Tag Archives: Economy

Oil prices fall as investors faith in rally wanes

By Amanda Cooper

LONDON (Reuters) – Oil prices fell on Tuesday, reflecting growing concerns that a two-month rally may be in danger of fizzling, while analysts forecast another rise to record levels for U.S. crude stockpiles.

The oil price has risen by more than 45 percent since mid-February ahead of a meeting next month of the world’s major producers to discuss an output freeze to support prices. But there is growing scepticism about the outcome of the meeting.

“The amount of verbal intervention, which has obviously helped the market greatly over the past two months, combined with a production slowdown in the U.S., has probably taken (oil) as far as it can, now the market really wants to see some action,” Saxo Bank senior manager Ole Hansen.

“We’re seeing more and more commentators raise the flag and saying ‘have we seen too much, too soon?’ in terms of the rally across the sector.”

Brent crude futures <LCOc1> fell by $0.96 to $39.31 a barrel by 1124 GMT (7.24 a.m. ET), having lost some six percent in the last six trading days, while U.S. crude <CLc1> fell 78 cents to $38.60.

OPEC and other major suppliers, including Russia, are to meet on April 17 in Doha to discuss an output freeze aimed at bolstering prices.

But with ballooning global inventories, signs some OPEC members are losing market share, plus little evidence of a strong pick-up in demand, analysts said oil is likely to trade in a range.

“There is a rebalancing on the way, but we are still running a surplus and stocks are building up as far as we can see,” SEB commodities analyst Bjarne Schieldrop said.

“There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning.”

Data on Monday from the InterContinental Exchange showed speculators hold the largest net long position in Brent futures on record. [O/ICE]

U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh straight week, while refined product inventories likely fell, a preliminary Reuters survey showed late on Monday. <API>

Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed.

(Additional reporting by Aaron Sheldrick in TOKYO; Editing by Jane Merriman and Susan Thomas)

Oil set for weekly loss as huge supplies cut short rally

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma

By Barani Krishnan

NEW YORK (Reuters) – Oil prices fell to below $40 a barrel on Thursday, on track to their first weekly loss in over a month, pressured by record high U.S. stockpiles, weakening equity markets and a strong dollar.

With crude futures losing as much as 6 percent since Tuesday’s settlement – their biggest slide in two days since mid-February – analysts said the oil rally of the past five weeks that brought prices up from mid-$20 levels may be unraveling.

U.S. government data on Wednesday showed crude stockpiles jumped 9.4 million barrels last week – three times more than forecast by analysts in a Reuters poll.

A senior executive from the International Energy Agency, meanwhile, said a deal among a few OPEC producers and Russia to freeze production was likely to be “meaningless” as Saudi Arabia was the only one with the ability to raise output.

Brent crude’s front-month contact <LCOc1> was down 61 cents, or 1.5 percent, at $39.86 a barrel by 11:08 a.m. EST. It was on track to a 3 percent drop on the week, its biggest weekly slide since mid-January.

U.S. crude’s front-month <CLc1> fell 90 cents to $38.89. For the week, it was poised to lose about 2 percent, its first weekly loss since mid-February.

Earlier this week, both the benchmarks were up more than 50 percent from multi-year lows hit in January.

“A dose of reality (has) derailed the current perception (of a) rally, at least for the time being,” said Dominick Chirichella, analyst at New York’s Energy Management Institute.

The market will look out for a weekly reading on the U.S. oil drilling rig count due after 1:00 p.m. EST. A production indicator, the rig count rose last week after 12 weeks of cuts.

Shares on Wall Street <.SPX>, trading in tandem with crude most of this year, headed for their first weekly drop in six weeks. Financial markets were broadly risk averse with volumes thin ahead of the Good Friday and Easter break.

The dollar’s <.DXY> first weekly gain since late February also made oil and other commodities denominated in the greenback less affordable to holders of the euro and other currencies.

