Headlines (Scroll down for complete stories):
1. Saudi Arabia Backs OPEC Cut
2. Mortgage Lenders Ease Loan Standards as Defaults Rise
3. Weekly Jobless Claims Drop by 10,000
4. China's Growth Slows, But Still Robust
1. Saudi Arabia Backs OPEC Cut
In a departure from earlier comments, Saudi Arabia's oil minister said that his
country supports a proposal by OPEC to cut oil production by 1 million barrels a
day.
"We will try to make the market balanced," said Ali Al-Naimi. A Saudi Arabian
official had earlier commented that oil prices needed to come down to
"reasonable levels."
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The comments come as OPEC meets at an emergency meeting in the Qatar capital of
Doha to decide on the details of a cut. If accepted, the proposed cut would be
the first since December 2004.
Oil prices have fallen 25 percent since peaking in July at $78.40 a barrel, but
spiked to above $58 a barrel after the comments were reported.
However, some traders are skeptical that the size of the cut will significantly
impact oil prices. "I'm not sure that a million barrels is going to be enough,"
says Michael Fitzpatrick, an oil broker at Fimat USA. "It's going to be more
effective if it comes from actual production and not the quota."
Currently, OPEC has a production quota of 28 million barrels a day, but actually
produces less than that. So, if the cut comes from actual production, it will be
more significant than if it comes from the quota.
Al-Naimi is calling for cuts from actual production, but other OPEC members may
not be as agreeable to this. "For now we believe a million barrels from actual
production will be meaningful and we have plenty of time to discuss additional
cuts when we meet in Abuja," Naimi told Reuters TV.
Saudi Arabia easily pumps its production quota, but other countries struggle,
such as Iran and Venezuela, to meet their quotas. In other words, if other
countries have to cut their actual production, they'll lose out on a share of
the oil money.
One solution would be to make the cuts voluntary or temporary, says Reuters. But
that too could make oil traders react softly.
"OPEC's task in Doha looks difficult. The group must provide the market with a
credible scheme or prices may fall further," ABN AMRO analyst Geoff Pyne tells
Reuters.
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2. Mortgage Delinquencies Rise; Credit Standards Ease
Despite rising delinquencies on home loans, mortgage lenders continue to ease
lending standards because of the cooling housing market, says The Wall Street
Journal.
The abrupt loss of demand for mortgages has heightened competition among
lenders, forcing them to loosen up on borrowing requirements. At the same time,
borrowers are increasingly missing payments or defaulting on their home loans
mostly due to the lax lending standards, resulting in a vicious cycle for banks.
Data from Equifax and Moody's Economy.com shows the number of past-due mortgages
rose 2.33 percent in the third quarter, the highest level since 2003. But unlike
historical patterns, the defaults aren't because of a weak economy or high job
losses. Instead, the Journal says the data points to loose lending standards.
"We're seeing rises in delinquencies and loan losses that are unrelated to
what's going on in the job market," Mark Zandi, chief economist of Moody's
Economy.com, tells the Journal. "It's very unusual."
The comptroller of the currency, John C. Dugan, is warning banks to tighten up
their standards or risk the consequences, reports the Journal. "We don't want to
see lending decisions bankers make today result in excessive foreclosures — and
reduced affordable housing credit — tomorrow," says Dugan.
Dugan adds that bank regulators have noticed a "significant easing" in banks'
lending policies. A report by the Office of the Comptroller says 26 percent of
lenders eased their lending standards on mortgages, usually by making more
available nontraditional mortgage products such as interest-only loans and
balloon payment loans.
More than one-third of lenders eased standards for home-equity loans in the 12
months that ended in March. Less than 5 percent tightened standards, says the
report.
"We have reason to believe that the amount of easing we saw back in March is
continuing," says Kathryn Dick, deputy comptroller for credit and market risk at
the OCC, to the Journal.
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3. Weekly Jobless Claims Drop by 10,000
The number of laid off workers filing claims for unemployment benefits dropped
sharply last week to the lowest level in nearly three months.
The Labor Department reported that 299,000 people filed for jobless benefits, a
decline of 10,000 from the previous week. It was the lowest level for jobless
claims since the week ending July 22.
The decline was bigger than analysts had been expecting and provided evidence
that employers are still reluctant to lay off employees even though economic
growth is slowing.
The decline in jobless applications last week pushed the four-week moving
average for claims down to 307,750, the lowest point since late June.
After starting the year at a sizzling pace, the economy slowed sharply in the
spring as consumers were battered by surging gasoline prices, rising interest
rates and a cooling housing market.
