More U.S., EU sanctions depend on Putin's choices on Ukraine-Kerry

Russian President Vladimir Putin's response to a peace plan for Ukraine will decide whether the United States and Europe step up sanctions, U.S. Secretary of State John Kerry said on Wednesday.

The United States was delighted that Putin had asked the upper chamber of Russia's parliament to retract a law enabling him to intervene militarily in Ukraine, Kerry said, "but it could be reversed in 10 minutes."

Putin should prove his commitment to peace in Ukraine, Kerry told a news conference after NATO foreign ministers met.

"Until Russia fully makes that kind of commitment to the peace process and to the stability of Ukraine, the United States and Europe are compelled to continue to prepare greater costs, including tough economic sanctions, with the hopes that they will not have to be used."

"But that is dependent on the choices that Russia and its president make in the next days and weeks," he said.

EU leaders are due to meet in Brussels on Friday and could consider more economic sanctions against Russia if it fails to support Ukrainian President Petro Poroshenko's peace plan.

A senior Obama administration official said last Friday that the United States had stepped up talks with the European Union about imposing additional sectoral sanctions on Russia because of the flows of Russian military equipment to Ukraine.

The official, speaking on condition of anonymity, said the sanctions would be targeted primarily at the financial, defence and high technology sectors.

Kerry said the United States and its allies were preparing sanctions in case the peace effort in Ukraine failed.

"We believe it is critical for President Putin ... to stop the flow of weapons and fighters across the border, to call publicly for the separatists to lay down their arms, to pull Russian forces and equipment back and to help get OSCE hostages released," he said, referring to Organisation for Security and Cooperation in Europe monitors held in Ukraine.


HELICOPTER

Many Russian-speakers in Ukraine have been alienated by a wave of Ukrainian nationalism since Moscow-backed president Viktor Yanukovich was toppled in February.

Moscow denies Western accusations that it has allowed fighters to cross into Ukraine along with heavy weapons to confront government forces.

Kerry said a Ukrainian helicopter that crashed on Tuesday, killing nine people, was shot down with a Russian shoulder-launched missile.

German Foreign Minister Frank-Walter Steinmeier urged Russia to take a clear position on the shooting down of the helicopter.

"There must also be an announcement of detailed steps toward a cooperation with Ukraine or possibly the OSCE," he said.

"If economic sanctions become necessary, we are prepared."

British Foreign Secretary William Hague warned that the case for tougher EU sanctions on Moscow would strengthen unless Russia acted to defuse violence in eastern Ukraine and to support Poroshenko's peace plan.

The ministers agreed to prolong a suspension of practical cooperation with Russia that NATO announced in April in protest at Russia's annexation of Ukraine's Crimea region.

Russia continued to be in breach of its international commitments, including a 1997 agreement with NATO, because of its actions in Ukraine, a NATO official said.

Canadian Foreign Minister John Baird said what was needed from Moscow was "less talk and more tangible action."

"The reality of their covert efforts on the ground are indisputable ... It will not be business as usual as long as they continue to take that course of action," he told Reuters.

NATO ministers endorsed measures to help Ukraine including setting up new trust funds, worth around 12 million euros ($16.4 million), to improve Ukrainian military capabilities in logistics, cyber security and command and control.

Source: Reuters

Germany and Italy align on EU policy, Britain set for showdown

 Britain's slender hopes of securing Italian support in its campaign to stop Jean-Claude Juncker becoming European Commission president crumbled on Wednesday when Germany offered Rome a gentler interpretation of EU budget rules.

Chancellor Angela Merkel acknowledged that a European Union pact that sets limits on government deficits should be applied flexibly to promote economic growth. This gesture to the wishes of Italian Prime Minister Matteo Renzi all but ensures he will back Juncker's nomination at a summit on Friday.

"The German government agrees that the Stability and Growth Pact offers excellent conditions for (promoting growth and competitiveness), with clear guard rails and limits on the one hand and a lot of instruments allowing flexibility on the other," Merkel told Germany's lower house of parliament.

"We must use both just as they have been used in the past."

The EU summit starts on Thursday with a solemn commemoration in Ypres, Belgium, of the outbreak of World War One a century ago in which millions of Europeans died. That will be followed by a working dinner on the EU's long-term policy agenda before the contentious decision on the Commission presidency on Friday.

The tilt in economic policy and the likely appointment of 59-year-old Juncker highlight a new political balance in Europe that is set to shape the EU's institutions for the next five years, with the risk of Britain drifting away.

Juncker, who was prime minister of Luxembourg for 19 years, has been at the heart of EU decision-making since the early 1990s. But British Prime Minister David Cameron has waged a campaign against Juncker, casting him as an old-school federalist who does not have the skill or energy to breathe new life into the EU.

Cameron renewed his promise in parliament to fight to the end but seems certain to be overwhelmingly defeated in an unprecedented summit vote he has demanded.

The leaders of Sweden and the Netherlands, who initially shared Cameron's reservations, both announced they would not block Juncker and a senior German official forecast "a very large, dominant majority" in favour of the appointment.

The tentative convergence between Italy and Germany points the way towards a German-style "grand coalition" of the centre-left and centre-right at European level, with Renzi, the young reformer, in the frontline with the conservative Merkel.

Renzi, whose centre-left party won a resounding victory in European elections last month, boosting his profile on the EU stage, has made budget flexibility a central issue as he searches for ways to kickstart his flaccid economy.