Trading houses were betting on oil being oversupplied at least two more years, while Russia looked to export more crude to Europe in April than any month since 2013.

Scott Shelton, energy broker at ICAP in Durham, North Carolina, feared of big builds in U.S. distillates, which include heating oil and diesel, as refineries emerge from maintenance. “We need to export large quantities of distillate,” he said. “Production has not fallen enough.”

(Additional reporting by Simon Falush in LONDON; Editing by Marguerita Choy)

Wall Street rally fizzles out as oil, materials fall

(Reuters) – Wall Street closed lower on Wednesday as oil and materials share prices dropped while investors remained cautious a day after deadly bombing attacks in Belgium.

The benchmark S&P 500 index fell back into negative territory for the year after closing positive on Friday for the first time in 2016.

U.S. stocks’ fading five-week rally was further diminished by comments over the past two days by Federal Reserve officials, who expressed views that suggested an appetite for more U.S. interest rate hikes than investors had anticipated.

The possibility of more than the two expected rate hikes through December has sent the dollar higher, pushing down commodity prices.

“That’s basically what’s leaning on the market today,” said Peter Cardillo, Chief Market Economist at First Standard Financial in New York. “It’s all about commodities.”

Gold and metals prices fell as the dollar strengthened.

U.S. oil prices also were also damaged after data showing a rise in U.S. stockpiles last week rekindled worries about a global glut.

Eight of the 10 major S&P sectors were lower, led by a 2.1-percent fall in the energy sector. Chevron and ConocoPhillips were among the biggest decliners. Utilities rose 0.7 percent and was the best performing sector.

The Dow Jones industrial average closed down 79.98 points, or 0.45 percent, to 17,502.59, the S&P 500 lost 13.09 points, or 0.64 percent, to 2,036.71 and the Nasdaq Composite fell 52.80 points, or 1.1 percent, to 4,768.86.

Adding to the downturn, investors were deterred by the shortened trading week ahead of the Good Friday holiday and uncertainty tied to Tuesday’s bombings in Brussels, Cardillo said.

Earnings weakness has been another concern for investors, with first-quarter S&P 500 earnings forecast to fall 6.9 percent from a year ago, according to Thomson Reuters data.

Nike shares were down 3.8 percent at $62.44 after the world’s largest footwear maker reported quarterly revenue below estimates.

Gilead Sciences was down 3.9 percent at $90.08 while Merck was up 0.09 percent. A federal jury upheld the validity of two Merck patents in a high-profile dispute over Gilead’s blockbuster cure for hepatitis C.

Gilead was the biggest drag on the S&P 500 and the Nasdaq.

Vertex Pharmaceuticals fell 7.6 percent to $80.15 after Goldman Sachs cuts its price target on the stock.

Yum Brands was up 2 percent at $80.55 after the Wall Street Journal reported that the fast-food chain’s owner was in talks with KKR about a possible sale of a 19.9-percent stake in its China business.

Volume was lighter than in recent sessions. About 6.8 billion shares changed hands on U.S. exchanges, compared with the 8.1 billion daily average for the past 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by 2,257 to 771, for a 2.93-to-1 ratio on the downside; on the Nasdaq, 2,221 issues fell and 579 advanced for a 3.84-to-1 ratio favoring decliners.

The S&P 500 posted 17 new 52-week highs and no new lows; the Nasdaq recorded 21 new highs and 40 new lows.

(Additional reporting by Abhiram Nandakumar in Bengaluru; Editing by Nick Zieminski and James Dalgleish)

IEA says OPEC, Russia oil output freeze deal may be ‘meaningless’

SINGAPORE (Reuters) – A deal among some OPEC producers and Russia to freeze production is perhaps “meaningless” as Saudi Arabia is the only country with the ability to increase output, a senior executive from the International Energy Agency (IEA) said on Wednesday.

Brent crude futures are up more than 50 percent from a 12-year low near $27 a barrel hit early this year, bouncing back after Russia and OPEC’s Saudi Arabia, Venezuela and Qatar struck an agreement last month to keep output at January levels.

