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Oil rebounded back above $53 (Dh195) a barrel on Thursday, after falling more than a dollar in the previous session on bearish US oil inventory numbers, as investors focused on hopes of an early return to economic growth.
Asian stocks rose to their highest in 11 weeks on Thursday, bolstered by strong US new home sales and durable goods data out on Wednesday.

But US government figures showed crude stocks had risen to their highest levels since July 1993, indicating continued weak demand in the world’s largest oil consumer.

US light crude for May delivery rose 50 cents a barrel to $53.27 a barrel by 0212 GMT, having shed $1.21 on Wednesday to settle at $52.77.

London Brent crude rose 76 cents to $52.51.

“Inventories are up their highest since 1993 as demand is weaker. The oil markets are reacting to the stronger economy but prices should stay in the 50s for the time being,” said Tetsu Emori, fund manager at Astmax Co Ltd.

The EIA showed seasonal distillates and gasoline draws in its weekly stocks data but said demand over the past four weeks for distillates, which include diesel, is running 9 per cent below last year due to an economically driven slump in trucking, shipping, and manufacture.

Crude stocks could rise further over the next few weeks as refiners cut production further.

“Additional refinery run cuts look set to put renewed downward pressure on crude prices, while providing product prices with a measure of support in the face of weak demand,” said brokerage firm Newedge in a report, as it noted that refinery runs on the East Coast have already slid to a near-all-time record low.

The weak oil fundamentals dragged prices lower on Wednesday, defeating the more bullish mode on the equity markets which closed higher on upbeat US housing and durable data.

The US government reported that new home sales in the U.S. unexpectedly rose at their fastest pace in 10 months in February, while US orders for long-lasting manufactured goods also unexpectedly rebounded in the same month.

Oil has tumbled from highs above $147 last July as the global economic crisis has dented energy demand worldwide but recovered from lows below $35 touched in December thanks to supplies curbs by the Organisation of the Petroleum Exporting Countries.

The organisation has agreed to cut output by 4.2 million barrels from September levels but an EIA report on Wednesday estimated that the producing group as a whole reached a 67 per cent compliance to the targeted cuts in February, down from previous estimates of compliance at around 80 per cent.

Traders work at the New York Stock Exchange in New York, USA. The Obama administration is expected to propose restrictions on financial firms, hedge funds and derivatives markets.

In a bid to quash Wall Street excesses that nearly caused the collapse of the US financial system, the Obama administration will propose tough restrictions on financial firms, hedge funds and derivatives markets.
The US Treasury will work with Congress to form a powerful systemic risk regulator with the authority to look deep into financial firms other than banks, such as hedge funds and private equity companies, administration officials said on Wednesday, speaking on condition of anonymity.

US Treasury Secretary Timothy Geithner will outline the plans in testimony before Congress on Thursday, and the proposals will form the basis for discussions on regulatory reform when President Barack Obama meets with leaders from the Group of 2O rich and developing nations on April 2.

The US plan does not specify which agency should take on the role of risk regulator to spot potential threats to the financial system. The decision on which regulator should play that role will be made in consultation with lawmakers, the officials said.

The proposals are part of a tough regulatory response by the Obama administration to the 18-month-long financial crisis. In coming weeks it will detail investor and consumer protection rules and plans to work with other countries to set global rules.

“The crisis has made clear that certain large, interconnected firms and markets need to be under a more consistent, and more conservative regulatory regime,” one of the officials said.

On Tuesday, US Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke told Congress they want authority to seize control of failing institutions such as American International Group to avoid bankruptcies. The government has the power to swiftly shutter commercial banks.

The proposals to be detailed on Thursday seek to shine a spotlight on hedge funds and other private pools of capital and are likely to prove controversial. The administration wants to require advisers to hedge funds, private equity funds and venture capital funds to register with the US Securities and Exchange Commission if their assets exceed a to-be-specified amount.

These advisers should be subject to investor and counterparty disclosure requirements and regulatory reporting that would include information necessary to assess how much debt they are taking on and whether they pose a threat to financial stability.

The Obama administration also plans to regulate credit default swaps and over-the-counter derivatives for the first time, forcing all standardized OTC derivatives contracts to be cleared through central counterparties, officials said.

