News Archive

Cheap oil won’t juice the U.S. economy this time: Reuters poll

WASHINGTONU.S. consumers are cautious about spending their windfall from cheap gasoline and are saving more, according to a Reuters/Ipsos poll and official data, suggesting low oil prices are less of a boon for the U.S. economy than in the past.

Commerce Department data shows that the crude’s 70 percent drop since mid-2014 cut households’ annual spending on gasoline and other energy products by $115 billion, equivalent to roughly 0.5 percent of gross domestic product.

At the same time, however, savings increased by $121 billion and while the data gives no indication where the money has come from, the survey suggests the windfall accounted for a significant part of the sum.


The Reuters/Ipsos poll shows 75 percent of 3,068 Americans who answered questions on gasoline savings said the extra money helped them cover basic needs and the majority have not used their windfall to buy big ticket items. Over 40 percent of respondents said the savings had helped them pay down debts, according to the Jan. 15-27 online poll, which had a credibility interval of plus or minus 1.8 percentage points.

“It obviously hurts less when I go to the grocery store,” said Karen Joines, a recruiting firm product manager from Peachtree City, Georgia. Joines, who participated in the survey, estimates she saves $30 a week thanks to cheaper gasoline but has no plans for big purchases, in part because she worries low prices will not last.

Some economists say such doubts and the still-fresh scars of the 2007-2009 recession could explain the muted effect of cheap gas on consumption. For example, the economy only in mid-2014 recovered the more than 7 million jobs lost during the downturn.

“We don’t seem to be getting the benefits from cheaper gasoline that we did when the economy was healthier,” said veteran oil economist and independent consultant Phil Verleger.

Dallas Federal Reserve President Robert Kaplan said another reason Americans appeared wary of spending what they saved at the pump could be that more and more of them were approaching retirement.

“They are conscious of that (and) they need to save more,” Kaplan told Reuters in an interview.


The Dallas Fed, whose area includes the oil patches of Texas, Louisiana and New Mexico, estimates that a 50 percent fall in oil prices now adds around 0.5 percentage points to economic growth over a year, half of the impact seen before America’s oil boom.

One reason is that the oil sector has grown over the past decade, so spending and job cuts there weigh more on the whole economy. Cheaper oil also helps less because cars and machinery have become more fuel efficient, according to the Dallas Fed.

Thanks to hydraulic fracturing and shale drilling boom that made the United States the world’s top oil producer in 2014, the nation also imports less oil than ever.

That goes to explain why in the public eye the modest benefits of cheap energy enjoyed by all get overshadowed by the havoc the oil slump wreaked in the energy sector and the nation’s oil patches.

Tumbling prices forced producers and oilfield services companies to slash budgets, driving some into bankruptcy and many deep into the red. Markets have grown so bearish about the sector that when oil producer Hess (HES.N) reported a fourth quarter loss of over $1.8 billion, its shares have risen because investors had braced for even more damage.

Yet even as job losses and lost tax revenues hit oil-producing states such as Texas or Alaska, the drag on the U.S. economy as a whole has been limited.

The oil-dominated mining sector accounted for just 1.6 percent of GDP in the third quarter and jobs in oil and gas extraction and services account for 0.3 percent of U.S. employment, down from 0.4 percent during the boom years. (

The investment in U.S. mining structures, which is dominated by oil and gas exploration and well drilling, has fallen at a $70 billion annual rate since the fourth quarter of 2014, according to Commerce Department data. Yet as Goldman Sachs estimates the overall drop in energy investment subtracted only about 0.3 percentage points from 2015 economic growth.

Barclays economist Michael Gapen forecasts that a further decline in energy investment could knock another 0.2 percent from this year’s U.S. economic output.

The U.S. job market also appears robust enough to absorb job losses in the energy sector and related industries. Goldman Sachs estimates such losses at 30,000 to 35,000 a month, but that compares with 292,000 jobs U.S. economy as a whole added last month.

(Reporting by Jason Lange and Lindsay Dunsmuir; Editing by David Chance and Tomasz Janowski)

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China court fines OSI, jails employees over food safety scandal

SHANGHAI A Chinese court has fined two domestic units of U.S. food supplier OSI Group [OSIGP.UL] up to 2.4 million yuan ($364,875) and handed prison sentences to 10 of its employees over allegations it reused returned food products to avoid losses.

