Energy and Natural Resources Market Radar (May 21, 2012)

Saturday, May 19th, 2012

Energy and Natural Resources Market Radar (May 21, 2012)

Strengths

• According to the Shanghai Futures Exchange, its copper inventory fell 9,178 metric tons to 187,449 metric tons.
• China’s steel product output rose 7.9 percent last month to 81.1 million metric tons from a year ago, according to the National Bureau of Statistics.
• China imported a record high 25.05 million metric tons of coal in April, up 90.1 percent year-on-year, Platts reported, citing preliminary customs figures. Chinese year-to-date coal imports rose 69.6 percent year-on-year to 86.55 million metric tons of coal.

Weaknesses

• Stocks and commodities fell this week as the likelihood of a Greek exit from the eurozone has increased significantly during the past two weeks.
• Oil prices fell 4.8 percent this week. The current bout of concerns had arisen from the resurgent fears about the Spanish and Italian banking systems and speculation that Greece may have to exit the euro. Since then, for oil in particular, news reports suggesting that President Obama is seeking G8 cooperation on an oil stock release have compounded the depressing effect.
• Reuters reported that Chinese steel mills defer iron ore shipments owing to slowness in the steel market. Some Chinese steel mills are said to have postponed iron ore deliveries from suppliers such as Vale, given the slow steel markets. Producers are also expecting a further drop in prices.

Opportunities

• Global inflation might have already pushed the costs of exploring and producing oil from new most expensive projects, known in the industry as the marginal cost of production, above $100 per barrel, according to JBC energy consultancy. That compares to $50-$75 prior to the 2008 financial crisis. A decade ago, oil companies such as BP were saying they would start a project if oil traded above $17-$20. Even the International Energy Agency, which represents consuming nations, says production costs have gone up sharply. “There is not a single drop of oil in the world that cannot be produced at a price of oil of $85-$90,” IEA’s chief economist Fatih Birol told a summit.
• The Chinese government announced a new batch of new subsidies to promote the consumption of energy-efficient home appliances and autos on Wednesday. RMB6bn will be provided to fuel-efficient vehicles with engines below 1.6L, and an RMB26.5bn financial subsidy will be provided for energy-efficient appliance products, including all the major white goods products. This appears to be a clear signal of the government’s commitment to shift domestic demand toward more personal consumption and away from fixed asset investment.
• Oil industry executives and bankers are assuming oil prices will stay above $100 a barrel in the year ahead, despite mounting economic worries, as any fall below that level would trigger a cut in Saudi Arabia’s output and force closures at high-cost projects around the world. A Reuters straw poll of oil executives, traders, bankers and fund managers showed seven respondents predicting Brent crude trading at $100-$120 a barrel in the next 12 months.
• Boart Longyear, the world’s biggest provider of mineral drilling services, expects demand to remain strong as large mining companies proceed with projects. “We still see very strong demand, particularly from the majors,” Craig Kipp, CEO of the company said. “We haven’t heard from a lot of the majors outside of Australia that there’s a change in their plans or in their budgets. We haven’t seen any change in market dynamics – we’re operating all over the world,” Kipp said. “We do see that juniors, the second-tiers, have had problems getting financing,” he added.

Threats

• In a Wall Street Journal article last year at this time, Chief Executive Marius Kloppers said BHP would invest $80 billion by the end of 2015 to expand further. The eurozone crisis, slower Chinese growth, and falling metals prices are forcing BHP to now say it will be cutting those spending plans. Falling commodity prices and rising operating costs put its cash inflows at risk and, by extension, its commitment both to raising its dividend and keeping its single-A credit rating. BHP’s plans need to become clearer if it wants to reverse the 28 percent fall in its share price since a year ago.
• Agrimoney reported that the Federal Reserve has warned, “The surge in U.S. farmland prices, which in parts of the Plains achieved their strongest run of growth on record, may be about to fade, sapped by the worsened outlook for agricultural profits.” Farmland values posted sharply higher gains in states around Kansas in the year to the start of last month, reflecting higher crop prices and an easing in the drought which has plagued much of the area since 2010. “Strong farm incomes continued to fuel demand for farmland,” the Federal Reserve System’s Kansas City bank said, noting that values had now risen by more than 20 percent for two consecutive years for the first time since it began collecting data in the 1970s. Prices in Nebraska, which avoided drought, were particularly strong, with values of irrigated land soaring 41 percent.