Sandro Gozi, Italy's undersecretary for EU affairs, accepted there was no question of altering the 2005 stability pact, just a need to apply it more flexibly to favour investment spending and allow countries implementing growth-enhancing reforms extra time to meet deficit and debt targets.

"No one is asking to revise the pact but to use the rules to their maximum," he told la Repubblica newspaper.

In a warning shot to placate German fiscal hawks, Merkel's parliamentary group said Renzi wanted to deviate from the path of stability but Berlin would not allow any "dirty tricks" that put Europe on a "comfortable but fatal debt track".

Italy takes over the EU's rotating presidency for six months in July, determined to re-energise the union and change the way it works. In a speech to parliament on Tuesday, Renzi, 39, said he was fed up with the EU acting like a "nagging old aunt".


MOMENT OF TRUTH

Cameron has also objected to the principle of EU leaders' letting the European Parliament effectively determine the choice, since Juncker was the leading candidate of the centre-right group that topped the poll in the European elections.
British Europe Minister David Lidington said choosing the Commission president from among those leading candidates risked making the EU executive a "creature of the European Parliament".

But Juncker has firm backing from Merkel and most other EU leaders. Conservative Swedish Prime Minister Fredrik Reinfeldt said on Wednesday he was ready to support Juncker if a majority of leaders backed him, and Dutch Prime Minister Mark Rutte told parliament he would not block him if it came to a vote, leaving the British leader virtually isolated.

Herman Van Rompuy, president of the European Council and chairman of EU summits, is determined to secure Juncker's nomination before the meeting ends on Friday, even if it means a vote that leaves Britain isolated and defeated. 
Normally EU leaders take decisions by consensus but a showdown looks increasingly likely because Cameron is holding firm and demanding a vote. An EU ambassador said Cameron would probably lose it by 26 votes to 2, with only Hungarian Prime Minister Viktor Orban joining him in opposition.

It would be the second time Britain has been left on the margins on a critical EU issue in the past three years, having been one of only two countries to veto new budget rules for the euro zone at the end of 2011.

The confrontation has badly damaged Britain's reputation after 41 years as a member of the union, a senior minister in Cameron's coalition said on Wednesday, but it has gone down well so far with British voters.

A poll conducted by Populus for the Financial Times found 49 percent of people thought Cameron was taking a strong stand, with only 22 percent perceiving him as weak.
Yet while his stand may go down well at home in the short run, it could increase the likelihood of Britain eventually leaving the EU, which Cameron has said he wants to prevent.

If he is re-elected next year, Cameron has promised voters an in/out referendum on membership by the end of 2017 after he tries to renegotiate Britain's relationship with the EU. Some polls show more Britons now leaning towards "Brexit".

EU officials and diplomats are working on ways to prevent Britain being left out in the cold. One official said if Cameron dropped his demand for a vote, Britain could be given the top economic job in the Commission, or a similarly powerful post.

But there is no sign Cameron will accept such an inducement. A British official close to him said this week the prime minister would not be "bought off" by EU leaders. "Some principles are worth fighting for," the official said.

Merkel and Rutte both called Cameron on Wednesday to discuss the appointment, but a spokeswoman for the British leader said he had told them he would not drop his opposition to the process of the parliament choosing a preferred candidate.

"Chancellor Merkel and Prime Minister Rutte recognised the prime minister's position and agreed that if the European Council decides not to proceed by consensus then there should be a vote," the spokeswoman said.

"Both leaders also underlined their support for Britain’s continued membership of a reformed European Union and their ongoing commitment to working with the prime minister as he renegotiates Britain’s relationship with the EU."

If as expected Juncker is nominated by EU leaders, he will have to be approved by a majority in the European Parliament in a vote set for July 16.

Tentative plans are being made for EU leaders to meet again on the same day to discuss the other top jobs that have to be filled, including a successor for Van Rompuy, an EU foreign affairs chief, a economics czar and the rest of the 28-member Commission, the EU's executive.

That would bring Cameron back face-to-face with his fellow EU leaders barely two weeks after an uncomfortable showdown.

Source: Reuters

Asian shares gain as global bond yields decline

June 26 (Reuters) - Asian shares swung higher on Thursday as weak U.S. growth seemed to further delay the day when interest rates might rise, pulling down bond yields globally and pushing investors toward riskier assets in a desperate search for returns.

A shockingly poor reading on the U.S. economy for the first quarter also pressured the dollar while giving a lift to most commodities and resource-related currencies.

Still, the prospect that Federal Reserve would keep rates low for longer encouraged equity investors. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> added 0.3 percent. Japan's Nikkei <.N225> gained 0.4 percent and South Korea <.KS11> 0.5 percent.

On Wall Street, the Dow <.DJI> bounced 0.29 percent, the S&P 500 <.SPX> 0.49 percent and the Nasdaq <.IXIC> 0.68 percent.

Markets managed to put a positive spin on data showing the U.S. economy shrank at an annualised 2.9 percent pace in the first quarter, far below already-pessimistic estimates. Analysts emphasised the weakness was mainly due to one-off factors and a marked rebound was likely this quarter.

Yet the result was so poor that it soured the outlook for the entire year, such that the Fed's recently lowered forecast of 2.2 percent growth for 2014 now seems highly optimistic.

