NEWS,01.08.2012

Record unemployment in eurozone

Joblessness in the eurozone hit on Tuesday its highest level since the single currency was born, a further sign of economic desperation as hopes erode that the bloc will be saved by its central bank this week.An additional 123 000 people were out of work in the eurozone in June, figures from Eurostat showed, bringing the unemployment rate to a record high 11.2% across the 17 countries that use the single currency.The rate hides wide divergences, with unemployment as low as 4.5% in Austria and as high as 24.8% in Spain, where a shrinking economy makes it ever more difficult to pay off debt.New data showed capital fleeing Spanish banks at a growing rate. Spain has come dangerously close to losing affordable access to financial markets, raising the prospect of a bailout that would swamp the euro zone's hastily erected defences. If Spain goes, Italy, with an economy twice the size, could follow.Eurozone leaders have spent the past week issuing statements promising to take whatever steps are necessary to rescue the currency, but none have raised expectations as much as Mario Draghi, head of the European Central Bank.His announcement last Thursday that the ECB would do whatever within its mandate to rescue the currency raised expectations that he will deliver forceful new steps this week to lower Spanish and Italian borrowing costs.But market sentiment has since soured, showing that investors doubt whether he can deliver.Germany, which says it is illegal for the ECB to bankroll government borrowing, squelched talk of any easing of its opposition to letting the eurozone's rescue fund borrow from the ECB so it could buy almost unlimited quantities of government bonds.Italian Prime Minister Mario Monti, who has campaigned for concerted action by the eurozone's rescue funds and the ECB to bring down ruinous borrowing costs for Spain and Italy, struck an optimistic tone."It is a tunnel but ... some light is appearing at the end of the tunnel. We and the rest of Europe are approaching the end of the tunnel," he told RAI public radio before talks in Paris with French President Francois Hollande.Monti said decisions taken at an EU summit last month were starting to bear fruit. "We are now seeing the results both in the willingness of European institutions as well as from the governments of individual countries, including Germany," he said.After lunching with Hollande, he said there was no time to lose and they had discussed deadlines, adding: "We cannot afford even a minute of distraction." The ECB's Draghi promise last week to act to preserve the euro raised investors' expectations of a resumption of a long-suspended government bond-buying programme. Investors are waiting to see what the ECB announces at a meeting of its policy-setting Governing Council on Thursday."Today will probably be a quiet last day of the month. Everybody is waiting for Thursday to see if Draghi can deliver," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500m of assets."He'd better pull a big rabbit out of his hat."However, central bank sources cautioned against expecting dramatic action, saying bold moves could be at least five weeks away because other elements must first fall into place.They said Spain would first have to formally request a eurozone assistance programme, which it has so far resisted doing, and eurozone governments would have to agree to use their rescue funds to buy bonds in tandem with the ECB.Safe-haven German government bonds rallied on Tuesday and European shares fell as scepticism over the prospect of bold ECB action set in and Berlin repeated its opposition to a banking licence for the rescue fund. Monti, who will also visit Finland and Spain, said he was confident Spanish Prime Minister Mariano Rajoy would be able to tackle the country's problems.The scale of Rajoy's challenge was highlighted on Tuesday when figures showed that capital flight from Spain accelerated in May, the month when Madrid was forced to nationalise the fourth biggest lender, Bankia, and before eurozone countries agreed to help bail out Spanish banks. Capital outflows in the first five months of this year totalled €163.2bn - equivalent to about 16% of economic output. The same period last year saw a net inflow of €14.6bn.Spanish retail sales fell by 5.2% year-on-year on a calendar-adjusted basis in June, separate data showed, marking a 24th straight month of declines. Near-bankrupt Greece meanwhile reported that it is fast running out of cash as it awaits the next instalment of aid from international lenders. Deputy Finance Minister Christos Staikouras said that in the absence of €3.2bn needed to repay an ECB bond on August 20, Athens would lack the money to pay everyday public expenses ranging from police and other public service wages to pensions and welfare benefits."Cash reserves are almost zero," he told state NET television. "It is risky to say until when (they will last) ... but we are certainly on the brink."Speaking to reporters in London on Monday evening, Hollande voiced support for Monti's campaign to persuade euro zone leaders and institutions to act to reduce Italian and Spanish borrowing costs."European solidarity is of course about laying down discipline, but it's also about allowing countries that made hard choices to be rewarded with lower interest rates," Hollande said during a visit to the Olympic Games. "If countries undertake austerity measures and still have very high interest rates, how can they win the trust of their people?" he said.Monti spoke by telephone over the weekend with German Chancellor Angela Merkel, who is holidaying in northern Italy.Berlin agreed in principle at an EU summit in June that the eurozone rescue funds could buy bonds of countries that risk losing market access, but was angered when Monti said that such support should not entail any stricter economic conditions or international monitoring.There has also been renewed pressure from France, Italy and some central bankers to give the eurozone's future permanent rescue fund a banking licence so it can borrow money from the central bank to fight bond market contagion.The Sueddeutsche Zeitung said supporters of the idea were gaining ground in the eurozone, but the German Finance Ministry reiterated its opposition on Tuesday, sending markets down.A legal opinion commissioned by the ECB in March 2011 concluded that such a move would breach an EU treaty ban on monetary financing of governments. 