Tags: Banking Systems, Bureau Of Statistics, Chinese Year, Coal Imports, energy, Energy Consultancy, International Energy Agency, Marginal Cost, Market Radar, Million Metric Tons, National Bureau Of Statistics, National Bureau Of Statistics China, Oil Prices, Oil Stock, Platts, Shanghai Futures Exchange, Steel Market, Steel Markets, Steel Mills, Steel Product, Stocks And Commodities
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Emerging Markets Radar (January 23, 2012)

Sunday, January 22nd, 2012

Emerging Markets Radar (January 23, 2012)

Strengths

• China’s fourth quarter GDP growth was 8.9 percent, better than the expected 8.7 percent.
• China’s December retail sales were up 18.1 percent, better than the estimated 17.2 percent. For 2011 it was up 17.1 percent year-over-year, showing strong consumption demand.
• Disposable income for urban residents grew 14.1 percent in 2011, and 8.4 percent. In 2011, China’s urban population increased by 21 million to 690.79 million at the end of last year. For the first time in China’s history, urban population has exceeded the rural population, the National Bureau of Statistics said.
• December industrial production was up 12.8 percent, higher than the estimate os 12.3 percent. Industrial production grew 13.9 percent in 2011, better than estimated.
• HSBC China’s Flash Purchasing Manager’s Index (PMI) is 48.8 for January, higher than 48.7 in December last year. PMI below 50 indicates manufacturing activities are in contraction. The HSBC Flash PMI is a survey among small and medium sized enterprises (SME) in China, which means it reflects part of the industrial activities in China. In China, as in many other countries, SMEs are mostly disadvantaged for financing. We hope Wen Jiabao’s SME loan policies can eventually help resume their growth.
• Chinese bank lending in the first quarter may exceed the 2.26 trillion yuan from a year earlier.
• China’s central bank, PBOC, injected Rmb 183 billion into the system via reverse repos on Wednesday, and Rmb 200 billion again on Thursday while urging more lending.
• China is said to consider relaxing capital requirements for banks. The China Banking Regulatory Commission is delaying implementing the most stringent capital adequacy ratios and may lower risk weightings for loans to small businessmen and companies.
• The Chinese banks totally issued Rmb 16.5 trillion worth of wealth management products, of which listed companies spent Rmb 30.4 billion buying these bank products. This was one reason that deposit growth was slowing.
• China’s National Social Security Fund has won approval to invest Rmb 100 billion from local pensions in stocks and bonds.
• Online advertising spending in China will rise 33 percent to Rmb 63.8 billion ($10 billion) this year from last year, the South China Morning Post said citing a broker report.
• Moody’s just upgraded Indonesia’s sovereign credit to investment grade after Fitch did the same in December last year. This will reduce borrowing costs for corporations and help stabilize currency.
• The Philippines’ central bank cut its benchmark rate by 25 basis points down to 4.25 percent. It was the first rate cut since July 2009. The Philippines runs an independent monetary policy since its economy is mostly domestic. Philippines overseas remittance rose 10.6 percent year-over-year in November to $1.78 billion, the biggest increase in three months.
• Thailand’s exports dropped 2 percent on a year-over-year basis in December as factories and supply chains began to recover from the flooding. The result was much higher than expectations for a 10 percent drop and a significant improvement from November’s 12.4 percent decline.
• Malaysia’s CPI rose 3 percent year-over-year in December, slowing to a nine-month low.
• Government statistics show that Colombia’s industrial production rose 6.5 percent in November from a year earlier.
• Indonesia received its second investment-grade rating from Moody’s this week, raising the country’s sovereign credit rating to Baa3. A month prior, Fitch had upgraded Indonesia’s credit rating as well.

