The unemployment rate surged to 5.5 percent in May from 5 percent — the sharpest monthly spike in 22 years — as the economy lost 49,000 jobs, registering a fifth consecutive month of decline, the Labor Department reported Friday.
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The Labor Picture in May
Back Story With Jad Mouawad and Peter Goodman (mp3)The weak jobs report, coupled with a staggering rise in the price of oil — up a record $10.75 a barrel to more than $138 — unleashed a feverish sell-off on Wall Street, sending the Dow Jones industrial average down nearly 400 points. The dollar plunged against several major currencies.
Investors’ recent hopes that the United States might yet skirt a recession sank swiftly in the face of gloomy indications that the economy is gripped by a slowdown and pressured by record fuel prices.
For tens of millions of Americans struggling to pay bills, the jobs report added an official stamp of authority to a dispiriting reality they already know: A deteriorating labor market is eliminating paychecks just as they are needed to compensate for the soaring cost of food and fuel, and as the fall in house prices hacks away at household wealth and access to credit.
“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and it’s really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”
President Bush acknowledged the jump in unemployment as an indication of “slow economic growth,” but he held out hope that $100 billion in tax rebates now being distributed to American households would spur spending and generate jobs.
"We’re beginning to see the signs that the stimulus may be working," Mr. Bush said during a swearing-in ceremony for the housing secretary, Steven C. Preston.
In a presidential election year in which the economy has emerged as a crucial issue, both major candidates used the employment data as an opportunity to criticize their opponent’s governing philosophy.
“The wrong change for our country would be an economic agenda based upon the policies of the past that advocate higher taxes,” said Senator John McCain, Republican of Arizona, in a written statement. “To help families at this critical time, we cannot afford to go backward as Senator Obama advocates."
Senator Barack Obama, Democrat of Illinois, called the labor report “a reminder that working families continue to bear the brunt of the failed Bush economic policies that John McCain wants to continue,” in a statement. “We can’t afford John McCain’s plan to spend billions of dollars on tax breaks for big corporations and wealthy C.E.O.’s.”
Democrats on Capitol Hill and advocates for the unemployed pointed to the spike in joblessness in arguing for the swift extension of federal unemployment insurance.
Among the 8.55 million people who were unemployed in May, 1.55 million had been unemployed for 27 weeks or longer. Unemployment benefits now expire after 26 weeks. An Iraq war financing bill approved by the Senate includes a provision that would extend cash benefits for an additional 13 weeks.
“It would show a new level of callousness by Congress, a new level of disconnect between Washington and the rest of the country, not to pass an extension now,” said Andrew Stettner, executive director of the National Employment Law Project, an advocacy group.
The White House has said it would veto the bill for imposing deadlines on the withdrawal of troops from Iraq. The administration also argues that jobless benefits should not be extended, with the unemployment rate still low by historical measures. Tony Fratto, a White House spokesman, said Friday’s report did not change that position.
The spike in joblessness significantly cooled talk that the Federal Reserve could stop worrying about recession and might soon begin to raise interest rates to choke off rising prices for crucial goods like gasoline and food.
Since last fall, as fears of recession have grown along with the financial turmoil resulting from falling home prices, the Fed has cut interest rates to encourage investment and spur economic activity. A chorus of economists has warned that the Fed has unleashed too much easy money, feeding inflation and driving down the dollar. Some have suggested the Fed might have to reverse course and raise rates. Not anymore, as the labor market continues to offer up evidence of enduring trouble.
“There’s a greater chance of peace breaking out in the Middle East,” said Mr. Barbera, the ITG economist.
Friday, June 6, 2008
Pakistanis despise or lionise 9/11 mastermind
A day after al Qaeda's Sept. 11 mastermind made his first appearance in a U.S. military court, Pakistanis were divided between admiration and revulsion for their countryman, Khalid Sheikh Mohammed.
"He deserves to be hanged," spat Mazhar Awais, an observant Muslim who runs a pharmacy in the northwestern city of Peshawar.
"Islam doesn't allow the killing of innocent people. If you're against the U.S. government, it doesn't mean kill Americans."
Many Pakistanis believe al Qaeda and its cohorts have brought dishonour on Islam by killing civilians and fellow Muslims.
