Market Watch from Redmayne Bentley - Leeds Financial

As economies around the world, particularly in Europe begin to experience government austerity measures, Finland confirmed in the week that it was the first euro zone country to dip back into recession. The term double-dip refers to a recession, followed by a short-lived recovery that then slides back into a second recession. In the quarter January to March the economy contracted by a seasonally adjusted 0.4%, after declining by 0.2% in the last quarter of last year.  Along with Luxembourg, it is the only euro zone country to have kept to EU fiscal rules during the credit crunch. These require governments to keep budget deficits below 3% of GDP and it's debt under 60% of GDP.  

 

Our Prime Minister in the week set about preparing voters for what are going to be the deepest spending cuts in a generation, reiterating his point that the Labour government had left the public finances in a much weaker state than had been anticipated.  The Conservative/Liberal Democrat coalition is seeking public backing for cuts that will be more severe than those orchestrated by Margaret Thatcher in the 1980s and will last longer than any other since World War II.  Mr Cameron laid the ground for the June 22nd Emergency Budget, in which George Osborne will set out the overall reductions needed to tackle a deficit that has increased rapidly to 11.1% of Gross Domestic Product. He also stated that Treasury estimates indicate that government debt interest costs will hit £70 billion in five years time, up from £31 billion in the last fiscal year.  At £70 billion, this would be more than the budget for running schools in England, plus the budget for climate change and transport.  Over the five years national debt is set to double from £770 billion to £1.4 trillion, equal to £22,000 for every man, woman and child in Britain. George Osborne has already announced £6.2 billion worth of imminent cuts and the budget will set out a credible plan to eliminate the bulk of the £156 billion deficit over the coming five years.  Spending will take the strain as opposed to tax increases.   In another publicity stunt, the government has also called upon the public to submit ideas for cost cutting, as it ushers in what is likely to be a number of lean years for all.  Because of government commitments in the run up to the election, George Osborne is understood to have told Cabinet colleagues that they have to make spending cuts of up to 15% to 20% in some departmental budgets in order to protect the areas that have been ring-fenced.  

 

What happened in Canada in the early 1990s is being held up as a model to be followed by the Government, with the policies used receiving significant air time. In the early 1990s, the Canadian Government turned around what was a country on the verge of bankruptcy into one which is now regarded as having one of the strongest economies. In the Canadian experiment, Canada cut 20% in public spending immediately, which is equivalent to £140 billion worth of spending cuts at the current time.  This is significantly higher than the £71 billion that the coalition has signaled they would aim for.  The Canadian experience, however, benefited from strong overall global growth during this difficult time, they also benefited from the fact that it benefited from being a commodity rich country.  What we do know from the Canadian experience and similar exercises in Ireland and Sweden is that evidence confirms that aggressive initial spending cuts work best to reduce deficits and increase economic growth if large, decisively focused and the cuts are targeted at current expenditure rather than future investment.  A better comparison is therefore probably Sweden, which transformed a budget deficit of 11.2% of Gross Domestic Product in 1993 to a surplus of 1.2% in 1998, mostly cutting current expenditure.  Sweden, however, also benefited from strong global growth, which I do not believe the British experience will be able to piggy-back.  On Tuesday the government’s argument for aggressive action was enhanced by credit rating agency Fitch, which warned that the UK faces a “formidable” fiscal challenge in the months ahead.  Whilst it has not yet reduced the country’s AAA rating, the rating agency said that following an unprecedented economic and financial shock, the UK would have to accelerate plans to reduce the budget deficit if it was to make the country’s finances more sustainable in the medium term.  The rating agency has long argued that a more rapid reduction in the deficit was needed to stop public debt rising and the report in the week reaffirms this stance.  Standard & Poor’s and Moody’s, the other main credit rating agencies have also maintained Britain’s AAA rating on the basis that there would be more rapid fiscal consolidation after the general election.  Fitch, in the report, pointed out that the equivalent to almost the entire NHS budget would be required to be cut in order to maintain Britain’s reputation with international investors as a financially secure investment home.  The sum could also be achieved by the near doubling of the current basic rate of tax.  Whilst George Osborne has talked about non-ring-fenced spending having to be cut by between 15% and 20%, Fitch believes that in some cases it may need to be nearer 25% to 30%.  In his emergency budget George Osborne will present information from the new independent office for budget responsibility, which will set government growth forecasts. It is inevitable that previous forecasts of 3.2% growth next year and 3.5% the following year will be cut nearer to consensus forecasts, which are at 2.1% and 2.5% respectively.