Weaknesses

• Taiwan’s December export order declined 0.7 percent, for the first time since mid 2009.
• Due to housing market tightening and postponement of high speed rail projects by the government, China fixed asset investment still grew 23.8 percent, lower than 2010 and providing some clue to 2012’s slower investment growth. CITIC Securities predicts housing investment will decline in the first half of this year before the government lifts its control on the real estate market.
• China’s December home prices posted their worst performance last year, with only two of the 70 cities tracked posting gains, as the government reintegrated its plans to maintain housing curbs. In fact, sales transactions dropped sharply, between 15 to 20 percent on average, but the price drop was still very mild.
• China’s foreign direct investment declined 12.7 percent in December after a 9.8 percent drop in November on a year-over-year basis, a further reason for moderate money supply growth.

Opportunities

• The fiscal deposit decrease since September, particularly in December of last year, indicated that the Chinese central government had started fiscal expansion to fine-tune the economy. Evidence such as improved PMI and industrial production in December proved the government has changed its policy focus to supporting growth from economic adjustment (tightening).

• Barclay’s Capital reported that China may allow its local pension funds to be invested in its stock market in the first quarter of this year, according to the China Securities Journal. The report said that a province in southern China was approved to transfer 100 billion Yuan of local pension funds to the National Council for Social Security Fund (NCSSF) for operation. In view of the NCSSF’s assets structure, about 30 percent to 40 percent of such capital will be invested in the stock market.
• A BCA credit cycle lead indicator is giving a positive signal for European equities and risk assets in the first half of 2012. Shaded areas in the chart below denote periods of anticipated market weakness, while clear bars forecast market strength based on an upturn in the global credit conditions six months previously. With the second 3-year LTRO tranche due in February, the ECB’s balance sheet is expected to expand by 1 trillion euro, amount almost identical to the U.S. Fed’s balance sheet expansion of $1.4 trillion in 2008/09.

Threats

• Two major sets of economic data that can continue to decline are GDP growth and property investment in the first half. Before the economy touches its lowest growth rate, hopefully by the middle of the year, the market may have to adapt to a lot of bad news in the property market, such as a sales contraction and sharp price fall.
• A number of upcoming important economic data will be released next week, including Turkey’s monetary policy decision, Poland’s 2011 GDP data, and Russia will report December industrial production.
• The World Bank warned on Tuesday that developing countries should brace for a growth slowdown stemming partly from Europe’s debt woes. Furthermore, the bank also warned that political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects. The World Bank cut its outlook for global growth in 2012 to 2.5 percent and 3.1 percent in 2013, down from 3.6 percent for both years.

Tags: Bureau Of Statistics, Capital Adequacy, China Banking Regulatory Commission, Chinese Bank, Chinese Banks, Consumption Demand, Disposable Income, GDP Growth, Listed Companies, Loan Policies, Medium Sized Enterprises, National Bureau Of Statistics, Purchasing Manager, Quarter Gdp, S Central, Small And Medium Sized Enterprises, Time In China, Urban Population, Urban Residents, Wealth Management Products
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Emerging Markets Cheat Sheet (November 14, 2011)

Sunday, November 13th, 2011

Emerging Markets Cheat Sheet (November 14, 2011)

Strengths

• China’s CPI, the main gauge of inflation, rose 5.5 percent year-over-year in October, weakening from September’s 6.1 percent, the National Bureau of Statistics (NBS) said on Wednesday. This will enable the People’s Bank of China to reduce the required reserve rate (RRR) for the banks to allow more loans growth. China’s inflation peaked in July this year.
• China’s October PPI was up 5 percent, lower than the estimated 5.8 percent and September’s 6.5 percent, as slowing global economy dampened material price increase. Fixed asset investment was up 24.9 percent, higher than the estimated 24.8 percent, though in a slow declining trend as China plans to rely less on fixed asset investment to support its GDP growth.

• The Central Bank of Indonesia cut its reference rate by 50 basis points to 6 percent yesterday. This unexpected rate cut followed a 25 basis point rate reduction just a week ago. Bank Indonesia decided to support economic growth as the external economic environment deteriorates as the eurozone debt crisis became worse than expected.
• Turkish industrial production rose 12 percent from a year earlier, according to data published by the government statistics agency, compared with a median forecast of 6.4 in a Bloomberg survey of nine economists.