But anti-American sentiment runs deep in Pakistan, where President Pervez Musharraf is often cursed for caving in to pressure to join a "war on terrorism" many Pakistanis see as America's, not theirs.
Mohammed, widely known by his initials KSM, has no shortage of admirers.
"What's happening in Guantanamo Bay? What's happening in Iraq and Afghanistan? We believe the U.S. is an aggressor and he's a hero," said Syed Sajjad Ali Shah, a retired government school principal in Peshawar.
Mohammed is on trial with four al Qaeda comrades for conspiring to murder civilians in the 2001 attacks.
They also face 2,973 counts on murder, one for each person killed when hijacked passenger planes slammed into the World Trade Centre, the Pentagon and a Pennsylvania field.
On his first appearance, Mohammed asserted his right to act as his own attorney, declared his wish to be a martyr, and chanted an Islamic verse in Arabic, before pausing to cheerfully translate its meaning into English.
His bravado resonated among Pakistanis looking for a hero to stand up against U.S. hegemony and Muslim rulers dependent on American support.
"He's a beacon of light for Muslims. It's the time to say no to the U.S. and the West. Otherwise history won't forgive us," said Dr. Tariq bin Wahab in the southern central city of Multan.
"We have to get rid of U.S. agents like General Musharraf who have sold our country for his vested interests."
Others were sickened by Mohammed's posturing in court.
"He's a killer; he's not a martyr," said Sameena Gul, a human rights activist in Islamabad.
Mobeen Ansari, a college student in Karachi, struck a similar note.
"I think he's a criminal and the 9/11 incident has just caused hatred," he said.
More dispassionately, some saw the U.S. military trial becoming a public relations disaster for Washington, as few people will believe it could be fair.
"He's been charged (with) a global terror act, so they should hold a global level trial. It cannot be a military trial," said Muhammad Akram, a 45-year-old lawyer in the southern city of Karachi.
Others clung to conspiracy theories that the events of Sept. 11 had nothing to do with Muslims or Pakistanis.
"I don't think this was done (by anyone) from our part of the world," said Nosheen Razzak, a radio jockey, from Karachi.
"I don't think it was done by Muslims." (Additional reporting by Asim Tanveer, Aftab Borka and Sahar Ahmed; Writing by Simon Cameron-Moore; Editing by Jerry Norton)
"He deserves to be hanged," spat Mazhar Awais, an observant Muslim who runs a pharmacy in the northwestern city of Peshawar.
"Islam doesn't allow the killing of innocent people. If you're against the U.S. government, it doesn't mean kill Americans."
Many Pakistanis believe al Qaeda and its cohorts have brought dishonour on Islam by killing civilians and fellow Muslims.
But anti-American sentiment runs deep in Pakistan, where President Pervez Musharraf is often cursed for caving in to pressure to join a "war on terrorism" many Pakistanis see as America's, not theirs.
Mohammed, widely known by his initials KSM, has no shortage of admirers.
"What's happening in Guantanamo Bay? What's happening in Iraq and Afghanistan? We believe the U.S. is an aggressor and he's a hero," said Syed Sajjad Ali Shah, a retired government school principal in Peshawar.
Mohammed is on trial with four al Qaeda comrades for conspiring to murder civilians in the 2001 attacks.
They also face 2,973 counts on murder, one for each person killed when hijacked passenger planes slammed into the World Trade Centre, the Pentagon and a Pennsylvania field.
On his first appearance, Mohammed asserted his right to act as his own attorney, declared his wish to be a martyr, and chanted an Islamic verse in Arabic, before pausing to cheerfully translate its meaning into English.
His bravado resonated among Pakistanis looking for a hero to stand up against U.S. hegemony and Muslim rulers dependent on American support.
"He's a beacon of light for Muslims. It's the time to say no to the U.S. and the West. Otherwise history won't forgive us," said Dr. Tariq bin Wahab in the southern central city of Multan.
"We have to get rid of U.S. agents like General Musharraf who have sold our country for his vested interests."
Others were sickened by Mohammed's posturing in court.
"He's a killer; he's not a martyr," said Sameena Gul, a human rights activist in Islamabad.
Mobeen Ansari, a college student in Karachi, struck a similar note.