 

On a more positive note, figures for total government receipts in 2009-10 were £476.3 billion, compared with £469.1 billion forecast in the March budget.  In the 2009 budget they had been forecast at £456.7 billion.  VAT as I have constantly said, looks set to rise to 20%, although this may be delayed.  Over the past 30 years, VAT has come to account for an ever-increasing proportion of government revenue.  In 1979 it was raised from 8% to 15% and then in 1991 to its present 17.5%.  VAT is currently the third biggest source of revenue after Income Tax and National Insurance for the government.  The UK Treasury believes that taking VAT up to 20%, a little below the European average, would raise approximately £11.25 billion, some 0.7% of national income.  The alternative is for the scope of zero rated goods such as food and children’s clothing to be extended.  If the current rate was extended over a broader base then, according to the Institute of Fiscal Studies, this would have raised an extra £24.3 billion in the tax year 08/09.  In Europe Greece has recently increased VAT to 23% and Portugal to 21%.  The Chartered Institute of Personnel and Development suggested in the week that 725,000 state jobs, nearly one in eight, will be lost as Spending cuts push up unemployment to almost three million. It had earlier suggested the jobless total would hit 2.65million this year, rising from its current 2.51million. The National Institute of Economic and Social Research stated at the end if the week that  its estimate of gross domestic product growth for the three months to the end of May was 0.6 %, below the 0.7 % it believes prevailed during the three months to April but still fairly healthy. It also warned of risks to domestic demand as the government makes sharp cuts to public spending. However it warned that the economy faced difficulties from the Greece’s debt crisis which has undermined the competitiveness of British exports by making the euro an even weaker currency than the pound. NIESR made its forecast after official data on Friday showed that industrial production and manufacturing dipped unexpectedly in April, as did industrial production generally after strong rises in March. UK manufacturing unexpectedly weakened in April for the first time in three months as car production dropped, a sign the economic recovery may be struggling to keep momentum. Factory output fell 0.4 % from March, the Office for National Statistics said. Economists had predicted a 0.5 % increase. A separate report showed producer prices rose 0.3 % in May, less than the median forecast for a 0.5 % increase. Industrial production in the three months to April rose 2.1 % over the previous three months. Britain's largest trade union has warned the government that it faces a summer of industrial unrest across the public sector if it wields the spending axe too readily. A senior figure at Unite, which has 1.6 million members, warned of a number of disputes if the government inflicts spending cuts that cost significant numbers of jobs or hit pay and conditions. Speaking at a rally for striking British Airways cabin crew, Len McCluskey, assistant general secretary of Unite, said: "When any service workers take industrial action, innocent members of the public are affected. This coming summer when the government attacks public sector workers, streets will not be cleaned, bins will not be emptied." U.K. consumers’ expectations for price increases in the next 12 months rose to the highest level since August 2008 after inflation surged in April, a quarterly Bank of England survey showed. Britons predicted inflation of 3.3 % in a year’s time, according to a survey for the three months to May, this compares with expectations of an increase of 2.5 %. In February, U.K. inflation accelerated to 3.7 % in April, the fastest pace since 2008. 

