Crude Oil Falls on Euro Zone Worries, Dollar

Brent crude oil fell more than $1 to below $108 per barrel on Tuesday, on worries over the health of Europe's economy as its top financial watchdog said the euro zone's sovereign debt crisis threatened global economic stability.

European Central Bank President Jean-Claude Trichet issued the dramatic warning amid growing fears that Greece would default on its massive sovereign debt .

European shares fell and the dollar rose on Tuesday, with investors increasingly edgy ahead of a vote by Slovakia's parliament to ratify an expansion of the euro zone's rescue fund.

Brent futures for November delivery [LCOCV1  110.22    1.27  (+1.17%)   ] fell $1.50 to a low of $107.45 before recovering to trade around $109.33.

U.S. November crude oil futures [CLCV1  85.15    -0.26  (-0.3%)   ] dipped to a low of $83.97, down $1.44 before climbing back up to around $85.19. Both contracts jumped nearly 3 percent on Monday.

Financial markets are deeply skeptical over the chances of success of a financial package to be put together by France and Germany to stem the euro zone debt crisis, help Greece and recapitalize European banks.

"The last few days have seen a relief rally on hopes that policymakers would do something radical to sort out the euro zone debt mess," said Standard Bank oil analyst James Zhang. "But optimism is fading and there is a feeling that the problem may not be properly addressed and profit-taking has kicked in."

Investors remain cautious due to the lack of detail about the Franco-German plan and worry it could be derailed by political deadlock in Slovakia, the one euro country that has yet to approve the European Financial Stability Facility (EFSF) expansion.

The global economic outlook is sending increasingly gloomy messages to the oil market, encouraging economists to trim their expectations for future oil use.

OPEC Cuts Demand Growth Forecast

The Organization of the Petroleum Exporting Countries (OPEC), which pumps a third of the world's oil, cut its global oil demand growth forecast for a fourth consecutive month on Tuesday, citing the downturn in developed countries and efforts by China and India to curb fuel use.

"The economic downturn is taking its toll on the world oil demand," OPEC said in its monthly oil market report. "The decelerating U.S. economy, high unemployment rate and feelings of uncertainty among consumers, has damped U.S. oil demand. Similarly, debt problems in the euro zone are causing EU economies to lose some of their estimated growth this year."

OPEC cut its forecast of global oil demand growth this year by 180,000 barrels per day to just 880,000 barrels per day. Next year it sees oil demand growing slightly faster — by 1.19 million barrels per day, down 70,000 barrels per day from its previous estimate in September.

Traders were closely watching oil exports from Kuwait, one of OPEC's top five producers, after a strike by customs workers shut ports and halted vessel traffic on Monday.

A spokesman for the country's oil sector said on Tuesday exports of crude and oil products were moving normally from Kuwaiti ports, but it was not clear whether there would be any further disruption of cargo movements.

Kuwait accounted for about 7.7 percent of OPEC's overall crude output in 2010, Reuters data showed.

Investors were also keeping an eye on oil inventories in the U.S. for demand cues in the world's largest consumer. U.S. commercial crude stockpiles probably rose last week as imports rebounded and refinery runs fell, a preliminary Reuters poll of analysts found on Monday.

Refinery capacity utilization was forecast to have slipped for a third week, with analysts expecting runs to have fallen by 0.85 percentage point last week.

The decline is expected to come as some plants take units offline for maintenance between the end of the summer driving season and the rise in winter demand for heating oil.

cnbc.com

Obama Jobs Council Makes Urgent Plea for Changes

Decrying the human toll of the nation's economic and financial crisis, a group of corporate and labor leaders advising President Barack Obama is calling for sweeping and urgent changes in government policies, from liberalized immigration and less restrictive regulations to a more business friendly tax system and greater spending on infrastructure.

CNBC U.S. President Barack Obama

In tackling the nation's economic crisis and its stubborn 9.1 percent unemployment rate, the president's Council on Jobs and Competitiveness is putting the names of some of the country's top corporate CEOs, as well as the head of the AFL-CIO behind, proposed initiatives and policy overhauls sure to please and irritate Democratic and Republican partisans alike.

The council, headed by GE Chairman and CEO Jeffrey Immelt, will release its 50-page report Tuesday during a meeting with Obama in Pittsburgh. The Associated Press obtained a copy of the report Monday night.

Topping the council's list is a plea for improvements in the nation's network of roads and bridges, for airport upgrades and modernized ports, and for updated electric grids, water, and wastewater systems.

"If Washington can agree on anything, it should be this — and it should be now," the report states.

Others on the 27-member council include AFL-CIO President Richard Trumka, AOL co-founder Steve Case, and Facebook Chief Operating Officer Sheryl Sandberg.

The report notes that 1 million construction workers are unemployed and points to the declining state of U.S. infrastructure. It also says that China now has six of the world's top 10 seaports and that the U.S. can't claim a single one of the other four.