"I think he's a criminal and the 9/11 incident has just caused hatred," he said.
More dispassionately, some saw the U.S. military trial becoming a public relations disaster for Washington, as few people will believe it could be fair.
"He's been charged (with) a global terror act, so they should hold a global level trial. It cannot be a military trial," said Muhammad Akram, a 45-year-old lawyer in the southern city of Karachi.
Others clung to conspiracy theories that the events of Sept. 11 had nothing to do with Muslims or Pakistanis.
"I don't think this was done (by anyone) from our part of the world," said Nosheen Razzak, a radio jockey, from Karachi.
"I don't think it was done by Muslims." (Additional reporting by Asim Tanveer, Aftab Borka and Sahar Ahmed; Writing by Simon Cameron-Moore; Editing by Jerry Norton)
Thursday, June 5, 2008
Thursday's Asia ADR Recap: Spreadtrum
Stocks in India snapped a three-day down trend on Thursday but not without experiencing extremes in volatility that saw the benchmark Sensex Index swing 500 points intraday. Traders appear to be putting aside any negative sentiment created by the fuel price hike and snapping up stocks they deem to be undervalued. The Sensex Index had plunged more than 900 points over the past three trading sessions.
"There is a lot of volatility in the market. Unless it gains some stability, it is difficult to take a call on the direction. Nevertheless, valuations are attractive at this stage," said Jignesh Shah of ABN Amro Bank.
The Bombay Stock Exchange's Sensex Index slipped 254.93 points, or 1.64%, to 15,769.72. Here's a look at how some India-based American depositary shares traded in the U.S. on Thursday.
Stifel Nicolaus & Company said it will keep its hold rating on shares of Infosys Technologies(INFY - Cramer's Take - Stockpickr) but raise its estimates for the Indian information technology firm. In a note to clients a Stifel analyst said due to the Indian government's approval of a one-year extension of the software technology park tax exemption, it is raising its EPS estimates for 2009 from $2.47 to $2.54 and for 2010 from $2.79 to $2.82. American depositary shares of Infosys, which trade on the Nasdaq, surged 5.7% to $49.37.
Stifel Nicolaus & Company also reiterated its buy rating for U.S.-based information technology provider Cognizant Technology Solutions(CTSH - Cramer's Take - Stockpickr) and set its price target at $41. Stifel raised its EPS estimates for 2009 from $1.74 to $1.93 and for 2010 from $2.15 to $2.16, citing the software technology park tax exemption. Cognizant has a large exposure to the Indian technology market. Shares of Cognizant moved up 3.5% to $36.78.
"There is a lot of volatility in the market. Unless it gains some stability, it is difficult to take a call on the direction. Nevertheless, valuations are attractive at this stage," said Jignesh Shah of ABN Amro Bank.
The Bombay Stock Exchange's Sensex Index slipped 254.93 points, or 1.64%, to 15,769.72. Here's a look at how some India-based American depositary shares traded in the U.S. on Thursday.
Stifel Nicolaus & Company said it will keep its hold rating on shares of Infosys Technologies(INFY - Cramer's Take - Stockpickr) but raise its estimates for the Indian information technology firm. In a note to clients a Stifel analyst said due to the Indian government's approval of a one-year extension of the software technology park tax exemption, it is raising its EPS estimates for 2009 from $2.47 to $2.54 and for 2010 from $2.79 to $2.82. American depositary shares of Infosys, which trade on the Nasdaq, surged 5.7% to $49.37.
Stifel Nicolaus & Company also reiterated its buy rating for U.S.-based information technology provider Cognizant Technology Solutions(CTSH - Cramer's Take - Stockpickr) and set its price target at $41. Stifel raised its EPS estimates for 2009 from $1.74 to $1.93 and for 2010 from $2.15 to $2.16, citing the software technology park tax exemption. Cognizant has a large exposure to the Indian technology market. Shares of Cognizant moved up 3.5% to $36.78.
shares gain in early trade
NEW YORK (CNNMoney.com) -- Stocks rallied near midday Thursday, with the Dow up over 100 points, as investors welcomed a surprise dip in weekly jobless claims, strong May sales from Wal-Mart Stores and a merger in the telecom sector.