Qatar has invited all 13 members of the Organization of the Petroleum Exporting Countries (OPEC) and major non-OPEC producers to Doha on April 17 for another round of talks to widen the production freeze deal.

“Amongst the group of countries (participating in the meeting) that we’re aware of, only Saudi Arabia has any ability to increase its production,” said Neil Atkinson, head of the IEA’s oil industry and markets division, at an industry event.

“So a freeze on production is perhaps rather meaningless. It’s more some kind of gesture which perhaps is aimed … to build confidence that there will be stability in oil prices.”

Libya has joined Iran in snubbing the initiative, and the absence of the two OPEC producers – both with ample room to increase output – would limit the impact of any success in broadening the freeze at the April meeting.

The rise in output from Iran in the first quarter post-sanctions has been in line with IEA’s expectation of 300,000 barrels per day (bpd), Atkinson said, adding that Tehran’s output could rise again by the same amount by the third quarter.

“Iran has not exactly been flooding the market with lots more oil. It seems to be far more measured,” Atkinson said.

It will take a while for Iran to regain its pre-sanctions share in Europe, where markets have been taken over by Saudi Arabia, Russia and Iraq, he added.

The IEA, energy watchdog for the Organisation for Economic Co-operation and Development (OECD), expects the wide gap between supply and demand to narrow later this year, paving the way for an oil price recovery in 2017.

“We think the worst is over for prices … Today’s prices may not be sustainable at exactly $40 a barrel, but in this mid-$30s and upward range, we think there will be some support unless there’s a major change in fundamentals,” Atkinson said.

(Reporting by Florence Tan; Editing by Tom Hogue)

Global stocks recover from early selloff following Brussels attacks

NEW York (Reuters) – Global equity markets were little changed, regrouping from early losses while safe-haven gold and government bonds eased from higher levels on Tuesday following attacks on the airport and a rush-hour metro train in Brussels.

Islamic State claimed responsibility for suicide bomb attacks in the Belgian capital that killed at least 30 people, with police hunting a suspect who fled the air terminal.

Travel sector stocks, including airlines and hotels, were among the hardest-hit, although equities managed to recover from sharp losses and bonds and gold eased from their early highs.

On Wall Street, the NYSEArca airline index lost 0.9 percent and was on track for its first decline in five sessions. Cruise ship operators Royal Caribbean, down 2.9 percent and Carnival Corp, down 2.1 percent, were among the worst performers on the S&P 500.

Those declines were offset by gains in Apple, up 0.8 percent to $106.72 and a 0.9 percent gain in the healthcare sector.

“The news obviously has been dominated by what has gone on in Brussels, but experience tells us not only is it the morally right thing to do to basically not overreact, it also turns out to be the most profitable thing to do,” said David Kelly, chief global strategist at JPMorgan Funds in New York.

“The objective of terrorists is to disrupt and, to the extent that they can, do horrible things but at least we have the small victory that they have not disrupted global financial markets today.”

The Dow Jones industrial average fell 41.3 points, or 0.23 percent, to 17,582.57, the S&P 500 lost 1.8 points, or 0.09 percent, to 2,049.8 and the Nasdaq Composite added 12.79 points, or 0.27 percent, to 4,821.66.

The FTSEuroFirst 300 index of leading shares closed down 0.12 percent at 1,338.20, rebounding from a 1.6 percent drop. Belgian stocks rose 0.17 percent after having been down as much as 1.4 percent. MSCI’s index of world shares edged down 0.03 percent.

In Europe, the STOXX Europe 600 Travel & Leisure index was down 1.8 percent. Shares in major European airlines like Ryanair and Air France-KLM also fell.

Volume is expected to continue to diminish ahead of the Easter holiday, and investors were beginning to think about cashing in on a steep rally in stocks over the last few weeks.