Eurozone factory downturn takes root

The eurozone’s manufacturing sector contracted for the 11th straight month in July as output and new orders plummeted, a business survey found on Wednesday. The data, which showed the downturn is deepening its roots in the core, will provide grim reading for policymakers who are battling to contain a debt crisis that has raged across the continent. Markit’s Eurozone Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 44.0, the lowest reading since June 2009 and below a flash reading of 44.1 and June’s 45.1. The output index sank to 43.4, the lowest since May 2009, under June’s 44.7 and an earlier flash 43.6. Markit said it was in line with the official measure of production falling at a quarterly rate of over 1%. “The eurozone manufacturing sector’s woes intensified again in July. Manufacturing therefore looks to be on course to act as a major drag on economic growth in the third quarter, as the eurozone faces a deepening slide back into recession,” said Chris Williamson at Markit. After stagnating in the first quarter, narrowly avoiding a technical recession, a raft of gloomy data pushed economists in a Reuters poll last month to predict a contraction in the second and third quarters. In a bid to spur growth the European Central Bank cut interest rates to a record low of 0.75% in June and is expected to cut them again to 0.5% before the year is out. At its policy meeting on Thursday, it is expected to restart its dormant government bond buying programme with the aim of lowering Spanish and Italian government bond yields, which have reached levels unsustainable in the long-term. Bank President Mario Draghi vowed last week that “the ECB is ready to do whatever it takes to preserve the euro”.Earlier data from Germany, Europe’s largest economy, showed its manufacturing sector contracted at its fastest pace in three years last month and it was a similar story in neighbouring France. Spain, which slid deeper into recession in the second quarter, saw the 15th straight month of contraction, while Italy chalked up a year in contractionary territory. The PMI for Greece, where the debt crisis began, has been below 50 since September 2009. Ireland was the only country to show signs of emerging from the downturn, Markit said, where its PMI was above 50 for the fifth month. Factories across the eurozone cut prices at the fastest pace since early 2010, but the new orders index still fell to 42.8 from the previous month’s 43.5 and has only been lower once in over three years. New export orders were at an eight-month low. “The current weakness of global economic growth suggests that all producers face a challenging environment in export markets as well as at home,” Williamson said. Some of the output was generated by firms running down backlogs for the 14th consecutive month and workforces were cut for the sixth month to reduce costs. Unemployment across the bloc rose to a euro-era high of 11.2% in June, official data showed on Tuesday. 

Average UK home slumps to R2.12

House prices in recession-affected Britain slid in July on an annual basis by the biggest amount in nearly three years, a survey by major home-loans provider Nationwide showed on Wednesday.The average value of a home in Britain stood at £164 389 ($257 743, R2.12m) in July - down 2.6% compared with the same month in 2011, the lender said in a statement.They meanwhile dropped by 0.7% in July compared with one month earlier, it added."UK house prices declined for the fourth time in five months in July, with prices falling by 0.7%. This pushed the annual pace of price growth down to minus 2.6%, from minus 1.5% in June - the weakest outturn since August 2009," said Nationwide chief economist Robert Gardner."The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy. Data released last week revealed that the UK recession intensified in the three months to July."

NEWS,27.07.2012

US drought woes deepen

The drought in America's breadbasket is intensifying at an unprecedented rate, experts warned on Thursday, driving concern food prices could soar if crops in the world's key producer are decimated.The US Drought Monitor reported a nearly threefold increase in areas of extreme drought over the past week in the nine Midwestern states where three quarters of the country's corn and soybean crops are produced."That expansion of D3 or extreme conditions intensified quite rapidly and we went from 11.9% to 28.9% in just one week," Brian Fuchs, a climatologist and Drought Monitor author, said."For myself, studying drought, that's rapid. We've seen a lot of things developing with this drought that were unprecedented, especially the speed."Almost two thirds of the continental United States are now suffering drought conditions, the largest area recorded since the Drought Monitor project started in 1999."If you are following the grain prices here in the US, they are reflecting the anticipated shortages with a price increase," Fuchs said."In turn, you're going to see those price increases trickle into the other areas that use those grain crops: cattle feed, ethanol production and then food stuffs."In some rural areas, municipal water suppliers are talking about mandatory restrictions because they have seen such a dramatic drop in the water table that they fear being unable to fulfill deliveries to customers, Fuchs said."Things have really developed over the last two months and conditions have worsened just that quick and that is really unprecedented," he added."Definitely exports are going to suffer because there is going to be less available and the markets are already reflecting that."It's anticipated that this drought is going to persist through the next couple of months at least and conditions are not overly favorable to see any widespread improvement. "President Barack Obama's administration has opened up protected US land to help farmers and ranchers hit by the drought and encouraged crop insurance companies to forgo charging interest for a month.Officials have said the drought will drive up food prices since 78% of US corn and 11% of soybean crops have been hit and the United States is the world's biggest producer of those crops.The current drought has been compared to a 1988 crisis that cut production by 20% and cost the economy tens of billions of dollars.The US Department of Agriculture issued retail price forecasts Wednesday for 2013 and they already showed an impact from the drought, with consumers expected to pay between three and four percent more for their groceries."The 2013 numbers reflect higher-than-average inflation which is partly a function of the drought and the higher crop prices," said Ephraim Leibtag of the USDA's Economic Research Service."The drought effects are starting now at the farm and agricultural level."Those things take two to 12 months to work through the system. So you'll see some effects as early as the fall (autumn) in terms of the grocery stores and restaurants, certainly later in the year and into 2013."The full impact of the drought on food prices won't be known for months."It's too early to tell as we don't know how much of the crop is going to be lost and how much higher corn and soybean prices will go," Leibtag said."We are not forecasting major impacts on retail food at this point. If the drought gets worse or corn and soybean prices rise even more, that would start to have a bigger impact."Even before the last week, farmers were telling AFP they may have to cut their losses  chopping down fields of half-mature, earless corn to feed the stalks to cattle.Weather forecasters predicted no respite.