The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all gained at least 1% over 2 hours into the session.
Stocks rose modestly at the open, but picked up the pace as the morning wore on, thanks to the mix of economic and company news. Meanwhile, gas and oil prices continued to move higher and the dollar retreated versus the euro after several days of gains.
The better-than-expected retail sales results from discounters such as Wal-Mart and Costco fueled Thursday's rally, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. However, he noted that the improved sales were a result of the economic stimulus checks being mailed out, rather than a bigger indication of the health of the consumer.
On the upside, "a lot of people thought consumers were going to have to hoard their checks because they have to pay their mortgage and $4 a gallon for gas," Rovelli said. "So I guess there is some reassurance that the consumer isn't dead, at least at the lower end of the retail picture."
Stocks were mixed Wednesday after reports that Moody's could lower the credit ratings of bond insurers Ambac and MBIA trumped upbeat economic news and lower oil prices.
Verizon buys Alltel. The Dow component said it's buying the rural wireless carrier from a private equity group for $28.1 billion in a deal that will create the largest U.S. wireless carrier. Verizon shares jumped over 5%. (Full story).
Jobless claims drop. The number of Americans filing new claims for unemployment fell 18,000 last week to 357,000, versus forecasts for an unchanged reading. The report was a positive amid hopes that the economy can avoid a recession. However, the four-week moving average, seen as a more reliable indicator, rose to a more than four-year high. Friday brings the big monthly non-farm payrolls report.
Housing market fallout continues. A report from the Mortgage Bankers' Association showed that the number of homes in foreclosure surpassed 1 million in the first quarter, a record number. (Full story).
Wal-Mart and other chain stores. The world's largest retailer reported higher-than-expected May sales at stores open a year or more, saying it felt the benefit of the first wave of economic stimulus checks having been mailed out. Wal-Mart (WMT, Fortune 500) shares gained more than 3%.
Costco (COST, Fortune 500) also benefited from the economic stimulus checks, with the warehouse club posting a bigger-than-expected rise in May sales. (Full story).
Airline woes continue. Continental (CAL, Fortune 500) said it would cut 3,000 jobs from its workforce of 45,000 and ground 67 planes amid soaring fuel prices and the struggling economy. On Wednesday, United parent UAL Corp. (UAUA, Fortune 500) also announced it would cut jobs and ground planes.
Gas hits new record. The national average price for a gallon of regular unleaded gas rose to $3.989 from $3.983 the previous day, AAA reported. It was the 28th record in 29 days.
Oil prices rise. U.S. light crude oil for July delivery rose 80 cents to $123.10 a barrel on the New York Mercantile Exchange, after having slid for the past few sessions.
Other markets: The dollar slipped versus the euro and the yen, after rising for the past few sessions.
Treasury prices fell, lifting the yield on the 10-year note to 4.01% from 3.97% late Wednesday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery fell $11.30 to $872.50 an ounce
The Dow Jones industrial average (INDU), the broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) all gained at least 1% over 2 hours into the session.
Stocks rose modestly at the open, but picked up the pace as the morning wore on, thanks to the mix of economic and company news. Meanwhile, gas and oil prices continued to move higher and the dollar retreated versus the euro after several days of gains.
The better-than-expected retail sales results from discounters such as Wal-Mart and Costco fueled Thursday's rally, said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. However, he noted that the improved sales were a result of the economic stimulus checks being mailed out, rather than a bigger indication of the health of the consumer.
On the upside, "a lot of people thought consumers were going to have to hoard their checks because they have to pay their mortgage and $4 a gallon for gas," Rovelli said. "So I guess there is some reassurance that the consumer isn't dead, at least at the lower end of the retail picture."
Stocks were mixed Wednesday after reports that Moody's could lower the credit ratings of bond insurers Ambac and MBIA trumped upbeat economic news and lower oil prices.
Verizon buys Alltel. The Dow component said it's buying the rural wireless carrier from a private equity group for $28.1 billion in a deal that will create the largest U.S. wireless carrier. Verizon shares jumped over 5%. (Full story).
Jobless claims drop. The number of Americans filing new claims for unemployment fell 18,000 last week to 357,000, versus forecasts for an unchanged reading. The report was a positive amid hopes that the economy can avoid a recession. However, the four-week moving average, seen as a more reliable indicator, rose to a more than four-year high. Friday brings the big monthly non-farm payrolls report.