Weaknesses

• China’s October exports rose 15.9 percent year-over-year versus 17.1 percent in September, and market expectation of 16.1 percent; imports rose 28.7 percent versus 20.9 percent in September and market expectation 22.2 percent; trade surplus was $17 billion in October, higher than September’s $14.5 billion. Trade with Europe weakened, proving the eurozone debt crisis slowed the European economy and demands for China’s goods. Growth of exports to Korea, the Association of Southeast Asian Nations (ASEAN), and Japan also slowed, further pointing to the signs of an Asia slowdown affected by Europe and the U.S.
• China’s October retail sales were up 17.2 percent year-over-year, lower than market estimate of 17.6 percent and September’s 17.7 percent. For the first 10 months, retail sales in China rose 17 percent, which is a strong showing and is fast enough to take China to a consumption-based economy in 3 to 5 years time.
• China’s October passenger car sales rose 1.4 percent on a year-over-year basis after enormous growth last year, according to the Center for Asian American Media (CAAM).
• China’s industrial value-added output grew 13.2 percent year-over-year in October, lower than September’s 13.8 percent, indicating slowing industrial production.

• China’s fixed-asset investment rose 24.9 percent year-over-year in the first 10 months of the year to $3.8 trillion.
• In its monetary policy meeting today, Bank of Korea (BoK) kept the interest rate unchanged at 3.25 percent, but BoK said domestic demand has faltered. Korea’s GDP increased 3.4 percent year-over-year in the third quarter, much lower than the government’s forecast of 4 percent for the year. The major disappointment was in declined capital expenditure investment and inventory destocking, which implied that business sentiment has turned very cautious in the uncertain environment. Consumption growth also slowed down in the third quarter, as a result of weaker consumer confidence.
• China’s broadest measure of money supply, M2, was up 12.9 percent at the end of October from a year earlier, slightly slower than the 13.0 percent rise at the end of September, and below economists’ expectations for 13.1 percent. Chinese financial institutions issued CNY586.8 billion worth of new yuan loans in October, up from CNY470.0 billion in September and above economists’ expectations of CNY500.0 billion, which is expected to rise continuously toward the end of the year.
• Hungary’s inflation rate unexpectedly rose to the highest level in five months in October as fuel and clothing prices jumped.  Consumer prices increased 3.9 percent from a year earlier after a 3.6 percent rise in September, according to the statistics office in Budapest.

Opportunities

• CLSA strategist Francis Cheung compared the MSCI China earnings yield today with those during the Financial Crisis in 2008, SARS in March 2002, the dotcom burst in early 2000, and the Asia Financial Crisis in September 1997. He finds many sectors are trading at 2008 lows, as shown in the graph below. This may indicate Chinese stocks are at the bottom of the current market cycle.

• Exxon recently signed contracts with the Kurdistan Regional Government (KRG) to explore six blocks in the north of Iraq. The move suggests that a compromise is close between KRG and the central government to recognize existing production sharing agreements with other exploration companies already in the region.

Threats

• October’s industrial production and exports in China, and elsewhere in Asia, has started a slowing trend. China’s October PMI also showed slowing export orders. Other indicators such as Canton Fair Order also pointed to slowing growth of both exports and imports. The Bank of Korea has said October domestic consumption faltered in Korea. As the eurozone debt storm gathered pace in Italy, Asian governments have to take measures to support growth. As of today, we only saw Indonesia ease monetary policy by cutting its reference rate.
• The European Union’s energy commissioner Gunther Oettinger has accused Russia of using energy as a political weapon. The commissioner sees the southern corridor route to deliver gas from the Caspian Sea as Europe’s best strategy, calling Gazprom’s South Stream pipeline a “new route for old gas.”

Tags: Asset Investment, Association Of Southeast Asian Nations, Bank Indonesia, Bank Of China, Bank Of Indonesia, Basis Point Rate, Basis Points, Bureau Of Statistics, Debt Crisis, European Economy, External Economic Environment, Fixed Asset, GDP Growth, Global Economy, Material Price, National Bureau Of Statistics, Rrr, Southeast Asian Nations, Statistics Agency, Trade Surplus
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News That Matters (September 9, 2011)

Friday, September 9th, 2011

Ft.com

Regulators are nearing a settlement with Fannie Mae and Freddie Mac after a three-year investigation into whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans,http://ftalphaville.ft.com/thecut/2011/09/09/673336/fannie-and-freddie-close-to-deal-with-regulators/