 

As Britain prepares to announce its austerity measures, this will follow action in Germany, Spain, Ireland, Greece, Portugal and many other European countries who have already implemented unprecedented post war public spending cuts.  The one European country not to have announced such action is France, where the government has consistently, over the last 30 years, spent more than it has received in taxes, by running a deficit in each of these years.  Far from planning painful spending cuts or tax rises, the President has backed away from any action and has even stated that austerity is not beckoning for the French people, contrary to the evidence.  Whilst there is some weak pension reform on the Agenda, which will upped the legal retirement age, currently 60, it still remains very unclear whether or not Mr Sarkozy is ready to actually engage with the programme and confront the unions.  Pension reform, however, is a long term issue and France, like all European nations, needs to act immediately as France is beginning to have a major credibility issue with international investors.  For years, French governments have consistently promised to do something about debts and deficits and failed to deliver.   France has said that it will freeze all spending, except pensions and interest payments on government bonds in 2011-13 and cut State operating costs by 10% over the same period.  This, however, does not amount to an austerity plan or go anywhere near the numbers which will be required. Whilst any deficit reduction plan will have to be tough and bold to impress the markets, the longer the French wait, the harsher the measures will need to be once enacted.

 

In the week Germany confirmed that it plans to cut 15,000 civil servants and apply taxes on airlines and energy companies to save €11 billion this year.  German airlines reacted furiously to the German Chancellor’s plans to raise €1 billion from the new Eco Tax on Aviation.  Few details have been given, but the Chancellor said that the new departure tax would contribute €1 billion this year to a proposed budget savings of €8 billion in the period to 2014.  The tax is expected to be repealed in 2012, when airlines will be forced to buy permits to offset their carbon emissions.  Speaking in the week, Ben Bernanke, Chairman of the US Federal Reserve warned that the US sprawling budget deficit is unsustainable longer term and needs to be dealt with when the economy is on more solid ground.  Giving evidence to a Congressional Committee hearing, Bernanke warned that there would be major consequences in the future if the country did not tackle its $12 trillion debt problem.  Mr Bernanke cautioned against slashing spending in the nearer term, warning it would halt the economic recovery which is steadily gaining traction.  “However, the risks of ongoing deficits are the potential loss of confidence in markets and the way to reassure the market is by creating a plausible plan for medium term stability in the fiscal situation.  Obviously, you can’t run deficits of 10% of GDP forever” he said.

 

 The UK global goods deficit held steady at £7.3 billion in April, with the value of goods exported falling for the first time since January.  Economists had expected deficit to come in at £6.8 billion and the difference was blamed on disruption to flights following the volcanic eruption in Iceland.  In April total exports fell by 0.6% on the month to £21.3 billion, whilst imports dropped by 0.4% to £28.6 billion.  The April goods traded deficit with non-European countries was steady at £4 billion, whilst March’s deficit was revised down slightly from £4.1 billion.  The goods deficit with EU countries hedged higher to £3.3 billion in April from £3.2 billion in the previous month.  Britain’s oil deficit widened to £413 million in April, from a revised £170 million shortfall in March.  This is the biggest oil deficit since September 2009.  According to BDO Stoy Hayward, recovery in manufacturing picked up in the second quarter as factory output grew and orders hit record highs.  According to its survey, factory orders rose to their highest level since 1995.  Sunny weather in the last two weeks of May, according to the British Retail Consortium, boosted high street sales, although customers still remain reluctant to buy big ticket items.  The value of sales last month rose 0.3% over the last year on a like-for-like basis, an improvement on the 2.3% decline recorded in April.  Total sales, which include new floor space, rose 3% on the year, compared with a fall of 0.2%.

 