That only added to market expectations the Fed would keep rates near zero well into next year and led investors to push out ever further on the yield curve in search of returns.

This trend nudged yields on 10-year Treasuries down to 2.56 percent and away from the June peak of 2.66 percent.

The hunt for yield was even more acute in Europe, where the European Central Bank recently started charging banks for taking their cash deposits.

The tide of money pushed yields on German 10-year debt to a one-year trough of 1.26 percent . That in turn widened the spread against U.S. paper out to 130 basis points, giving Treasuries the biggest premium in at least two decades.

That yield advantage could provide the U.S. dollar some support over time, but for now the sticker shock from the GDP numbers kept the currency under pressure.

The dollar index <.DXY> fell as far as 80.091, a low not seen since May 22, while the euro bounced to $1.3627 .

Sterling climbed to $1.6984 from a one-week low of $1.6952, while the Australian dollar popped back above 94 U.S. cents from $0.9354.

The lower dollar helped gold up to $1,318.75 an ounce, from a low of $1,310.36 on Wednesday.

In oil markets, U.S. crude was firmer after news of a government decision to permit exports of lightly refined oil promised to open a new source of demand for the product.
U.S. crude added 18 cents to $106.68 a barrel, while Brent gained 20 cents to $114.20. 

Southeast Asia fears grow. At least 30 Malaysians and 56 Indonesians are estimated by security officials to have gone to fight in Syria

June 26 (Reuters) - Four gun-wielding rebel fighters sit relaxing on a wall, their faces concealed by scarves and ski masks. All are Indonesians who came to Syria to join the Islamist insurgency, the cameraman says, speaking Indonesian peppered with Arabic phrases.

He pans around and introduces them as a former soldier, a businessman, and a college student, before settling on a boy in his early teens leaning on his AK-47 assault rifle.

"Brothers in Indonesia, don’t be afraid, because fear is a temptation from Satan,” says one of the fighters in the YouTube video, which has since been removed from the Islamist website.

As Sunni Islamist rebels surge from Syria into Iraq, security officials in Southeast Asia and Australia worry the conflict is radicalising a new generation of militants, who are being influenced to an unprecedented degree by social media.

In the 1990s, several hundred Indonesian, Malaysian and Philippine Muslims trained with al Qaeda in Afghanistan and brought their skills and ideology home, inspiring attacks such as the 2002 Bali nightclub bombing that killed 202 people.

At least 30 Malaysians and 56 Indonesians are estimated by security officials to have gone to fight in Syria, although security analysts say the true number is likely higher.

Australia's government estimates around 150 Australians have

gone to the Middle East to join the fighting in Syria and Iraq, with some taking leadership roles.

Many, including those in the video, are believed to have joined the Islamic State of Iraq and the Levant (ISIL), also known as ISIS, whose hard-line Islamist rebels have led a Sunni Muslim charge across western and northern Iraq, including the capture of border crossings and the key city of Mosul.

"It's a growing concern," Malaysian Deputy Home Minister Wan Junaidi Tuanku Jaafar told Reuters.

"Some Malaysians who may have been in contact with some of these people get motivated to participate. We have been arresting a lot of militants within the country."

Malaysian police have arrested at least 16 suspected militants since April who they said were believed to have ties to ISIL and some of whom trained in jungle areas in northern Malaysia. Malaysian media, citing an ISIL website, reported that a Malaysian named Ahmad Tarmimi carried out a suicide bombing in Iraq in May, although Reuters was unable to verify the incident.

Malaysia is investigating a report by Syria's permanent representative to the United Nations that 15 Malaysians fighting for ISIL had been killed, its Foreign Ministry said on Tuesday.

Australian Foreign Minister Julie Bishop said this week she had cancelled a "substantial number" of passports on security grounds in recent months and was considering further measures.

"There is a real danger that these extremists will come back home as trained terrorists and pose a threat to our security," Bishop told the Australian parliament on Monday.

Saudi Arabia, Tunisia, Morocco and Russia are by far the largest contributors of the estimated 11,000 foreign fighters in Syria, according to strategic security firm The Soufan Group.

Official estimates of 236 militants from Australia, Malaysia and Indonesia would account for nearly 9 percent of the foreign fighters from countries excluding those four.


"THE FINAL BATTLE"

Indonesia, the world's most populous Muslim country, has long been the epicentre of Islamist militancy in east Asia, breeding groups such as Jemaah Islamiah (JI) that carried out the 2002 Bali bombing and other attacks on Western targets.

The Jakarta-based Institute for Policy Analysis of Conflict

(IPAC) said in a report in January the Syrian crisis had inspired Indonesian extremists to an unprecedented extent, partly due to teachings that "the final battle" would take place in the greater Syrian region.

"We can see that ISIS is getting better, it’s growing and it’s widening its reach and influence over cities in Iraq – Mosul, Tikrit and then Ramadi. Soon, God willing, even Baghdad will fall,” said M. Fachry, the chief editor of al-mustaqbal.net, an Indonesian militant website.

Abu Bakar Bashir, the spiritual father of JI who has since split with the group, and Aman Abdurrahman, an influential extremist scholar, have urged their followers to support ISIL in recent months. Several pro-ISIL rallies have drawn large crowds in Indonesia, where support and recruitment for foreign militant groups remains legal.

The concern among security officials is that fighters in Syria and Iraq could breathe new life into the radical movement in Indonesia, where militant groups have been dispersed and weakened in recent years by security crackdowns.