Housing market fallout continues. A report from the Mortgage Bankers' Association showed that the number of homes in foreclosure surpassed 1 million in the first quarter, a record number. (Full story).
Wal-Mart and other chain stores. The world's largest retailer reported higher-than-expected May sales at stores open a year or more, saying it felt the benefit of the first wave of economic stimulus checks having been mailed out. Wal-Mart (WMT, Fortune 500) shares gained more than 3%.
Costco (COST, Fortune 500) also benefited from the economic stimulus checks, with the warehouse club posting a bigger-than-expected rise in May sales. (Full story).
Airline woes continue. Continental (CAL, Fortune 500) said it would cut 3,000 jobs from its workforce of 45,000 and ground 67 planes amid soaring fuel prices and the struggling economy. On Wednesday, United parent UAL Corp. (UAUA, Fortune 500) also announced it would cut jobs and ground planes.
Gas hits new record. The national average price for a gallon of regular unleaded gas rose to $3.989 from $3.983 the previous day, AAA reported. It was the 28th record in 29 days.
Oil prices rise. U.S. light crude oil for July delivery rose 80 cents to $123.10 a barrel on the New York Mercantile Exchange, after having slid for the past few sessions.
Other markets: The dollar slipped versus the euro and the yen, after rising for the past few sessions.
Treasury prices fell, lifting the yield on the 10-year note to 4.01% from 3.97% late Wednesday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery fell $11.30 to $872.50 an ounce
Wednesday, June 4, 2008
Moody's downgrades India's Tata Motors after Jaguar purchase
Global credit ratings agency Moody's downgraded Tata Motors Tuesday, a day after India's top vehicle maker said it sealed its 2.3-billion-dollar purchase of British luxury icons Jaguar and Land Rover.
Moody's Investors Service cut its so-called "corporate family rating" for Tata Motors Ltd (TML) to Ba2 from Ba1, which was already one notch below investment grade.
Corporate family refers to a company's ability to honour all of its financial obligations.
The purchase, part of Tata's bid to expand its reach beyond Asia, capped months of talks with Ford Motor Co., which sold the brands to focus on turning around its loss-making North American operations,
"The rating change reflects the considerable challenges TML will face in successfully integrating such a large operation, which only recently turned profitable, and the immediate impact on TML's financial profile," said senior Moody's analyst Chris Park in a statement.
Analysts say Jaguar and Land Rover sales have been under heavy pressure this year due to the global economic downturn.
They also have questioned whether Tata will do better in plugging what was a financial sinkhole for Ford, which received less than half of what it paid for the two prestige marques after investing billions of dollars to turn them around.
"TML's future consolidated performance will be predicated on whether JLR (Jaguar Land Rover) can both sustain its improved profitability and contribute positively to TML," Moody's analyst Park said.
On the positive side, Tata, whose vehicle line-up also includes the world's cheapest car, the 2,500-dollar Nano -- due to roll off assembly lines later this year, will make a big technological leap by gaining access to the sophisticated engines of Land Rover and Jaguar, analysts say.
The deal includes all intellectual property rights, manufacturing plants, two advanced design centres in Britain and a worldwide sales network, Tata Motors said in a statement Monday, announcing it had completed the acquisition first agreed in March.
Tata plans to fund the purchase by raising up to 1.7 billion dollars through three securities rights issues. It also aims to raise up to 600 million dollars from a foreign equity issue.
However, it is raising money at a time when global financial turmoil is making investors shun all but the safest financial bets.
Moody's Investors Service cut its so-called "corporate family rating" for Tata Motors Ltd (TML) to Ba2 from Ba1, which was already one notch below investment grade.
Corporate family refers to a company's ability to honour all of its financial obligations.
The purchase, part of Tata's bid to expand its reach beyond Asia, capped months of talks with Ford Motor Co., which sold the brands to focus on turning around its loss-making North American operations,
"The rating change reflects the considerable challenges TML will face in successfully integrating such a large operation, which only recently turned profitable, and the immediate impact on TML's financial profile," said senior Moody's analyst Chris Park in a statement.
