Crude near $143 as stocks go in tailspin
Oil prices rose to a record near $143 a barrel on Friday as a drop in global equities markets sent fresh investors into commodities. US crude was up $3.11 at $142.75 a barrel by 1:04 pm EDT after touching a record high of $142.93 earlier. London Brent crude was $2.91 higher at $142.74 a barrel, after hitting a peak of $142.91.
Global stocks slumped to three-month lows on concerns about the outlook for corporate profits and inflation, putting the Dow Jones industrial average on the verge of entering a bear market for the first time since 2001. “The renewed attraction of commodities as an investment vehicle is contrasting with the unattractiveness of the stock market,” analysts Ritterbusch and Associates said in a research note. “As additional traders abandon the stock market, the appeal of commodities as a trading vehicle is enhanced.”
Oil prices have jumped over 45% this year, extending a 6-year rally, as supply struggles to keep pace with demand from emerging economies.
Pushed by higher prices of food articles including milk, cereals, tea, edible oils and some manufactured items like soaps and detergents, inflation soared to 11.42% for the week ending June 14. The inflation number was higher by 0.37% over the figure recorded during the previous week. Inflation was 4.13% in the corresponding week a year ago.
At 11.42%, it has breached a high of 11.11% witnessed on May 6, 1995, but was still below 16.9% recorded in March that year. Galloping inflation may further prompt government and RBI to take steps to tame price rise.
If inflation continues to remain high, RBI may take further monetary measures to tame inflation, Crisil principle economist D K Joshi said.
However, finance minister’s adviser Subhashish Gangopadhyay told reporters here that inflation would remain in double digit for some more weeks even if prices fall due to base effect, and that the government should not be expected to take steps just because inflation is in double digit.
MERRILL Lynch will likely incur $5.4 billion of writedowns in the second quarter,
mainly from its exposure to monolines, said an analyst at Lehman Brothers, who also saw higher quarterly losses at the world’s largest brokerage.
Analyst Roger Freeman raised his writedown view by $3 billion for Merrill, making his estimate the highest among Wall Street analysts. Analysts have till date expected writedowns to range from $3.5 billion to $4.2 billion.
“We did a deeper review of Merrill’s monoline exposures on non-ABS CDO (assetbacked security and collateralised debt obligation) assets… this incremental $1.7 billion of writedowns constitutes the majority of our adjustment,” Freeman said.
In addition to the monoline write-down, the analyst said he was now incorporating a larger CDO/subprime write-down following a sharp decline in the ABX index over the past few days. ABX, a synthetic index of home equity assetbacked securities tied to credit default swaps, is comprised of risky home loans.
Freeman widened his second-quarter loss estimate to $2.78 a share from 64 cents. For 2008, he sees higher losses of $2.99 a share, from his prior view of a loss of 53 cents. The analyst cut his price target to $44 from $47, and rates the stock ‘equal weight.’ Shares of Merrill closed at $33.05 Thursday on the New York Stock Exchange. Through Thursday, they have plunged 38% this year.
AIG may absorb $5-b investment losses
WASHINGTON: AMERICAN International Group (AIG) plans to absorb losses for a dozen insurance units after their securities-lending accounts suffered $13 billion of writedowns tied to the subprime-mortgage collapse during the past year. AIG will assume $5 billion losses on sales of the investments, up from a previous commitment of $500 million, said Christopher Swift, vice-president for life and retirement services, in an interview. AIG also will inject an undisclosed amount of capital into some of the subsidiaries, he said.