BIG, LEVERAGED, INTERDEPENDENT

Systemically important firms would be defined in conjunction with Congress, but among the determining factors would be size, leverage, interdependence with other firms, reliance on short-term funding and role as a source of credit for households, businesses and governments.

Capital requirements for such firms must be more conservative than for other institutions and be sufficiently robust to withstand a wider range of “deeply adverse” economic scenarios than is typically required, the officials said.

The systemic risk regulator would get powers to order prompt corrective action if capital levels decline – similar to those the Federal Deposit Insurance Corp, a US bank regulator.

Despite the strong prescriptions to increase scrutiny and capital requirements, the Obama administration signaled some flexibility on accounting, with the officials saying that fair value accounting rules should be reviewed with the goal of identifying changes that could reduce wild swings in profit and capital levels as markets move up and down.

Bank balance sheets have been squeezed as markets have fallen, reducing the value of investment holdings, while many complex securities on banks’ books are now nearly impossible to value because there is no market for them.

The officials also said accounting for loan loss reserves should be revised to account for losses throughout the business cycle to ensure that they are adequate.

Swiss drugmaker Roche Holding AG has secured more than 96 per cent of shares in Genentech Inc, effectively completing its $46.8 billion (Dh172 billion) buyout of the US biotech group.
Roche said on Thursday it now holds some 93 per cent of outstanding Genentech shares, a further 3 per cent are guaranteed to be delivered within the next three business days and it will integrate the US biotech group as soon as possible.

The Swiss group agreed earlier this month to acquire the 44 per cent of shares in the US firm it does not already own for $95 each, ending a long pursuit of the US biotech group and its lucrative cancer drugs.

Roche said remaining holders of Genentech shares would revive $95 a share.

It will make Genentech a wholly owned subsidiary as soon as possible and, following the merger, the US company’s stock will no longer be traded on the New York Stock Exchange.

Roche’s Genentech buy is the third big acquisition by a drugmaker this year, following Pfizer Inc’s $68 billion acquisition of Wyeth and Merck & Co Inc’s $41 billion tie-up with Schering Plough Corp.

The deal underlines big pharmaceutical companies’ drive to secure promising new medicines as the flow of traditional drugs from research labs stalls and patents on current billion-dollar sellers expire.

United Arab Emirates fuel retailer Emarat is seeking a total of 360,000-480,0000 tonnes of gasoline for delivery between June to December via tender, industry sources said on Thursday.
Emarat is seeking about 60,000 to 80,000 tonnes of gasoline for delivery monthly this year.

The retailer has purchased about 240,000 tonnes of gasoline so far from the spot market this year.

Swedish fashion giant H&M, announced on Thursday that it posted nearly 13 per cent decline in profit due to currency swing.
Hennes & Mauritz, the world’s third-biggest clothing retailer by sales, posted a surprise 12.6 per cent fall in its first-quarter pretax profits on Thursday as currency swings dented margins.
Pretax profits in the December-February period were 3.55 billion Swedish crowns ($439 million; Dh1.62 billion), short of the average forecast of 4.11 billion given in a Reuters poll of 20 analysts and down from the 4.06 billion made a year ago.

The gross margin fell to 56.6 per cent from 59.6 per cent, which compared with a forecast of 58.6 per cent. Excluding currency effects the margin would have been 60.8 per cent.

H&M and Spanish rival Inditex, which owns the Zara chain, are feeling the pinch of the global downturn but thanks to their offering of high-fashion looks taken straight from the catwalks at low prices they have weathered the grim sales environment better than some other clothes retailers.

H&M’s quarterly group sales rose 18 per cent to 23.3 billion crowns. In local currencies, the increase was 4 per cent. In comparable units, sales decreased by 5 per cent.

“In the second quarter the company expects that it will not be able to benefit from the positive effects from the strengthening of primarily the euro, as a consequence of the hedging of the internal flow of goods,” H&M said, adding it expected the effects from the hedging to even out over time.

Net sales in February rose 1 per cent year-on-year versus a forecast 1.4 per cent rise. In stores open a year or more, sales fell 8 per cent versus a forecast 8.5 per cent drop.

H&M said price reductions had in the quarter been on the same level as a year earlier, and that the stock-in-trade was well composed and at a satisfactory level.