Gold was up 0.31 percent at $1,248.10 an ounce after hitting a high of $1.259.60 earlier.

Benchmark U.S. 10-year notes were last down 6/32 in price to yield 1.9403 percent after falling as low as 1.879 percent as Chicago’s Federal Reserve president struck a bullish tone on the U.S. economy.

In currency markets, the Japanese yen, regarded by investors as a shelter from turbulence, pulled back from early gains, notably against the euro. The euro was last up 0.14 percent at 126.01 yen and the dollar turned positive, up 0.3 percent at 112.27 yen.

The euro fell 0.16 percent against the dollar to $1.1221. The dollar was up 0.33 percent to 95.606 against a basket of major currencies.

Oil prices also steadied after the initial rush to safer assets, with U.S. crude settling down 0.17 percent to $41.45 a barrel while Brent rebounded from a low of $40.97 to settle up 0.6 percent at $41.79.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski and Dan Grebler)

Ride to the Bottom: U.S. energy workers hit hard by company stock bets

OKLAHOMA CITY (Reuters) – Nearly 15 years since Enron’s collapse decimated the retirement accounts of its employees, hundreds of thousands of U.S. energy workers remain precariously exposed to big, concentrated bets on company stock in their 401(k) retirement plans.

The slide in oil prices to their lowest levels in over a decade wiped out several billion dollars of retirement wealth in the energy sector in the past year. The losses may prove temporary for companies that successfully navigate the crisis, but tens of thousands of employees of struggling firms may see much of their nest eggs gone for good.

In Oklahoma and Texas, workers are delaying retirement plans, surrendering trucks, cars and land in personal bankruptcy cases, or just praying oil prices will recover.

“I just didn’t see it coming,” said John Thompson, 57, who was laid off in February from Oklahoma City-based SandRidge Energy Inc. SandRidge shares, which peaked above $65 in 2008, are now worth 10 cents apiece. “Because of this, I’m not retiring any time soon.”

SandRidge did not return messages seeking comment.

Almost without exception energy company 401(k) plans offered at least 10 different investment alternatives to company stock, their plans show.

Yet company reports and interviews with more than 20 current and former employees at independent energy firms show many employees have not taken advantage of opportunities to switch out of company shares.

Maureen Nelson, who retired from Chesapeake Energy Corp in 2013, said she lost an estimated $100,000 as she watched the company’s shares plunge in value.

Inertia and a strong faith in company leadership played a role in holding on to company stock, but so did company policies.

Many energy firms continued to match employee contributions with company stock, even as most large U.S. companies stopped the practice after the Enron debacle, according to several corporate benefits consultants.

The energy industry followed the lead of heavyweights such as Chevron Corp and Exxon Mobil Corp, which for years provided matching contributions in company stock in worker 401(k) retirement plans while also funding separate defined benefit pension plans for them.

DOUBLE IMPACT

Smaller companies could not afford to do both, but they typically matched employee contributions in stock. And energy workers often plowed some or most of their own contributions into company stock, benefits consultants said.

“It’s not prudent investing,” said Lou Harvey, chief executive of Boston-based financial research firm Dalbar Inc. “But employees tend to clamor for company stock.”

Typically, workers at larger energy companies would have 20 percent to 60 percent of 401(k) assets in company stock, according to a Reuters analysis of such holdings for more than 400,000 employees.

By contrast, the average U.S. 401(k) plan has about 7 percent of assets in company stock, according to Washington D.C.-based Investment Company Institute.

At Chevron, more than 40,000 participants in its 401(k) plan held $8.9 billion, or 47 percent of investment assets, in company stock at the end of 2014, according to the latest annual report.

Chevron stopped matching in company stock last year for better diversification, spokeswoman Melissa Ritchie said. Exxon stopped new stock contributions after 2006. Its shares still accounted for $12.9 billion of the 401(k) plan’s $22.3 billion in assets in 2014. Exxon declined comment.

