Archive for January, 2011

Global imbalances returning, could fuel unrest : IMF chief

Monday, January 31st, 2011 | Finance News

SINGAPORE (Reuters) – The world economy has begun improving but is beset by problems such as high unemployment and rising prices which could fuel crippling trade protectionism and violent social unrest, the head of the International Monetary Fund warned on Tuesday.

"The pre-crisis pattern of global imbalances is re-emerging," Dominique Strauss-Kahn said in a speech in Singapore.

"Growth in economies with large external deficits, like the U.S., is still being driven by domestic demand. And growth in economies with large external surpluses, like China and Germany, is still being powered by exports," he said.

"As tensions between countries increase, we could see rising protectionism -- of trade and of finance. And as tensions within countries increase, we could see rising social and political instability within nations -- even war."

Rising food and fuel prices in recent months have already hit poorer countries especially hard and are one of the factors behind massive anti-government protests in Egypt and in Tunisia, whose president was ousted last month.

Concerns about rising debt in developed countries, meanwhile, have increased in recent months, with Standard & Poor's last week cutting Japan's credit rating and Moody's warning it may place a negative outlook on the United States.

In Asia, the worries center around inflation and analysts say central banks in countries such as Indonesia need to respond faster to contain rising prices.

Strauss-Kahn also said foreign exchange rate adjustments have an important role to play in addressing global economic imbalances and should not be resisted.

"Holding back such adjustment in one country also makes it harder, and more costly, for other countries to let their exchange rate adjust," he said.

"For this adjustment to take place, time is of the essence, but asking for time only makes sense if there is a significant and regular move in the right direction."

Strauss-Kahn said the IMF is expecting subdued growth of 2.5 percent for the advanced economies this year as high unemployment and household debt weigh on domestic demand.

"Without jobs and income security, there can be no rebound in domestic demand - and ultimately, no sustainable recovery."

Emerging markets will grow at a faster pace of 6.5 percent, with Asia excluding Japan expanding by 8.5 percent.

"Monetary policy in the advanced economies should remain supportive as long as inflation expectations are well anchored and unemployment stays high," while Asia may need to do more to address the threat of overheating and a possible hard landing, he said.

(Editing by Kim Coghill)

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Oil stays above $100 a barrel in Asian trade

Monday, January 31st, 2011 | Finance News

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SINGAPORE (AFP) – World oil prices stayed above $100 a barrel in Asian trade Tuesday on fears the escalating turmoil in Egypt will disrupt supply flows through the strategic Suez Canal.

Prices barrelled through the psychological threshold overnight for the first time since the 2008 economic crisis as protests in Egypt demanding the removal of President Hosni Mubarak mounted.

Egypt is not a major oil producer, but is home to the vitally important Suez Canal, which carries around 2.4 million barrels of oil a day -- roughly equivalent to the daily output of Iraq or Brazil.

New York's main contract, light sweet crude for March delivery, was down 20 cents at $91.99 per barrel in afternoon trade.

Brent North Sea crude for March fell 50 cents to $100.51 after touching 101.73 overnight, the highest level since October 2008.

Prices were slipping in early Asian trade as traders cashed in their profits, said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

"One of the factors might be profit-taking since we're at 27-month highs," she told AFP, adding that the dip might be temporary as the Egyptian political crisis dragged on.

"For Brent, we can still see more upside... If the tensions continue, it will continue to provide support for the oil prices," she said

But the ebullient gains on the crude market would eventually be capped by "many parties that are concerned that high prices might form a threat to the economic recovery," Ong said.

Egypt has been engulfed in more a week of street protests demanding and end to President Hosni Mubarak's 30-year rule.

Analysts from Barclays Capital said while the concerns over Egypt fuelled the oil price increase, "we think that the probability for closure of the Suez Canal is extremely unlikely at the moment."

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Data buoys Asian stocks as oil hovers above $100

Monday, January 31st, 2011 | Finance News

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SINGAPORE (Reuters) – Asian stocks posted modest gains on Tuesday, led by shares in resource companies, as strong U.S. factory data and surging commodities prices offset fears that unrest in Egypt could spread elsewhere in the Middle East.

Brent crude oil futures steadied after topping $100 a barrel overnight for the first time since 2008, adding to concerns of a global fuel price spike even as policymakers in many emerging economies struggle to contain soaring food prices.

Data released in China showed manufacturing input prices were rising quickly, keeping pressure on the government to tackle inflation.

Figures from South Korea showed consumer inflation in January rose more than expected at the upper end of the central bank's target. Inflation in Indonesia was also higher than targeted, triggering pressure for rate rises, while in Thailand the rate dipped from December but the outlook for further policy rate rises remained unchanged.

The euro inched back up near a two-month high after a jump in euro zone inflation fueled expectations of an interest rate increase and as worries about Egyptian unrest abated slightly. The common currency stood at $1.3720.

Analysts said the euro could rise further, especially if European Central Bank President Jean-Claude Trichet talks tough on inflation after a Thursday policy meeting.

Japan's Nikkei share index and the MSCI index of Asian shares outside of Japan rose 0.16 percent and 0.23 percent respectively, with shares of energy and resource companies outperforming.

Relief that turmoil in Egypt was not escalating helped provide a floor for the market.

"Investors are finally able to focus on corporate earnings and some stocks are set to benefit from expectations for their results and forecasts," said Masumi Yamamoto of Daiwa Securities Capital Markets.

Sentiment was supported by U.S. data showing factory activity in the Midwest hit a 22- year high in January as orders surged and employment prospects brightened, providing further signs that the economy would stay on a solid growth path this year.

Strong earnings reports and boosted mergers and acquisitions activity also prompted investors to take a more sanguine view of events in Egypt and renew purchases of riskier assets.

The Dow Jones industrial average closed up 0.68 percent overnight, while the Standard & Poor's 500 Index gained 0.87 percent.

Brent crude hovered just above $100 after soaring as high as $101.73 overnight, while U.S. crude futures steadied above $92.

Saudi Arabia said OPEC was concerned by unrest in Egypt, where protesters seeking the removal of President Hosni Mubarak planned a "million-strong" march on Monday, but saw no need for an immediate boost in output as there was no oil shortage.

London copper rallied to a record $9,832 on Tuesday and tin also rose to an unprecedented $30,400 a tonne and shanghai copper hits its highest in nearly four years.

Stock markets in Shanghai and Hong Kong were little changed with investors reluctant to stake out fresh positions ahead of long Lunar New Year holidays later this week.

China's official purchasing managers' index fell in January to its lowest level in five months. Though activity continued to expand, input prices rose quickly, keeping pressure on Beijing to tighten policy to contain inflationary pressures.

"This indicates that the economic recovery trend is not yet clear, and we may see economic growth slow down a bit," Zhang Liqun, a government researcher, said in a statement accompanying the release.

The data signaled that demand for oil may not rise as quickly in China, the world's second largest oil user.

In Korea, the finance ministry said consumer inflation was expected to hover at the 4 percent range in the current quarter before softening to 3 percent in the second half. The index rose 4.1 percent in January, above a 3.9 percent forecast in a Reuters poll.

Indonesia's annual inflation picked up in January to a 21-month high of 7.02 percent, above the central bank's end-2011 target range of 4-6 percent. Some economists brought forward their expectations for a central bank rate hike to this Friday.

Annual core inflation in Thailand slipped to 1.3 percent from 1.4 percent in December, while headline inflation was stuck at around 3.0 percent. Economists said food price inflation was less marked than in other countries, but authorities had to keep close watch on rises in oil and raw materials.

(Editing by Daniel Magnowski)

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