ECONOMY

 

Oil slips below $100 but still gains for the week

Oil traders eye Ukraine, Libya, U.S. supplies; natural-gas prices fall to 3-week low

 

 

SAN FRANCISCO (MarketWatch) — Oil futures saw a modest loss on Friday to settle back below $100 a barrel, pressured in part by a stronger U.S. dollar, but prices still scored a weekly gain on the back of ongoing uncertainty in Ukraine.

Meanwhile, prices for natural gas fell lower for a third straight session to mark their lowest settlement in more than three weeks as concerns over tight supplies eased.

Crude oil for June delivery CLM4 +0.75%  fell 27 cents, or 0.3%, to settle at $99.99 a barrel on the New York Mercantile Exchange. Prices, tracking the most-active contracts, ended the week around 0.2% higher.

June Brent crude UK:LCOM4 +0.41% , the European benchmark, fell 15 cents, or 0.1%, to $107.89 a barrel on the ICE Futures exchange, for a weekly loss of about 0.6%. 

“Fundamentally, we are well supplied and should be at lower prices,” said Tariq Zahir, managing member at Tyche Capital Advisors. Recent U.S. data showed a decline in weekly crude inventories, but supplies remain near record levels.

Fundamentals will eventually be the focus in the market — they’re just not there yet, Zahir said. “Fundamentally, production levels are quite high and we are above year-ago levels on supplies of crude.”

Additional strength in the U.S. dollar DXY +0.04%  as the oil market approached the close of the Nymex floor session Friday, weighed on oil prices, said Zahir. The euro EURUSD +0.03%  versus the dollar as traders continued to react to the dovish tone of the European Central Bank on Thursday.

Global supply risks

Oil traders also kept a close watch on developments overseas for any risks to global supplies.

Pro-Russian separatists in eastern Ukraine said Thursday that they would proceed with a referendum on secession set for Sunday, defying a call by Russian President Vladimir Putin to postpone the vote.

Some support for oil has been tied to worries that Libya won’t boost oil exports, after news reports said rebels that control two of the country’s export terminals indicated they won’t work with the country’s prime minister. 

Goldman faces scrutiny over high-frequency trading

WSJ's Emma Moody details the upcoming day on Wall Street, including news of Goldman Sachs coming under the regulatory microscope as a result of high-frequency trading suspicions. Photo: Associated Press

Analysts also noted remarks by White House adviser John Podesta, who said late Thursday that the Obama administration is studying whether it should allow some oil exports amid growing U.S. crude production.

“We’re taking an active look at what production looks like, particularly Eagle Ford, and whether the current refinery system can support the capacity increase [needed] to refine the product that’s being produced through the boom,” Podesta said on the sidelines of a New York energy conference, according to Platts.

Technical view

For technical traders, range-bound conditions for Nymex oil “mean approach with caution,” said Fawad Razaqzada, technical analyst at FOREX.com, adding that since the beginning of February, West Texas Intermediate crude has been moving in a “relatively tight range” between $97.50 and $105.

Although WTI is not exposed to the ongoing crisis in Ukraine in the same way as Brent is, there’s potential for WTI to climb a little bit higher again next week, should the situation there deteriorate further, he said in a note, “but I remain doubtful that the WTI’s rally will last long.”

“A potential break above resistance $102.20 could see the price of oil climb towards the upper end of the aforementioned range,” said Razaqzada. “On the downside, a potential break below support around $98.85 could expose the $97.50 level for a retest.”

On Nymex, prices for petroleum products ended lower. June gasoline RBM4 +0.59%  fell nearly a penny to $2.90 a gallon, for a loss of around 1.7% for the week. June heating oil HOM4 +0.60%  ended at $2.91 a gallon, down over a penny and around 0.5% lower for the week.

Natural-gas futures settled lower for the day, extending losses seen over the past two sessions. June natural gas NGM14 -1.41%  fell 4 cents, or 0.9%, to $4.53 per million British thermal units. Tracking the most-active contracts, prices saw their lowest settlement since April 16 and they lost 3.1% for the week.

Prices dropped 3.5% on Thursday after a U.S. government report showed that weekly supplies rose a bit more than expected, helping to ease worries about tight inventories.

