Archive for May, 2009

Oil rises near 7-month peak after best month this decade (Reuters)

Sunday, May 31st, 2009 | Finance News

SINGAPORE (Reuters) –
Oil prices extended their rally to near their highest in seven months on Monday, as dollar weakness, stock market optimism and sustained hope for economic recovery supported the market's best monthly gains in a decade.

A fresh global round of purchasing manager indices (PMIs) due throughout the day -- starting in China and concluding in the United States -- may provide the next impetus for a push higher, while the oil demand recovery that's visibly underway in No. 2 consumer China could be tested by a retail price rise.

U.S. light, sweet crude rose 22 cents to $66.53 a barrel by 2313 GMT, off its earlier peak of $66.63, only a penny away from Friday's intra-day high.

ICE Brent crude rose 6 cents to $65.58 a barrel.

Prices rallied 30 percent in May, hitting their highest since early last November and giving OPEC enough hope about the outlook that it agreed to maintain production at last week's meeting.

At the same time, the group seems unlikely to move quickly to curtail oil's rally. At the weekend Saudi Oil Minister Ali al-Naimi said OPEC would wait until crude inventories fall to around 53 days of forward cover before considering raising output, nearly 10 days below current levels.

Some fundamentals are now showing gradual signs of improvement, with U.S. crude stocks falling sharply last week and gasoline inventories dropping for the fifth week, but analysts say economic conditions and financial markets have been key.

The U.S. dollar and oil prices are trading in near-perfect correlation on a 30-day basis, and Friday's $1.23 crude oil gain came as the dollar sank to a five-month low as investors bought higher-yielding currencies and assets.

Later on Monday China, India, Eurozone and U.S. PMI indicators will provide the next checkpoints for the global economy, which appeared to be healing last week after improved industrial output data from Japan and revised U.S. GDP figures.

But many analysts are cautioning that the oil market may be racing ahead of reality, fueled largely by speculators that have expanded their net length in NYMEX crude contracts to over 40,000 lots, the highest since February.

"My thinking is that most of the commodity markets, the base metals as well as oil, have moved to factor in economic recovery, and probably a fairly decent 'V'," said Commonwealth Bank of Australia commodity strategist David Moore.

"There is a risk that if economic data does not continue to support this view of the world that markets become disappointed with the pace of economic recovery, leading to price setbacks."

There's also a risk of tempered demand growth as higher prices are gradually being passed on to some of the world's fastest-growing consumers, with Beijing bowing to price pressure and raising retail diesel and gasoline prices by 6-7 percent, the second and biggest rise this year.

(Reporting by Jonathan Leff; Editing by Alex Richardson)

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GM trundles toward bankruptcy, but questions remain (Reuters)

Sunday, May 31st, 2009 | Finance News

DETROIT (Reuters) –
General Motors Corp and the U.S. government finalized plans on Sunday for the battered company to reorganize, setting the stage for America's largest-ever industrial bankruptcy and heralding a new and uncertain era for the No. 1 U.S. automaker.

GM will file for Chapter 11 bankruptcy protection on Monday at the U.S. Bankruptcy Court in the Southern District of New York before markets open, according to sources with direct knowledge of the preparations.

Al Koch, a managing director at advisory firm AlixPartners LLP, will be appointed Chief Restructuring Officer at GM, a source familiar with the matter said.

U.S. President Barack Obama is expected to outline GM's next steps on Monday as the federal government prepares to take a more than 70 percent stake in the company in exchange for $60 billion in financing. Nearly half of that money has already been extended this year in emergency aid.

The government's of Canada and Ontario will take an equity or debt position in a restructured GM, but details are still being worked out.

But even as the 100-year-old firm cleared a major hurdle to a smooth passage through bankruptcy with approval of a debt-for-equity exchange, questions remained about the ability of the company to return to viability.

And U.S. auto sales for May are expected to offer little hope for a short-term recovery for the industry.

No. 3 U.S. automaker Chrysler LLC is nearing the end of a court-supervised restructuring in New York to cut debt and non-performing assets, as well as consummate an alliance with Italy's Fiat SpA.

SYMBOLIC VICTORY

Concluding the debt-for-equity exchange was considered key to ensuring a smoother ride through the bankruptcy process.

Bondholders had until late Saturday to vote on the exchange, which would give them up to 25 percent ownership in a reorganized GM in return for $27 billion in debt.

According to a spokesman for an ad hoc committee of bondholders holding about 20 percent of GM's bonds, 54 percent of debt holders voted in favor.

The company and the Treasury Department declined comment on the exchange results, which do not ensure court approval but give the company an important symbolic victory that bankruptcy experts and analysts say will help GM's case.

"The warrants and the improved capital structure make for an improved recovery for bondholders," Barclays Capital analyst Brian Johnson said. "In terms of the bankruptcy process, we expect the likely bondholder assent to smooth the process."

