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Gulf disaster could lead to more limited supply of oil
The oil disaster in the Gulf of Mexico could prove to be a "supply-side game changer" by restricting deep-sea drilling, delaying projects and boosting costs, in turn curtailing supplies, the International Energy Agency warned in a new report today. The adviser to almost 30 countries said in its Oil Market Report that projects representing between 100,000 and 300,000 barrels a day could be delayed over five years if there is a lengthy moratorium on new projects. "Costs are going to go up, projects are going to be delayed and some sort of regulatory overhaul is likely in the United States in the aftermath of this terrible accident," David Fyfe, the chief of the agency's oil industry and markets division, told Reuters television.
BP bloodied but unbowed
The empire that once was is striking back. BP PLC , one of the giants of the energy industry and a company steeped in more than a century of history, suffered another rout on overseas markets today, though it saw a sharp rebound in New York. Pressure continues to build on BP by the day over the disaster in the Gulf of Mexico from the explosion on the Deepwater Horizon drilling rig in April. The company is being held to account by the U.S. government and markets don't like what they see, wiping billions from its market value. There is also pressure on the company to suspend its dividend as it faces mounting costs, which now stand at $1.43-billion (U.S.).
BP responded to market pressure in a statement this morning: "BP faces this situation as a strong company. In March, we indicated that the company's cash inflows and outflows were balanced at an oil price of around $60/barrel. This was before the costs of the incident." The company added that it has "significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims."
And in a memo to employees, The Globe and Mail's European correspondent Eric Reguly reports, chief executive officer Tony Hayward noted the "undeniably difficult times" but said that "we are in this for the long run - we will do the right thing in our response, and we will emerge a stronger and safer company when we come through the other side."
Soros sees Act II
Renowned investor George Soros says Europe's financial troubles means the world has "just entered Act II" of the financial crisis. "The collapse of the financial system as we know it is real, and the crisis is far from over," Mr. Soros told a conference in Vienna, according to Bloomberg News. "... When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken centre stage, but the effects are liable to be felt worldwide."
Markets, dollar rally
The markets didn't necessarily agree with Mr. Soros today, though investors have certainly had bouts of fear related to Europe's debt crisis. Today, global markets rallied on fresh signs that the economic recovery continues apace. Numbers from the United States, Japan, China and Australia all pointed to a rebounding economy. In the U.S., new claims for jobless benefits dipped, though still showing a labour market in crisis, while Chinese trade numbers showed the world's economic engine is not showing signs of slowing. Japan's freshest reading of economic growth, meanwhile, showed GDP expanded at a 5-per-cent annualized pace in the first quarter.
As expected, the Bank of England and the European Central Bank held interest rates steady.
The Canadian dollar also surged, jumping more than 1.3 cents to pop above 97 cents U.S., though it later dipped below that mark. And strategists at BNP Paribas advised investors to buy into the loonie given the country's better prospects. "The divergence between the recovering Canadian economy and [European monetary union]" which needs a weaker currency to ensure fiscal sustainability, will only increase going forward," they wrote.
Trade numbers threaten to heighten tension
Trade numbers from China and the United States this morning could heighten tensions between Beijing and Washington over China's refusal to allow its currency to appreciate. Official figures confirmed China's exports surged in May by almost 50 per cent from a year earlier, showing its economy continues to boom threatening to up the rhetoric and add to political pressure on Beijing to allow the yuan to rise. Separately, the United States reported that its trade deficit widened in April to the fattest in more than a year as a fall in exports eclipsed the drop in imports. Its trade deficit of $40.3-billion (U.S.) is the biggest since late 2008, and the gap with China widened to $19.3-billion from $16.9 billion.
BMO Nesbitt Burns economist Sal Guatieri noted that the U.S. trade gap with China is growing again after having stabilized for a period, adding in an interview that "on the surface it would encourage an elevation in the war on words."
In Washington today, Treasury Secretary Timothy Geithner urged China to act on trade irritants, saying in prepared remarks to the Senate Finance Committee that "the distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need."
Canada posts trade surplus
Canada posted a small trade surplus of $175-million in April, rebounding from a deficit of $236-million a month earlier, as both exports and imports dipped on lower prices. Exports fell for the second month in a row, to $32.9-billion from $33.4-billion, Statistics Canada said today, though prices slipped 1.4 per cent while volumes actually rose slightly. Imports followed a similar path, falling to $32.8-billion from $33.5-billion, as prices declined 2.4 per cent and volumes rose 0.2 per cent. CIBC World Markets economist Krishen Rangasamy noted that "the closure of European air space in April likely played a role in halting two-way trade in the month." Read the story
Related: Economy to grow briskly, RBC says
Bank reforms won't hurt, Carney says
New regulations for the world's financial sector will not hobble the global economic recovery, Bank of Canada Governor Mark Carney said this morning, contradicting a new study that predicts the plans will shave 3.1 percentage points from GDP in the United States, Europe and Japan over five years. The study by the Institute of International Finance, a group that represents the world's banks, warned that reforms calling for stronger capital will force banks to cut back on lending to business.
But in a speech in Montreal, Mr. Carney said that, while some are concerned about the impact of the changes on the economy, "this apprehension is misplaced." Read the story
Transat profit slides
Transat A.T. blamed "intense competition" and setbacks related to the airspace shutdown from Iceland's volcanic ash as its second-quarter profit fell to $6.2-million or 16 cents a share from $42.2-million or $1.27 a year earlier. Revenue dipped to $1.06-billion from $1.13-billion, the Montreal-based tour operator reported today. "Both the quarter and the first six-month period have seen intense competition, which continues to squeeze margins and benefit the consumer," said chief executive officer Jean-Marc Eustache. "Our operating expenses are under control and our cost-reduction efforts have been successful. In addition, we recorded unexpected costs of $4-million as a result of volcanic activity in Iceland." Read the story
Lululemon boosts outlook
What is it they say about those yoga pants? Lululemon Athletica Inc. today posted first-quarter profits that were triple those of a year earlier and topped analysts estimates. Lululemon earned $19.6-million (U.S.) or 27 cents a share, compared to $6.5-million or 9 cents a year earlier. Revenue surged to $138.-million from $81.7-million. The Vancouver-based company also projected second quarter revenue in the range of $140-million to $145-million, topping analyst estimates of $133-million.
If you want my (bonds?) and you think I'm sexy
Japan's finance ministry has launched a new ad campaign with a twist, advising men that the way to a woman's heart is through government bonds. "Playboys are no good," says one young woman in a magazine ad, according to Bloomberg News, which noted that the new campaign comes as government borrowing threatens to eclipse demand for its bonds. "Men who hold JGBs are popular with women!!" Bloomberg noted that government debt in Japan, the world's biggest bond market, stood at a record ¥882.9-trillion at the end of March.
From today's Report on Business