 

Forcing Russia Out of Markets Seen as Ukraine Leverage 

 

Forcing Russia out of global financial markets is the strongest tool at U.S. President Barack Obama’s disposal if he wants to stop Vladimir Putin’s territorial ambitions, according to former government officials and sanctions specialists.
Secretary of State John Kerry is meeting with Russian, Ukrainian and European Union officials in Geneva today to discuss the situation in eastern Ukraine.
An administration official warned yesterday that if the talks fail, the U.S. is ready to take further steps, targeting people in the Russian president’s inner circle and entities they oversee. Industry-specific sanctions are also an option, according to the official, who spoke about private talks on condition of anonymity. Experts say these may produce more significant results.
“The biggest weapon in terms of sanctions would be similar sanctions to what we did in Iran and basically try to exclude Russia from international financial markets,” said William Pomeranz, deputy director of the Kennan Institute for Advanced Russian Studies of the Woodrow Wilson Center in Washington. “The Russians fear that, and that is what the Russians want to avoid.”
Obama avoided specifics in an interview yesterday with CBS News while vowing new punishment if Putin doesn’t halt support for Ukraine’s separatist militias and pull back troops from the border.
 “Putin’s decisions are not just bad for Ukraine, over the long term they’re going to be bad for Russia,” Obama said.

 

Treasury’s Powers

The U.S. Treasury Department has powers to freeze Russia’s access to bank loans, credit cards, clearing and settlements of transactions. That would basically force Russia out of the global markets, said Robert Kahn, a senior fellow for international economics at the Council on Foreign Relations in Washington.
Treasury could develop a list of specific transactions that it is prepared to block, communicate that to the Russians, and then follow up with specific guidance, said Kahn, a former official at the International Monetary Fund, Treasury and Federal Reserve.
So far, the Treasury has designated two companies -- OAO Bank Rossiya and Crimean natural gas company Chernomorneftegaz - - and a group comprised mostly of Crimean separatist leaders and oligarchs connected to Putin, such as Gennady Timchenko, who partly owns natural-gas producer OAO Novatek.

Targeting Banks

Going after a single bank has a larger “ripple effect” than blocking an individual or a company in any other industry, said Douglas N. Jacobson, a sanctions lawyer at Jacobson Burton PLLC in Washington.
“It does have a secondary effect,” Jacobson said, “because the large European banks and the large Japanese and the other, more Western banks, will be much more reluctant to engage” with banks that would be blocked by the U.S.
The reach of sanctions used so far on the financial industry was demonstrated when the U.S. designated Bank Rossiya, leading Visa Inc. and MasterCard Inc. to cut services for the St. Petersburg-based lender.
The U.S. Treasury has used financial-industry sanctions extensively with Iran. It worked together with European counterparts to exclude the regime from banking services and to ensure lenders observe the sanctions.

Penalties Paid

ING Groep NV in June 2012 agreed to pay $619 million to settle U.S. charges it falsified financial records to bypass sanctions on countries including Cuba and Iran. HSBC Holdings Plc in December 2012 agreed to pay $1.92 billion to settle U.S. probes of laundering funds of sanctioned nations.
Under the threat of significant fines for violating sanctions, JPMorgan Chase & Co. temporarily suspended a payment of less than $5,000 to a Russian firm that isn’t even on the blacklist. It let the payment go through earlier this month, following consultation with the U.S. regulators.
“Because such financial sanctions rely on the judgment of banks, which are easily scared into doing even fewer financial transactions that they were permitted to do, those sanctions can easily become even more serious than originally intended,” said former Central Intelligence Agency official Paul Pillar. “That’s exactly what we’ve seen happening in Iran.”
In the case of Iran, allies in Europe joined the sanctions. Anders Aslund, a senior fellow at the Peterson Institute for International Economics in Washington, said that in Russia’s case, cooperation with other global players isn’t as necessary.
“The U.S. has massive impact in the world of finance since the world is so interconnected,” he said. “Do sanctions on the four big Russian state banks and that will have a big negative impact and continue to sanction Putin’s cronies.”

 

U.S. economy picked up in most of country: Beige Book

 

WASHINGTON (MarketWatch) — U.S. economic activity increased in most of the country as the weather improved, particularly in the snow-ravaged northeast, according to summary of economic conditions released Wednesday.

The Beige Book, a collection of anecdotes about the economy published by the Federal Reserve, said 10 of its 12 districts saw improvement —mostly of the “modest to moderate” variety — but there was a decline in activity in the Cleveland and St. Louis regions.

This summary fits comfortably with the view of most private-sector economists that activity has rebounded as weather has returned to normal.

The return of the consumer was seen in most districts, as auto sales improved, a situation that harder data, like the retail-sales report, confirms.

Transportation, manufacturing and financial services also improved, though the reports on residential housing markets were “varied.” The Beige Book also talks of delays to crop plantings and shipments of commodities, as well as a pig virus that hurt hog farming.

Labor market conditions continued to slowly improve with minimal wage pressure, and prices were generally stable or slightly higher. In the Philadelphia and Atlanta districts, for instance, companies said they would first make capital expenditures before hiring. IT and trucking were cited as fields where companies needed workers.

The Beige Book is based on information collected from Feb. 24 to April 7, and this one was written by the Richmond Fed.

