While you were sleeping: Geithner targets derivatives dealers, oil slides

Monday 13th July 2009

US Treasury Secretary Timothy Geithner said over-the-counter derivatives must be brought under regulatory control of the federal government, clamping down on a market that peaked at an estimated US$700 trillion of face value last year and contributed to the economic slump.

Over-the-counter derivatives dealers must be subject to “substantial supervision and regulation, including conservative capital requirements, conservative margin requirements and strong business conduct standards," Geithner told a joint hearing of two US House committees on Friday.

Four US banks control more than 90% of derivatives markets - JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs, according to Reuters.

The Obama administration is expected to announce measures to increase control of loosely policed derivatives markets over the next few weeks. The Commodity Futures Trading Commission is considering imposing new regulations this year, which could include limits on the number of futures contracts traders can hold.

"We're going to use our authority to the fullest extent possible," commissioner Bart Chilton told Reuters.

Under the administration's plans, standardised over-the-counter derivatives would be channeled through regulated exchanges and customised contracts would have to be reported and adhere to capital requirements.

US data last week showed a decline in US consumer sentiment.

The Reuters/University of Michigan Surveys of Consumers preliminary index of US confidence fell to a lower-than-expected 64.6 this month from 70.8 last month.

Still, the Organisation for Economic Co-operation and Development said the outlook for OECD nations picked up in May, with signs major economies had bottomed out.

The OECD’s composite leading indicator rose to 94 in May from 93.2 in April. The indicator for the Group of Seven nations strengthened to 93.3 from 92.5 the previous month. Among G-7 nations, only Japan showed a decline.

President Barack Obama told leaders of the Group of Eight nations on the final day of their summit in Italy that it may be premature to begin unwinding the stimulus measures because “full recovery is still a way off.”

Those views were echoed in comments by International Monetary Fund chief Dominique Strauss-Kahn at the G-8, who said it would be premature to abandon stimulus measures.

Stocks on Wall Street weakened on Friday. The Dow Jones Industrial Average fell 0.5% to 8146.52, rounding out its fourth weekly slide.

JPMorgan Chase fell 3.8% to US$32.34 and Bank of America slipped 0.8% to US$11.88. Chevron, which warned of weaker earnings, dropped 2.7% to US$61.40 and Exxon Mobil fell 1.3% to US$65.12 as the price of crude oil declined.

The Standard & Poor’s 500 dipped 0.4% to 879.13. The Nasdaq Composite gained 0.2% to 1756.03 after Goldman Sachs lifts its rating for computer hardware and software makers.

In Europe, the Dow Jones Stoxx 600 fell 1.1% to 197.25. The UK’s FTSE 100 fell 0.8% to 4127.17, Germany’s DAX 30 dropped 1.2% to 4576.31 and France’s CAC 40 fell 1.4% to 2983.10.

Crude oil sank on Friday, extending its slide on concern world growth won’t revive fast enough to stoke demand for fuel.

US crude slipped 52 cents to US$59.89 a barrel, bringing its slide last week to 10%.

The yen and the US dollar rose on Friday as concerns the second-quarter earnings season may be bleak while a revival in global growth may be tepid at best stoked demand for the two biggest currencies as a haven.

The euro shed 0.7% to $1.393 and dropped 1.1% to 128.93 yen. The dollar weakened 0.5% to 92.48 yen.

Businesswire.co.nz

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