Analysts say Jaguar and Land Rover sales have been under heavy pressure this year due to the global economic downturn.
They also have questioned whether Tata will do better in plugging what was a financial sinkhole for Ford, which received less than half of what it paid for the two prestige marques after investing billions of dollars to turn them around.
"TML's future consolidated performance will be predicated on whether JLR (Jaguar Land Rover) can both sustain its improved profitability and contribute positively to TML," Moody's analyst Park said.
On the positive side, Tata, whose vehicle line-up also includes the world's cheapest car, the 2,500-dollar Nano -- due to roll off assembly lines later this year, will make a big technological leap by gaining access to the sophisticated engines of Land Rover and Jaguar, analysts say.
The deal includes all intellectual property rights, manufacturing plants, two advanced design centres in Britain and a worldwide sales network, Tata Motors said in a statement Monday, announcing it had completed the acquisition first agreed in March.
Tata plans to fund the purchase by raising up to 1.7 billion dollars through three securities rights issues. It also aims to raise up to 600 million dollars from a foreign equity issue.
However, it is raising money at a time when global financial turmoil is making investors shun all but the safest financial bets.
India, Malaysia Raise Fuel Prices, Risking Inflation (Update2)
June 4 (Bloomberg) -- India and Malaysia were forced to raise fuel prices after crude oil almost doubled in a year, risking fanning inflation and social unrest.
Gasoline will rise 11 percent in India's capital New Delhi to 50.6 rupees ($1.17) a liter from midnight. Pump prices in Malaysia will increase 41 percent to 2.70 ringgit (83 U.S. cents) a liter from tomorrow and will now track global market rates.
Asian nations are grappling with record crude prices that have raised the cost of subsidies and caused losses for refineries. Indonesia and Sri Lanka have passed on higher oil costs, undermining efforts to boost economic growth.
``The countries in Asia, which are dependent on imports, will have to live with the specter of accelerating inflation and slowing economic growth this year,'' said Kaushik Das, an economist with Mumbai-based Kotak Mahindra Bank Ltd. ``The situation may reverse only if there is a sharp decline in global crude oil prices.''
Malaysian Prime Minister Abdullah Ahmad Badawi and his Indian counterpart Manmohan Singh are risking a political backlash after losing ground in elections in the past year. Singh's parliamentary majority hinges on support from communist parties who pledged to rally the nation's 600 million poor in nationwide protests from tomorrow.
Higher Prices
Indian drivers will pay 9 percent more for diesel and families will be charged an additional 17 percent for a cylinder of cooking gas, Oil Minister Murli Deora told reporters in New Delhi. The measures may add between 0.5 percentage point and 0.6 percentage point to wholesale prices, already at a 3 1/2 year high, the government said.
In Malaysia, the price of 97-RON grade gasoline will now be adjusted monthly to track global prices, the prime minister said. The decision may spur inflation that quickened to a 14-month high of 3 percent in April, adding pressure on the central bank to start raising borrowing costs, Goldman Sachs Group Inc. said.
Consumer prices will rise an average 6 percent this year, from 3.2 percent estimated previously, Goldman said in a report.
Tenaga Nasional Bhd., the state-controlled power producer, will be allowed to raise electricity prices in peninsular Malaysia starting July as it will have to pay higher prices for gas, Abdullah told reporters in Putrajaya, outside Kuala Lumpur.
Oil prices reached a record $135.09 a barrel in New York on May 22, driven partly by speculation fuel subsidies in Asia will spur demand. Fuel and food account for about 75 percent of household spending for poor families in Asia, according to the Asian Development Bank.
Customs Duties
India also cut customs duties on gasoline and diesel by two thirds to 2.5 percent and scrapped a 5 percent import tax on crude oil. The measures are aimed at reducing revenue losses at state-run refiners that have reached more than $1 billion a week.
``The prices should have been raised higher for a real impact,'' said Ballabh Modani, Mumbai-based analyst with Enam Securities Pvt. who is ``underweight'' on the shares of Indian state-run refiners. ``There's no point in ad hoc increases.''
Raising fuel prices to help oil refiners reduce losses and protect government finances was ``inevitable,'' Singh said.