When Texas-based Enron filed for bankruptcy in 2001, employees suffered a one-two punch – they lost their jobs and much of their savings because nearly two-thirds of their retirement assets were in Enron stock.

After Enron’s collapse, companies successfully lobbied Congress mostly against proposals to limit company stock ownership in 401(k) plans, fearing billions of dollars of their shares would be offloaded to meet the caps.

“Caps were a bridge too far for companies,” said Sheila Bair, former chair of the Federal Deposit Insurance Corporation and a U.S. Treasury official who worked on President George W. Bush’s 2002 task force on retirement security.

Still, publicly-traded companies have revamped their retirement plans to make them more balanced, even imposing own limits on company stock ownership, said Rob Austin, director of retirement research at Aon Hewitt.

FOLLOW THE LEADER

Diversification has yet to reach much of the energy sector, though. Oil and gas workers had more than $32 billion in company stock in their 401(k) accounts, or about 38 percent of plan assets for the 40 companies in the S&P 500 Energy Sector Index, according to 2014 annual reports filed with the U.S. Department of Labor. Since then, the index has lost 21 percent. Smaller independents have been hit about twice as hard, on average.

With about a third of his 401(k) plan in company stock, retired Chesapeake geologist Keith Rasmussen, 61, looks to sell land he owns in Oklahoma and Idaho to shore up his depleted retirement funds.

Chesapeake, once a shale boom darling, now trades 84 percent below mid-2014 levels, hurt by heavy debt and prolonged slump in natural gas prices. Nearly 8,000 participants in its 401(k) are exposed to the reversal of fortune, holding 35 percent of the plan’s $615 million in assets in company stock at the end of 2014, according to the latest annual report.

Some current and former Chesapeake employees said their decisions to hold onto stock were based partly on their reverence for Aubrey McClendon, its legendary former chief executive, who died in a car crash in early March

“You could be the biggest skeptic in the world, and you listen to him in a room for 30 minutes, and you’re ready to hand him all your money,” said Ginni Kennedy, 58, who retired from her engineering job at Chesapeake in 2013. “I had faith that he’d continue to be able to pull those rabbits out of his hat.”

Chesapeake, which declined to comment, stopped matching in company stock last year.

Many workers are now paying a heavy price for failing to heed warnings about concentration risk.

“Our bankruptcy work has quadrupled over the past six months,” said Roger Ediger, an Enid, Oklahoma lawyer who handles personal bankruptcy cases. “Most of them are energy related.”

A U.S. Supreme Court decision in 2014 underscored the risk of offering company shares in 401(k) plans. Its decision made clear that company stock was not automatically a prudent investment.

The ruling also highlighted the potential conflicts of interest for companies in their role as fiduciary of 401(k) plans.

“It was a wake-up call to companies,” said Bill Ryan, chief fiduciary officer at Evercore Trust, the largest U.S. third-party fiduciary.

At Fort Worth, Texas-based Quicksilver Resources Inc, Evercore Trust took a rare step to block further employee investment in the company’s 401(k) plan in October 2014, as fiduciary for the stock plan. The move preserved some value, but not much, given that by the time the stock fund was liquidated company shares have already fallen to about 50 cents from about $3.50 in 2014. Equity investors lost virtually everything five months later when Quicksilver filed for bankruptcy protection.

Bair, now a college president, said companies with heavy stock concentrations in their 401(k)s should follow peers that have caps in place to protect workers and avoid government mandates.

“If we have another failure like Enron, government regulation may be coming.”

(Reporting By Tim McLaughlin and Luc Cohen; Editing by Tomasz Janowski)

Japan manufacturing activity contracts in March, a worrying sign for economy

TOKYO (Reuters) – Japan’s manufacturing activity contracted in March for the first time in almost a year as new export orders shrank sharply, a preliminary business survey showed on Tuesday, in a worrying sign that the global economy is weakening.

The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 49.1 in March on a seasonally adjusted basis from a final 50.1 in February.