ECB chief vows total support for euro

 

European Central Bank chief Mario Draghi vowed unconditional support for the beleaguered euro on Thursday, sending markets soaring orbit as traders eyed further action from the bank to shore up the eurozone.In apparently unscripted comments in London, the normally reserved Draghi said his institution was "ready to do whatever it takes to preserve the euro. And believe me it will be enough".Stressing that the euro was "irreversible", Draghi said that part of his bank's remit was to keep sovereign debt levels under control when they hampered the proper functioning of interest rate policy.Analysts saw Draghi's comment as a hint the ECB could soon reintroduce its hotly contested programme of buying up the bonds of struggling eurozone countries that has lain dormant for several months.As Spanish borrowing costs soared over seven percent earlier this week  the level that forced Ireland, Portugal and Greece into bailouts  the bank has come under increasing pressure to restart the programme.And Draghi's hints had an immediate impact on borrowing costs, with Spain's shooting below the seven-percent mark and Italian costs plummeting to just above six percent.The comments also sent stock markets into euphoric mood and boosted the euro on the foreign exchange markets after several days of painful declines amid fresh speculation the eurozone might implode or Spain might need a bailout.ABN Amro economist Nick Kounis said that Draghi had "opened the door for a restart of the central bank's government bond purchase programme", untapped since February."The crisis response looks likely to focus on direct intervention in the government bond market," he added.And CMC Markets analyst Michael Hewson said that Draghi's remarks "suggest that the ECB may well do something about capping rising bond yields".Attention would now turn to Draghi's monthly news conference in Frankfurt on August 2 "to see if he means what he says", the analyst added.Since the eurozone sovereign debt crisis erupted more than two and a half years ago, the ECB has won praise as the only European institution that has acted quickly and decisively to stem the turmoil.It has cut interest rates to a record low level of 0.75% and flooded banks with more than €1 trillion of ultra-cheap loans in a bid to stimulate lending and get the economy moving again.ECB officials have never ceased to repeat that such measures are only temporary and merely meant to buy time for governments to tackle the root causes of the crisis - profligate spending.Draghi insisted again in his London speech that the ECB did not want to "supplement actions that have to be taken by governments"."That is not our job," he insisted.But the central bank chief did praise efforts taken by EU leaders to fight the flames saying that "progress has been extraordinary in the last six months".Meanwhile, European Commission President Jose Manuel Barroso, on his first visit to Athens since the crisis began, urged Greece to deliver on its obligations if it wishes to remain in the eurozone."To maintain the trust of its European and international partners, the delays must end. Words are not enough, actions are more important," Barroso said after talks with Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras."All heads of states and governments of the euro area have stated in the clearest possible terms that Greece will stay in the euro as long as commitments made are honoured," Barroso told his hosts.Samaras, who leads a three-party coalition government that campaigned on keeping Greece in the eurozone, said he was "determined to go ahead with structural changes and privatisations and implement the measures agreed on in order to reduce the deficit".But the key measure demanded by EU-IMF lenders, whose auditors are again in Athens inspecting government books, now includes €11.6bn in new spending cuts, which is certain to face stiff resistance by Greeks.The IMF said on Thursday that it expected discussions with Greek authorities over the country's bailout-supported programme to continue into September, longer than expected.