The US Federal Reserve “will certainly do all that it can to help restore high rates of growth and employment”, said its chairman Ben Bernanke in a speech in Minneapolis on Thursday, a small change in his rhetoric that suggests a good chance of further Fed action at an extended monetary policy meeting later this month, the FT reports. http://ftalphaville.ft.com/thecut/2011/09/09/673321/bernanke-hints-at-further-fed-action-2/

While strain in the short-term funding markets, where banks borrow money on a day-to-day basis, have grabbed the headlines, it is a slow withdrawal of longer-term funding that could turn out to be the bigger concern for Europe’s banks – and the wider economy, http://ftalphaville.ft.com/thecut/2011/09/09/673276/european-banks-face-long-term-funding-problems/

China’s attempts to cool persistent price increases appear to be taking effect as the pace of inflation slowed in August from a three-year high in July, the FT reports. The country’s consumer price index, rose 6.2 per cent in August from a year earlier, compared with a 6.5 per cent rise in July, according to figures released on Friday by China’s National Bureau of Statistics. Consumer prices rose 0.3 per cent in August from the previous month, compared with a 0.5 per cent increase in July, marking the second consecutive moderation in the month-on-month reading. The Chinese government and most economists had predicted that inflation would peak by August and the slowdown is largely in line with expectations. http://ftalphaville.ft.com/thecut/2011/09/09/673236/chinese-inflation-falls-in-august-to-6-2/

Barack Obama sought to resuscitate his flagging presidency and the US economy with a larger-than-expected $450bn jobs plan that emphasises tax cuts in a bid to win over Republican opposition, the FT reports. http://ftalphaville.ft.com/thecut/2011/09/09/673221/obama-outlines-450bn-growth-push/

Bank of America officials are discussing cutting as many as 40,000 staff over several years, the WSJ says, citing people familiar with talks about the bank’s restructuring plans. The sources say chief executive Brian Moynihan is expected to make an announcement at a conference on Monday. However the report cautioned the numbers could change; http://ftalphaville.ft.com/thecut/2011/09/09/673211/bofa-may-cut-40000-jobs/

Britain and China took fresh steps to improve their economic relationship on Thursday, agreeing to boost Chinese infrastructure investment in the UK and London’s role as an offshore trading centre for the renminbi, http://ftalphaville.ft.com/thecut/2011/09/08/673151/stocks-drop-following-bernanke-speech/

Oil traders are buying protection against a 2008-style price collapse with options that gain value if US crude plummets by year end, the FT reports. Exchange data reveal a surge of interest in options that convey the right to sell oil at $50 a barrel by December, http://ftalphaville.ft.com/thecut/2011/09/08/672586/oil-traders-buy-protection-against-price-collapse/

US intelligence has received information about “specific and credible” threats of a terrorist act planned for 10th anniversary of the September 11 terrorist attacks, White House officials confirmed on Thursday evening. The information came from overseas and related to a car bomb in New York or Washington, the US media reported. However, the White House also said that the information was “unconfirmed”. http://www.ft.com/intl/cms/s/0/d0f6393e-da27-11e0-90b2-00144feabdc0.html#axzz1XKlN2XFx

The correlation between the movement of big US stocks is at the highest level since Black Monday in 1987, with price moves increasingly driven by the ebb and flow of investors’ fears over the economic environment. Stocks, in theory, should move in individual directions based on company fundamentals. But markets of late have been characterised by mass selling alternating with waves of buying, as investors upgrade or downgrade the risk of the US slipping into recession, or a financial crisis sparked by a European sovereign default. http://www.ft.com/intl/cms/s/0/7fd33db8-d982-11e0-b16a-00144feabdc0.html#axzz1XKlN2XFx

While Switzerland this week in effect pegged the franc to the euro, a debate is intensifying in Hong Kong over whether to sever the city’s 27-year-old peg to the US dollar. The mechanism that links the Hong Kong and US dollars at a rate of HK$7.80 to US$1 has served the city well since its introduction in 1983. It has survived the hand-over of sovereignty from Britain to China, the Asian financial crisis and repeated attacks from speculators. http://www.ft.com/intl/cms/s/0/aabfedc2-da14-11e0-b199-00144feabdc0.html#axzz1XKlN2XFx