``There are limits to which we can keep consumer prices unaffected by rising import costs,'' India's prime minister said in a televised address to the nation. ``Our oil companies cannot go on incurring losses.''
India Panel
India formed a panel of officials to evaluate fuel prices. The group, led by B.K. Chaturvedi, a member of the Planning Commission, will also assess the impact on refiners' and oil explorers' earnings and the way they are compensated for selling fuels below cost, the prime minister's office said in an e-mail.
Today's price rises and duty cuts will pare losses for refiners led by Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. by about 420 billion rupees, Oil Secretary M.S. Srinivasan said.
Indian Oil, the nation's biggest refiner, declined 3.7 percent to 417.85 rupees in Mumbai, while second-ranked Bharat Petroleum slumped 8.4 percent to 322.3 rupees.
``The only long-term sustainable measure is raising prices,'' B. Mukherjee, director of finance, Hindustan Petroleum, said in a television interview with Bloomberg. Shares of the refiner, India's third-largest under state control, declined 2.6 percent to 241.05 rupees.
The government previously increased fuel prices in February, the first time since June 2006. Cooking gas prices had been capped since April 2005.
Imports Oil
India, Asia's third-biggest economy, imports 70 percent of its oil requirement and is seeking ways to soften the impact of the surge in prices. Singh said this week that subsidies can't be allowed to rise any further because petroleum prices don't reflect world trends.
Indonesia raised fuel prices by an average 29 percent on May 24, the first increase in three years, to cut subsidy costs.
Ceylon Petroleum Corp., Sri Lanka's state oil company, increased fuel prices for the second time this year on May 25 to trim losses. Lanka IOC Ltd., the Sri Lankan unit of Indian Oil, raised diesel prices three times and gasoline once this year.
Part of the loss incurred by Indian refiners is compensated by the government, which gives them bonds and asks Oil & Natural Gas Corp. and other state-run explorers to share the subsidy.
Oil refiners will still lose about 290 billion rupees in the fiscal year after price increases and oil bonds, Revenue Secretary P.V.bhinde said today
Gasoline will rise 11 percent in India's capital New Delhi to 50.6 rupees ($1.17) a liter from midnight. Pump prices in Malaysia will increase 41 percent to 2.70 ringgit (83 U.S. cents) a liter from tomorrow and will now track global market rates.
Asian nations are grappling with record crude prices that have raised the cost of subsidies and caused losses for refineries. Indonesia and Sri Lanka have passed on higher oil costs, undermining efforts to boost economic growth.
``The countries in Asia, which are dependent on imports, will have to live with the specter of accelerating inflation and slowing economic growth this year,'' said Kaushik Das, an economist with Mumbai-based Kotak Mahindra Bank Ltd. ``The situation may reverse only if there is a sharp decline in global crude oil prices.''
Malaysian Prime Minister Abdullah Ahmad Badawi and his Indian counterpart Manmohan Singh are risking a political backlash after losing ground in elections in the past year. Singh's parliamentary majority hinges on support from communist parties who pledged to rally the nation's 600 million poor in nationwide protests from tomorrow.
Higher Prices
Indian drivers will pay 9 percent more for diesel and families will be charged an additional 17 percent for a cylinder of cooking gas, Oil Minister Murli Deora told reporters in New Delhi. The measures may add between 0.5 percentage point and 0.6 percentage point to wholesale prices, already at a 3 1/2 year high, the government said.
In Malaysia, the price of 97-RON grade gasoline will now be adjusted monthly to track global prices, the prime minister said. The decision may spur inflation that quickened to a 14-month high of 3 percent in April, adding pressure on the central bank to start raising borrowing costs, Goldman Sachs Group Inc. said.
Consumer prices will rise an average 6 percent this year, from 3.2 percent estimated previously, Goldman said in a report.
Tenaga Nasional Bhd., the state-controlled power producer, will be allowed to raise electricity prices in peninsular Malaysia starting July as it will have to pay higher prices for gas, Abdullah told reporters in Putrajaya, outside Kuala Lumpur.
Oil prices reached a record $135.09 a barrel in New York on May 22, driven partly by speculation fuel subsidies in Asia will spur demand. Fuel and food account for about 75 percent of household spending for poor families in Asia, according to the Asian Development Bank.
