Oil hits 6-year low, dragging energy stocks down; dollar weakens

Oil touched its lowest level since 2009, dragging Asian energy shares down amid increased projections for US production. 

PHOTO: BLOOMBERG

16 Mar10:54 AM

[HONG KONG] Oil touched its lowest level since 2009, dragging Asian energy shares down amid increased projections for US production. The dollar weakened from its strongest in more than a decade to major peers ahead of this week's Federal Reserve meeting.

West Texas Intermediate crude dropped 1 per cent to US$44.39 a barrel by 11:21 am in Tokyo, after earlier falling to as low as US$43.57. A gauge of energy producers dropped the most among the 10 industries on the MSCI Asia Pacific Index. Standard & Poor's 500 Index futures were little changed. The Bloomberg Dollar Spot Index fell 0.2 per cent as the greenback weakened 0.3 per cent to US$1.0525 per euro, after reaching its strongest level since January 2003.

US oil dropped 9.6 per cent last week and speculators cut bullish wagers to the lowest in more than two years as falling rig counts fail to cool a supply glut. The Fed may remove the word "patient" from its statement this week, giving it more flexibility on the timing of potential rate increases. The euro is heading for its biggest ever quarterly loss versus the dollar after the region's central bank took deposit rates below zero and began buying bonds as tries to stave off deflation.

"Crude has performed even worse with the strong dollar as it's been having its own demand and supply issues," said Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul. "We are seeing diverging monetary policies between the Federal Reserve and other major central banks, especially the ECB. Investors are curious whether the Fed will raise rates in June." Brent Slide West Texas Intermediate crude lost 4.7 per cent on Friday, and capped a fourth straight a weekly retreat. Brent, the benchmark contract for more than half of global oil, fell 0.9 per cent to US$54.17 per barrel following Friday's 4.2 per cent retreat.

The US surplus may soon strain the country's storage capacity, renewing the slump in oil prices, the International Energy Agency said Friday. Hedge funds and other money managers reduced their net-long position in WTI by 2.5 per cent in the seven days ended March 10, US Commodity Futures Trading Commission data show.

South Korea's S-Oil Corp. tumbled 4.1 per cent and Japan's Inpex Corp. retreated 3.6 per cent. Santos, Australia's No 3 producer, fell 2.1 per cent while BHP Billiton, the world's biggest miner, decreased 0.9 per cent.

Anger over alleged bribes and kickbacks at Brazil's state- run oil producer Petroleo Brasileiro SA brought more than 1 million people to the streets Sunday demanding President Dilma Rousseff's impeachment. The Next Funds Ibovespa Linked Exchange Traded Fund, which tracks Brazilian shares, dropped 1.2 per cent in Tokyo.

Dollar, Won The Bloomberg dollar gauge, which tracks the greenback against 10 major peers, climbed 0.8 per cent on Friday to its highest level in data going back to the end of 2004.

The won slipped a sixth day, losing 0.5 per cent to 1,135.63 per dollar and touching its weakest level since July 2013. Korea's currency retreated 2.7 percent last week, the most since 2011, as the central bank unexpectedly cut interest rates. Malaysia's ringgit dropped 0.4 per cent to 3.6995 a dollar.

The Australian dollar added 0.1 per cent to 76.45 US cents, after sliding 0.9 per cent on Friday. Minutes of the Reserve Bank of Australia's March 3 meeting, when the key rate was held at 2.25 per cent after a cut in February, are due Tuesday.

Investors raised their bearish bets on the Australian dollar to a record as BlackRock, the world's largest money manager, expects the currency to plunge to levels well below what the RBA prefers. Traders wager there's a 50 per cent change the RBA will reduce borrowing costs again within six months, according to data compiled by Bloomberg from swap contracts.

BLOOMBERG

      

Low wages, high dollar test Fed's patience

How patient will Fed chair Janet Yellen be? 

PHOTO: REUTERS

16 Mar9:41 AM

[WASHINGTON] How patient will Fed chair Janet Yellen be?

That's the question as the Federal Reserve heads into a policy meeting this week that could set the clock ticking for a midyear increase in interest rates.

After holding the benchmark federal funds rate at zero for more than six years of crisis and recovery, the Fed has stoked expectations of a hike for months.

But it has also stressed that it "can be patient" before taking the big step, leaving analysts and investors in debate, over just how fast or slow it could move.

Any decision has deep ramifications for markets. Expectations of a Fed rate increase, while central banks in Europe, China and Japan move in the opposite direction in monetary policy, have spurred a pullout of capital from developing economies and much greater volatility in capital markets.

They have also contributed to the dollar's 20 per cent rise against a basket of major currencies in the past year, cutting the competitiveness of US exports.

The Federal Open Market Committee (FOMC), the Fed's policy arm, meets on Tuesday and Wednesday amid broad signs that the US economy can handle a rate increase.

Proponents say that growth is strong enough and the unemployment rate at 5.5 per cent low enough. More importantly, they argue, not lifting the rate very soon risks dangerously stoking inflation down the road.

STRONG DOLLAR A CHALLENGE

But some of Yellen's own markers for a hike remain distant.

Inflation right now is far below target, wage growth is flat, and part-time employment rates and long-term unemployment numbers remain high - all signs that feed doubts about the strength of the jobs market and the overall economy.

Hence the questions about how much patience Ms Yellen has, a year into her tenure at the head of the US central bank.

The FOMC only introduced the idea that it would stay "patient" in December, two months after it ended its quantitative easing (QE) stimulus program.