"That’s why we’re focusing on it. Because it will be a massive problem when they come back to Indonesia, everyone agrees on that,” said an Indonesian security official, who is briefed on anti-terrorism efforts but declined to be identified.

Unlike in the 1990s, social media now plays an influential role, with Facebook, YouTube and Twitter widely used by militants to transmit their message and lionise "martyrs".

“It’s the development of social media that has caused ISIS’s popularity to rise. ISIS has been using social media, especially Twitter, to massively increase their growth," said al-mustaqbal.net's M. Fachry.

Mohd Lotfi Ariffin, a Malaysian who says he is fighting in Syria, regularly posts pictures and videos of himself and other militants to his nearly 19,000 Facebook followers.

One of those followers, 21-year-old Malaysian Mohammad Fadhlan Shahidi, was inspired to join him in Syria, according to a video posted on his Facebook page on May 15 showing him side-by-side with Lotfi and another Malaysian fighter.

"At the beginning, I got in touch with Ustaz (teacher) Lutfi," Fadhlan says. "The Ustaz told me how much I would need for the trip."

Police in Malaysia and Indonesia face a struggle to keep track of militant activity and secure convictions, analysts say,

because of the threat's more diffuse nature and due to political changes in both countries that have undermined their reach.

The governments of both countries have been accused of sometimes fanning Islamist extremism for political gain. Malaysian Prime Minister Najib Razak was reported as telling members of his ruling party on Monday that they should be inspired by ISIL's bravery and against-the-odds victories.

Indonesia's security establishment no longer has the tight control over society that prevailed under late President Suharto up to the 1990s, said Yohanes Sulaiman, a lecturer at the Indonesian National Defence University.

"The problem we have is the chain of command of the government. The military is no longer the all-powerful entity it was when it was able to get the names of everybody," he said.

Malaysian officials say they have been hobbled by the government's repeal in 2012 of the Internal Security Act, which allowed indefinite detention of suspects.

"The police especially think we are powerless to handle it like we did it before," said Malaysia's Wan Junaidi.

China c.bank survey: more bankers think economy cooled in second quarter

More Chinese bankers believe the economy is cooling in the second quarter than earlier in the year and demand for loans has weakened, according to a central bank survey published on Wednesday.

The survey also showed that in the second quarter, the number of bankers who believed monetary policy was appropriate increased from the first three months of the year.

Business confidence in China cooled in the second quarter compared with the first quarter, according to the People's Bank of China (PBOC).

China's central bank has taken targeted measures to support the economy, including cutting reserve requirements for selected banks. The government has unveiled a host of steps - dubbed a

"mini-stimulus programme" by some economists - to boost activity in certain sectors.

A Reuters poll in April forecast that China's annual economic growth pace could slow to 7.3 percent in the second quarter from a 18-month low of 7.4 percent in January-March, with full-year growth of 7.3 percent in 2014, the weakest in 24 years.

Recent data reinforced market expectations that the world's second-largest economy is powering through its recent soft patch, even if the recovery may be patchy. [ID:nL4N0P40JC]


CLIMATE 'RELATIVELY COOL'

About 47 percent of bankers polled thought the economic climate is "relatively cool" in the second quarter, up 16.3 percentage points from the first quarter, the central bank said.

It also showed more bankers believed that the current monetary policy stance is appropriate - up 5.8 percentage points, to 72 percent, compared with the previous three months.

The central bank polls bankers, households and business people separately every quarter for their views on the economy, inflation, home prices and other subjects.

The confidence index of entrepreneurs in the second quarter fell to 64.9 percent, 2.1 percentage points lower than the first quarter, the survey showed.

The PBOC also reported that based on the survey, slightly fewer Chinese residents believe property prices are at unacceptable levels, as home prices are showing signs of cooling.

The survey also showed inflation expectations among Chinese residents held steady in the second quarter.

Source: Reuters

Rebalancing “Made in Germany” looks real

Shiny luxury cars, sophisticated engineering goods, but penny-pinching consumers hoarding their meagre income – this cliché of the German economy looks increasingly off the mark. Europe’s largest economy is changing gears. Slowly but surely, Germany is weaning itself off its overdependence on exports. Its current economic upswing is driven by domestic forces.

The latest economic data is confirming the trend. Real wages in the first quarter jumped by the most in nearly three years. Consumer confidence, measured by market research group GfK, surged to the highest level in seven years, beating the estimates of the most optimistic analysts polled by Reuters.

Significant wage increases, low interest rates and record-level employment levels are fuelling a consumer spending spree. Foreign trade, the traditional engine of the German economy, is still patchy, as shown this week by dented business morale. The all-important Ifo business confidence index fell mainly due to weaker export expectations in manufacturing. But despite edging down for the second month running, the indicator still points to an ongoing upswing.

The rebalanced German economy will help the entire euro zone, which is still suffering from high unemployment and lacklustre economic activity. The country’s main euro trading partner, France, will only grow 0.7 percent this year, the French national statistics institute said on June 25.

Rising nominal and real wages in Germany mean that goods

“made in Germany” become relatively more expensive abroad, increasing the competitiveness of foreign rivals. Rising domestic spending simultaneously fuels German demand for imported goods. Hence Germany’s economic strength will partly spill over to its European peers.