It fell below the 50 threshold that separates contraction from expansion for the first time since April last year.

The sub-index for new export orders fell to a preliminary 45.9 from 49.0 in February, which would indicate the sharpest contraction since January 2013 if confirmed by the final report.

Japan’s exports fell for a fifth straight month in February, separate data from the finance ministry showed last week.

Some economists say Japan’s exports could remain weak for some time as a slowdown in China and other emerging markets weighs on demand for Japanese machinery and electronics.

Japan’s economy, the world’s third-largest, shrank in the final quarter of 2015 as slow wage growth and sluggish global demand hurt consumption and exports.

While many analysts expect growth to have rebounded modestly in the current quarter, concern about global demand has led some to predict another contraction that will push Japan back into recession – defined as two straight quarters of economic contraction.

The Bank of Japan stunned global markets in January by adding negative interest rates to its massive asset-buying program as it struggles to reflate the long-moribund economy.

(Reporting by Stanley White; Editing by Kim Coghill)

Italy’s bank troubles test European Central Bank’s mettle

MILAN (Reuters) – The European Central Bank is trying to strongarm Italian banks into cleaning up their balance sheets, a year and a half after they fared the worst of all euro zone lenders in its first stress tests as overarching supervisor.

The banks have made scant progress on requested reforms, threatening to undermine a fragile recovery in the bloc’s third largest economy. They argue the ECB’s demands are unrealistic and delay the very consolidation the sector needs.

The standoff poses one of the biggest challenges to Europe’s central bank since it became the euro zone single banking regulator in November 2014. After Greek banks, Italian ones are now taking up most of its time.

Banks like Carige and Monte dei Paschi di Siena have their liquidity monitored daily and the ECB, working in teams with Italy’s central bank, is firing off missives telling lenders to raise capital, find a buyer and sell off bad loans.

“They phone, they e-mail and they come down to see us,” said a source at one Italian bank, who declined to be named due to the sensitivity of the issue.

“They are a constant presence. For one reason or the other there is always an inspection – I’d say they are here two months out of three.”

Letters to Veneto Banca and Banca Popolare di Vicenza, which must raise a combined 2.75 billion euros in cash and list on the market to meet ECB demands, threaten all the measures allowed by the EU banking resolution directive — including the last resort of the ECB removing top executives and taking over management.

A crucial test of the strategy is a much-anticipated merger between Banca Popolare di Milano and Banco Popolare that would be Italy’s first tie-up since the ECB took on supervision.

RENZI WEIGHS IN

The boards of BPM and Banco Popolare are meeting this week and sources close to the matter say Banco Popolare is considering a cash call of up to 1 billion euros as part of measures sought by the ECB to clear the merger.

Any deal would still need the blessing of both banks’ shareholders, including powerful unions who fear a tie-up will lead to job cuts.

Bankers close to the talks say the ECB’s conditions for approving the combination have been so stringent that after months of negotiations, the two banks considered abandoning the deal, which would create Italy’s third biggest bank.

“If this merger falls through, the ECB will have to take responsibility for this,” said a frustrated adviser for one of the banks. “It’s like the doctor killing the patient.”

Danielle Nouy, the ECB’s bank supervisory chief, said on Tuesday the merged bank had to be strong from the start.

“We are working very hard with our Italian colleagues to make sure that we put the adequate requirements, no more than is needed but no less, either,” she told the European parliament.

The ECB is demanding a leaner structure and a business plan for the new group within a month: the original deal outline included a 19-member board, two headquarters, no cash call and Popolare di Milano keeping its autonomy and a separate board for six years.

Prime Minister Matteo Renzi — who last year rammed through a decree intended to encourage banking mergers — weighed in on Friday to put pressure on the lenders to reach an agreement.

A sell-off in Italian banking stocks – some have lost more than half their value so far this year – and a flight of deposits from banks seen as more vulnerable, means the government feels time is running out.

