OIL BOUNCE DUE TO TECHNICAL FACTORS - The possibility of a delay in passing legislation in the US to deal with $700 billion worth of bad debts in the financial system hit the markets yesterday, with losses of between three and four per cent at the three main indices in New York. The dollar dropped by over 2% and oil saw its biggest ever one day gain, at one stage rising almost 25%. Asian markets are also falling this morning.
James Hughes, an analyst at CMC Markets in London, says the main driver for the steep climb in oil prices was the fact that it was options expiry day for oil for October delivery. Mr Hughes explains that a number of oil traders would have been short coming into the last trading day of the month for the October futures contract. When they are short and the market is not going their way, they have to close out their positions before the end of that expiry date, otherwise they will have to take physical delivery of the oil contracts that they have. Not wanting to have oil delivered to their doorstep, the traders have to enclose their positions. If they are all short, a lot of buying goes on in the market, thus driving the price higher. He says the November contract only rose by about $9 or so, fall below the gains for the October contract.
Turning to the markets, Mr Hughes says that the nervousness will continue today. He sees a weaker opening is expected across Europe, including Ireland and the UK. He says the marketS do still seem very delicate with investors still very nervous. The analyst says that traders need to see some new action coming from the US to put more confidence back into the markets. Fear will dominate proceedings, he predicts.
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ROMANIA SEEING A BUILDING BOOM - The property market here may have slumped, dragging construction and financial services down with it, but there is still life in some Eastern European countries like Romania. The economy grew by 8% there in the first half of the year. President Mary McAleese is there on a state visit this week, and Enterprise Ireland organised a trade mission to coincide with the President's visit. RTE's Europe Editor Sean Whelan met the heads of some of Ireland's beleaguered construction sector, who think Romania is a happy hunting ground. Among them is Belfast based developers Blackpearl who are building 1,200 apartments in Bucharest.
The firm's chairman Michael Bell says the Romanians will certainly be able to afford the apartments with prices at about €100,000 for a typical unit. He says that it costs a lot less to build in Romania and points out that a lot of people in Romania work for multi-national companies and global banking groups - which means they are on good wages. Mr Bell says that Romania now reminds him of Ireland 20 years ago - much of the infrastructure is lacking but is starting to go into place and tremendous work ethic from a population that is very well educated.
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BUSINESS NEWS IN BRIEF - On the currency markets, the euro is trading at $1.4772 and at 79.58 pence sterling.
*** In his first interview since the beginning of the US financial crisis, the ECB's President Jean-Claude Trichet has said that trying to scapegoat anybody for the crisis would be useless. He said the full body of the global financial system has to be reviewed, and changes made without any concessions. Mr Trichet said the priority would be greatly improved transparency throughout the system.
*** After Wall Street's few days in the spotlight all eyes are on Washington now as today US Treasury Secretary, Henry Paulson, and Fed Chairman, Ben Bernanke, start two-days of congressional hearings to speed up approval of the proposed legislation to to deal with bad debt at financial institutions. Fears that talks may drag on into next week hit US stocks and the dollar, because of growing scepticism about whether the rescue plan, which would give the US Treasury Department powers to buy toxic mortgage related debt, would work.
*** Buoyed by a near 2% decline for the dollar, US crude oil futures soared by $16.37 cents to settle at $120.92 a barrel last night, the biggest ever jump in a trading session. At one point, oil was up a huge $25.45 cents, or 24.3%. Gold prices jumped more than $44 an ounce as investors looked for safer assets than stocks.