NEWS,22.06.2012

Extra cash needed to bailout Spanish banks

 

Independent auditors said Spanish banks may need up to 62 billion euros in extra capital, to be filled mostly by a euro zone bailout, after Spain's medium-term borrowing costs spiralled to a euro-era record on Friday.Euro zone finance ministers met in Luxembourg to discuss how to channel up to 100 billion euros in aid to Spanish lenders weighed down by bad debts from a burst property bubble. Madrid's economy minister said a formal request would be made in days for the bailout, which was agreed two weeks ago.Many in the markets see the package as a mere prelude to a full programme for the Spanish state, which Madrid vehemently denies it will need.Spain's financial plight took centre stage a week before a European Union summit tackles long-term plans for closer fiscal and banking union in a bid to strengthen the euro's foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis.To pave the way, the leaders of Germany, Italy, France and Spain will meet in Rome."We are clearly seeing additional tension and acute stress applying to both banks and sovereigns in the euro area," International Monetary Fund chief Christine Lagarde, who attended the Luxembourg meeting, told reporters."With that in mind, the IMF believes that a determined and forceful move towards complete European monetary union should be reaffirmed."Two independent audits by consultants Roland Berger and Oliver Wyman found that Spanish banks would need between 51 and 62 billion euros in extra capital to weather a serious downturn in the economy and new losses on their books.The Bank of Spain said the 100 billion euros offered to Madrid two weeks ago would give a wide margin of error. Spain's three biggest banks would not need extra capital even in a stressed scenario, it said. The government said it did not expect to shut any banks and would restructure those in trouble.In Luxembourg, the finance ministers decided Spain should initially apply to the euro zone's temporary rescue fund, the European Financial Stability Facility, with the loan taken over by the permanent bailout fund the European Stability Mechanism (ESM) once it is up and running after July 9."The financial assistance will be provided by the EFSF until the ESM becomes available, and then it will be transferred to the ESM," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference."We would expect the Spanish authorities to put forward a formal request for financial assistance by next Monday," he said.Such a solution should avert a problem which had scared investors: debt issued by the ESM must be paid back first in case of a Spanish default, relegating private creditors lower in the pecking order. Because the new bailout debt will originate from the EFSF it will be issued without that requirement.Earlier on Thursday, Madrid sold 2.2 billion euros in medium-term bonds, drawing strong demand almost entirely from domestic banks. Yields on 5-year paper rose to a 15-year high of 6.07%, a level regarded by analysts as unaffordable for any prolonged period."They raised 2.2 billion versus a 2 billion target, so they can raise the money," said Achilleas Georgolopoulos, a strategist at Lloyds in London."Then the (question is), are the yields threatening for the medium term? And yes, clearly they are much higher than the previous auction ... But still they can continue for a few months to fund at these levels."The finance ministers also signalled there may be some leeway for Greece, following the formation of a coalition of mainstream parties committed to the country's 130 billion euro EU/IMF bailout but determined to renegotiate some of its terms.Athens will ask lenders for two more years to hit fiscal targets and an extension to unemployment benefits as it seeks to soften the punishing terms of the bailout that saved the country from bankruptcy.Greece's euro zone partners, in particular paymaster Germany, have offered modifications but no radical re-write of the conditions attached to the lifeline agreed in March.Juncker said nothing would be decided until the troika of EU, IMF and European Central Bankers had returned to Athens for a look at the books, starting on Monday."We will have a look into the findings of the troika and then we will discuss in detail the different means and instruments which can be used," he said. "It doesn't make sense for the time being to give more precise indications on the content of the programme."

Fuel companies should justify pump prices - AA

 

Fuel companies need to tell the public why their margins are creeping higher though oil costs are dropping, the AA says.AA petrol watch spokesperson Mark Stockdale told  there is a lag between what fuel companies pay for petrol and what consumers pay at the pump."Over time margins are certainly increasing," he said."If the fuel companies are saying historically margins haven't been high enough, then they need to go to the public and explain why they think margins should be rising."Stockdale's comments follow BP's claim that the company gets bad press even though prices have fallen back under $2 for the first time in nearly a year.BP's External Affairs manager Jonty Mills told  yesterday that "there's a bit of scepticism out there and it's hard for us to get a good rap in the media"."However I think we've shown, we've dropped the price six times consecutively in the last month and a half. BP have led four of those," he said.One of BP's rivals, Gull, further cut prices for regular 91 Octane petrol to $1.959 today.But Stockdale said the rise in margin of three to four cents in the last couple of months is "too much too soon" and he does not understand what has happened over that period to justify it.Though petrol cuts have been coming "thick and fast"be paying too much at the pump."We're basing it on the margin as it was in March, and based on those numbers we think there could be a cut of about three cents per litre," he said.Stockdale thinks there should be another price cut within the next week.

