US stocks, oil rebound on strong consumer data
US stocks, oil rebound on strong consumer data
Nonetheless, world shares are set for their worst weekly performance since June, depressed by Europe’s debt troubles and $600 billion in automatic tax hikes and spending cuts to start in January if the US Congress fails to act.
The surprisingly strong survey showing consumers felt more optimistic about employment prospects and the outlook for the economy led US stock prices and crude oil to turn higher in early trading.
“It was better than expected and the market seems to like it. It is a positive note, but the backdrop remains negative with a lot of negative sentiment. Still, we could be oversold enough that this could launch a rally,” said Steve Sosnick, equity-risk manager at Timber Hill/Interactive Brokers Group in Greenwich, Connecticut.
The Dow Jones Industrial Average was up 24.65 points, or 0.19 percent, at 12,835.97. The Standard & Poor’s 500 Index was up 6.73 points, or 0.49 percent, at 1,384.24. The Nasdaq Composite Index was up 20.69 points, or 0.71 percent, at 2,916.27.
US crude futures edged up 21 cents at $85.30 at barrel, while Brent futures were up 28 cents to $107.53 a barrel.
The euro dropped to a two-month low against the US dollar and could extend losses as fears mounted that the euro zone’s debt crisis and deteriorating economic conditions could drag on global economic growth.
The euro was down 0.2 percent at $1.2716, and was seen vulnerable to further losses. The dollar index rose 0.2 percent to 80.983.
Better-than-expected Chinese economic data for October, which pointed to a modest rebound in the world’s second-largest economy, failed to stem yesterday’s declines.
The MSCI world equity index was up 0.1 percent at 323.92. It has lost more than 2 percent since Monday and looked set to close yesterday with a decline steeper than any other week since June. Gold hit a three-week high of $1,738.66 an ounce before pulling back slightly.
Prices of safe-haven US Treasuries extended their gains for the week after the US election on Tuesday raised fears that Washington’s politicians may struggle to find a compromise to cut the budget deficit before nearly $600 billion of spending cuts and tax increases kick in early in 2013. Markets are also watching the US debt ceiling, which must be raised to avoid a government shutdown.
The benchmark US Treasury 10-year note fell 5/32 in price, the yield at 1.6352 percent.
In Europe, falling industrial output in France, Italy and Sweden and a warning from a German ministry that the country’s economy — Europe’s largest — was expected to slow further in the fourth quarter and the first three months of next year rattled investors.
The FTSE Eurofirst 300 index of top European shares was up 0.04 percent at 1098.18.
Gulf companies challenged by debt and rising interest rates
- Debt restructurings on the rise, but below crisis levels
- Central Bank of the UAE has raised interest rates four times since last March
There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”