Analysts believe growth slowed even further during the summer but concerns that
the country could tumble into a recession have been eased by recent declines in
energy prices, which have lifted consumer confidence and are expected to bolster
consumer spending in the closing months of this year.
The Federal Reserve, after raising interest rates for two years, called a pause
in the credit tightening at the August and September meetings. The central bank
is widely expected to leave rates unchanged at next week's meeting given recent
signs that the slowing economy is helping to relieve inflation pressures.
While employers have not boosted layoffs significantly, they have slowed hiring.
For September, employers added just 51,000 jobs, the weakest showing in 11
months. The unemployment rate, however, dipped slightly to 4.6 percent.
For the week ending Oct. 7, the number of jobless claims totaled 309,000. The
biggest increases in that week were in Michigan, which had a rise of 4,411
claims, reflecting layoffs in the auto industry, and Pennsylvania, where layoffs
rose by 4,338, reflecting problems in the construction, trade, and service
industries.
© 2006 Associated Press.
Editor's Note:
4. China's Growth Slows, But Still Robust
China's roaring economic growth slowed in the third quarter as curbs imposed to
avert overheating took effect, but controls must stay in place, the government
said Wednesday.
The economy grew a still-robust 10.4 percent in the July-September quarter from
the same period last year, the National Bureau of Statistics said. That's down
from the sizzling 11.3 percent rate in the second quarter, China's fastest
expansion in a decade.
The report appeared to ease pressure for Beijing to raise interest rates for a
third time this year or impose new controls as it tries to rein in a boom in
construction and bank lending that it worries could ignite inflation or a
financial crisis.
"These effective measures have successfully avoided the fast growth of the
economy turning into an overheating," Li Xiaochao, a spokesman for the
statistics bureau, said at a news conference.
However, the bureau said in a written report, "the achievements brought by
macro-regulatory control should be further enhanced. The structural
contradictions are still outstanding."
The report and Li, the spokesman, didn't say what additional steps Beijing might
take in its effort to manage growth in the world's fourth-largest economy.
Even with the slowdown, growth in the third quarter was still the second-fastest
quarterly rate in a decade, said Lehman Brothers economists Rob Subbaraman and
Mingchun Sun in a report to clients.
They said they expect growth to slow still further in the coming quarter,
falling to 9.5 percent. The World Bank and other experts have forecast full-year
growth of 10.5 percent.
President Hu Jintao's government wants to maintain fast growth to reduce
poverty. But it is trying to curb investment in industries where supply exceeds
demand, such as real estate, automaking, and textiles.
Investment in real estate and other fixed assets grew by 27.3 percent in the
third quarter, Li said. He said the number of new projects was down from the
previous quarter, though he didn't give figures.
"This is good news," he said.
The figures were in line with forecasts and suggest Beijing won't need to raise
interest rates again, said Shen Minggao, chief China economist for Citigroup.
"We are not expecting more rate hikes, at least in the rest of this year," Shen
said.
However, Shen noted the growth rate in fixed-asset investment — a key concern of
Chinese planners — rebounded to 23.6 percent in September after slowing in
August to an increase of 21.5 percent, despite the controls.
"That makes us wonder whether at least the slowdown in investment growth can be
sustained going forward," he said.
The government is especially worried about an explosion of investment in luxury
apartments, shopping centers and other real estate. Regulators have ordered
banks to tighten lending standards, clamped down on foreign investment, and
barred some types of new projects outright.
Despite those limits, investment in urban real estate development rose 23.4
percent to nearly 1.3 trillion yuan ($163 billion) in the third quarter,
according to the statistics bureau.
Among other indicators, inflation stayed low, with consumer prices rising just
1.3 percent in the first nine months of the year, according to the Statistics
Bureau.
The growth rate in China's industrial output also slowed to 16.2 percent in the
third quarter, down 1.9 percentage points from the previous quarter, according
to Li.
Trade in the January-September period was up 24.3 percent, with exports rising
26.5 percent, while imports were up 21.7 percent, according to the statistics
bureau report. That lifted the politically sensitive trade surplus to $48.7
billion (for the quarter, up nearly 70 percent from the same period last year).
China could face more problems if it focuses only on restraining investment,
which will hold back import growth and boosts the trade surplus if the
government doesn't encourage more consumption, said Lehman Brothers' Subbaraman
and Sun.
"We expect a multi-pronged approach to rebalance the economy," their report
said. "China's macro policies are starting to work, but there is little room for
slippage."
© 2006 Associated Press.
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