The verdict marks the end of a long-running probe into OSI after a safety scandal in 2014 that hit fast-food giants it supplied – McDonald’s Corp (MCD.N) and Yum Brands Inc (YUM.N), owner of KFC, Pizza Hut and Taco Bell in China.

The Shanghai Jiading People’s Court said in a statement on Monday that Yang Liqun, a general manager at OSI China, would be sentenced to three years in prison and deported.

It wasn’t clear whether Yang, who the court said was an Australian citizen, would serve jail time in China. The Australian embassy in China had no immediate comment.

OSI has criticized the handling of its case by the local food regulator – a rare act in China, where foreign firms steer clear of any public criticism of the authorities.

It said on Monday that the verdict, which follows a December trial behind closed doors, was unjust.

“The verdict is inconsistent with the facts and evidence that were presented in the court proceedings,” it said in a statement. “As such, OSI is forced to consider an appeal through all legal channels in order to eventually be granted a just, evidenceā€based verdict as merited by the facts of the case.”

The court statement said Yang and other workers at OSI’s China units had reused products from returned or canceled orders, meaning some unapproved products had entered the market.

Nine other people in the case would be given shorter jail terms and would have to pay fines. Four of the nine would have their jail sentences suspended, it said.

The court added the punishments were relatively lenient because the defendants had cooperated.

China is trying to clean up its reputation for food safety scandals, which range from recycled “gutter oil” and “zombie meat” – smuggled frozen meat years beyond its expiry date – to crops tainted with heavy metals. Senior Chinese leaders have said food safety in the country remained “grim”.

The scandal dragged down sales at McDonald’s and rival Yum in China after a Chinese TV report in July 2014 alleged to show workers at a Shanghai unit of OSI using out-of-date meat and doctoring production dates.

A senior executive for OSI in China told the official Xinhua news agency last July the scandal had cost the firm close to a billion dollars in lost revenue.

(Reporting by Adam Jourdan; Editing by Muralikumar Anantharaman and Adrian Croft)

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MetLife’s agricultural loans fall to $3.2 billion in 2015

MetLife Inc’s (MET.N) agricultural loans totaled $3.2 billion in 2015, down from a record $3.6 billion in 2014 as commodity prices hit a five-year low and a drought gripped California, the company said in a statement on Monday.

One of the biggest agricultural mortgage lenders in North America, MetLife’s overall loan portfolio hit a record $13.2 billion as of Sept. 30, 2015.

Rural incomes in the United States have tumbled as farmers deal with the lowest grains prices in at least five years. California is suffering a catastrophic drought that has lasted four years and cut agricultural output.

MetLife’s agriculture portfolio consists of mortgages for farms, ranches, food production and other agriculture businesses.

The lender said the average loan-to-value ratio of its overall agricultural mortgage portfolio was 43 percent last year, down slightly from 44 percent in 2014.

MetLife expects its agricultural lending to grow in 2016 with opportunities in the United States and abroad, Barry Bogseth, managing director and head of MetLife’s agricultural portfolio unit, said in the statement.

MetLife is also the largest U.S. life insurer and is planning to spin off part of its retail business from the core company.

(Reporting by Justin Madden; Editing by Lisa Shumaker)

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China shares fall as economic pulse slows

SHANGHAI Chinese shares stumbled lower on Monday after an official measure of activity in the giant factory sector fell to its lowest since mid-2012, offering no respite for markets from the country’s economic drift.

The Shanghai Composite Index .SSEC eased 1.8 percent, while the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen lost 1.5 percent.

The official version of the PMI survey for manufacturing slipped to 49.4 in January, from 49.7 the month before and short of forecasts of 49.6. ECONCN

While the miss was minor, the PMI for services also disappointed by easing to 53.5 and challenged hopes consumption would take over from industry as the driving force for the world’s second-largest economy.

A private survey – the Caixin/Markit China Manufacturing PMI – underscored the trend by showing factory activity shrinking for the 11th straight month.

“The manufacturing sector will likely face a tough year ahead on the back of overcapacity, weakening global demand, and government’s plans to tackle pollution,” said ANZ’s chief China economist, Li-Gang Liu.

The Australian bank expects Beijing will have to ease policy further, including a cut in banks’ reserve requirements sometime in the next two months.

