General Motors will file for bankruptcy today, indicating the handover of the 77-year old largest automaker in the world to the hands of US taxpayers. The 'reluctant equity owner' - US government, representing 60% stake of the new GM, will provide $30.1B as bankruptcy financing to the company while the Canadian government will own 12%. The restructuring will cause closure of 11 factories and elimination of more than 20K job positions next year. The new GM will be armed with vehicles from its Cadillac, Chevrolet, Buick and GMC units with annual US car sales expected to be lowered to 10M from 16M units.
Investors believe the reorganization will provide short-term pain but long 'term gain to the auto industry. Platinum gains as GM's bankruptcy has already factored into price in previous weeks while the resolution may improve auto-catalyst demand in longer term. The white metal climbs 2.3% to 1224.7 today after surging 4.1% Friday. Certainly, rallies in gold and silver also drive platinum higher.
However, GM's bankruptcy may put higher pressure on US's deficit which is forecast by the Congressional Budget Office to quadruple to $1.7 trillion in 2009. In a speech in Beijing, Treasury Secretary Timothy Geithner said the US government plans to cut the deficit to 'roughly 3%' of GDP from a projected 12.9% this year. Bloating budget deficit raised credit concerns in the world's largest economy and triggered recent slump in USD.
The dollar remains under pressure as the China-led economic recovery spur investors' confidence. Higher risk appetite drives capitals to the commodity and stock markets. Gold price for June delivery adds 1 dollar to 987 in European morning while the benchmark contract for silver may break 16 level soon. Precious metals will continue to be supported by a global lower interest rate environment and depreciation in dollar.
In Asia, the MSCI Asia Pacific Index rose 2.9%, Japan's Nikkei 225 Stock Average gained 1.6% and Australia's S& P/ASX 200 Index added 2%. In China the SCI soared 3.4% after robust manufacturing PMI data while Hong Kong's Hang Seng Index gained almost 4%. In European morning, benchmark indices open higher as led by commodity shares. UK's FTSE 100 Index rises 1.4% while Germany's DAX index climbs 3% to 7-month high.
Crude oil price rises to as high as 68.29, a level last seen in November 2008, as further signs of economic recovery are seen. Released earlier, manufacturing PMIs in the UK and the Eurozone improved more than market expectation. In the UK, PMI rose to 45.4, compared with market expectation of 44 and upwardly revised 43.1 in April. In the Eurozone, final reading of PMI was revised 0.2 points higher to 40.7.
Focus today will probably be US' ISM manufacturing which is anticipated to show further improvement to 42 in May from 40.1 a month ago, indicating the pace of deterioration in the manufacturing sector has moderated.