Jean-Claude Trichet said today that the European Central Bank had been forced into its abrupt U-turn on buying government debt by fears of a second global financial seizure as he warned that Europe faced a long and bumpy road to economic recovery. The president of the ECB said the decision to buy bonds less than 24 hours after the central bank ruled out such a move had been caused by a sudden deterioration in market conditions. It was, Trichet said, a "major event that was threatening the functioning not only of the European economy and market, but also of global finance and the global economy." Speaking after the ECB left its key interest rate unchanged at 1%; the ECB president said the crisis in the euro zone would dampen growth prospects in 2011. "We expect the euro-area economy to grow at a moderate pace in an environment of continued tensions in some financial market segments and of unusually high uncertainty," he said. The ECB now expects growth of between 0.2% and 2% in 2011 following expansion of 0.7% to 1.3% this year. "Compared with March 2010, ECB staff macro-economic projections, the range for real GDP growth this year has been revised slightly upwards owing to the positive impact of stronger activity worldwide in the short run, while the range has been revised somewhat downwards for 2011, reflecting mainly domestic demand prospects," Trichet said that the International Monetary Fund still expects global growth of about 4.2 % this year, the institution’s managing director said as he believes that the European debt crisis has been contained. German industrial production saw a larger increase than previously expected in April on strong demand for German exports. Production rose by 0.9% month on month against a 0.5% that was expected. The weak euro is likely to support export growth going forwards. There was further evidence of the economic recovery in Germany continuing to gather momentum, as factory orders grew for the second consecutive month in April.

 

During the week the International Monetary Fund said that after two years of global economic and financial upheaval, shockwaves are still being felt, as has been seen with recent developments in Europe and the resulting financial market volatility.  Its Deputy Managing Director said, “The global outlook remains unusually uncertain and downside risks have risen significantly.”  He also warned that the troubles in Europe could hit Asian growth this year, a scenario which I believe is inevitable, and that Europe’s troubles will affect the whole global economy, causing growth forecasts to be pulled back.   It also highlighted the fact that euro zone countries need to harmonise their monetary and fiscal arrangements, or a double-dip recession will probably occur and that, ultimately, Europe must reform or it will fail.  Whilst the UK has rejected the EU budget scrutiny plan, it would appear that Bulgaria will be the first country to have its accounts scrutinised by the new EU Audit Authority.  Like Greece, Bulgaria has recently had to significantly revise its budget deficit calculations for 2009 from 1.9% to 3.7%.  The country, which only joined the EU in 2007, has also been forced to put its plans on hold to join the euro.  Brussels in 2008 cut aid to Bulgaria by €220 million, citing concerns over corruption as the reason.  Bulgaria has operated a fixed exchange rate to the euro since the euro’s inception in 1999, which means, like EU members, it cannot easily devalue its currency in order to boost economic recovery.  Easing some concerns over global growth, the European Central Bank raised its forecast for growth in the euro zone this year, but lowered its forecast for 2011. ECB President Jean-Claude Trichet said that analysts from the ECB and 16 central banks of the countries that use the euro now expect gross domestic product in the euro zone to grow by between 0.7% and 1.3% this year, implying a midpoint forecast of 1.0%, up slightly from the ECB's previous central estimate of 0.8%. The European Central Bank also left its key interest rate unchanged at the record low of 1%, as had been widely expected. The Bank of England's Monetary Policy Committee similarly kept rates unchanged on Thursday for the 15th successive month, keeping quantitative-easing bond purchases at £200 billion.

 

Japan's new Prime Minister, Naoto Kan, has warned that the country risked being sucked into a Greek-style debt crisis unless it quickly reined in its massive public debt. Kan, who took over just over a week ago, following the sudden resignation of Yukio Hatoyama, told MPs that Japan risked defaulting if it continued to issue bonds at the current pace.” Our country's outstanding public debt is huge," he said in his first policy speech to parliament. "Our public finances have become the worst of any developed country. We cannot sustain public finance that overly relies on issuing bonds. As we can see from the euro zone confusion that started in Greece, there is a risk of default if growing public debt is neglected and trust lost in the bond market." Japan's public debt stood at 218% of gross domestic product last year, according to the International Monetary Fund the highest in the industrialised world. The government's plan to tackle mid-term debt is expected to include a ¥44.3 trillion cap on government bond issuance through to the end of March 2012. Kan has been one of the few politicians to talk publicly about the need to increase taxes, not a popular move but one that many voters now accept is inevitable.