NEWS,20.06.2012

Greek coalition takes power

A conservative-led government took power in Greece today promising to negotiate softer terms on its harsh international bailout, help the people regain their dignity and steer the country through its biggest crisis for four decades.The swearing-in of Antonis Samaras as prime minister after elections last Sunday ended weeks of uncertainty that rattled financial markets and threatened to push near-bankrupt Greece out of the euro zone.Samaras, a Harvard-educated economist from a prominent Greek family, will head an alliance of his New Democracy party and Socialist PASOK rivals - the same discredited establishment parties which have dominated politics since 1974."I am fully aware how critical this time is for our nation," Samaras said after he was sworn in at a ceremony conducted by robed Orthodox priests at the presidential mansion."I know very well that Greek people are hurt and need to regain their dignity. I know that the economy must quickly recover to re-establish social justice and cohesion."The coalition parties are in a race to overcome public disgust with their records, face down an emboldened leftist opposition that narrowly failed to win the election, and persuade reluctant euro zone partners to ease the terms of a bailout that has caused deep economic suffering.The cabinet has yet to be named, although a technocrat banker is expected to become finance minister.Party leaders said a team would be formed to renegotiate the terms of the hated 130 billion euro rescue plan with the European Union and IMF, setting up a showdown with the lenders led by paymaster Germany who say they will adjust but not re-write the document.New Democracy and PASOK have little history of cooperation, having alternated in office from the fall of military rule in 1974 until last year, when the economic crisis forced them to share power in a short-lived national unity government.Their coalition will be the first in Greece in decades with an unrestricted mandate - last year's unity government and a coalition that took power in 1989 both had limited powers.The alliance will also be backed by the small Democratic Left party, whose leader Fotis Kouvelis called on the government "to gradually disengage from the terms of the bailout that has bled society".An official from one of the three parties in the coalition said that they had agreed to name National Bank Chairman Vassilis Rapanos as finance minister.Rapanos is an economics professor who worked closely on reforming the economy with a previous Socialist government.Other ministers were expected to be named later.Humiliated People Greece's crisis has left its people not only poorer but feeling humiliated.As the political leaders wrapped up talks on a government, hundreds of Greeks - many until recently members of the prosperous middle classes - gathered under the scorching sun in a big park in Athens for free vegetables offered by a farmers' association from the island of Crete."Not even in my worst nightmares could I imagine that I would end up like this - waiting in line for food," said Eleni Moshidou, 56, a mother of three unemployed sons who was fired from a law firm when the crisis broke out in 2010."I feel humiliated. Our politicians brought us here."Just over a month after an inconclusive election raised fears that Greek would have to leave the euro zone, New Democracy narrowly beat the radical leftist Syriza bloc that wants to scrap the bailout deal which most Greeks blame for worsening a recession which is in its fifth year.Syriza promised yesterday to be a "combative" opposition force that fights on behalf of Greeks struggling through wage cuts and spending cuts that have sent unemployment to record highs.But the new government's first battle is likely to be with foreign lenders as it tries to convince them to sign off on the next instalment of aid and allow more leeway on the austerity pledges.PASOK leader Evangelos Venizelos warned of a "big battle" in Brussels to craft a new bailout deal that would promote growth and contain unemployment."The most critical issue is the formation of the national negotiation team and ensuring that it is successful," he told reporters.Both PASOK and Democratic Left have refused to place senior politicians in the cabinet and could nominate technocrats instead, a move which potentially weakens their commitment to the new government."This government will have a very short life-span. It will disappoint expectations and its support will erode quickly," said independent political analyst John Loulis."It will be a government entirely run by New Democracy; its two smaller partners have already weaseled their way out of it".

Climate law could raise gas prices, lobbyists say

California regulations designed to fight global warming could force half of the state's refineries to close, trigger fuel shortages and add $2.70 per gallon to the cost of gasoline, according to a study released Tuesday by an oil industry lobbying group. The study, issued by the Western States Petroleum Association, argues that California's upcoming cap-and-trade system to cut carbon dioxide emissions could wreak havoc with fuel supplies as early as 2015. So could the state's low carbon fuel standard, a policy requiring refiners to lower the carbon intensity of the fuel they sell in California.Oil companies have a history of resisting California's climate change rules. But Catherine Reheis-Boyd, president of the petroleum association, said Tuesday that her group isn't trying to overturn the state's global warming law, known as AB32. Instead, the association wants to change how the state implements the law. If gasoline prices jump due to the fuel standard and cap and trade, she warned, Californians would probably demand that the entire law be scrapped."People could revolt, and if that happens, that's the end of it," Reheis-Boyd said. "If this goes the way we think it will, you won't have a program in 2015."2006 legislationPassed in 2006, AB32 requires California to bring its greenhouse gas emissions back to 1990 levels by 2020. Both the low carbon fuel standard and the cap-and-trade program, which starts this fall, were created to implement that law. Several oil companies that belong to the petroleum association tried to block AB32 in 2010 with a statewide ballot measure, but voters rejected it.Some environmentalists called Tuesday's report a scare tactic aimed at California legislators who are nervous about the state's fragile economy. The state has already endured two gas price spikes this year, with the statewide average for a gallon of regular finally falling below $4 last weekend for the first time since February."One thing I don't understand is, the electric utilities have stepped up, with renewable power and energy efficiency, the car companies have stepped up, with increased fuel efficiency - the oil companies seem to be the only ones who have no way to comply with AB32," said Adrienne Alvord, the California and western states director for the Union of Concerned Scientists. Complex, unpleasantTuesday's report was researched and written by the Boston Consulting Group and focuses on how California's 14 refineries will respond to both the fuel standard and cap and trade. The scenario is both complex and unpleasant.To comply with the low carbon fuel standard, refiners will need to blend more ethanol into their gasoline. But not just any ethanol will do.The process used by most American ethanol producers - distilling fuel from corn - releases too many greenhouse gases, according to California air pollution regulators. So the refiners would need to buy cellulosic ethanol, which is made from woody plants and has a smaller greenhouse gas footprint.Unfortunately, cellulosic ethanol has not yet been mass-produced. So the refineries would most likely buy Brazilian ethanol, made from sugar cane, and ship it here. Even with transportation factored in, Brazilian ethanol has a smaller greenhouse gas footprint than American corn ethanol, according to California's standards.Importing Brazilian ethanol would cost the California refineries money. In order to make a profit, they would most likely start shipping larger amounts of their gasoline to customers in other states or countries, where they wouldn't have to comply with the low carbon fuel standard. That would raise gas prices here.At the same time, the refineries would face an added expense due to the cap-and-trade system. The system will set an overall limit on the carbon dioxide emissions and create a market in which companies buy and sell the right to produce set amounts of greenhouse gases. That could cost refineries dearly, especially if carbon prices in the new market rise much higher than the state expects.Refineries threatenedAs a result, as many as seven California refineries would no longer be profitable, said Brad VanTassel, senior partner of the Boston Consulting Group.Should they close, the state could lose between 28,000 and 51,000 jobs, with the losses occurring not just at the refineries but at businesses frequented by refinery workers. California also could lose $3.1 billion to $3.4 billion in tax revenue. "Even if you lose just 30,000 jobs, that's a big deal to a state that's got 11 percent unemployment," VanTassel said.California has lost oil refineries before. In 1996, the state ordered oil companies to change the formula of fuel sold here in an effort to cut air pollution. It worked, but some refineries closed rather than pay for the necessary upgrades. At the same time, oil companies had been closing smaller California refineries to reduce the state's oversupply of gasoline and boost profits at remaining refineries.