Equity and bond markets globally had rallied on Friday after the Bank of Japan stunned many by cutting its rates into negative territory for the first time.

That did not stop January from being the worst month since October 2008 for China’s stock markets, with 12 trillion yuan ($1.8 trillion) sliced off the value of its benchmark indexes. The CSI300 and the Shanghai Composite indexes fell more than 20 percent each in January.


Caroline Yu Maurer, head of Greater China Equities for BNP Paribas Investment Partners in Hong Kong, said Chinese stocks were still not attractive for investors to buy despite a sharp fall.

“Last year, the China market was propped up by the government, but now, it’s hard to find natural buyers,” she said. Any slight rebound would be used by investors as a chance to sell and so reduce their financial exposure.

The downtrend risks becoming a vicious cycle, as those who have used shares as collateral for loans or have bought stocks with borrowed money are forced to meet margin calls or sell up.

The dangers are multiplied by the vast scale of the shadow banking system, an opaque network of trust companies and non-bank lenders.

Mid-tier Chinese banks are increasingly using complex instruments to make new loans or restructure existing ones that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending.

The size of this “shadow loan” book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5 percent of all commercial loans, a UBS analysis shows.

Concerns are not just focused on stocks. The Shanghai Stock Exchange has warned several securities firms to strengthen risk control in their corporate bond and asset-backed securities (ABS) businesses, two sources with direct knowledge of the matter said.

Bond issuance has skyrocketed in the past year as firms took advantage of easier regulations and falling yields.


The People’s Bank of China (PBOC) has managed to calm fears of an imminent devaluation of its yuan by holding its midpoint CNY=SAEC, a reference point for trading, rock steady day after day.

The Monday fix of 6.5539 per dollar was just a whisker softer than Friday even though the dollar had climbed broadly elsewhere in the wake of the Bank of Japan’s easing.

Still, many analysts suspect the currency will be allowed to move lower over time, and some funds are actively betting on it.

Chinese state run media has carried repeated warnings to offshore speculators against trying to profit from a yuan devaluation.

Such reports will only heighten the focus on the PBoC’s reserves position, due to be reported some time this week, for details on just how much intervention has been needed to shelter the yuan from capital flight.

(Writing by Wayne Cole and Neil Fullick; Editing by Sam Holmes)

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No decision yet on any OPEC, non-OPEC meeting: sources

LONDON/DUBAI OPEC and non-OPEC countries have not yet agreed to hold a meeting to discuss action to support oil prices, two OPEC delegates said on Monday, nearly a week after Russian officials said Moscow should talk to OPEC.

In addition, a decision on whether to hold a standalone gathering of the Organization of the Petroleum Exporting Countries as proposed by Venezuela has yet to be taken, the delegates said, but a number of countries have responded coolly to the idea.

OPEC delegates said last week a gathering of OPEC and non-OPEC oil officials could take place in February or March, perhaps at an expert rather than ministerial level.

“It is all in the hands of the Russians now,” an OPEC delegate said.

Last Wednesday, the head of Russia’s pipeline monopoly said Russian officials had decided they should talk to Saudi Arabia and other OPEC countries about output cuts, remarks that helped spur a rally in oil prices.

(Reporting by Alex Lawler and Rania El Gamal in Dubai; editing by David Evans)

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Nokia patent sales forecast from Samsung deal hits shares

HELSINKI Nokia (NOKIA.HE) said it had settled a lengthy patent dispute with South Korea’s Samsung (005930.KS) on Monday, but investors were disappointed by the financial terms of the deal.

Nokia’s shares fell more than 10 percent after the Finnish firm said the Samsung deal would lift patent unit Nokia Technologies’ sales to around 1.02 billion euros ($1.1 billion) in 2015, from 578 million euros in 2014.

The patent business is set to become a smaller part of Nokia after its proposed 15.6 billion euro takeover of French network gear rival Alcatel-Lucent (ALUA.PA), whose shares fell by 11 percent following news of the Samsung patent deal.

Samsung’s stock was up by 1.1 percent.

Nokia shares have fallen since the announcement of Alcatel-Lucent deal last April, partly due to the dilution of the patents business and also due to worries about integration.

The annualized run-rate for its patent unit following the Samsung deal is now about 800 million euros, Nokia said. This compared with average analysts’ forecasts for the unit’s 2016 sales of about 900 million euros.