It calls on Congress to reauthorize surface transportation legislation instead of simply approving temporary extensions. It proposes additional ways of leveraging private sector investment in public works projects, including a national infrastructure bank that would be seeded with public money to attract private money — a proposal that has bipartisan support.

To speed up projects, the council has recommended a streamlined approval process that prevents delays over environmental reviews or other permits.

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As a start, the Obama administration on Monday announced 14 major public works projects across the country that will receive accelerated environmental and permit reviews. The projects include replacing the Tappan Zee Bridge over the Hudson River in New York to a wind generation project in California's San Bernardino National Forest.

In the midst of an uphill fight with Congress to win approval of his $447 billion jobs bill, Obama is eager to use means that don't require congressional approval to demonstrate action against the weak economy and an unemployment rate that has not budged in three months. The new review process incorporates the council's recommendations, but it's also a nod to Republicans and the construction industry — both have long complained about government bureaucratic delays and regulatory red tape.

Last June, Obama conceded that even public works projects financed by his 2009 economic stimulus faced permitting delays. "Shovel ready was not as shovel ready as we expected," he said.

The administration's goal is to complete federal review of those 14 projects within 18 months.

The projects listed by the administration include a highway connector in Provo, Utah; a 14-mile rail transit line in and around Baltimore; an Interstate 95 bridge over the Merrimack River in Massachusetts; a light rail project extension near Los Angeles International Airport; and a series of pending oil and gas applications for wells and pipelines in the Dakota Prairie and Little Missouri National Grasslands in North and South Dakota.

While in Pittsburgh, Obama will tour an International Brotherhood of Electrical Workers training center and continue his push for his jobs bill. The Senate has scheduled a vote Tuesday on whether to take up the legislation.

Later, Obama will travel to Orlando, Fla., where he will attend to fundraising events for his presidential campaign and for the Democratic National Committee.

The jobs council's report, which will be the centerpiece of the president's meeting with council members, also calls for eased immigration rules for high-skilled foreigners, including automatic work permits or provisional visas to all foreign students after they earn science, technology, engineering or math degrees from U.S. colleges or universities.

"We are sympathetic to the political sensitivities around the topic of immigration reform," the council report states. "But when it comes to driving job creation and increasing American competitiveness, separating the highly skilled worker component is critical. We therefore call upon Congress to pass reforms aimed directly at allowing the most promising foreign-born entrepreneurs to remain in or relocate to the United States." 

cnbc.com

Indonesian Central Bank Makes Surprise Rate Cut

Indonesia's central bank unexpectedly cut its benchmark policy rate on Tuesday, the first such move by a G20 economy after Brazil, as it seeks to stimulate domestic demand as global growth slows.

Getty Images

Bank Indonesia cut the rate by 25 basis points (bps) to a record-low 6.50 percent, saying it expected a weaker global economy to weigh on demand for the country's exports next year.

Just a month ago, many analysts still expected Bank Indonesia to raise rates once more this year to curb inflation, but recent turmoil in global financial markets had led some to forecast a 25 bps rate cut in November or December to boost growth.

In a Reuters poll, all 11 analysts had forecast that BI would leave the rate unchanged at 6.75 percent on Tuesday, though three of the 11 forecast a cut to 6.50 percent by year-end.

In September, annual inflation slowed to 4.61 percent due to easing food prices, and a central bank official told Reuters in an interview last week that inflation would be below 4.9 percent by the end of the year, within BI's target of 4 to 6 percent.

The central bank has shifted its policy focus from fighting inflation to stimulating growth.

It last raised the policy rate in February to address inflation worries, and recently said it was ready to cut rates to boost growth that is now seen at 6.5 percent next year, lower than a previous estimate of 6.7 percent.

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"We are bringing the policy rate to a level that is more reasonable," Governor Darmin Nasution told reporters. "We saw the 6.75 percent rate as too high, unless we estimated inflation next year to be very high."

As global funds saw Europe's debt crisis intensify, they pulled money out of riskier emerging market assets such as Indonesian stocks and bonds.

In early September, foreigners owned 251.23 trillion rupiah ($28.3 billion) in bonds, or 35.7 percent of the total. Between then and Oct. 5, they sold 37.13 trillion rupiah worth, reducing their ownership to 30.7 percent.

"The decision to cut the benchmark rate confirms the central bank's view of a slowdown and that they may feel that the external shocks to the economy are more than previously expected," said David Sumual, economist at BCA in Jakarta.

The rupiah [IDR=  8905.00    20.00  (+0.23%)   ]has slid 5 percent since the end of August amid global market turmoil, though BI has heavily intervened in the foreign currency market to cushion its fall, causing the country's forex reserves to fall to $114.5 billion as of Sept. 30 from $124.6 billion a month earlier.

BI issued a regulation this month requiring local exporters and firms to bring home offshore earnings and debt proceeds starting next year, estimating this could add $30 billion to the local financial system, reducing dependency on dollars from short-term inflows.