“2016 is the year when Italy must sort out its banking problems once and for all,” Renzi said.

ECB’S CREDIBILITY DRIVE

Analysts say the ECB, which is headed by former Bank of Italy chief Mario Draghi, wants to establish itself as a credible institution, ensuring Europe’s banking industry is on a sound footing and taking laggards to task.

“The regulator is being extra cautious and particularly severe and active when it comes to Italy but the situation warrants it,” said Andrea Resti, an adviser to the European Parliament on banking supervision.

After a three-year recession, Italy’s banks are saddled with 360 billion euros ($405 billion) of bad loans – one third of the European total and equivalent to one fifth of Italy’s output.

Banks are reluctant to sell soured debts quickly, fearing that would blow a hole in their accounts and force them to raise cash in rough markets.

One reason for the sector’s fragility is the fragmented financial industry with 650 banks, most of which are tiny lenders with patronage ties to local communities. “It’s not that banks in other countries don’t have problems, but in Italy it’s more widespread, because you have lots of small banks that do not have the shock absorption capacity you find in bigger banks,” said Nicolas Veron, a financial services expert at think-tank Bruegel in Brussels. “A third of the banks that failed the ECB tests were Italian, but since then not much has happened.”

BAD MEMORIES

The unresolved problems of Italy’s banking sector also serve as a reminder of the scars left by the euro zone debt crisis.

The banks’ large holdings of government bonds plummeted in value as the cost of servicing Italy’s debt, the world’s fourth largest, soared at the height of the crisis.

Rome said then it did not need a Spanish-style, EU-funded bailout for its banks, but only the ECB’s pledge to save the euro and its cheap long-term loans halted the vicious circle of sovereign risks sinking the country’s lenders.

Now the government’s hands are tied, because under tougher European rules that came into force this year any rescue of weaker banks would wipe out shareholders and impose losses on creditors and perhaps even large depositors.

Italians got a bitter foretaste of the new regime when the government salvaged four tiny banks in November and 12,000 retail bond holders lost their savings.

Bankers under the microscope say ECB supervisors have uneasy relations with the Bank of Italy, which also declined to comment for this article.

“There is an atmosphere of mistrust and they think Italian banks have been let off the hook for too long by the national regulator,” said a senior investment banker involved in the merger negotiations between the two cooperative banks.

“The ECB is really giving us a hard time.”

(additional reporting by Paola Arosio in Milan, Stefano Bernabei in Rome and Francesco Canepa in Frankfurt; editing by Philippa Fletcher)

Brazil seeks to limit spending, aid states as recession bites

SAO PAULO/BRASILIA (Reuters) – The administration of Brazilian President Dilma Rousseff, facing the threat of impeachment, presented plans on Monday to limit government spending and stave off a debt crisis among states and cities hit by the worst recession in decades.

Under the first proposal, which Finance Minister Nelson Barbosa announced at a news conference in Brasilia, the federal government would limit increases in recurring expenses and slow constitutionally mandated spending during times of hardship. The plan has to be sent to Congress for approval.

Barbosa also announced a program to help debt-laden states and municipalities that could cost taxpayers about $12.6 billion for the next three years. The plan includes refinancing with state development bank BNDES and extending debt maturities for regional governments by 20 years.

A third plan would create a new mechanism for the central bank to mop up or inject more money into the economy without the use of repurchase agreements. Under the plan, Barbosa said, commercial banks would be allowed to make interest-bearing deposits at the central bank, in practice eliminating the need to use government bonds to administer liquidity.

“We are in urgent need of some flexibility to pull the economy out of this recession, create jobs,” Barbosa said. The government’s ability to pull Brazil from recession has been severely hampered by years of erratic policy decisions and a corruption probe into Rousseff’s administration.

Some economists cast doubts on the feasibility of the plans, especially as Rousseff risks being ousted for allegedly using the budget to bolster her re-election chances in 2014. Congress is focused on impeachment proceedings, which the lower house opened last week, and may refrain from voting on any piece of economic legislation until Rousseff’s fate is decided.

