Friday, December 11, 2015

Global markets fall on continued oil slide; Dow-DuPont merger to create $130bn giant; Scandal cuts Volkswagen sales by 4.5%

1 Global markets fall on continued oil side (Larry Elliott in The Guardian) The City was left nursing its losses after a week of turmoil in commodity and stock markets that wiped £73bn off the value of UK shares. Oil prices were in freefall on Friday, a fresh day of turbulence that followed a forecast from the International Energy Agency (IEA) that a glut of crude will persist for another year. Crude prices continued falling in New York after London’s FTSE 100 closed 135.27 points down at 5,952.78 – its lowest level since late September.

Dealers said the markets had been unsettled by concerns about the health of the Chinese economy, which has needed large quantities of fuel and raw materials for its rapid industrial growth, and the likelihood that the US Federal Reserve will next week raise interest rates for the first time in nine years. The value of China’s currency, the yuan, fell to a four-and-a-half-year low in anticipation that the Fed will act on Wednesday.
Gloom was deepened by news of the liquidation of Third Avenue, the biggest failure of a US mutual fund since the financial crisis of 2008. Third Avenue specialised in high-risk junk bonds and its closure amid mounting losses prompted speculation that other firms could also be in trouble as a result of tumbling markets.

The failure by the Opec oil cartel to announce production curbs on 4 December triggered the fall in the cost of crude, with knock-on effects on share prices. Saudi Arabia has been willing to tolerate a lower oil price as part of its campaign to kill off the US shale sector, and the markets are also braced for Iranian oil to hit the commodity markets following the end of the west’s sanctions. Falling oil prices are being seen as the result of the combination of excessive supply and weak global demand.

During morning trading on Wall Street, a barrel of benchmark Brent crude was changing hands at $37.68 – down 5% on the day and the lowest level for seven years. The Dow Jones industrial average shed 300 points by noon in New York. With some analysts predicting crude could hit $30 a barrel over the coming weeks, falling oil prices are likely to keep inflation lower than the Bank of England has been expecting.

The first signs of the impact of plunging oil prices on the cost of living emerged on Friday as UK supermarkets cut the cost of petrol to below £1 a litre. Analysts said solid growth in retail sales in the US had removed one of the final obstacles to a tightening of policy, although in September a widely anticipated Fed move was delayed as a result of the last bout of severe global turbulence.

2 Dow-DuPont merger to create $130bn giant (Khaleej Times) Chemical giants DuPont and Dow Chemical Co agreed to merge in an all-stock deal valuing the combined company at $130 billion, with plans to eventually split into three.

The deal, which is likely to face intense regulatory scrutiny, allows the new company - to be called DowDuPont - to rejig assets based on the diverging fortunes of their businesses that make agriculture chemicals and plastics. The companies have been struggling to cope with falling demand for farm chemicals due to falling crop prices and a strong dollar, even as their plastics businesses have thrived thanks to low natural gas prices.

The companies said the proposed split would create businesses focused on agriculture, materials and specialty products. Dow and DuPont shareholders will each own about 50 per cent of DowDuPont, excluding preferred shares. DuPont chief executive Ed Breen will be CEO of DowDuPont, and Dow Chemical CEO Andrew Liveris will be executive chairman.

The combination will help the companies save about $3 billion in costs in the first two years, with the possibility of saving another $1 billion, Dow and DuPont said. The biggest of the three new companies by revenue would be a material science company, which would cater to the packaging, transportation and infrastructure industries.

The companies said a new specialty products company would focus on electronics. The combined adjusted revenue of that business was about $13 billion in 2014. The third business, selling seed and crop protection chemicals, generated adjusted revenue of about $19 billion.

3 Scandal cuts Volkswagen sales by 4.5% this year (BBC) Sales of Volkswagen-branded vehicles fell 2.4% globally in November the wake of the emissions scandal, the German carmaker has said. The total for the 11 months of 2015 was down 4.5% compared with last year. The annual tally was likely to fall short of last year's total as a result.

VW-brand board member Juergen Stackmann said: "In view of the current challenging situation, I don't believe VW will be able to make up the gap in the remaining days of the year."  Volkswagen said it sold 496,100 VW-brand cars worldwide in November.

Sales plunged in Brazil, with a 51.4% fall, and slid by 31.8% in Russia, although economic problems in both countries were largely to blame for those declines rather than the emissions scandal. The VW brand delivered 6.12 million cars in total last year.

The company said last week that US sales fell 24.7% in November compared with the same month last year. Volkswagen group chairman Hans Dieter Poetsch said on Thursday that a "chain of errors" led to the emissions scandal and that the entire company was now focused on regaining the trust of customers.

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