“There have been expectations that Nokia could make more money with their patent portfolio than (rival) Ericsson.. This outcome did not support that… Estimates will be revised,” said Nordea analyst Sami Sarkamies, who has a “hold” rating on Nokia.

Sweden’s Ericsson (ERICb.ST), which recently signed a license deal with Apple (AAPL.O), has a patent sales run-rate of about 1.2 billion euros.

In 2014, Nokia sold its once-dominant phone business to Microsoft (MSFT.O), leaving it focused on telecoms network equipment while retaining a large portfolio of handset patents.

Samsung and Nokia entered into a binding arbitration in 2013 to settle additional compensations for Nokia’s phone patents for a five-year period starting from early 2014.

Nokia added it expects to receive at least 1.3 billion euros of cash during 2016-2018 related to its settled and ongoing arbitrations, including the Samsung award.

Nokia currently has a similar dispute with LG Electronics (066570.KS). It is expected to start talks over a new contract with Apple (AAPL.O) in the coming years.

Some investors criticized the way Nokia had communicated the settlement, while expressing surprise over the scale of the share price movement given the relatively sizes of Nokia Technologies to its networks business.

“The company should be more explicit, investors are left wondering for example on the Technologies (unit’s) actual topline forecast for 2016,” said Juha Varis, a fund manager at Danske Capital.

“I’m mostly surprised over the share reaction. Considering the increasing significance of (the) network business for the stock, this is a very strong movement,” Varis, whose fund owned 0.08 percent of Nokia shares as of end-December, said.

($1 = 0.9219 euros)

(Editing by Terje Solsvik and Alexander Smith)

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Porsche CEO has no plans to go down self-driving route

FRANKFURT/BERLIN Porsche (VOWG_p.DE) does not plan to join luxury carmakers who are trying to develop self-driving vehicles, its chief executive told a German newspaper, indicating differences between large premium brands and sports car companies.

Lamborghini, also part of the Volkswagen (VOWG_p.DE) group, has expressed similar scepticism about the trend towards autonomous driving, a concept which brands such as BMW (BMWG.DE) and Mercedes-Benz (DAIGn.DE) are seeking to build into their models.

The comments from Porsche Chief Executive Oliver Blume show that some car makers believe their drivers want to remain firmly in control at the wheel.

“One wants to drive a Porsche by oneself,” Blume said in an interview with regional newspaper Westfalen-Blatt published on Monday.

“An iPhone belongs in your pocket, not on the road,” Blume added, saying that Porsche did not need to team up with any big technology companies.

The market penetration of vehicles with autonomous features is expected to reach 13 percent by 2025, representing a market of roughly $42 billion, Boston Consulting Group said.

Stuttgart-based Porsche, which stresses the performance and feel of its cars in its marketing, does plan to offer hybrid versions of all its models in the foreseeable future as it struggles to lower emissions across the fleet.

A plug-in hybrid of the 911 model with a range of 50 km (31 miles) will hit the market as early as 2018, Blume said.

Porsche also plans to spend about 1 billion euros ($1.1 billion) on production facilities at its biggest plant to build the Mission E, its first-ever all-electric model, a move reflecting parent VW’s growing commitment to increase its electric offerings as it struggles to overcome an emissions scandal.

The Mission E, boasting more than 600 horsepower and a range of over 500 km, will come to market by the end of the decade.

(Reporting by Maria Sheahan, Andreas Cremer and Edward Taylor Editing by Louise Heavens and Keith Weir)

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Asia’s factories parched for demand, need stimulus

SYDNEY January updates on Asia’s mammoth factory sector released on Monday showed the new year began much as the old one ended – with too much capacity chasing too little demand.

China was again the epicentre of disappointment as its official measure of manufacturing fell to the lowest since mid-2012, but the weakness also encompassed such bellwethers of high-tech trade as South Korea and Taiwan.

The dearth of demand and resulting downward pressure on inflation was why the Bank of Japan felt moved enough to cut interest rates below zero last week, and why many more were likely to ease further this year.

The data are a taster for European and United States surveys later in the day, with growth in manufacturing activity likely static in the euro zone and contracting across the Atlantic.

“One risk is that developed world businesses pull back in the face of rising currencies, weak productivity, and sub-par emerging market demand.