Furthermore, a stronger domestic German economy may become the new normal. The country’s new minimum wage of 8.50 euros, to be implemented next January, will boost households’ purchasing power. Economic think tank IMK expects a real disposable income growth of 2.4 percent in 2015. Pent-up investment demand in the corporate world, which acted cautiously throughout the euro crisis, will be an important driver. Looks like the time has come to ditch some hackneyed views about the German economy.

Source: Reuters

Five years is a long time for U.S. economy

Five years is a long time for the U.S. economy. First-quarter GDP contracted at a surprisingly high 2.9 percent annualized rate in the final accounting released by the Bureau of Economic Analysis on Wednesday. That's the biggest drop since the first three months of 2009. Back then, output, jobs, investment, trade and the markets were heading in a different direction.

The latest downward revisions were primarily a result of a decline in net exports and healthcare consumption. If weather was to blame for the trade figures, as was probably the case, then much of it will bounce back. Meanwhile, the effects of President Barack Obama's Affordable Care Act, which was enacted on Jan. 1, also may have proven difficult to assess. Estimates had been for an increase in spending.

Even so, the decline in output was significant and a sharp reversal from the original indication that the economy had grown a tiny bit, and a subsequent revision of a 1 percent annualized decline. The times, however, they have a-changed.

When U.S. output movement was last anywhere near as bad was around the nadir of the recession, when GDP fell at a run-rate of 5.4 percent a half-decade ago. Then, however, the decline was 3.5 percent from a year earlier. This time around, economic activity is up 1.5 percent from a year ago.

Other conditions are also markedly distinct. Five years ago, the United States was losing nearly 800,000 jobs a month. It is now adding them at a monthly rate of nearly 200,000. In early 2009, all-important fixed investment subtracted a whopping 4.8 percentage points from GDP; in the latest quarter, such purchases of homes and equipment fell only about a quarter of a percentage point, almost certainly due to the abundant snow. Meanwhile, the S&P 500 Index is up nearly 200 percent.

Despite some other recent signs of sluggishness, including a fall in productivity, the government's latest assessment of the economy hardly fazed investors. In fact, analysts at Barclays promptly raised their second-quarter GDP growth rate forecast from 3 percent to 4 percent. Rhyming economic declines clearly aren't all the same.

Source: Reuters

World saved $3.5 trillion from emergency oil stocks -IEA

The world has saved $3.5 trillion over the last 30 years by maintaining emergency oil stocks to offset supply shocks and curb price surges, the West's energy watchdog said on Wednesday.

The International Energy Agency (IEA) said in a report that emergency oil stocks held by member and non-member states have acted as an "insurance" against oil supply disruptions.

Spiralling violence in key oil producer Iraq in recent weeks has pushed global oil prices to nine-month highs, reviving speculation of a release of strategic stocks in case of severe supply disruptions. 

"Significant economic benefits are derived primarily from offsetting oil supply losses and thereby reducing potentially significant oil price increases. These consist of reduced GDP losses and reduced import costs," the IEA said.

Using a model to simulate tens of thousands of possible oil supply disruption scenarios and market outcomes, the report estimated global net benefits derived from existing emergency stocks amount to $41 per barrel per year after storage costs.

This equates to some $3.5 trillion over 30 years, it said.

The 29 IEA member states must hold stocks equivalent to at least 90 days of net imports. At the end of March 2014, member countries' stores totalled 4.1 billion barrels, equivalent to about 44 days of total global demand, the report said.

By the end of 2013, 60 percent of oil stocks in IEA member countries were crude oil and 40 percent refined products such as gasoline and diesel.

Stockdraw has proven to be the most powerful mechanism available to IEA member countries during an oil supply disruption, the Paris-based IEA said.

Limiting oil consumption, particularly within the transport sector which accounts for more than half of all oil use in IEA members, was another way to offset supply disruptions, it said.

The IEA was created in 1974 by 16 Western countries in the wake of the 1973 oil supply shock in an effort to limit the impact of future crisis.

The IEA estimated the cost of stockpiling at $7-$10 per barrel per year, depending on the size and type of storage. Holding reserves in underground caverns is about 30 percent cheaper than in aboveground storage facilities, it said.

The last major supply disruption occurred in 2011 when output from OPEC member Libya dropped sharply due to civil war.
Source: Reuters

U.S. crude oil stocks rise unexpectedly; products also up

U.S. crude stocks rose unexpectedly last week even as refineries hiked output, data from the Energy Information Administration showed on Wednesday.

Crude inventories rose by 1.7 million barrels in the last week, compared with analysts' expectations for an decrease of 1.6 million barrels.

Refinery crude runs rose by 275,000 barrels per day, EIA data showed, bolstered by a 4.1 percentage point rise in Gulf Coast refinery output, data showed.

U.S. oil prices , buoyed in recent weeks by sectarian fighting in Iraq, were little moved by the data, shrugging off the build in stocks and inching into positive territory after the report.

"The reason why the market wasn't too much in shock is that the government data confirms what the API report showed yesterday," said Phil Flynn, analyst at Price Futures Group in Chicago.

Data from the American Petroleum Institute on Tuesday said that crude inventories had risen 4 million barrels last week.
Gasoline stocks rose by 710,000 barrels, according to the EIA, compared with analysts' expectations in a Reuters poll for a 1.5-million barrel gain.

Distillate stockpiles , which include diesel and heating oil, increased by 1.2 million barrels, versus expectations for a 900,000-barrel increase, the EIA data showed.

