Eurozone periphery firms' debt worries IMF

The IMF has warned that debt among banks and businesses in the eurozone periphery is unsustainable. Source: AAP

THE International Monetary Fund says banks and businesses are still fragile in the eurozone periphery, which extends from Cyprus and Greece to Italy and Spain.

"The debt overhang at listed companies in the euro area periphery is sizeable" and "unsustainable", especially in the context of weak growth, the IMF said in its twice-yearly Global Financial Stability Report, citing in particular companies in Portugal and Spain.

"Many banks in the euro area periphery remain challenged by elevated funding costs, deteriorating asset quality, and weak profits," the IMF said.

The bank crisis in Cyprus has exacerbated the situation by scaring investors region-wide and sparking a sell-off in bank shares throughout the eurozone, the IMF said.

The Fund expressed concerns about the health of some non-financial companies because of debt accumulated before the financial crisis, especially in Ireland and Spain.

The problem of excessive debt does not mean companies will default, the IMF said, but they will need to take steps, such as cutting operating expenses and investment, to bring debt down to sustainable levels.

Even so, the IMF called for vigilance over the quality of periphery firms' assets, stressing their capacity to pay back debt is "much weaker" than in the eurozone core.

Although acute risks in the euro area have declined in the six months since the last report due to "strong policy action," significant challenges remain, the IMF said.

"More work needs to be done in the short term to improve bank and capital market functioning, while moving steadily toward a full-fledged banking union," it said.

As for the sovereign debt crisis in the 17-nation bloc, the IMF noted that the European Central Bank's government bond-purchase program had helped boost confidence in public debt but its impact was dwindling.

In September 2012, the ECB unveiled its new Outright Monetary Transactions program but has not used it, with its existence alone helping to bring down eurozone countries' borrowing costs in the markets.

"This dynamic could change" under political developments that could complicate OMT implementation, the IMF said, pointing to "the uncertainty surrounding the election outcome in Italy."

The eurozone's third-largest economy still lacks a government after a general election in February narrowly won by the left.

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Oil prices drop on demand worries

GLOBAL oil prices have dived on concerns about weakening global demand after the IEA lowered its 2013 consumption forecast.

New York's main contract, West Texas Intermediate (WTI) for May delivery, closed at $US93.51 a barrel on Thursday, a loss of $US1.13.

In London trade, Brent North Sea crude for delivery in May dropped $US1.52 to settle at $US104.27 a barrel.

"The latest monthly report from the IEA falls in line with reports released in recent days by OPEC and the EIA by showing a marginal downward revision to oil demand growth for this year," said Matt Smith of Schneider Electric.

The International Energy Agency projected global oil demand for oil would grow by 795,000 barrels per day to a total of 90.6 million barrels a day in 2013, slightly lower than its previous outlook, as a decline in Europe partially offset growth elsewhere.

On Wednesday, the Organisation of Petroleum Exporting Countries (OPEC) also lowered its forecast.

US oil prices had rallied on Wednesday after the US Energy Information Administration report showed a smaller-than-expected increase in oil stocks in top consumer the United States.

The EIA said US crude reserves grew by 250,000 barrels in the week ending April 5, pushing US commercial stocks to 388.9 million barrels, not far from the all-time record of 391.9 million barrels in July 1990.

Sucden analyst Myrto Sokou said the oil market was hit this week by "renewed concerns about oil consumption".

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Bernanke rejects devaluation worries

US Federal Reserve chairman Ben Bernanke has rejected worries the world's troubled large economies are competitively cutting their currency values and hurting smaller, healthier ones in the process.

Bernanke told an audience at the London School of Economics that, although the exchange rates of some major economies have fallen, the policies are aimed at boosting growth and "confer net benefits on the world economy as a whole".

Moreover, he said, because the main economies are all pumping up their money supplies - effectively pushing down the value of their currencies - the net change between their currencies is not very significant.

Do the strongly stimulative economic policies of countries like the United States, Britain, Japan and elsewhere "constitute competitive devaluations?", Bernanke asked rhetorically.

"To the contrary, because monetary policy is accommodative in the great majority of advanced industrial economies, one would not expect large and persistent changes in the configuration of exchange rates among these countries."

Bernanke's Fed has been the target of charges that ultra-low US interest rates and large "quantitative easing" programs which pump cheap money into the financial system are aimed at driving the dollar down in order to boost exports.

Japan, also with rates at the zero level and a huge stimulus program, has been blamed too.

The criticisms come mainly from countries with stronger economies which say they are both being swamped by inflows of money seeking higher returns and are finding it more difficult to export because their currencies are more expensive.

"I agree these challenges are significant" in emerging economies, Bernanke said, according to his prepared remarks.

However, he said, the trade-weighted real exchange rates of such countries are largely not different now than they were before the financial crisis erupted in 2008.

Moreover, even if they did lose advantage, the emerging economies would also reap benefits by the return to health of the large economies on the back of low interest rates.

The Fed's economic models, he said "suggest that the effects are roughly offsetting".

"A return to solid growth among the advanced economies is ultimately in the interest of advanced and emerging market economies alike."

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Oil prices fall on demand worries

OIL prices fell Wednesday after another build in US crude inventories and a lowered key oil demand forecast took the shine off better-than-expected US retail sales.

New York's main contract, West Texas Intermediate (WTI) for April delivery, closed essentially flat at $92.52 a barrel, down two cents from Tuesday's closing level.

Brent North Sea crude for April dropped $1.13 to settle at $108.52 a barrel in London trade.

The New York session began sharply higher after official data showed US retail sales picked up 1.1 percent in February, the biggest gain in five months and more than double expectations, though higher gasoline prices accounted for an important part of the surge.

Even so, it sparked hopes of continuing strong consumer spending in the US economy.

"That helped a lot with the market," said Bill Baruch of iiTrader.com.

But the benchmark New York contract began to fall after the US Department of Energy's weekly report showed another increase in crude inventories, by 2.6 million barrels, in the week ended March 8.

A downbeat demand forecast also weighed on market sentiment.

The International Energy Agency (IEA) lowered its global forecast for growth in world oil demand for the second straight month, citing the effects of uncertainty from the US budget talks, sluggish Chinese business activity and unemployment in Europe.

The IEA estimated that demand for oil would total 90.6 million barrels per day this year, a cut of 60,000 barrels from its forecast in February.

"The macroeconomic environment underpinning oil demand, as of yet, shows little sign of short-term improvement," it said in a report.

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