 

Other rate moves in the week saw the Brazilian Central bank lifted interest rates by 0.75% to 10.25% to prevent overheating and in New Zealand the Central Bank increased interest rates to 2.75%, the first increase in 2 years due to concerns inflationary pressure will increase. Brazil's economy grew at its fastest rate in at least 14 years in the first three months of 2010, official figures revealed in the week as GDP increased at an annual rate of 9%, faster than any other Latin American economy and higher than the forecast of 8.5 %. Brazil is the second-fastest growing economy among the BRIC countries. It is behind China, which expanded 11.9 % in the first quarter, but ahead of India, which grew 8.6 % in the first three months of the year and Russia grew 2.9 %. Over 2010 growth is expected to be up 7.2 % in 2010, up from a previous estimate of 6 %. Inflation, as measured by the government’s benchmark price index, quickened to 5.26 % in the 12 months to May. Economists covering Brazil believe that Consumer price inflation will end 2010 at 5.64 % in 2010, down from earlier forecasts. International Monetary Fund Managing Director Dominique Strauss-Kahn said on May the 25th that Brazil’s economy may grow as much as 7 % this year and this would force policy makers to act to prevent overheating. The central bank raised the benchmark Selic rate to 9.5 % on April 29, after holding it at a record low 8.75 % for the previous nine months and in the week.

 

Chinese inflation increased in May above the 3 % target set by the government for the year, as wage pressures grow in the economy. Consumer price inflation increased to 3.1 % from 2.8 % the month before; while factory gate inflation was also higher at 7.1 % in May, up from 6.8 %. With exports last month increasing 48.5 %, this has added to fears that the economy is overheating and will increase pressure on Beijing to begin strengthening its currency against the US dollar.  Both Democrats and Republicans on the Senate Finance Committee have warned US Treasury Secretary Timothy Geithner recently that their patience was wearing thin with china as they have repeated threatens to impose trade sanctions if it continues to refuse to revalue its currency. The Chinese allowed the Yuan to appreciate by 22.5 % against the dollar between 2006 and mid-2008, but then froze it at a level slightly above 6.8 Yuan to the greenback in response to the global crisis. It has stayed there ever since, while its implicit value has climbed steadily, thanks to economic gains. They have complained for some time that Beijing keeps the Yuan undervalued against the US dollar to gain a trade advantage with some analysts arguing the Yuan is undervalued by as much as 30%. Senator Charles Schumer, a leading Democrat, said he was confident a bill imposing sanctions on China would be passed successfully if needed. Senate Finance Committee members believe that the issue is not US protectionism but China's flouting of the rules of free trade. Interestingly though Japan, South Korea, Taiwan, Australia and several other Asian countries are running hefty surpluses with China and Germany is headed for a positive trade balance by the end of the year, with China also emerging as the fastest-growing market for U.S. exports recently. China reported that exports soared 48.5 % in May from a year earlier. Not even a surge in imports could keep the country’s trade surplus from ballooning to $19.5-billion from $1.7-billion in April and a deficit in March. The surplus in trade with the U.S. widened in April to $19.3-billion from $16.9-billion, and the shortfall is expected to grow in the months ahead, as a slowly reviving U.S. economy sucks in more imports. The data indicates that European crisis has yet to affect Chinese exports, but the numbers in the next two months will show whether Chinese exports are affected by the European slowdown as it may be that in crisis times European members are choosing cheap Chinese products instead of Western goods. Shipments from China to Europe rose by 50% at an annual level. In a sign that government action to slow down the booming Property market sales continue to fall. The biggest developer, China Vanke Co. reported an annual 20% reduction in sales in May this is as property prices in 70 cities rose by 12.4% annually in May, although sales volumes dropped. May consumer confidence also slipped back with the Bankcard Consumer Confidence Index falling 0.41 points from April to 86.39 in May, but this was still up 0.89 points from a year ago. But Retail sales rose by more than 18 % for the third straight month in May, government data showed in the week. Passenger-car sales last month rose 26 % from a year earlier to 1.04 million units, the China Association of Automobile Manufacturers said on June 8. The continuing rise in consumer prices comes as an outbreak of strikes in several industrial areas of the country is leading to possible wage inflation. Other figures also presented a much more mixed view on the economy. Industrial production numbers eased some fears as they dropped to an annual increase of 16.5 % in May, against 17.8 % the month before, suggesting that some of the government’s tightening measures are having an effect. China still remains a draw for global capital with foreign direct investment in China increasing for a 10th month in May. Investment rose 27.5 % to $8.13 billion, this was ahead of forecast.