Ms Yellen at the time indicated the policymakers would signal they are a big step closer to an increase - possibly within two FOMC meetings - when they drop the word from their meeting statement.

However, analysts say the unanticipated strength of the dollar, up 7.5 per cent against a trade-weighted basket of currencies, and 15 percent against the euro, since the beginning of the year, could combine with some very recent weak data to again give the policymakers pause.

Key metrics of inflation - the producer and consumer price indices - are both negative for the past 12 months.

Consumer sentiment has fallen, the housing sector is slower than expected, and poor retail sales in February suggest consumers are not yet comfortable to spend the gains from savings on cheaper gasoline.

"Sales have now fallen in each of the past three months, which rings alarm bells about the health of the US economy," said Chris Williamson of Markit.

"These worrying retail sales numbers, alongside weak inflation and wage growth trends, mean it's likely that the Fed will delay any tightening of policy until a clearer picture of the economy emerges later in the year." If they do drop "patient" from Wednesday's policy statement, counting two more meetings, that would open the door to the first rate increase in June.

Recent comments have shown some Fed officials clearly anxious to take the first step.

"I think that by mid-year it will be the time to have a serious discussion about starting to raise rates," said John Williams, president of the Fed's San Francisco branch, in early March.

"I see a safer course in a gradual increase, and that calls for starting a bit earlier." Nariman Behravesh, chief economist at IHS Global Insight, says all the signs have been for a rate hike at midyear.

"I don't think it's going to delay... It sure looks like they are going to hike rates in June. But as long as the dollar's strength continues, they've got this stiff headwind, you could see the Fed, after the first hike, proceed very slowly."

AFP

      

China becomes world's number three arms exporter: study

China has eased ahead of Germany and France to become the world's number three arms exporter after the United States and Russia, a Stockholm-based think-tank said on Monday. 

PHOTO: EPA

16 Mar7:48 AM

[STOCKHOLM] China has eased ahead of Germany and France to become the world's number three arms exporter after the United States and Russia, a Stockholm-based think-tank said on Monday.

The volume of the multi-billion dollar world arms trade rose 16 per cent during the period 2010 to 2014 over the previous five years, the Stockholm International Peace Research Institute added in its annual report.

The figures show that "the United States has taken a firm lead" with 31 per cent of global exports of conventional weapons, SIPRI said, adding that Russia is second with 27 per cent.

The next three arms exporters are far behind with about five per cent each, and China is only slightly ahead of fourth-ranked Germany and fifth-ranked France.

Three Asian countries accounted for more than two-thirds of Chinese exports, with Pakistan buying 41 per cent of the total, followed by Bangladesh and Myanmar. Beijing also had 18 client nations in Africa during the period.

Russia's top client was India - the world's leading arms importer - with 70 per cent of its purchases coming from Russia.

The United States had the most diverse clientele. South Korea, its top client, accounted for only nine per cent of total US business.

Among the top suppliers, China's sales were 143 per cent the figure from the previous five years. Ukraine and Russia also saw surges in exports, while German and French exports declined.

The data reflects the volume of arms deliveries, not the financial value of the deals, SIPRI notes.

Among importers, India was far ahead of second- and third-placed Saudi Arabia and China, purchasing some 15 per cent of the total volume compared with five per cent each for the next two.

African arms imports shot up 45 per cent in the period, SIPRI found. "Algeria was the largest arms importer in Africa, followed by Morocco, whose arms imports increased 11-fold," it said.

"Cameroon and Nigeria received arms from several states in order to fulfil their urgent demand for weapons to fight against the militant Islamist group Boko Haram," SIPRI added.

While the arms trade has been on the rise for the past decade, the volume remains about one-third below its post-war peak reached in the early 1980s.

AFP

Basel watchdog shifts emphasis to fine-tuning bank rules

16 Mar6:49 AM

[DOHA] International regulators who have overseen a major shake-up of banking sector rules since the global financial crisis can now focus more on fine-tuning them, the group's secretary-general said on Sunday.

Tighter regulation has been cheered on by lawmakers and backed by financiers since the banking excesses of the 2000s pushed the global economy into its worst recession since the Great Depression of the 1930s.

The Basel Committee on Banking Supervision has helped set down the new rules, aimed at strengthening the capital reserves of banks to make them better prepared for crises and reducing the amount of risk that banks are allowed to take on.

But the focus of the committee is now evolving, its secretary-general William Coen told a financial conference in Doha. "The new framework, we think, is in place," he said, adding there were still bits of work needed to finalise rules on leverage ratios and implementing a stricter "floor" on the capital which banks must hold. "We're now at the state where we can take a step back and look to see how those matrixes fit together. Are they really meshed as we had expected or are there areas of conflict where they don't interact."

Coen said the discussions needed to be data-driven where possible, showing quantitative evidence of the impact of regulation as well as using feedback from banks and trade bodies.

Such a focus represents a significant change of pace to the last few years, with Coen admitting that both banks and regulators were experiencing a certain amount of regulation fatigue.

Much of the effectiveness of global regulation is more down to the people operating in the sector, as opposed to the rules prescribed, Coen said, adding the Basel Committee would publish a paper later this year on corporate governance.

The culture of banking has been often criticised by lawmakers, most recently over allegations that HSBC's private bank in Switzerland helped customers dodge tax. "What we're trying to do is not only to raise the bar but to talk about the specific responsibilities of the board and their relationship with senior management," Coen said, adding the paper would also focus on the role of banks' risk officers and supervisors in the industry.

REUTERS