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U.S. Talks Tough With China MoneyNews
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With oil hovering above $64 a barrel and the busy summer travel season ahead, Americans might be hoping for a break. If they get it at all, it may not be much of one, according to OPEC. OPEC's director of research Adnan Shihab-Eldin told an energy conference in Rome yesterday that oil would continue to be priced above $50 per barrel for the next several years.
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He's not alone. According to a report in CNN Money, earlier this month OPEC president Edmund Daukoru said that U.S. crude oil would be priced in the upper $50s to lower $60s and that the producer group would hold talks if prices broke out of that range. The good news, Daukoru says, is that OPEC promises the price of crude oil won't go any higher than that. "At its meeting March 8, OPEC agreed to keep pumping nearly flat out at 28 million bpd to try to keep prices from straying toward the $70 danger zone and fill any supply gaps," says CNN Money. Shihab-Eldin told the audience in Rome that OPEC's output capacity would rise by 5 million to 5.5 million barrels per day by 2010 against levels from the end of 2004. But is this just wishful thinking for OPEC? As oil prices neared $70 this year, demand began to pull back. Is there a ceiling on how high oil prices can go? Oil supplies are at seven-year highs, according to the Energy Department. AFX News reports that analysts expect tomorrow's inventory report will show gains of about 1.8 million barrels in crude supplies. The International Energy Agency recently cut its forecast for worldwide oil demand by 340,000 barrels to 84.74 million barrels a day. "Prices have been locked between $60 and $65 for more than a month as investors balance geopolitical risks with bumper U.S. fuel supplies," says CNN Money. But oil prices could fall farther if demand continues to slow and supplies build. Editor's Note:
2. U.S. Talks Tough With China U.S. Commerce Secretary Carlos Gutierrez met with top Chinese officials today to discuss China's currency controls. The AP reports that Gutierrez met with Commerce Minister Bo Xilai and Premier Wen Jiabao as well as Vice Premier Wu Yi. The talks are thought to have centered around China's alleged currency manipulation of the yuan. Until last year, the yuan was pegged to the dollar - keeping the value of the yuan artificially low, some speculate. China de-pegged the yuan from the dollar, allowing it to rise about 3% in the past year. Now, the yuan is only allowed to trade in a narrow band relative to a basket of major currencies. So the U.S. contends that the yuan's value is manipulated. China is the No. 1 holder of U.S. dollars in its foreign reserves, as the country's central bank announced today that it overtook Japan's large reserves. The U.S. Senate is threatening a vote to impose a 27.5% tariff on Chinese goods. The U.S. trade deficit with China is a record $202 billion. Senators want to kill two birds with one stone: Decrease the trade deficit and help U.S. companies compete with Chinese imports. Gutierrez is playing good cop to the U.S. Senate's bad cop. The AP says, "Gutierrez warned in a speech Monday at a Chinese university that Beijing risks inflaming protectionist sentiment in the United States if it lets its record trade surplus keep growing." "We don't want it to become so big that what happens is that people who want to isolate the U.S. and who want to be protectionist may find a welcoming ear in the American people," Gutierrez said in the speech at Chongqing University in southwestern China, reports the AP. Last week, Wen Jiabao said of revaluating the yuan: "We will further perfect the yuan exchange rate formation mechanism to enlarge the foreign exchange market and increase the float and elasticity of the yuan rate. Such an administrative, one-off revaluation of the yuan, either upward or downward, will not take place again and there won't be any more surprises," he added. In other words, don't hold your breath, U.S.
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3. GM Slashes White Collars; Bankruptcy Looming? Both Reuters and The Wall Street Journal radio network are reporting that General Motors Corp. will slice a few hundred salaried jobs in its initial lifesaving effort to reduce its U.S. white-collar workforce by 7% this year. GM - which is set to lose its title as the world's biggest car maker - carries a debt approaching the size of Belgium's GDP. The company, which has 36,000 employees, first announced its plans to shed 7% of its payroll in November 2005. It lost $10.6 billion that year, due primarily to poor SUV sales and high labor and equipment costs. Reuters says that the first cuts will be announced at 30 locations, citing a statement from GM. The workers being let go on Tuesday will be asked to leave the company immediately. Analysts say that the layoffs are a key component of GM's overall strategy to prevent more losses. The news come a "week after the automaker reached a deal with the United Auto Workers union to offer early retirement packages to more than 100,000 hourly workers as part of a plan to eliminate 30,000 jobs and close 12 plants through 2008," says the news service. As a result of the recent staggering losses, the once-mighty manufacturer faces the real possibility of bankruptcy - a development that would decimate the financial markets. "A GM default would be absolutely huge," Jonathan Loredo of credit manager Cairn Capital tells Reuters. "It would be the biggest thing to hit the market in terms of losses and operational stress." GM continues to relinquish market share in the U.S. while it shoulders $300 billion of long-term debt and maintains health benefits for well over a million current and former employees. "Few who invest do not have some level of exposure - GM stock and debt is held by the biggest investment banks and smallest retail buyers," says Reuters. Editor's Note:
4. Gallup Poll: Investor Optimism Holding Steady Most mainstream media polls claim Americans seem bearish about the U.S. economy, although an argument can be made that the downbeat coverage of the economy has influenced public opinion to be that way. But a new Gallup poll released yesterday shows that investors seem fairly bullish on the health of the U.S. economy.
The poll, conducted by gallop in collaboration with financial giant UBS, showed that investor optimism remained steady this past month, with the UBS/Gallup Index of Investor Optimism registering 79, essentially unchanged from the 80 reading in February. That followed a 13-point decline from January to February. The poll showed that half of all investors who responded are optimistic about U.S. economic growth, and more than half are optimistic about the performance of the stock market, with a total of 62% believing that now is a good time to invest in the financial markets. Still, there is no shortage of worrisome issues to vex investors. According to Gallup, investors continue to see the price of energy as the most harmful influence on the U.S. investment climate, among ten items measured in the poll. "Sixty-nine percent say it is hurting the investment climate a lot and another 22% say it is hurting a little, a sentiment that has essentially held steady since last November, the poll states. "Over half of investors believe that the federal budget deficit and close to half, 48%, cite the Iraq war as hurting the investment climate a lot." The outsourcing of U.S. jobs to foreign countries is also a big concern. Some 53% of investors see job outsourcing as hurting the U.S. investment climate a lot. However, this represents an 11-point decline since November 2005, when 64% of respondents held that view. "Even with rising stock prices and an improving job market, investors remain cautious about their outlook for the economy as they look at current economic trends and political issues around the world," said Robin Miranda, associate strategist at UBS Wealth Management Research. Editor's Note:
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