Etihad Airways’ phased move into Terminal 3 at Abu Dhabi International Airport has been completed with the transfer this week of the final four long-haul services from Terminal 1 into the new passenger building.

The final flight moves saw the airline’s Beijing, New Delhi, Johannesburg and Mumbai services moving from Terminal 1 to Terminal 3 on Monday. The last batch of flights to transfer follows the successful transfer during recent weeks of Etihad Airways’ flights to Almaty, Bahrain, Bangkok, Brisbane, Brussels, Dammam, Doha, Dublin, Frankfurt, Geneva, Jakarta, Jeddah, Kuala Lumpur, Kuwait, London Heathrow, Manchester, Manila, Milan, Minsk, Moscow, Munich, Muscat, Paris, Riyadh, Singapore, Sydney and Toronto.

A total of 31 destinations now operate from the new Terminal 3. “Our customers using our Abu Dhabi home base will benefit hugely from the significantly enhanced facilities at Terminal 3. It also means the much-improved airport is now better equipped to meet the future expansion plans of the airline,” CEO James Hogan said.

“The transfer of flights is supported by Etihad’s new passenger facilities, featuring new premium lounges as well as improved check-in areas,” he added.

Etihad Airways and Abu Dhabi Airports Company have worked closely together to ensure the smooth transition of the majority of Etihad flights from Terminal 1 to Terminal 3.

The remaining flights operated by Etihad will remain based in Terminal 1.

The UAE economy will benefit from a weakness in the US dollar caused by the impact of quantitative easing programmes put in place by the Obama Administration, analysts said.

A weaker dirham, which is pegged to the greenback, will eventually act as a stimulant to the UAE economy, they said.

On March 19, the US dollar recorded the steepest fall against the euro since December as the Federal Reserve said it will purchase $300 billion (Dh1.1trn) of longer-term Treasurys, spurring speculation the central bank is purposely weakening the currency. The dollar weakened beyond $1.34 per euro for the first time since January 12. The UAE dirham was valued at $0.2722 yesterday.

“A weakness in the USD, given the dirham’s peg to the currency, will actually be a positive for the UAE economy this time around. Last year, when the economy was overheating, we needed a stronger currency to tackle inflation, especially imported inflation,” said Marios Maratheftis the Regional Head of Research at Standard Chartered, Dubai.

The crisis has changed the challenges of the UAE economy, Maratheftis said. “This year, the business cycle has turned. The challenge now is to achieve adequate growth rather than tackle inflation. Inflation will fall dramatically this year, and a weaker currency will act as a monetary policy stimulus for the economy. One sector that will benefit from is tourism, as it will provide the UAE with more competitive prices.”

This does not mean, however, that the UAE Central Bank should look at a possible revaluation of the dirham against the dollar, said John Wright, the former chief executive of Bank of Kuwait and Bank of Oman and a member of the Arab-British Chamber of Commerce.

“Imports would be helped if the dirham were revalued, but what would one do when the oil price goes up to $150 again,” he said. Wright said “it makes no sense” for the GCC currencies to move away from the dollar peg as exports are virtually 100 per cent priced on the greenback”.

With interest rates near zero, the Federal Reserve has now resorted to quantitative easing, which involves increasing money supply by printing new currency notes. The move is expected to devalue the US currency, apparently something that the US authorities want to stimulate exports.

The move will help the US economy, but will not single-handedly pull the country out of recession. Standard Chartered’s Maratheftis said: “A weak dollar will also be positive for the US economy, as it will help make US exports more competitive. Price alone, however, in view of a global slowdown, will not be enough to pull the US economy out of a recession this year. It will nevertheless help.”

Wright added: “A weaker dollar will benefit the US at a time of great need as it means that exports are much more competitive and inward investment is much cheaper.”

The international financial crisis will not end this year or in 2010 – and no one can predict when it will, said the Arab Monetary Fund (AMF).

“Nobody in the world can predict when the crisis will end and how far its repercussions will reach,” said Dr Hazem Elbeblawi, an advisor to the fund.

Asked by Emirates Business about the extent of the losses suffered by the region as a result of the meltdown – said by some commentators to have reached $1.5 trillion (Dh5.5trn) – he replied: “There is no accurate figure and no Arab research institution has confirmed a figure.