For years, Rousseff, who was the country’s top cabinet minister from 2005 to 2010, opposed the budget spending growth limits, which she saw as an attempt by the opposition to curtail plans by her ruling Workers’ Party for massive social and infrastructure plans. As former President Luiz Inácio Lula da Silva’s chief of staff, she vetoed an attempt to implement the limit over 10 years ago.

“The spending limit bill must have been drafted and voted years ago, not now … It’s too late,” said Alexandre Schwartsman, a former central bank board member who now runs his own economic consultancy firm in São Paulo. “It’s hard to tell whether any of these proposals will be voted (on) at this point.”

The country’s budget deficit has mushroomed since Rousseff took office as president in 2011. The overall deficit rose to 10.3 percent of GDP in 2015, nearly five times the shortfall in her first months in office.

(Editing by Chris Reese and Cynthia Osterman)

Global stocks dip, dollar strengthens on Federal Reserve talk

NEW YORK (Reuters) – Global equity markets edged lower on Monday as the dollar strengthened and U.S. Treasury yields rose on hawkish commentary from several Federal Reserve officials.

Richmond Fed President Jeffrey Lacker said U.S. inflation is likely to accelerate in the coming years and move toward the Federal Reserve’s 2 percent target, while San Francisco Fed President John Williams told Market News International he would advocate for another interest rate hike as early as the April meeting.

In addition, Atlanta Fed President Dennis Lockhart said the Fed may be in line for a rate hike as soon as April, as last week’s decision to hold rates steady was more about ensuring that recent global financial volatility had settled down.

“He (Lockhart) reiterated that every meeting is a ‘live’ meeting going forward and I think that overall somewhat hawkish tone to his comments is largely what’s helping support the dollar this afternoon,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

The dollar rose 0.29 percent to 95.357 against a basket of major currencies. The greenback had fallen in the three prior weeks for a decline of 3.1 percent.

The currency fell last week when Fed policymakers revised down the number of times they expect to raise interest rates this year to two from four.

Benchmark 10-year notes were last down 13/32 in price to yield 1.9173 percent, from 1.87 percent on Friday.

The stronger dollar weighed on European equities, with the pan-European FTSEurofirst stock index closing down 0.25 percent to start a week shortened by the Easter break.

U.S. stocks were little changed as investors looked for fresh catalysts after a five-week rally that pushed the benchmark S&P 500 into positive territory for the year.

The Dow Jones industrial average rose 21.77 points, or 0.12 percent, to 17,624.07, the S&P 500 gained 2.02 points, or 0.1 percent, to 2,051.6 and the Nasdaq Composite added 13.23 points, or 0.28 percent, to 4,808.87.

MSCI’s index of world shares shed 0.14 percent.

Crude oil prices rose, as Brent settled up 0.8 percent at $41.54 and WTI settled up 1.19 percent at $39.91 a barrel, as data showed a drawdown at the Cushing, Oklahoma delivery hub for U.S. crude. Gains were curbed, however, by concerns U.S. oil drillers could ramp up output after a two-month rally in crude.

Gold fell 0.91 percent to $1,243.60 an ounce as the dollar advanced, its third straight decline, but the metal was underpinned by expectations the ultra-low interest rate environment would persist on a global level.

Copper climbed 0.12 percent to $5,048 a tonne on expectations of stronger demand in top consumer China after a jump in imports of refined copper by the world’s second-largest economy.

Sterling fell 0.73 percent to $1.4373 as worries mounted over Prime Minister David Cameron’s ability to keep his Conservative party together and keep Britain in the European Union after Iain Duncan Smith, a leading voice for the UK to exit the EU, resigned from the cabinet late on Friday.

The euro slipped 0.24 percent to trade at $1.124.

(Additional reporting by Dion Rabouin; Editing by Dan Grebler and Bernadette Baum)