Google’s growth in mobile ads hurts results

Opinion: Disparity in paid clicks for desktop versus mobile ads remains an issue

 

SAN FRANCISCO (MarketWatch) — Investors may be focused on all things mobile but they are seeing the downside of that emphasis in the results of companies like Google Inc.

Internet advertising and search giant Google Inc. GOOGL -3.46%   GOOG -3.15%   reported disappointing first quarter results , with a drop in the cost-per-click metric, and lower than expected growth in paid clicks, which rose 26% year-over-year, while Wall Street was looking for growth of nearly 29%.

One issue is that most consumers are not following up on the mobile ads with purchases. Analysts voiced concerns about the disparity of paid clicks for the desktop and ads for mobile devices.

Google executives said they believe the gap between the two will eventually be resolved, because of the large opportunity for customizing mobile ads by location and context.

“I think the way to think about it is that in mobile you have location and you have context of individuals, which you don’t have with the desktop,” said Nikesh Arora, Google’s chief business officer. “And the more you know about the user in the context, the more effective advertising can provide them.”

Another analyst asked Arora to describe some of the building blocks that are needed before the gap between desktop and mobile ads can close. One of the simplest issues is to have a frictionless payment system so consumers can pay easily from their devices, without having to enter a lot of data into a small screen. Another issue is that merchants need to optimize their mobile websites better for selling directly from the mobile interface.

But it isn’t an issue that is going to be resolved in a quarter or two.

Hate your bank? Here’s why you won’t switch

Fewer customers are moving to smaller financial institutions

 

Consumers tired of rising checking account fees regularly threaten to switch to community and regional banks, but that talk is cheap, experts have found.

As financial institutions introduced more checking account fees post-recession, people started switching to smaller banks, according to Moebs Services, an economic-research firm in Lake Bluff, Ill. From 2008 to 2012, 15 million to 24 million accounts switched from large to smaller banks with assets of $10 billion or less, says Mike Moebs, economist and chief executive of Moebs Services. But that number has slowed considerably in the last two years from a peak of 1 million switchers a month in 2010 to just 1 million to 2 million a year, he says. “It has continued but not nearly as rigorously,” he says.

Despite this, the number of free checking accounts has dwindled over the last four years. Only 59% of banks are currently offering free checking accounts, a drop of eight percentage points over the last year, down from 80% of banks offering free checking accounts in March 2010, according to Moebs’s recent survey of 2,890 institutions across the country, including large and small banks and credit unions. Most banks lose money on checking accounts, he says. “Why does the checking account remain the primary financial service offered by banks? Because it’s a relationship builder.”

“We notice a slow, steady switching to community banks,” says Chris Cole, senior vice president at the Independent Community Bankers of America, a trade association of about 5,000 banks with average asset size of $250 million. However, while the switching rate is about the same as a year ago, it’s slower than it was in 2010, he says. Bigger banks offer more ATMs and more online banking options, but community banks typically appeal to customers who want more hands-on customer service and mostly lower fees for checking accounts, says Allison Ross, senior banking analyst at Bankrate.com.

They may be sticking around, but these days banking customers are more likely to complain. Around 66% of Americans are still angry at big banks for their role in the financial crisis and 26% feel guilty for banking with a big bank, according to a December 2013 survey of 1,000 adults carried out by Kasasa, which offers checking and saving accounts at community banks and credit unions (and, so, has an invested interest in switchers). But 72% of people also said they’d consider switching banks if their financial institution raised checking fees, according to a separate 2012 survey by personal finance website Bankrate.com, up from 64% in 2011.

So why are people less reluctant to change? Banks are sticky, experts say. “A lot of our financial lives are tied up in these accounts,” Ross says. It’s often too much trouble to move all of their direct debits, especially if they use their checking account for their mortgage payments and direct deposit of their salary, she says. One bounced mortgage payment can impact a customer’s credit rating. Thanks to social networking and the Occupy Wall Street movement, customers are also becoming more vocal. In 2011, Bank of America introduced and quickly dropped an unpopular $5 monthly debit card fee.

There’s been pushback against bank fees. Since 2010, federal regulation has required banks to get customer consent before charging overdraft fees, leaving customers with three choices when their accounts go into the red. They can incur an overdraft penalty fee for a short-term advance, pay an overdraft transfer fee when the bank transfers funds from a linked account, or choose to have the transaction denied when they have insufficient funds for no extra charge. That said, overdraft fees make up 60% of all fees from consumer accounts, according to the Consumer Financial Protection Bureau.