“The impact on the banking sector here has not been as large as it was in Europe and the United States. The reason for is that our banks did not have large investment portfolios in overseas banks and do not face a real estate mortgage crises, as it is the case in the US.

“However this does not mean our countries have not been affected – they have been affected. Arab states will face real economic problems, which will differ from one country to another. This will have to be tackled through the implementation of new and flexible monetary policies.

“The AMF will attempt to achieve financial and monetary stability for its member-states. It will offer new facilities to help countries to deal with the crisis at the meeting of Arab central bank governors due to be held in Amman in April.”

Dr Elbeblawi was speaking at a two-day forum in Abu Dhabi organised by the Arab Monetary Fund to brief officials from GCC central banks about the crisis.

Dr Franziska Schobert from the Deutsche Bundesbank spoke about European monetary union.

“Monetary union came into force in 2002 when the member-states approved the launch of the euro as a unified currency,” he said at the forum yesterday.

Heavy losses caused by the collapse of global markets will ally with the crash in crude prices to force Gulf state funds to slow down their investment push into the West and other countries, a key Saudi investment fund has said.

NCB Capital, an offshoot of the Saudi National Commercial Bank, said the sovereign wealth funds (SWFs) in the six-nation Gulf Co-operation Council (GCC) have received a severe blow from the global economic crisis as the bulk of their assets are based abroad.

It said the Abu Dhabi Investment Authority (Adia), ranked as the world’s largest SWF, and other government funds in the region, could have suffered as much as 30 per cent loss.

“Sovereign wealth funds, which were until recently so controversial, experienced a sharp reversal of fortunes last year… the Gulf SWFs, which rode the oil boom into a number of high-profile investments outside the region, have seen the value of their holdings fall significantly,” NCB Capital said.

“This dramatic turnaround raises questions about the willingness of the SWF’s to engage globally when the market outlook remains highly uncertain.

This is especially problematic in the area where they received some positive response, namely their initial foray into propping up the capital base of international financial institutions.

However, the losses incurred especially in the financial sector, have led the funds to largely retreat from the scene for now… this, along with the lower oil price, will mean at least a short-term slowdown in the changing balance of global economic and financial power in favour of the Gulf.”

Citing independent estimates, the study said the foreign assets of Adia and other GCC SWFs could have plunged by 25-30 per cent over the past year.

Saudi Arabia, which does not have a SWF, escaped major losses from the crisis given its “conservative investment policies”, the study said.

“Among the leading losers is the largest of the sovereign funds, Adia, whose holdings were previously estimated at more than $875 billion… Adia may have taken a hit of more than $100bn in 2008, among other things because of the sharp decline of its high-profile investment for a 4.9 per cent stake in the ailing Citigroup,” NCB said.

It noted that since Adia’s investment in late 2007, Citigroup’s share price has fallen by more than 95 per cent from around $35 to $1.

“The United States Government’s third rescue effort with $25bn capital infusion in the form of preferred shares to save the ailing giant could give it a 36 per cent stake in the bank and effectively dilute the existing shareholders’ equity by 74 per cent,” the NCB Capital study added.

Sultan bin Saeed Al Mansouri, Minister of Economy, said preliminary indicators of UAE’s economic performance during 2008 have shown the effect of the international crisis on aggregate constituents of the national economy was relative and minimal.

He said fast and effective actions taken by the government helped some economic sectors regain balance, following the direct difficulties they encountered as a result of the international financial crisis. Such sectors included construction, real estate, financial services and oil. The moves by the government actions helped these sectors into curative and disciplinary processes, which will be beneficial in the long run.

Al Mansouri added the performance of the national economy for 2008 passed through two stages – before the onset of the crisis and after the financial crisis. The national economy, prior to the crisis completed its accelerated growth, supported by high oil prices as much as $147 in July 2008. The price of crude then dropped to its lowest level of $38.6 in December 2008.

Preliminary data issued by the Central Statistics Department of the ministry, show that total gross domestic product (GDP) at fixed prices amounted to Dh535.6 billion in 2008 at a growth rate of 7.4 per cent as against Dh498.7bn and 5.2 per cent in 2007. The GDP at current prices totalled Dh929.4bn in 2008 over Dh729.7bn in 2007.