NEWS, 31.05.2012.

 Spain debt woes spur flight from risk

 

Asian shares and commodities slid while the euro fell to its lowest in almost two years against the dollar on Thursday, as surging borrowing costs in troubled Spain raised fears that it could fail to rescue its banks and may need to seek a bailout. Investors fled from risk assets to US government bonds, with the benchmark 10-year Treasury yield falling below 1.6% in early Asian trade on Thursday, its lowest in at least 60 years. The 10-year Japanese government bond yield  hit a nine-year low of 0.810%. The dollar and the yen were also beneficiaries of escalating risk aversion although gold, a traditional safe-haven asset, struggled in the face of the greenback’s strength.     MSCI’s broadest index of Asia-Pacific shares outside Japan tumbled as much as 1.6%, and was set for its worst month in eight months with a drop of nearly 12%. The pan-Asia index was down 0.3% for the year.   The index was dragged down as some key Asian bourses - Hong Kong, Australia and Korea - temporarily fell to negative territory for t h e year. Japan’s Nikkei was down 1.4% on the day and  on track for its biggest monthly drop in two years. European shares were likely to tread lower, with spreadbetters predicting major European markets    would open down as much as 0.2%. US stock futures were nearly unchanged.   "The situation in Spain at the moment is untenable, not only is there concern over the state of its banking sector but there is little confidence its government will actually be able to bail them out,” said Michael Creed, an economist at the National Australia Bank. A caution by Spain’s central banker that Madrid will miss deficit targets for this year pushed Spanish 10-year yields  above 6.7%, close to 7%, a level seen as unsustainable and which could push Spain to seek a bailout just as Greece, Portugal and Ireland have done. The cost of insuring against a Spanish default scaled a record high near 600 basis points while Italy, which is also struggling with huge public debt, saw its 10-year yield  top 6% for the first time since January. Yields on all German bond maturities hit record lows on Wednesday, pushing the premium investors demand to hold Spanish debt over German debt to its highest since the launch of the euro at around 543 basis points. Firm dollar slams commodities Oil prices extended losses and copper hit 2012 lows near $7 422 a tonne on Thursday. US crude futures eased 0.3% at $87.59 a barrel and were set for their worst month since late 2008. Brent crude fell 0.3% at $103.15 a barrel, on track for its worst month in two years.     “Investors were already exposed to the problems in Spain, but what really disturbed the market were oil prices and US bond yields which broke out of range to hit long-period lows,” said Lee Seung-wook, an analyst at Kiwoom Securities. The dollar index, measured against a basket of major currencies, extended its rally to 83.11, its highest since September 2010.   The strong dollar and intensifying risk aversion sent the Thomson Reuters-Jefferies CRB index, a global benchmark for commodities, tumbling 1.7% to its lowest levels since September 2010 on Wednesday. A stronger dollar typically weighs on dollar-based commodities. The dollar index was on the verge of closing above its 100-month moving average at 81.82, which would generate a buy signal which in turn could spur a sustained period of dollar strength for the next couple of years to as high as 101.00-106.00, some analysts said. The index has in the past 30 years generated four successful buy signals which have resulted in significant dollar moves, they added.Euro under fire     The euro fell to a 23-month low of $1.2358 and a four-and-a-half month low against the safe-haven yen at ¥97.36. “There is no exit in sight currently for the euro to get out of this downtrend because there is no shortage of negative news,” said Hisamitsu Hara, chief FX manager at Bank of Tokyo-Mitsubishi UFJ. “Problems in Spain, a large eurozone economy, heighten fears while the risk of Greece leaving the euro bloc raises contagion concerns. The euro remains depressed, with players  cautiously testing the downside”. Hara added that the euro could weaken until support at the$1.19 level. The euro last dipped below $1.19 in June 2010. The yen rose to a three-and-a-half month high against the dollar at ¥78.71. Hara said wariness over Japanese authorities intervening to prop up the dollar was likely to prevent the US currency from falling sharply further.The European Commission threw Spain two potential lifelines, offering more time to reduce its budget deficit and offering direct aid from a eurozone rescue fund to recapitalise distressed banks. But any relief from the news was quickly offset by the latest Greece polls showing parties for and against a bailout neck-and-neck or very close to each another, ahead of a June 17 election that may decide whether Greece remains in the euro. Asian credit markets weakened, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 8 basis points.  

