Archive for June, 2011

Oil near $91 as Greece austerity vote awaited

Monday, June 27th, 2011 | Finance News

SINGAPORE – Oil prices inched higher to near $91 a barrel Tuesday in Asia as investors mulled whether Greece will approve more austerity measures this week to receive the next round of international aid and avert a debt default.

Benchmark oil for August delivery was up 26 cents to $90.87 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. Crude fell 55 cents to settle at $90.61 on Friday.

In London, Brent crude for August delivery was down 3 cents to $105.96 a barrel on the ICE Futures exchange.

Greek lawmakers will vote Wednesday on a $40 billion austerity plan, government spending cuts that European officials say are a necessary condition to receive the next installment of Greece's $156 billion bailout loan from the European Union and the International Monetary Fund.

If Greece rejects the cuts, it could lead to a debt default and spread instability in other financially troubled European countries.

"Most observers expect the Greeks to understand just how much is at stake," energy consultant Cameron Hanover said in a report. "Contrarians argue that Greece's people may decide there is less pain in a default than in austerity."

Weakness in the U.S. economy is also on the radar. The Commerce Department said Monday that U.S. consumer spending was unchanged in May, the worst result since September 2009. When adjusted for inflation, spending dropped slightly.

In other Nymex trading in July contracts, heating oil slipped 0.5 cent to $2.76 a gallon while gasoline gained 1.6 cents at $2.82 a gallon. Natural gas futures rose 2.3 cents at $4.28 per 1,000 cubic feet.


Moody’s downgrades Toyota one notch to Aa3

Monday, June 27th, 2011 | Finance News

TOKYO (AFP) – Ratings agency Moody's on Tuesday said it had downgraded Toyota Motor and its affiliates by one notch to Aa3, citing concerns for its profitability against a strong yen and materials costs.

It said the ratings remain on review for possible further downgrade, given that they incorporate one notch of support from Japan's banks and government, which are also under review for a possible downgrade.

The latest rating is fourth-highest on Moody's scale of 19.

"Toyota's profit recovery in the period towards (financial year ending March 2013) will not be as strong as preferred because of its weakening market shares in various regions worldwide, the strong yen (now 80-85 yen per dollar), and high raw material prices," Moody's said.

A strong, fluctuating yen level makes Japanese exporters less competitive, eroding overseas earnings when repatriated and making it more expensive to export to other countries.

Toyota is a bigger exporter than its Japanese peers.

The Japanese automaker's "competitive strength will remain under pressure for a prolonged period in view of challenging market conditions", Moody's said.

The ratings agency had threatened to downgrade to its long-term credit rating for Toyota in April after Japan's devastating earthquake and tsunami hit auto parts supply chains and forced the closure of manufacturing plants.

However, the agency said the new rating reflected "the faster-than-expected recovery in Toyota's production levels following supply chain disruptions and power shortages because of the March 11 earthquake."

Earlier this month, Toyota said it expected net profit in this fiscal year to drop 31 percent on-year to $3.5 billion on a strong yen and the effect on production of the March disaster.

The automaker said it expected to stage a recovery in the second half as supply problems caused by the earthquake fade, but warned the current strength of the local currency made domestic production too expensive.

Toyota is also recovering from the impact of millions of safety recalls last year.

It sold 8.42 million vehicles globally in 2010, just ahead of General Motors' 8.39 million, but analysts say the impact of the March disasters will see it cede its position as the world's biggest carmaker.

Standard & Poor's cut its rating on the auto giant in March before the earthquake and tsunami.


Europe’s Lagarde set to win top IMF job

Monday, June 27th, 2011 | Finance News

WASHINGTON (Reuters) – French Finance Minister Christine Lagarde looks set to emerge on Tuesday as the International Monetary Fund's new chief, maintaining the tradition of a European heading the global lender.

Lagarde, 55, should easily get the majority support of the IMF's board over Mexico's central bank governor, Agustin Carstens, to become the first woman to head the institution.

While Carstens will get the backing of Latin America, Canada and Australia, his support appears too thin to break Europe's 64-year hold on the IMF post.

The 24-strong IMF board meets on Tuesday to finalize a process that began in May after Dominique Strauss-Kahn resigned as IMF managing director to defend himself against charges of sexual assault and attempted rape. He denies the charges.

IMF board directors, who represent the fund's 187 member countries, want to try to reach a consensus decision on a successor that would allow them to avoid a formal vote. It is possible the process could spill into Wednesday.

The race has been one of the most hotly contested succession battles in IMF history.

In a convention dating back to the creation of the IMF and World Bank after World War Two, Europe has always held the top IMF job, while the World Bank's top post has always gone to an American.

Developing countries have warned against another U.S.-European stitch-up, but some potential candidates from emerging markets decided not to step up because they did not feel they had a fair chance at the job.

Although a long-shot candidate, Carstens vigorously campaigned on his experience as a former IMF official who had first-hand knowledge of developing world economic crises.

An important voice in Tuesday's discussion will be the United States, which has been silent on who it supports.

U.S. Treasury Secretary Timothy Geithner said the selection proceed had produced "two very credible candidates" but he has also stressed the need for a quick resolution to the decision.

However, the Obama administration is widely expected to back Lagarde to preserve America's hold on both the top World Bank job and the No. 2 spot at the IMF.

Washington holds close to 17 percent of the vote, while European nations account for around 40 percent. China and Russia, two of the so-called BRICS emerging market countries, have already said they back Lagarde.

The three other BRIC nations -- India, South Africa and Brazil -- have been quiet on who they support.

Countries such as Egypt, Saudi Arabia, Indonesia, South Korea and French-speaking African nations early on declared their support for Lagarde, but they have only marginal voting power.

Fears of contagion over an escalating debt crisis in Greece have played in Lagarde's favor over the last several weeks because of her political punch across Europe, IMF board officials said.

A few board directors quietly expressed concern over an unresolved legal investigation into Lagarde's role in a 2008 arbitration payout to a French business. A top French court has put off a decision on the matter until July 8.

One way of dealing with the issue is not to offer Lagarde an IMF contract until the court has made a final decision, a board source suggested.

Whichever candidate steps in will have to immediately be able to deal with further IMF-EU financing to keep Greece afloat and focus on potentially thorny IMF spillover reports that analyze the economic and policy actions among the world's major economies.

Lingering resentment over the outcome of the latest election process will also require the new managing director to act quickly to reassure developing nations they have a stake in decision-making at the Fund.

(Editing by Paul Simao)