September 9, 2009

Economic Outlook: Post summer retrenchment

Asian markets wavered Wednesday, while European markets pushed forward after the Labor Day holiday shifted investors' focus to a run up in commodities.

Sweet, light crude oil prices jumped more than $3 per barrel Tuesday in advance of a meeting of the OPEC oil ministers in Vienna.

Many industry analysts see the Organization of Petroleum Exporting Countries as leaving production levels unchanged, but the influential IHS Cambridge Energy Research Associates said demand for oil would rise in 2010 for the first time since 2007, the Financial Times reported Wednesday.

Energy analyst Edward Meir at MF Global described the market as dollar-driven, inflation-driven, hysteria-driven, but also concluded OPEC would likely leave things unchanged. In Saudi Arabia, the Al-Hayat newspaper said Ali Al-Naimi, Saudi Arabia's oil minister, described oil prices -- near $70 per barrel Tuesday -- as satisfactory.

Close to the harvest season in North America, corn, wheat and soybean prices are low, but precious metals prices have jumped with gold soaring to more than $1,000 per troy ounce Tuesday.

A run in gold is a fundamental shift that reflects a sense of investor caution, a signal, perhaps, that the March to August romp in equities has come to a plateau.

With U.S. investors betting the bull run had overextended itself, The New York Times reported Tuesday that the Oracle of Omaha Warren Buffett was steering investments toward Treasuries and corporate bonds recently.

As investors retrench, corporations are thinking merger. Kraft approached Cadbury this week with a $19.6 billion bid that Cadbury rejected. In Britain, Deutsche Telekom and France Telecom agreed to team up to save costs, while maintaining brand identity. Sharing infrastructure and retail costs would save the companies about $5.7 billion in annual costs, while cornering about 37 percent of the mobile market in Britain, The New York Times reported.

Investors will look at the U.S. Federal Reserve Beige Book Wednesday, a day after the Fed reported consumer credit had fallen a record $26.1 billion in July, far greater than economists predicted.

Revolving credit, including credit card loans fell $6.1 billion, while non-revolving credit dropped $15.4 billion as consumers cut back on borrowing, which reflects a real drop in spending.

On an annual basis, credit plunged 10.5 percent, as consumer credit fell for the sixth consecutive month. In June, outstanding credit dropped by $15.5 billion, the Fed said.

In Japan Wednesday, the Nikkei 225 index dropped 0.78 percent, while the Hang Seng index in Hong Kong fell 1.04 percent. The Singapore Straits Times index lost 0.39 percent, while the S&P/ASX in Australia fell 0.04 percent.

In midday trading in Europe, the FTSE 100 in Britain gained 0.74 percent, while the DAX 30 in Germany rose 0.59 percent. The CAC 40 in France rose 0.45 percent. The broader DJStoxx 600 rose 0.37 percent.