Crude stocks at the Cushing, Oklahoma, delivery hub rose by 416,000 barrels, EIA said.

U.S. crude imports fell last week by 92,000 barrels per day.

Source: Reuters

Metals: Copper rebounds to 3-week high, shuns weak U.S. data

 Copper rebounded to a three-week high on Wednesday as the market brushed aside weak U.S. economic growth data and refocused on falling global inventories.

Copper went into the red after data showed U.S. gross domestic product fell at a 2.9 percent annual rate in the first quarter, instead of the 1 percent reported last month.

But the metal bounced back later in the session as investors realised that the U.S. economy was on track to recover in the second quarter and so returned their attention to shortages in the copper market.

"Copper is macro sensitive so it came off together with equities and everything else after looking at the headline data," said analyst Andrey Kryuchenkov at VTB Capital.

"But once the market data was digested, it didn't look so bad and copper turned back to its tight fundamentals. Its technical uptrend is well intact and we'll probably go back up to resistance of $6,970-$7,000."

London Metal Exchange (LME) copper for delivery in three months fell to a session low of $6,842.25 a tonne before bouncing to a high of $6,926.75, up 0.7 percent.

It failed to trade in closing open outcry activity and was last bid at $6,914.50.

Metals prices were lifted earlier this week after China's vast manufacturing sector showed its targeted stimulus was successfully filtering down to small private enterprises such as metals manufacturers.

LME copper inventories , which are down 57 percent this year, fell an additional 900 tonnes on Wednesday.

Geopolitical concerns, however, were still weighing on the market. "The other issue is the escalation of violence in Iraq and the effect on sentiment. Metals will maybe struggle to push higher," said William Adams, head of research at Fast Markets.

Europe's top share index slipped to a three-week low as concerns that violence in Iraq could escalate further prompted investors to take refuge in safer assets such as German bonds.


NICKEL SHINES

Nickel was the strongest performer, closing up 2.5 percent at $18,575 per tonne. The metal has gained more than 30 percent this year on Indonesia's ore export ban, but the price has fallen around 16 percent since mid-May.

While the Indonesian ban is expected to create shortages eventually, the market is still working through a legacy of high stocks from years of surpluses.

"Right now, for the next leg up, I think what you need to see a proper decline in LME inventories. Until then you will see a rangebound market," Michael Widmer, metals strategist at Bank of America Merrill Lynch, told a presentation in London.

He is targeting a rise to $26,000 a tonne next year.

Zinc ended 0.32 percent firmer at $2,182 per tonne after touching a 16-month high earlier this week while lead shed 0.76 percent to finish at $2,167 after touching a five-month peak on Tuesday.

The global market for refined zinc is expected to be in deficit by 117,000 tonnes this year and refined lead in deficit by 49,000 tonnes, the International Lead and Zinc Study Group

U.S. stocks up despite weak data; German bond yields tumble

Stocks on Wall Street rose on Wednesday despite disappointing U.S. economic data while German bond yields hit their lowest levels for the year as European investors moved toward safe havens.

The dollar and Treasuries yields fell after data showed the U.S. economy contracted more than previously thought in the first quarter and durable goods orders unexpectedly fell in May, which contrasted with Tuesday's stronger-than-expected data for consumer confidence and new home sales.
U.S. stock futures were down at the pre-open but rose as trading progressed, with the S&P 500 and Dow hovering within striking distance of record levels.

"As long as investors believe the economy will keep growing, and everyone expects growth in the second quarter, the lesser evil will be to buy equities at a modestly higher valuation, since bonds and cash don't represent better values," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

Some investors remained concerned about the impact that prolonged turmoil in Iraq could have on oil prices, which are already up about 4 percent this month. Militants in Iraq attacked one of the country's largest air bases as the first U.S. teams arrived to assess Iraqi security forces and decide how to help counter the violence. 
"Investors are still concerned about American foreign policy and what will be the next step in terms of any military intervention as opposed to diplomacy in the Middle East region," asset management firm B Capital's managing director Lorne Baring said.

The Dow Jones industrial average <.DJI> rose 39.6 points or 0.24 percent, to 16,857.73, the S&P 500 <.SPX> gained 4.17 points, or 0.21 percent, to 1,954.15, and the Nasdaq Composite <.IXIC> added 5.385 points, or 0.12 percent, to 4,355.741.


The dollar slid to a one-month low against a basket of major currencies after the weak U.S. gross domestic product and durable goods orders data signaled the likelihood of a continued dovish stance from the Federal Reserve.

The dollar index <.DXY>, which measures the greenback versus a basket of currencies, was down 0.16 percent at 80.199.

U.S. government bond prices jumped on the unexpectedly big downward revision in first quarter GDP. The 10-year U.S. note [XX/32] yield stood at 2.5466 percent.


Europe's FTSEurofirst 300 stock index <.FTEU3> hit a one-month low, falling nearly 1 percent, the biggest decline since mid-April, to 1,374.28 points. The MSCI world equity index <.MIWD00000PUS>, which tracks shares in 45 countries, fell 0.1 percent, touching a one-week low at 425.84.

Yields of German government bonds, perceived as safe havens, fell to May 2013 lows. The German 10-year note yielded 1.266 percent versus Tuesday's 1.322.