“Central banks recognise these risks, and experience shows that they respond quickly to weakness in their industrial sectors, even when it isn’t a precursor to recession.” wrote Bruce Kasman, head of economic research at JPMorgan.

“Based on past experience, JPMorgan suspected the continued stagnation of manufacturing could result in a full percentage point of monetary easing in one form or other.”

The official version of China’s PMI survey for manufacturing slipped to 49.4 in January, from 49.7 the month before and short of forecasts of 49.6.

While the miss was minor, the services index also disappointed by easing to 53.5 and challenged hopes consumption would take over from industry as the driving force for the world’s second-largest economy.

A private survey, the Caixin/Markit China Manufacturing PMI, underscored the trend by showing factory activity shrinking for the 11th consecutive month.


The news was relatively brighter in Japan where its factory barometer slipped only a tick to 52.3 in January as a pick up in exports helped keep activity expanding.

Yet that export performance relied on the yen staying weak, hinting at another reason the BOJ acted so boldly when easing policy last week.

India also recorded an unexpected return to growth as its erratic PMI jumped to a four-month high of 51.1 in January, after slumping to a 28-month low of 49.1 in December.

Other countries in the region were not so fortunate. South Korea’s manufacturing index eased into contractionary territory in January at 49.5, while the country’s exports suffered the sharpest annual fall since August 2009.

China is South Korea’s largest export market, taking about one-quarter of shipments, followed by the United States and the European Union.

Smartphones, cars, semiconductors and flat-screen displays all notched falls in January, boding ill for bellwether companies traditionally propping up the economy.

The story was much the same for another electronics hub, Taiwan, where factory growth slowed amid lacklustre demand.

Steep falls in selling prices and input costs also underlined the risks of deflation across the region, and the need for yet more stimulus.

“Shipments being this weak means a recovery in consumption is urgently needed. If you look at the economy as a whole, this might boost the need for policy easing,” said Lee Sang-jae, chief economist at Eugene Investment Securities.

A raft of European PMIs due later Monday are expected to show at least a modicum of growth with the index for the euro zone as a whole seen holding at 52.3.

The influential U.S. reading from the Institute of Supply Management was forecast to stay at a sub par 48.0, though there could be some upside risk given a surprisingly strong outcome from the Chicago region last week.

(Reporting by Wayne Cole; Editing by Christopher Cushing)

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Oil prices slip on weak Asian data, fading prospect of output cut

SINGAPORE Oil prices dropped on Monday after China and South Korea posted surprisingly weak economic data, while fading prospects for a coordinated production cut by leading crude exporters also dragged on the market.

Economic data from China, showing its manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, added to worries about demand from the world’s top energy consumer at a time when the market is already weighed down by a supply overhang.

Numbers coming out of South Korea were also gloomy, with the country’s exports down at levels last seen at the height of the global financial crisis in 2009.

Reflecting an accelerating slowdown in Asia’s biggest economies, front-month Brent crude LCOc1 was down 56 cents at $35.43 per barrel at 0507 GMT. U.S. West Texas Intermediate CLc1 was down 42 cents at $33.20 a barrel.

Oil prices came under further pressure because of the dim prospects of a coordinated cut in production by leading exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia due to their differences.

“We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast,” Goldman Sachs said.

Also, OPEC-member Iran, which last month was allowed to fully return to markets after years of sanctions, is not willing to participate in any cuts.

In part because of Iran’s return, OPEC oil production has jumped to 32.60 million barrels per day (bpd), its highest in years. This has added to a global glut of over 1 million bpd in excess of demand, which has pulled down oil prices around 70 percent since mid-2014.

Because of the oversupply, analysts at BMI Research said they had reduced their oil price outlook: “We have downgraded our 2016 Brent forecast to $40 per barrel from $42.5 previously.” They expect WTI to average $39.50 this year.

“Counteracting oil’s upside momentum in 2016 will be the weakness of the Chinese yuan, lingering concerns over global economic growth and the well-stocked inventories of crude and fuels,” BMI said, adding that a gradual price rise was expected in the second half of the year.

A belief in higher prices towards the end of the year also shows in the price curve, with Brent for April 2017 delivery $7.8 per barrel above those for April this year, up from a premium of just $5.7 for this time spread on Nov. 1.

(Editing by Joseph Radford and Himani Sarkar)

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