Oil prices extend losses

 

 Oil extended losses in Asian trade on Thursday, with prices hitting multi-month lows as Spain's banking woes intensified worries about the eurozone, analysts said.New York's main contract, West Texas Intermediate crude for delivery in July was down nine cents to $87.73 per barrel while Brent North Sea crude for July shed 29c to $103.18 in the afternoon.Prices had slumped Wednesday as the dollar rose to two-year highs against the European single currency, making dollar-priced oil more expensive and hurting demand.WTI crude had plunged $2.94 on Wednesday to its lowest level since October, while Brent declined $3.21, its lowest close since December 16."Right now, the market is wide open. There is still scope for more downside pressure on prices if the bearish sentiment about the eurozone's future keeps up," said Nick Trevethan, senior commodities strategist at ANZ Research.Spain's economic woes were sharply in focus as its 10-year borrowing rates approached the 7% mark considered too high for governments to be able to service their debts.Economists fear Madrid will have to seek an international bailout - following Greece, Ireland and Portugal - despite assurances from Prime Minister Mariano Rajoy.The European Commission weighed in on Wednesday, placing the debt-wracked country at the head of a critical list of 12 economies ordered to carry out sweeping reforms this year to try to stabilise the eurozone debt crisis."Concerns about a possible Greek exit and the risks of contagion from the periphery remain and in the absence of a policy response, oil prices are likely to remain under pressure," said Barclays Capital in a commentary.

NEWS,20.04.2012.

A five-point checklist to help you prepare for another global crisis

The IMF just downgraded growth in Europe and projects a recession of -0.3 per cent in 2012. Imagine you are minister for finance in an average developing country. You survived the 2008-2009 global crisis, presided over more than five years of respectable economic growth, a boom in commodity prices fills your treasury with cash, and your central bank does not quite know how to keep your currency from appreciating. Old problems persist — too many young people are unemployed, your industrial sector is small and aging, and plenty of public money is wasted or simply missing. But, all in all, you feel pretty good about how things are going under your watch. Suddenly, you learn that a new global crisis may be looming on the horizon. Think of another rich country defaulting on its debt, pulling other rich countries’ banks into trouble. East Asia can no longer find avid consumers in the West for its exports, so it cuts back on its own consumption of raw materials. Commodity prices begin to fall, and your politicians start to worry aloud. What do you do then? Or better, what can you do now to prepare for all that? Five key measures may help. First, secure your financing — for at least the next 24 months. The last thing you want in the middle of a storm in international finance is to default on your payments. If you do, already-nervous investors — foreign and local — will rush for the door. Not to speak of what soldiers, teachers and civil servants would do if they were unpaid. So, calculate your cash needs as if all your expenditures were untouchable, and sign today the loans you know you will need tomorrow. (With interest rates currently at rock-bottom, this is smart debt management anyway.) While you are at it, assume that a good 10 per cent of those grants that developed nations regularly give you will no longer come in. It would also be nice if public companies that manage your oil, gas or minerals could buy insurance against their prices falling too much (this is called “hedging” in financial jargon); unfortunately, if they have not done it before, it is probably too late now. Second, prioritise your investments. Decide now which project you will slow down, postpone or drop, if you were to run out of money. In a way, you are looking for projects that are not “shovel ready”, that is, those that cannot be quickly implemented. Rule of thumb: if it involves massive, never-done-before, pride-of-the-nation construction, it probably can be put on hold. Remember, cutting investment expenditures is always tricky — the interest of the politically-connected are usually affected. You don’t want to have that discussion during a crisis. Third, audit your social safety nets. There will be plenty of people in need as jobs disappear and incomes fall. Poor families will respond in ways that may hurt them, and your country, in the long run — pulling teenagers from high school is the typical example. You will then be called upon to fund temporary employment programmes, feed children in schools, and pay for direct cash transfers. Fourth, stress test your banks. Your financial system is probably small and isolated from the sub-prime sophistication of Wall Street. It is made up mostly of banks that hold the deposits of the urban middle class and handle the remittances of the Diaspora. What would happen to your banks if, all of a sudden, foreign currency became expensive and scarce? Are their loans concentrated on a few construction or trading companies that would go belly up if the commodity boom came to an end? And are banks lending to each other? To each others’ owners? Your central bank should be able to answer all these questions — it is supposed to supervise banks in real time. So it can alert you early. And, fifth, identify who will suffer when crisis strikes. Who are the winners and losers? (Yes, there are winners in this.) Will the impact be felt in a single, remote rural area where your commodities are produced or extracted, or will it be primarily an industrial affair, hurting middle classes across cities? Will the affected belong to a specific racial, religious or regional group? Whose consumption will get more expensive? And whose assets will lose most value? This kind of “political economy analysis” is invaluable because it will highlight the roadblocks in your decision-making. One final point that may not depend entirely on you as finance minister. It would help to decide who, when the time comes, will speak for the government and what the message will be. Typically, in days of turbulence, cabinets tend to become dissonant and perceptions of policy paralysis — if not incompetence — make things worse. That would be a pity. All told, it is possible — and not too difficult — to get ready, at least for the first wave of impacts from a potential new global crisis. And if the crisis never comes, so much the better.