 

Excluding auto and gas sales, US retail sales slipped 0.8% last month the largest drop since 1.0% in March 2009 and the first drop in eight months, indicating the rebound in consumer spending is cooling as Americans boost savings. Building material and garden-supply store sales registered the largest decline of all the major sales categories, plunging 9.3%. The decrease follows an 8.4% increase in April. Investors took some encouragement from a rise in consumer sentiment in a Reuters/University of Michigan survey, also out on Friday. Mid-June sentiment climbed to 75.5, above the 74.0 level expected by economists. Meanwhile, U.S. business inventories rose in April, but the 0.4% climb was less than the anticipated 0.5% increase. The U.S. trade deficit narrowly widened in April as the value of crude imports hit the highest level in a year and a half. The U.S. deficit increased 0.6% to $40.29 billion from a revised $40.05 billion the month before, the Commerce Department said Thursday. The March trade gap was originally reported as $40.42 billion, but the April deficit was smaller than what economists had estimated, $41.0 billion gap. The U.S. trade deficit with China expanded in April to $19.31 billion from $16.90 billion the month before. Exports fell by $813 million, while imports increased $1.61 billion. The U.S. bill for crude oil imports in April rose to $22.69 billion, the highest amount since October 2008, from $22.26 billion the month before. The average price per barrel climbed $2.81 to $77.13, a level also not seen since October 2008. Crude import volumes fell slightly to 294.12 million barrels from 299.47 million, a 1.8% fall. The trade gap with the euro area fell 29% to $4.83 billion from $6.83 billion.

 

The Canadian Wheat Board last week released a grim preliminary crop forecast because of what it calls unprecedented wet weather across the Prairies. Bruce Burnett, the board's director of weather and market analysis, says excess rain has washed away the hope of seeding for many farmers. Mr. Burnett estimates three million to five million hectares could go unplanted this year in Western Canada. The amount of wheat put into the ground will be the smallest since 1971 and the barley crop is also looking at its lowest seeding since 1965. Burnett says the situation is particularly bad in Saskatchewan where many fields have been flooded from record rainfall. He says that's bound to have a significant impact on crop production because Saskatchewan is such a big agricultural area the province has 41 % of Canada's arable land. Whilst Canada is just one major producer with grain prices currently depresses and out of favour now could be a good time for upping or gaining exposure before it returns back into favour.

 

