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Archive for August, 2011

US consumer confidence ‘falls sharply in August’

US consumer confidence slumped in August to its lowest level since April 2009, according to the latest monthly Conference Board report.

Consumer spending accounts for two thirds of the US economy

Its closely watched consumer index sank to 44.5 this month, from a downwardly revised 59.2 in July.

A reading of 90 or above indicates a healthy economy on the index, which measures consumers’ attitudes to jobs and spending in the short term.

 

Official data on Friday is expected to show US unemployment remains above 9%.

“What we are effectively going through is a crisis of confidence,” said Tom Porcelli, an economist at RBC Capital Markets in New York.

The latest Conference Board data will be a disappointment to the White House, especially as it comes just a day after official Department of Commerce figures showed consumer spending increased by 0.8% in July.

Consumer spending is closely watched in the US because it accounts for more than two-thirds of the country’s economy.

The most recent figures for the US economy as a whole showed that it expanded at an annualised rate of 1% between April and June.

Bank regulation ‘risks recovery’ says Angela Knight

An independent commission has said retail banks should be ring-fenced from investment banks

UK banks need to focus on lending and paying back taxpayers, and should not be distracted by more regulation, the head of the British Bankers’ Association has said.

Angela Knight said regulatory change could undermine the recovery.

Her comments come ahead of the Independent Commission on Banking’s final recommendations due next month.

The commission has already recommended ring-fencing banks’ retail operations from their investment banking arms.

Last month, Business Secretary Vince Cable indicated that banks could still be forced to separate entirely their High Street businesses from their investment divisions.

Bank bailouts

“From now on, the UK’s efforts must be focused on the economic recovery,” Mrs Knight said.

“This means allowing the banks to finance the recovery first, pay back the taxpayer next, and only then turn to further regulatory change.

“If more regulation remains at the top of the list then this will only have the effect of risking the recovery which is so essential to our future.”

The banking commission was set up by the government last June to review the UK banking sector after bailing out some of the UK biggest banks during the financial crisis.

However, the government is under no obligation to implement its recommendations.

“The government set up the ICB to ask the difficult questions that weren’t asked before the crisis and this is exactly what the commission is doing,” the Treasury said in a statement issued in reponse to Mrs Knight’s comments.

“We look forward to receiving the final report on 12 September.”

Higher costs

In its interim report published in April, the commission said that, in the build-up to the crisis, lenders and borrowers took on “excessive and ill-understood risks”, and that implicit taxpayer support for the banks encouraged “too much risk taking”.

As a result, it recommended that retail banks should be ring-fenced from investment banks and have their own capital reserves, so they are protected from losses made by traders on stock markets, for example.

It also said that taxpayers should not be liable for future losses, and that depositors should get their money back before creditors.

These measures would lead to additional costs for banks.

Mrs Knight said in light of the ongoing eurozone debt crisis and stock market volatility, the focus for banks should be on the recovery, not on dealing with more regulation.

Sinopec shares jump 5% on better-than-expected earnings

China's economic expansion has seen an increase in demand for refined oil products in the country

Shares of China Petroleum & Chemical Corp (Sinopec) jumped at the Hong Kong Stock Exchange after the company reported better-than-expected earnings.

Sinopec’s shares jumped 5% after it revealed making a net profit of 41.2bn yuan ($6.4bn; £3.9bn) for the first six months of the year.

That was a 12% surge from 36.8bn yuan net profit during the same period last year.

Sinpoec is Asia’s biggest oil refiner by volume.

The company said robust domestic demand resulted in an increase in prices of refined oil products, which helped to boost its performance.

Double edged sword?

“The crude price increased significantly while the price of domestic refined oil products was strictly regulated”

Sinopec

One of the biggest contributors to Sinopec’s profits in the first half of the year was a surge in earnings from its exploration and oil production business.

Sinopec said it produced 150 million barrels of crude oil and earned a profit of 112.6bn yuan in the sector, a 24% jump from the same period last year.

Analysts said that while higher crude oil prices resulted in good profits in the exploration division, they also caused problems in other parts of the business.

“In the down stream sector, the refining business, they have to contend with higher input costs, so that is going to hurt their profits,” Calvin Lee of Platts told the BBC’s Asia Business Report.

That was evident in Sinopec reporting a 12.2bn yuan loss in its refining subsidiary, compared with a 5.7bn profit last year.

Controlled prices

Prices of refined oil products are controlled tightly by the Chinese authorities.

While they have raised prices this year, fuel for example, analysts said the increase was not enough to offset the extra cost of higher crude oil prices.

They said that rising consumer prices in China played a key role in deterring the government from increasing the cost of oil products.

“Inflation is a big factor in China, that has been slowing down the number of times they have actually adjusted prices.” Platts’ Mr Lee said.

Sinopec said the difference in increase in relative prices hurt its earnings in the refining sector.

“The crude price increased significantly while the price of domestic refined oil products was strictly regulated, therefore the segment suffered an operating loss,” the company said.

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