Obama said in an interview with NBC aired over the weekend that the government was forced to take over GM in order to prevent a collapse that could have brought down other companies and further batter the recession-hit U.S. economy.

"My preference would have been to stay out of it completely," Obama said.

In the past week, GM has also concluded an amended agreement with the United Auto Workers union under which the UAW will receive a 17.5 percent in a restructured company instead of $20 billion in cash.

The UAW also made concessions that some say mark a fresh blow to the once common, well-paid manufacturing jobs that created America's middle class.

SALES AT DECADES LOW

Now that a Chapter 11 filing looks certain, it raises questions about what impact bankruptcy will have on GM's sales, whether proceedings could get bogged down and whether government involvement will help the automaker overcome its core problem -- making and marketing better cars.

U.S. auto sales are already at their lowest level in decades. May sales figures are due on June 2, and expectations are that while dealerships performed better than in April, automakers are likely to report steep declines that reflect the U.S. economic slump.

GM has been losing market share since the early 1980s when it commanded 45 percent of the U.S. market.

It has been hurt by its reliance on a truck-dominated vehicle line-up and by a plunge in demand as credit tightened in 2008.

In late March, the Obama administration put the automaker on 60-day notice to restructure and clinch concessionary deals with its union and bondholders.

(Additional reporting by David Bailey, Soyoung Kim, John Crawley, Walden Siew and Tom Hals; Editing by Ted Kerr)

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After 3-month run, gains are harder on Wall Street (AP)

Sunday, May 31st, 2009 | Finance News

NEW YORK – The stock market is looking winded from its three-month race upward.

After a quick bounce off 12-year lows in early March, Wall Street is having a harder time carving advances as investors await definitive signs of a break in the recession.

The benchmark Standard & Poor's 500 index rose 5.3 percent in May, but that was less than its 9.4 percent surge in April.

Traders have been buying stocks on kernels of economic data and corporate earnings reports that indicate the economy's slide could be slowing. But some analysts say investors might be getting ahead of themselves.

"A turning point in sentiment indicators is not a turning point in real indicators," said Bruno Cavalier, lead economic analyst at Paris-based Oddo Securities. "We remain quite cautious about the global outlook."

It's normal for the market to move before the economy does, but traders also risk stepping into the market too early. In downturns over the past 60 years, the S&P 500 index has hit bottom an average of four months before a recession ended and about nine months before unemployment hit its peak.

Some analysts say Wall Street could be in for a more difficult climb as it waits for the economy to catch up with investors' expectations. The S&P 500 index has already shot up 35.9 percent since March 9, a run that might normally take years to occur.

The coming week's full calendar of economic readings could help steer the market. Lately, there has not been enough good news to bring out some cautious buyers. Traders are often simply shifting money around to capitalize on the market's gyrations, analysts say.

"There's no new money coming into equity funds," said Joe Saluzzi, co-head of equity trading at Themis Trading LLC. He sees little to celebrate in the economy, pointing to the expected bankruptcy of General Motors Corp. "There's nothing good out there."

As the spring rally progressed through its first two months, economic readings that looked a little better than the market's grim forecasts incited heavy buying. Now, though, the snapshots of the economy are likely to be more mixed and could lead to more volatility.

"Some investors have come to expect better-than-expected economic data and that does make the market a little more vulnerable, obviously much more so than back in March," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research in Cincinnati.

One example of the divide in expectations came Friday when the Commerce Department reported the economy slowed at a 5.7 percent annual pace in the first quarter. That wasn't as bad as the 6.1 percent slide the government first estimated in April but it was steeper than the 5.5 percent drop economists expected.

This week, traders will focus on the Labor Department's May employment report due Friday. The report is often seen as the most important economic reading of the month because rising unemployment can hurt consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Economists expect unemployment, which stands at a 25-year-high of 8.9 percent, will increase. But any sign that job losses are slowing could help the market.

But before that report, the Commerce Department is expected to release figures on personal income and spending for April on Monday. Figures are also due on construction spending for April.

The Institute for Supply Management is expected to issue monthly reports on the manufacturing sector on Monday and the services sector on Wednesday.

The National Association of Realtors' report on pending home sales in April is slated for Tuesday. And major automakers will report U.S. sales for May on Tuesday.

GM, meanwhile, is expected to seek bankruptcy protection on Monday. The market has been preparing for the automaker to reorganize but the reality of the company seeking bankruptcy could still bruise investor sentiment.

Among other economic reports, the Commerce Department is expected to release data on April factory orders on Wednesday. Retailers will report May sales on Thursday.

Few earnings reports are expected. Homebuilder Hovnanian Enterprises Inc. is expected to report fiscal second-quarter numbers on Tuesday, while builder Toll Brothers Inc. is expected to report results on Wednesday.

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