Another theory for the slower trickle in switchers: Small banks grappled with stricter capital requirements under the Dodd-Frank legislation enacted in the wake of the 2008 financial crisis, when many failed, Moebs says. The Basel Committee for Banking Supervision — made up of world banking regulators — will implement Basel III, an agreement to be enacted in 2018 outlining stricter rules on bank capital adequacy, stress testing and liquidity. “For the most part, community banks will be able to comply with them,” Cole says. Roughly 30 community banks failed last year, he adds, down from 160 in 2010.

Given the shakiness of some smaller banks in the aftermath of the recession, some consumers may be reluctant to leave a major bank for a smaller regional institution. The number of federally insured banking institutions has been on the decline due to mergers, consolidations and failures, falling to 6,812 insured institutions in the first quarter from 6,891 in the third quarter, down from a pre-recession peak of over 18,000, according to the Federal Deposit Insurance Corp

Dollar up vs. yen on industrial-production data

Fed’s Yellen says strong economy possible by end of 2016

 

 NEW YORK (MarketWatch) — The dollar rose against the yen Wednesday after a better-than-expected reading on U.S. industrial production in March suggested the economic recovery is strengthening.

Industrial production in March grew 0.7%, beating forecasts of a 0.5% rise seen in a MarketWatch poll of economists. February’s industrial-production gain was revised to 1.2% from an initially reported 0.7%. 

 

“With industrial production rising at a decent pace in March, the economy is now starting to show its true colors after the weakness triggered by the bleakest of winters,” said Paul Dales, a senior U.S. economist at Capital Economics, in a note.

The dollar USDJPY -0.09%  rose to ¥102.24 from ¥101.89 late Tuesday.

Federal Reserve Chairwoman Janet Yellen said Wednesday a strong economy that meets the central bank’s employment and price-stability goals could be achieved by the end of 2016.

Yellen, who spoke at the Economic Club of New York, said the low level of inflation has been caused in part by factors that are likely to be temporary, such as lower prices for consumer energy and imports.

“If we think that the Fed will be seeing its goals achieved by the end of 2016, there may be a strong argument for not beginning rate normalization until then,” said Michael Woolfolk, global markets strategist at BNY Mellon.

The Fed has embarked on a path to normalize monetary policy, announcing a further cut in its monthly bond purchases to $55 billion at its March meeting. At this rate, the bond purchases could wind down by the end of the year, leading to speculation about when the Federal Reserve could begin to hike interest rates. Yellen said after the March meeting there could be an approximate six-month period between the end of bond purchases and the first rate hike, an idea that has been somewhat discounted by the release of the Fed’s March minutes.

“There is little hope of a prolonged cyclical rally in the U.S. dollar until we get off of zero interest rates,” said Woolfolk.

The ICE dollar index DXY -0.13% , which measures the greenback against six rivals, rose to 79.827 from 79.795 late Tuesday. The WSJ Dollar Index XX:BUXX -0.13% , which pits the dollar against a wider basket of rivals, edged up to 72.98 from 72.96.

Other U.S. data released Wednesday showed construction on new homes in March rose 2.8% to a seasonally adjusted annual rate of 946,000. The Fed’s Beige Book revealed that economic activity increased in most regions as the weather improved.

“This beige book is showing that the cloud of bad weather affecting the data is starting to rise,” said Ken Willis, senior corporate dealer at USForex. “Data to come should be more positive,” he added. 

The Australian dollar AUDUSD +0.19%  rose to 93.71 from 93.57 U.S. cents late Tuesday, boosted by better-than-expected Chinese data.

China’s gross domestic product growth slowed to 7.4% in the first quarter from 7.7% previously, marking the slowest growth in 18 months. China is Australia’s largest trading partner.

The U.S. dollar pushed above 1.10 Canadian dollars after the Bank of Canada made no change to interest rates, as expected. In recent trade, the U.S. unit USDCAD -0.08% rose to 1.1014 Canadian dollars from 1.0977 Canadian dollars late Tuesday. The BOC left the target for its key rate, called the overnight rate, at 1%. In the accompanying statement, the central bank noted higher energy prices and a lower exchange rate should help push CPI inflation nearer its 2% target in “the coming quarters.”

The euro EURUSD +0.14% was little changed at $1.3815 versus $1.3812 late Tuesday. European-Union consumer prices in March rose 0.5% from a year earlier, marking the lowest annual rate since November 2009. The tepid inflation rate is the latest to cause concern about deflation in the euro zone, which could prompt further easing from the European Central Bank.

The British pound GBPUSD +0.23%  rose to $1.6797 from $1.6723 late Tuesday. The U.K. unemployment rate was an average of 6.9% between December and February, falling from 7.1% in the prior three months. The unemployment rate is now below the Bank of England’s threshold of 7%, which is one of several indicators used by the bank to determine the path of interest rates. The Bank of England said in August it wouldn’t consider raising interest rates until the unemployment rate fell to 7%.