The Star Online: Business
The Star Online: Business |
- Global oil prices should fall with Gaddafi's overthrow
- Call for EU finance minister to lead the eurozone out of its debt crisis
- Volatility in the US stock market is far from over
| Global oil prices should fall with Gaddafi's overthrow Posted: 21 Aug 2011 05:55 PM PDT NEW YORK: Oil prices around the world should start falling if Libyan rebels succeed in toppling Muammar Gadhafi's regime, though the full effect won't be felt for months. On Sunday night, rebel forces pushed into Tripoli without meeting much resistance, hours after they overran a major military base that defended the capital. Opposition fighters captured Gadhafi's son and one-time heir apparent, Seif al-Islam. Independent analyst Andrew Lipow said oil markets will likely respond Monday by sending prices lower in "a sign of relief that conflict has come to the end." But Lipow said it will take time for the market to erase the hefty price increase that resulted from the suspension of Libyan oil exports since the rebellion began in February. When fighting broke out, oil was trading at around $84 a barrel. It quickly spiked above $93 and kept rising to a high above $110 at the end of April. Demand from emerging markets including China was also a factor in the rise. Oil has fallen recently along with stocks because of concerns about the global economy. Libya used to export about 1.5 million barrels of oil per day, almost all of which have been cut off. Although Libyan oil amounted to less than 2 percent of world demand, its loss affected prices because of its high quality and suitability for European refineries. The European refineries have struggled to make up for the production loss despite an increase from Saudi Arabia. As a result, European markets should see the first and most significant drops in oil prices, Lipow said. He added that any developments in the ongoing European financial crisis could also move stock markets around the world this week and oil prices along with them. Independent analyst Jim Ritterbusch said that even if rebels manage to push Gadhafi out soon, the near-term effects on oil prices will be limited. "Psychologically anyway, it's going to force some additional selling," Ritterbusch said. "But selling may not be pronounced because there's still a lot of question marks remaining" on how long it would take for production to resume. Michael Lynch, president of Strategic Energy & Economic Research, said that once Gadhafi is pushed out, Libya's new government could take the path of the Iraqis after the fall of Saddam Hussein and spend years fighting over every detail. Or it could follow Kuwait's example and quickly decide to bring in an outside company to get production restarted right away He added that there's always a chance that the process could come to a halt if one of the rebel generals tries to seize power, or if different factions get caught up debating the country's new constitution and put off making decisions about oil production. "They do have a good cadre of educated people, but they don't have a long record of competent self-government," Lynch said. "It would not be a bad bet to think there might be a chaotic period for a few months till they get organized." - AP
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| Call for EU finance minister to lead the eurozone out of its debt crisis Posted: 21 Aug 2011 05:34 PM PDT FRANKFURT: A European finance minister with sway over member states' taxes and budgets is needed to lead the eurozone out of its debt crisis, said the chief executive of Germany's second-largest lender, Commerzbank. "We need a real European finance minister, who is endowed with the appropriate powers," CEO Martin Blessing said in an op-ed to be published in Sunday paper Welt am Sonntag, which was in parts made available to the media yesterday. "With the introduction of a fiscal union, Brussels should have the right to take budgetary powers from countries that do not stick to the rules. It should have the right to levy its own taxes and to set up a common debt agency to issue bonds," said Blessing, whose bank is 25% owned by the German government. The CEO said the bundle of measures proposed by French President Nicolas Sarkozy and German Chancellor Angela Merkel this week was not enough. The idea of a common economic government leads in the right direction, he was quoted as saying, but "the implementation under consideration heads of state convening twice a year under Herman Van Rompuy's leadership will not be enough to create trust in a sustainably improved political framework." France and Germany unveiled far-reaching plans for closer eurozone integration on Tuesday but they disappointed investors by declaring any thoughts of common euro bond issuance would have to wait. Their message was that the focus should be on further economic integration rather than signing bailout cheques, and suggested that straying from eurozone rules and fiscal targets would no longer be tolerated. Blessing said a return to national currencies would be the only alternative to creating a fiscal union, but that giving up the Euro would lead to economic and political breakdown in Europe. "Should we come to the conclusion that despite all the efforts we cannot find a legal and political framework for our common currency, we should not shy away from abandoning the euro." - Reuters |
| Volatility in the US stock market is far from over Posted: 21 Aug 2011 05:28 PM PDT NEW YORK: The historic swings in the US stock market over the past two weeks have investors struggling to figure out where equities may be headed next. Only one thing seems clear: The volatility is far from over. A lack of progress on some of the economy's biggest issues from sovereign debt in Europe to growing signs the US economy is in danger of slipping back into recession will drive more uncertainty and moves from one extreme to another. However, with the S&P 500 down 17.6% from its 2011 high, many investors say a bottom could be near and bargain hunters could trigger at least a momentary bout of buying. "We're not even close to the end of volatility but given a decline of almost 17% in 13 days, we could see a rise from these levels," said Mike Gibbs, chief market strategist at Morgan Keegan in Memphis, Tennessee. "If there's something major with the European situation, that could be a catalyst for value investors to come back in." The situation in Europe has been dictating much of the market's recent movement. Last Tuesday, shares fell after a meeting between the heads of France and Germany failed to squelch fears about eurozone leaders' ability to contain the region's debt issues, which could impact global growth and the profit outlooks of US banks. Market participants will also be looking ahead to comments from Federal Reserve chairman Ben Bernanke at the central bank's annual meeting in Jackson Hole, Wyoming, on Friday. The Fed recently pledged to keep interest rates "exceptionally low ... at least through mid-2013," news that sparked a short-lived rally, suggesting that there may be little new information coming out of the Jackson Hole meeting that could move markets. "There's nothing Bernanke can do that's likely that will help stocks," said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc, which has US$3.2bil in assets under management. "If you see potential bank problems out of Europe before then, he might have some ammo for another round of quantitative easing but absent that, investors hoping for an August surprise will likely be disappointed." The S&P 500 fell 4.7% last week, extending losses of 12.4% over the previous three weeks, its worst streak of that length in 2 years. In a note, Birinyi Associates wrote that while the market remained difficult in the short term, there were indications that stocks were attractively valued. Noting that the S&P 500 was 10% below its 50-day moving average, Birinyi said, "This is the most oversold the market has been" since March 2009. Birinyi pointed out that the 2.25% dividend yield on the S&P 500 was higher than the 10-year US Treasury note's yield, making this "only the second period since the 1950s where stocks have yielded more than bonds." Issues in Europe may take on outsized influence next week as the US earnings season draws to a close, with Tiffany & Co and Applied Materials among the few S&P 500 companies on tap to report. Earnings, while often overshadowed by macroeconomic themes, have largely come in stronger than expected, giving investors at least one reason for optimism. This week, investors will have plenty of US economic indicators to watch, including the release of data on new home sales data, durable goods orders, consumer sentiment and gross domestic product. Should the data follow the recent trend of weak reports, which have contributed to the growing sense that growth will be muted, it could cause further selling. "There's still something of a sense that this is just a weak patch in the economy but prolonged weak data would point more definitely to a double dip," said Marc Scudillo, managing officer at EisnerAmper in New York. "There's a good floor to the S&P 500 at 1,100 right now. If we go under that, there's room to move even further to the downside." While US growth concerns remain a primary focus for investors, the issues in Europe are seen as the primary driver of the US stock market in the near term. Last Tuesday, markets fell as the leaders of France and Germany failed to discuss boosting the size of the eurozone's rescue fund or the sale of euro bonds, though they detailed closer eurozone integration. Many investors believe more aggressive policies are needed to restore stability to the area. - Reuters
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