to any reform. Chances are good that more bank oversight will centralize under the Fed now that Obama has tapped New York Fed President Timothy Geithner to replace Paulson at Treasury.

Other issues are what to do about mortgage market giants Fannie Mae and Freddie Mac, both now under government control, and the outlook for insurers and credit card companies.

On Monday, the House of Representatives Financial Services Committee will hold a hearing on the Madoff scandal and how the SEC missed it, with two more hearings later in the week on the ongoing financial bailout program and on mortgage brokers.

(Reporting by Kevin Drawbaugh, Glenn Somerville, Alister Bull, David Lawder, Christopher Doering, Karey Wutkowski, Rachelle Younglai and Diane Bartz; Editing by Steve Orlofsky )

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