NEWS,02.02.2012

Portuguese strike flops, workers fear for jobs

The trains ran and the buses, too. Staff made it to work and shops and banks opened across Lisbon. Weak backing for a transport strike on Thursday reflected a broader lack of appetite for militant action by workers concerned for jobs threatened by Portugal's growing debt crisis. Already facing its worst hardship in decades, Portugal has come under increasing pressure over the last month on fears it will be forced to seek another bailout beyond its current 78-billion-euro lifeline or restructure its debts like Greece. Italian, Irish and Spanish bonds rally, but Portugal's remain mired in doubt Lisbon can handle its debt. Government austerity measures are biting. Unemployment is above 12 percent and expected to rise further in the poorest country in Western Europe. However, the strike appeared to have little impact. Trains and buses were running. Only Lisbon's metro and ferries shut down.” They are raising the prices and now there is a strike as well, this is annoying," said Rosario Mendes, a janitor waiting for a bus to return home from her early shift. "We can't go on strike, there are no jobs.” Shops and commerce was functioning normally in Lisbon. Even union officials acknowledged the strike was weak.” We are analyzing why (train and bus) workers didn't mobilize as we had expected," said Jose Manuel Oliveira, a coordinator for the FETRANS transport union.The Portuguese have so far shown little passion for the kind of violent protests and strikes that have hit Greece during its crisis. Portugal has few traditions for widespread protest. The situation is similar in neighbouring Spain despite 23 percent unemployment. A general strike in November 2010 had limited impact. Spain's unions have lost clout and credibility. There is also wide-spread sentiment in Spain that families and the government lived beyond their means during a 10-year-long housing and construction boom. Nor has there been much sign of widespread militancy in France or in Italy. Thursday’s strike in Portugal was aimed at government efforts to restructure public transport companies, which have huge debts and will almost inevitably lead to job losses. The government has not yet detailed its plans.” This strike was premature and badly explained by the organizers, as the government has not yet outlined its plans for the transport restructuring," said sociologist Elisio Estanque at Coimbra University. "So it does little but caricature and vulgarizes the strike movement.” Portugal’s second-largest umbrella union, the UGT, reached an agreement with the government and employers last month on labor reforms that will make it easier to hire and fire workers, boosting competitiveness.UGT chief Joao Proenca said his decision to sign up to the agreement was motivated by his view that Portugal's lenders -- the European Union and IMF -- are under pressure to listen to unions in order to avoid a failure like in Greece. That should give unions greater clout in future reforms of the economy. Since Portugal's crisis began there have been only two general strikes -- one in November last year and one in November the previous year. There have been some sporadic strikes, such as train drivers and port workers, but they have related to specific issues in the sector, not in general against austerity measures. But, as Portugal enters the harshest year of austerity and recession under its bailout there are still risks that social protest could flare up, especially if the government decides to adopt further cost-cutting measures to meet budget goals. It has already effectively eliminated two months' pay for civil servants, cut health and pension spending and raised taxes across the board. Prime Minister Pedro Passos Coelho said this week he would meet the terms of the bailout "whatever the cost.” Another factor that could have undermined the union movements a split between the moderate UGT and the more radical CGTP, which refused to sign the labour reform agreement with the government and is affiliated to the small Communist Party.

"Prices are soaring; they are robbing the people and sinking the country. Reject the pact of aggression," read Communist Party banners plastered around Lisbon, in reference to the labor reform accord. Economic reality -- whether the slump deepens or the first signs of recovery appear this year -- may well end up being the key factor in deciding whether more workers join protests. Still, the challenges have only increased since many investors started believing Portugal may have to seek more bailout money, putting Lisbon further behind the recovery seen in Ireland, the euro zone's other bailed-out country."If we manage to get closer to Ireland and not Greece, strife should subside, but if more draconian austerity measures are imposed, there will be a limit after which popular discontent will spill over to the streets," said Estanque.