Indonesia's economy is expected to post solid 6.6 percent growth this year as exports remain strong despite the global slowdown. It grew by 6.5 percent in the first half on buoyant household consumption and investment.

Economists say Indonesia is in better shape to face a global crisis than in 2008 and will likely expand above 6 percent next year even with an international slowdown.

cnbc.com

US to Unveil Criteria for Picking ‘Systemic’ Firms

U.S. regulators on Tuesday are set to give nervous insurance companies, mutual funds and other big players in financial markets a better idea of whether they will be tapped for the same type of additional government scrutiny facing large U.S. banks.

AP Former U.S. Federal Reserve Chairman Paul Volcker

None of these industries are eager to be on the receiving end of the added attention that comes with being named "systemic" and have spent the past year lobbying to be ignored.

The concern is that new scrutiny will mean new restrictions that could hit firms' bottom lines.

On Tuesday, the Financial Stability Oversight Council is scheduled to release a new proposal on how it will determine which non-bank firms are important enough to the financial system that they merit greater oversight by the Federal Reserve .

Also on Tuesday, banking regulators are scheduled to vote on a proposal banning most proprietary trading done by banks, known as the Volcker rule.

Both rules are highly anticipated parts of the 2010 Dodd-Frank financial oversight law.

Companies that are tapped for greater Fed supervision will be designated systemically important financial institutions (SIFIs), and will be subject to new capital and liquidity rules.

They will also be required to draft detailed plans on how they could be broken up if the company falters and is seized by the government.

The SIFI rule is in large part a response to the market havoc caused during the 2007-2009 financial crisis by American International Group [AIG  22.60    0.41  (+1.85%)   ], an insurer not overseen by banking regulators.

Bank holding companies with more than $50 billion in assets, such as Goldman Sachs [GS  98.11    1.97  (+2.05%)   ] and JPMorgan Chase [JPM  32.34    0.04  (+0.12%)   ], are automatically subject to the added scrutiny.

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For months insurance, hedge fund , and mutual fund lobbying groups have been working to convince regulators thattheir industries do not hold the potential to wreak havoc on financial markets.

The Managed Funds Association, for instance, said in a letter to regulators in February that "it is highly unlikely that any hedge fund is systemically significant at this time."

It is unclear when FSOC will get around to naming SIFIs, but it is not expected before next year.

Volcker Rule

In another area of critical importance to major financial players, the board of the Federal Deposit Insurance Corp will officially release on Tuesday a proposed version of the Volcker rule.

The rule aims to prevent banks from recklessly engaging in risky trades by prohibiting them from trading for their own profit in securities, derivatives and certain other financial instruments.

The law contains some exemptions to the ban for trades done to make markets for customers and for those used to hedge against certain risks.

How these exemptions are crafted will have a major impact on large banks such as Goldman and Morgan Stanley [MS  15.60    0.31  (+2.03%)   ].

A draft of the proposed Volcker rule leaked last week and it received a mixed reaction from industry groups.

The Securities Industry and Financial Markets Association, for instance, raised concerns about whether the exemption for trades intended to make markets for customers is too narrow.

cnbc.com

Global Debt Crisis to Help Dollar, But Nothing Else: Faber

Suffocating global debt problems and overreaching intervention programs will be good for the U.S. dollar but bad for asset prices otherwise, investment guru Marc Faber said.

Axel Griesch | ASFM | Getty Images Dr. Marc Faber

The uneasy time for financial markets will lead to an extended period of high volatility—both up and down—for the markets as economies grow slowly, the author of the Gloom Boom and Doom report said in a CNBC interview.

His dollar call is based on the notion that investors will turn to the safety of the U.S. currency even as governments try to inject liquidity into the market to save the ailing financial system.

"Despite the fact that the (European Central Bank) and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening," Faber said. "Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008."

The dollar has been on the rise recently against global currencies, gaining more than 5 percent since late August. The U.S. currency has posted a nearly 7 percent gain against the euro during the same period as policy makers have struggled to come up with a solution to the Greek debt crisis.

However, a strong dollar for several years has been poison for risk assets, particularly a stock market that has come to depend on a weak currency to boost exports as domestic consumption has lagged.

For Faber, government meddling in the free markets is one of the primary reasons why growth will lag and recession looms.

"We've had far too many interventions in the Western world where the share of total economy that goes to government and is government-sponsored has grown," he said. "That essentially makes it very difficult for the Western world to grow sustainably...I don't see how the Western world including the U.S., Japan and Western Europe can grow. They're going to stagnate."

Faber suggested that Occupy Wall Street protesters "go to Washington and occupy the Federal Reserve along the way."

"We have expansionary fiscal policies, we have expansionary monetary policies but we have restrictive regulatory policies and it curtails any initiative by the small businessman and the large businessman," he said. "He doesn't employ and invest capital in the U.S. He does that in China or somewhere else in the world where the regulatory environment is more favorable."

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