In oil, Brent fell 0.9 percent to $113.60 a barrel, while U.S. crude advanced 0.2 percent to $106.20.

Source: Reuters

U.S. economy collapses in first quarter, but growing again

The U.S. economy contracted at a much steeper pace in the first quarter than previously estimated, turning in one of its worst-ever non-recession performances, but growth already appears to have rebounded strongly.

The Commerce Department said on Wednesday gross domestic product fell at a 2.9 percent annual rate, the sharpest decline in five years, instead of the 1.0 percent pace it had reported last month.

"It's a scary report. It sounds worrisome, but keep in mind job growth is running 200,000 each of the last four months, so we aren't just whistling in the dark in our optimism over the outlook," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

The economy was held back by an unusually cold winter, the expiration of long-term unemployment benefits and cuts to food stamps, which curbed consumer spending. It was also weighed down by a slowdown in the pace of restocking by businesses.

All these temporary factors have since faded, lifting growth early in the second quarter.

The government's gauge of first-quarter growth has been lowered by 3.0 percentage points since the first estimate in April showed the economy expanded at a 0.1 percent rate, and the revision between the May and June release was the largest on records going back to 1976.

Economists had expected the revision to show the economy shrinking at a rate of only 1.7 percent. Given the sharp downgrade, growth this year could struggle to reach 2 percent.

Investors shrugged off the weak data and bought U.S. stocks. Prices for U.S. Treasury debt were up at mid-day, while the dollar was marginally weaker against a basket of currencies.

The latest GDP revision reflected a weaker pace of healthcare spending than previously assumed, which led to a cut in the figure for consumer spending to show the slowest rise since the fourth quarter of 2009. Trade was also a bigger drag on the economy than previously thought.

Source: Reuters

Militants attack Iraq air base, U.S. advisers arrive

BAGHDAD, June 25 (Reuters) - Militants attacked one of Iraq's largest air bases and seized control of several small oilfields on Wednesday as U.S. special forces troops and intelligence analysts arrived to help Iraqi security forces counter a mounting Sunni insurgency.

Iraqi Prime Minister Nuri al-Maliki, who is fighting for his job and is under international pressure to create a more inclusive government, said he supported starting the process of forming a new cabinet within a week.

In northern Iraq the Sunni militants extended a two-week advance that has been led by the hardline Islamic State in Iraq and the Levant (ISIL) but also includes an amalgam of other Sunni groups angered by Maliki's rule.

They blame him for marginalising their sect during eight years in power. The fighting threatens to rupture the country two and a half years after the end of U.S. occupation.

U.S. Secretary of State John Kerry pressed Iraqi officials to form an "inclusive" government during a visit this week and urged leaders of the autonomous Kurdish region to stand with Baghdad against the onslaught. 

A parliament session is planned within a week that will start the process of forming a new government based on the results of elections held in April. Maliki's Shi'ite-led State of Law coalition won the most seats but needs support of other Shi'ite groups, Sunnis and Kurds to build a government.

"We will attend the first session of parliament," Maliki said on state television, adding the commitment stemmed from"loyalty to our people" and respect for a call by Iraq's foremost Shi'ite clergy.
On Friday, Shi'ite Grand Ayatollah Ali al-Sistani, the most respected cleric among Iraq's Shi'ite majority, called for the government formation process to begin.

INSURGENTS SEIZE OILFIELDS

U.S. President Barack Obama has offered up to 300 American military advisers, about 130 of whom have now been deployed. The advisers could gather information about targets for future air strikes although no decision has been taken to start American bombing.

Rear Admiral John Kirby, the Pentagon press secretary, said late on Tuesday an initial group sent to establish an operations centre included intelligence analysts and logistics experts as well as special operations troops. 

Another 50 U.S. military personnel working in the region are expected to arrive within the next few days to create four additional assessment teams, he said. U.S. military personnel are also flying regular manned and unmanned reconnaissance flights over Iraq.

Iraqi state television reported that newly-arrived Pentagon advisers met with Baghdad's operations commander and agreed to set up a joint operation command.

Baghdad is racing against time as the insurgents consolidate their grip on Sunni provinces.

On Wednesday, militants overran the Ajeel oil site, 30 km (19 miles) east of Tikrit, which contains at least three small oilfields that produce 28,000 barrels per day, an engineer working at the field said.

The engineer said local tribes had taken responsibility for protecting the fields after police withdrew but that they also left after the nearby town of al-Alam was seized by militants.

Ajeel is connected to two pipelines, one running to Turkey's Ceyhan port and the other to the Baiji oil refinery, which remained a frontline early on Wednesday.

State TV showed troop reinforcements flying into the compound by helicopter to fend off the assault on Baiji, a strategic industrial complex 200 km north of Baghdad.

Local tribal leaders said they were negotiating with both the Shi'ite-led government and Sunni fighters to allow the tribes to run the plant if Iraqi forces withdraw. One government official said Baghdad wanted the tribes to break with ISIL and other Sunni armed factions, and help defend the compound.

The plant has been fought over since last Wednesday, with sudden reversals for both sides and no clear winner so far.

Militants including ISIL and allied Sunni tribes battled Iraqi forces in the town of Yathrib, 90 km north of Baghdad, into the early hours of Wednesday, witnesses and the deputy head of the municipality said. Four militants were killed, they said.

Insurgents have surrounded a massive air base nearby, which was known as "Camp Anaconda" under U.S. occupation, and struck it with mortars. Eyewitnesses said the air base had been surrounded on three sides.