Several factors contributed to GDP growth in 2008, mainly rising oil prices. The average price of a barrel of oil was estimated at about $94.5 in 2008, compared with an average price of about $69.1 for a barrel in 2007. This amounted to a percentage increase of 36.8 per cent, which positively reflected on the growth of total GDP for 2008.

Contribution of non-oil sectors to GDP has risen to Dh577.5bn in 2008, over Dh467.9bn in 2007.

But the percentage contribution of non-oil decreased to about 62.1 per cent in 2008, compared with 64.1 per cent in 2007.

On the other hand, percentage contribution of the oil sector in total GDP increased from about 35.9 per cent in 2007 to 37.9 per cent in 2008, driven mainly by the hike in oil revenue.

Al Mansouri added the rest of country’s economic variables have continued their steady growth, and total fixed capital formation has increased to about Dh261.4bn during 2008, compared with Dh155.9bn in 2007 – a growth percentage of 67.8 per cent.

Final consumption expenditure hit Dh484bn in 2008 compared with Dh366.5bn in 2007 at a growth percentage of 32 per cent. Total exports of goods and services increased to Dh746.7bn in 2008, compared with Dh693.9bn in 2007 – achieving a growth percentage of 7.6 per cent. Crude oil constituted 36.2 per cent of the commodity exports structure in 2008, where re-export comprised 38.8 per cent, free zones exports 11.2 per cent, oil by products 2.5 per cent, gas 4.5 per cent and other exports 6.8 per cent. On the other side, total imports of goods and services increased to Dh562.6bn in 2008 compared with Dh545.3bn – a growth percentage of 3.2 per cent.

Preliminary data also indicates the UAE achieved a surplus in trade balance to Dh184.1bn in 2008 over Dh148.6bn in 2007. Al Mansouri said he expected the national economy to overcome the effects of the financial crisis during 2009 in the presence of positive economic performance and emergence of signs of revival in financial markets during the second half of this year.

Government spending and execution of infrastructural projects will continue, said Al Mansouri. The government will continue to maintain the increase in infrastructural projects, despite the decrease in oil revenues, he added.

Al Mansouri said he anticipated a certain form of balance to prevail in financial markets, real estate markets and the construction sector.

The Ministry of Economy’s initiatives formed the basis of support for the continuous growth of the UAE economy during 2008, a press statement said.

Such initiatives paved the way for achievement of positive results at the aggregate economic level. The steps helped enhance the ability of the economy to meet local and external challenges, maintaining economic stability, suitability of environment for business, co-operation with all countries and world economic conglomerations and international organisations, it added.

The initiatives also enhanced the competitiveness of the UAE economy and advanced its position regionally and internationally, Al Mansouri said.

The sound economic policies adopted by the country also led to excellent growth rates in various sectors, especially the development of non-oil sectors and its contribution to national GDP, he added.

The ministry has taken necessary steps to ensure attainment of economic success in different sectors and maintaining continuous economic development in the future, Al Mansouri said.

The year 2008 witnessed efforts taken by the ministry to promote the legal framework of economic investments and trade activities in the country, in addition to improvement of the competitive position of the country at both Arab and international levels.

The ministry is currently working on reviewing many existing laws in order to be compatible with the growing needs of the national economy and the increasing role of the private sector, in addition to the need for compatibility of such laws with the obligations of global competition.

Al Mansouri has issued a ministerial decision concerning working with the Unified Economic Activities Directory, in addition to unification of procedures and laws at the UAE level. The directory is a basic step in the Unified Commercial Register Project, which aims to provide a database about licensed economic sectors in the country, their volume and invested capital. Such a database will contribute to the proper and sound economic planning structure. It will also help form, update and modernise economic laws and other legislation in the country, the statement added.

Call for arab CO-operation

Arab countries must take concrete and rapid action at this month’s Arab League Summit towards economic co-operation and integration to face the global financial crisis, the UAE Minister of Economy Sultan bin Saeed Al Mansouri said yesterday.

The minister is leading a delegation to Qatar today to participate in the preparatory meeting of the Arab Economic Council in Doha on March 29.

“At this critical stage of the world economy, the Arab League meeting is critical,” Al Mansouri said. “Now is the time for Arab countries to co-operate and to stand together.”

The ministers will also discuss the UAE’s recommendation to implement an ‘open skies’ policy to boost intra-regional trade and pave the way for additional economic co-operation.