Crude oil for July delivery fell $1.70, or 2.3% on Friday to close at $73.78 a barrel in New York with Prices ending the week up 3.1%. Global energy consumption will resume its growth in 2010 after falling last year for the first time in decades, BP Said on Wednesday and meeting this growing demand will require new investments in energy resources, but also tougher safety measures to prevent a repeat of the continuing oil spill from BP's well in the Gulf of Mexico. The world's primary energy consumption fell by 1.1% in 2009 due to the recession, said BP's Chief Economist Christof Ruehl in the company's annual Statistical Review of World Energy. This was the first decline since 1982 and was driven by falling demand in developed countries, he said. But Demand growth, driven by the developing world, will resume in 2010. "The world needs to invest today to be able to deliver the energy supplies that will be needed in the future," said Iain Conn, BP's Group Managing Director and Chief Executive of Refining & Marketing. "Events in the Gulf of Mexico, however, demonstrate that access to some energy resources will almost certainly require enhanced measures to ensure safe operations and capabilities to safeguard the environment." The Deepwater Horizon accident in the Gulf of Mexico highlights the problems with growing oil supply and adds to the view that oil prices will rise in the medium to long term. Increased production costs in deepwater will increasingly limit future production even further. In the week Norway announced that it will not open new deep water areas for drilling until a better understanding of what has happened in the Gulf of Mexico is known. The Deepwater Horizon spill could become a global oil “game changer” by spurring a deep and potentially costly rethink of the rules needed to keep offshore drilling safe as regulatory changes could jeopardize nearly one million barrels of new daily crude production over the next half-decade, the International Energy Agency said in a dramatic new analysis published Thursday. In the Gulf of Mexico, a one- to two-year delay in new deepwater oil projects could lower output by 100,000 to 300,000 barrels per day by 2015. In other deepwater jurisdictions, including Brazil, Angola and Nigeria, a further 550,000 daily barrels “could be at risk, albeit there are no current indications that permitting in these countries is likely to be affected,” the agency reported. These numbers are significantly ahead of those published by the U.S. Energy Information Administration, which has said the current six-month deepwater drilling moratorium could reduce Gulf of Mexico crude production by a smaller 70,000 barrels next year. But the International Energy Agency believes the spill, which continues to gush and has already created regulatory reviews in the U.K., Norway, Brazil, Canada and China, has the potential to be a “supply-side game changer.” The huge Gulf of Mexico crude spill has already raised serious questions about the ability of smaller companies to continue operating in the U.S. offshore, where some believe that tougher laws will raise the cost of business so high that only the largest companies can operate there. The Gulf of Mexico had been one of the world’s top regions for energy spending, but the current six-month moratorium on deepwater drilling, combined with uncertainty over future rules, could drive investment to the Canadian oil sands and other areas of the world. According to a new Deutsche Bank report, “this is the end of the oil age as we knew it and the Macondo [the blown well] will be seen as an enormous driver toward at least recognition that cheap, abundant, politically secure oil is no longer available and our behavior must change to recognize that.” Currently about 38 % of global petroleum production comes from offshore sources and whilst just 1 % of that consists of deepwater petroleum from wells like the one currently leaking in the Gulf of Mexico, offshore petroleum has been the fastest-growing source of crude around the world. Ultimately the spill’s  impact may be tempered by the fact that OPEC producers currently have six million barrels of spare production capacity dwarfing the IEA’s forecast of a possible 850,000-barrel hit, but for an American president who has promised to reduce Americas dependency on foreign oil a shift to OPEC production carries significant implications. OPEC accounted for 41 % of U.S. imports last year, down from 46 % in 2008, according to the Energy Department, in keeping with the aim of Obama and previous American presidents to curb dependence on foreign supplies. Crude’s premium for delivery in eight years time when compared with today’s price has increased 86 % since the BP Plc-leased Deepwater Horizon rig in the Gulf of Mexico exploded on April 20th. Oil for December 2018, the longest dated future is now $21 a barrel more than next month the current forward contract, compared with $11 before the disaster and according to Deutsche Bank more regulation may add $5 to the difference in the coming year.

 

Gold futures finished with a weekly gain of 1%, but were off 1.2% from Tuesday's record close of $1,245.60 an ounce. Gold had hit a fresh nominal all-time intranet day high of $1,251.2 a troy ounce on Tuesday. The precious metal on Friday traded at $1,227.85 an ounce, up 0.7 % on the week. Mints around the world are reported very strong demand for gold coins and small bars, as worries over the debt crisis in Europe drive investors to seek diversification into once unfashionable gold. Sales of the one-ounce American Eagle gold coin increases up to the highest for 11 years in May, according to the US Mint, totaling 190,000 coins nearly three times sales a year earlier, and the highest since January 1999, when gold was trading at less than a quarter of its current price. The Rand refinery in South Africa, which produces the world’s most popular gold coin, the krugerrand has increased production by 50 % to keep up with demand recently.

 

The newly created 'Office for Budget Responsibility' releases it first report at 10.00am on Monday and will make forecasts for economic growth, public borrowing and UK net debt projections based on current government policy. The Confederation of British Industry CBI industrial trends survey for June is released on Thursday and could show that the balance of manufacturers reporting normal levels of orders rose further to