Customs Duties
India also cut customs duties on gasoline and diesel by two thirds to 2.5 percent and scrapped a 5 percent import tax on crude oil. The measures are aimed at reducing revenue losses at state-run refiners that have reached more than $1 billion a week.
``The prices should have been raised higher for a real impact,'' said Ballabh Modani, Mumbai-based analyst with Enam Securities Pvt. who is ``underweight'' on the shares of Indian state-run refiners. ``There's no point in ad hoc increases.''
Raising fuel prices to help oil refiners reduce losses and protect government finances was ``inevitable,'' Singh said.
``There are limits to which we can keep consumer prices unaffected by rising import costs,'' India's prime minister said in a televised address to the nation. ``Our oil companies cannot go on incurring losses.''
India Panel
India formed a panel of officials to evaluate fuel prices. The group, led by B.K. Chaturvedi, a member of the Planning Commission, will also assess the impact on refiners' and oil explorers' earnings and the way they are compensated for selling fuels below cost, the prime minister's office said in an e-mail.
Today's price rises and duty cuts will pare losses for refiners led by Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp. by about 420 billion rupees, Oil Secretary M.S. Srinivasan said.
Indian Oil, the nation's biggest refiner, declined 3.7 percent to 417.85 rupees in Mumbai, while second-ranked Bharat Petroleum slumped 8.4 percent to 322.3 rupees.
``The only long-term sustainable measure is raising prices,'' B. Mukherjee, director of finance, Hindustan Petroleum, said in a television interview with Bloomberg. Shares of the refiner, India's third-largest under state control, declined 2.6 percent to 241.05 rupees.
The government previously increased fuel prices in February, the first time since June 2006. Cooking gas prices had been capped since April 2005.
Imports Oil
India, Asia's third-biggest economy, imports 70 percent of its oil requirement and is seeking ways to soften the impact of the surge in prices. Singh said this week that subsidies can't be allowed to rise any further because petroleum prices don't reflect world trends.
Indonesia raised fuel prices by an average 29 percent on May 24, the first increase in three years, to cut subsidy costs.
Ceylon Petroleum Corp., Sri Lanka's state oil company, increased fuel prices for the second time this year on May 25 to trim losses. Lanka IOC Ltd., the Sri Lankan unit of Indian Oil, raised diesel prices three times and gasoline once this year.
Part of the loss incurred by Indian refiners is compensated by the government, which gives them bonds and asks Oil & Natural Gas Corp. and other state-run explorers to share the subsidy.
Oil refiners will still lose about 290 billion rupees in the fiscal year after price increases and oil bonds, Revenue Secretary P.V.bhinde said today
Has India got it right on fuel prices?
So it’s official. India has finally raised fuel prices, by more than most people expected. A hike in diesel prices in particular is sure to feed through into overall inflation. At the same the government removed the import duty on crude oil.
We’d be keen on your opinion. Has the government got it right?
Despite the price rises, oil companies are still going to be losing huge amounts of money and gas-guzzling cars are still going to be heavily subsidized by ordinary taxpayers. The oil ministry had even argued for steeper price hikes.
Are subsidies really the right way to go in the modern world? Is the government sacrificing good economics on the altar of political populism?
Or should the government have tried harder to protect the poor by keeping fuel prices down despite global inflation in oil? The left says the price rises were avoidable, and the government should instead have cut excise duties more and imposed windfall taxes on private companies.
And is this decision going to have a major impact on the UPA government’s chances of re-election?
Posted in Critical Eye | 2 Comments »
We’d be keen on your opinion. Has the government got it right?
Despite the price rises, oil companies are still going to be losing huge amounts of money and gas-guzzling cars are still going to be heavily subsidized by ordinary taxpayers. The oil ministry had even argued for steeper price hikes.
Are subsidies really the right way to go in the modern world? Is the government sacrificing good economics on the altar of political populism?
Or should the government have tried harder to protect the poor by keeping fuel prices down despite global inflation in oil? The left says the price rises were avoidable, and the government should instead have cut excise duties more and imposed windfall taxes on private companies.
And is this decision going to have a major impact on the UPA government’s chances of re-election?
Posted in Critical Eye | 2 Comments »
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