BORDER CROSSINGS FALL

Iraq's defence ministry said it had destroyed four fuel tankers and three vehicles loaded with ammunition used by militants, south of the town of Seniya, which is west of the town of Baiji near the refinery.

In recent days, Baghdad's grip on the Western frontier with Syria and Jordan has also been challenged.

One post on the Syrian border has fallen to Sunni militants and another has been taken over by Kurds. A third crossing with Syria and the only crossing with Jordan are contested, with anti-government fighters and Baghdad both claiming control.

For ISIL, capturing the frontier is a step towards the goal of erasing the modern border altogether and building a caliphate across swathes of Iraq and Syria.

The group gained another boost in that direction when members of Syria's al Qaeda wing, the Nusra Front, pledged allegiance to it in the border town of Albu Kamal, strengthening its control of the frontier.

ISIL supporters posted images online of what they said were Nusra fighters taking an oath of loyalty to ISIL in the town.

"We cannot say (ISIL) controls Albu Kamal but we can say they are now in Albu Kamal," said Rami Abdurrahman of the British-based monitoring group the Syrian Observatory for Human Rights. ISIL and the Nusra Front share hardline Sunni ideology but have periodically fought against each other in Syria.

An Iraqi military spokesman said on Tuesday the government had carried out air strikes on a militant gathering in the town of al-Qaim near the Syrian border, which is under the control of the coalition of Sunni armed groups, including ISIL.

Locals in al-Qaim and security officials in western Anbar province accused Syria of carrying out the air raid. Western security officials said it was still unclear which government was responsible.

In northern Iraq's second largest city of Mosul, which has been under the control of ISIL and other insurgents for over two weeks, militants bombed a Shi'ite mosque in the Sharekhan neighbourhood in the city's northern outskirts, residents said.

U.S. GDP Q1 contracts 2.9%

Meanwhile, the third and final look at 1Q Gross Domestic Product , the broadest measure of economic output, showed the previously revised quarter-over-quarter (q/q) annualized 1.0% decline was adjusted to a 2.9% pace of contraction. Economists had expected a downward revision to a 1.8% decline, and the pace of growth was down from the 2.6% expansion posted in 4Q. Moreover, personal consumption was revised much lower than projected from the second reading of a 3.1% increase to a 1.0% rise, versus the 2.4% gain that was anticipated, and following the 3.3% increase recorded in 4Q. 

On inflation, the GDP Price Index was unrevised at a rise of 1.3%, matching economists' expectations, while the core PCE Index, which excludes food and energy, was unadjusted at a 1.2% increase, inline with economists' forecasts. 

Source: Schwab

U.S. Durable Orders fell 1.0% m/m in May

U.S. Durable goods orders fell 1.0% month-over-month (m/m) in May, compared to the flat reading that was expected by economists surveyed by Bloomberg, while April's 0.8% gain was unrevised. Moreover, ex-transportation, orders dipped 0.1% m/m in May, versus the forecast of a 0.3% gain, and April's figure was revised higher to a 0.4% increase from an initial rise of 0.1%. However, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, rose 0.7% m/m last month, compared to the 0.5% increase that was projected, and the 1.2% drop in April was revised to a 1.1% decline. 

Source: Schwab

Brent Falls on Iraqi Pledge; WTI Steady After U.S. Export Ruling

Brent crude fell for the third time in four days as Iraq pledged to increase output and exports. West Texas Intermediate traded near $106 a barrel amid speculation that an Obama administration ruling on U.S. fuel exports will have a limited impact on markets.

Iraqi production has been unaffected by fighting with militants and the country plans to increase crude exports next month from about 2.5 million barrels a day in June, Oil Minister Abdul Kareem al-Luaibi said in an interview in Baghdad. The U.S. Commerce Department granted Pioneer Natural Resources Co.’s request to classify stabilized condensates as fuel eligible for export, the company said. WTI surged as much as 1.4 percent before retreating.

“The geopolitical situation isn’t improving but the Iraqis are continuing to pump oil and say they intend to increase shipments,” said Phil Flynn, senior market analyst at the Price Futures Group inChicago. “WTI is showing some strength on the potential for exports of U.S. oil. This could bring the spread in a bit.”

Brent for August settlement declined 99 cents, or 0.9 percent, to $113.47 a barrel on the London-based ICE Futures Europe exchange at 9:27 a.m. New York time. The volume of all futures traded was 44 percent higher than the 100-day average. Brent has climbed 2.4 percent this year.

WTI for August delivery rose 3 cents to $106.06 a barrel on the New York Mercantile Exchange. Trading volume was 61 percent above the 100-day average. Prices have increased 7.8 percent this year.

The U.S. benchmark crude traded at a $7.41 discount to Brent, down from $8.43 yesterday.

The first American military advisers have begun to assess the conflict in Iraq. A small contingent of U.S. forces has begun operating to gather intelligence and establish an operations center in Baghdad, the Defense Department said yesterday. Insurgents captured the northern city of Mosul this month and have advanced to towns just north of the capital, threatening to split OPEC’s second-largest oil producer.

The U.S. Commerce Department opened the door to more U.S. oil exports as long as the crude is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the past four decades. The oil industry has pressured President Barack Obama to end the 41-year-old ban on most crude exports.

Source: Bloomberg