WSJ.com

Japan’s Nikkei Stock Average shed 0.5%, as investors remained non-committal after data showing the economy contracted more severely than previously reported in the April-June period after the March 11 natural disasters, as it was in line with expectations. Australia’s S&P/ASX 200 rose 0.5% and South Korea’s Kospi Composite lost 1.4%. Hong Kong’s Hang Seng Index added 0.2%, while China’s Shanghai Composite edged up 0.1%. Dow Jones Industrial Average futures were up 39 points in screen trade. http://online.wsj.com/article/SB10001424053111903285704576559451025655360.html?mod=WSJASIA_hpp_LEFTTopWhatNews

The Japanese economy contracted more severely than previously reported in the April-June period, data released Friday showed, with firms cutting back on capital spending at a faster pace in the wake of the March 11 earthquake and tsunami. The revised gross domestic product shrank at a price-adjusted annual pace of 2.1% in April-June from the previous quarter, the Cabinet Office said, compared with a preliminary 1.3% contraction announced three weeks ago. The figure matched expectations from a survey of economists by Dow Jones Newswires and the Nikkei.http://online.wsj.com/article/SB10001424053111903285704576559380092114762.html?mod=WSJASIA_hpp_LEFTTopWhatNews

The European Central Bank opened the door to interest-rate cuts if needed to bolster a weakening economic recovery—a dramatic U-turn from its decision to raise interest rates just two months ago. Economic risks have “intensified” to the downside with “enormous” uncertainty, ECB President Jean-Claude Trichet told reporters after the central bank held its main policy rate at 1.5%. He called the ECB’s reassessment of the economic outlook “significant,” and highlighted weakening global growth, declines in equity markets and strains in euro-zone government bond markets as trouble spots.http://online.wsj.com/article/SB10001424053111904836104576558241910980966.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Fast-growing emerging economies in Asia are facing an unsettling combination of slowing growth and persistent inflation, complicating decisions for central banks who seem content for now to take a wait-and-see approach. With the global economy cooling, central banks in South Korea, Philippines, Indonesia and Malaysia opted Thursday to leave benchmark interest rates steady, despite signs that price pressures aren’t yet easing. These countries face a classic monetary-policy challenge of trying to fight inflation at a time when growth is slowing and the chances for an outright recession in the developed world have increased.‬ http://online.wsj.com/article/SB10001424053111903285704576557492765115376.html?mod=WSJASIA_hpp_LEFTTopWhatNews

The Organization for Economic Cooperation and Development Thursday slashed its growth forecasts for this year, painting a gloomy picture of the outlook in the world’s richest economies and putting pressure on central banks to intervene if there is continuing weakness or signs of recession. The Paris-based organization doesn’t expect a recession of the magnitude seen in 2008 and 2009, but protracted contractions in some countries would knock confidence, which in turn risks derailing medium term growth. http://online.wsj.com/article/SB10001424053111904836104576558010597968124.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

Greece’s Socialist government is scrambling to cut public spending after receiving stark ultimatums from euro-zone governments that further rescue money will be withheld if Athens doesn’t deliver on promises to reduce its budget deficit. The government now is looking at unprecedented public-sector layoffs and cuts in civil-service perks, steps that could reshape Greek political culture by upending decades of cozy ties between the ruling Socialist party and a core constituency. http://online.wsj.com/article/SB10001424053111903285704576556162077324344.html?mod=WSJ_hp_us_mostpop_read

Norwegian and Canadian officials on Thursday criticized Switzerland’s move this week to cap the rise of its currency, as the impact reverberated in currency markets world-wide. The Norwegian krone soared against the euro after the Swiss National Bank said Tuesday that it would use “unlimited” spending to prevent the euro from falling below 1.20 francs. The move sent investors flooding into other currencies belonging to economies viewed as fiscally sound, with Norway among the top destinations.  Norwegian central bank Gov. Oystein Olsen warned investors that a strengthening krone would stifle Norway’s economy by hurting exports. A swift policy response—likely lower interest rates—is in the offing if the krone keeps rising, Mr. Olsen said. http://online.wsj.com/article/SB10001424053111904836104576558982460348312.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews

President Barack Obama called on Congress Thursday to pass a $447 billion package of spending initiatives and tax cuts to boost economic growth, in what might be the White House’s last chance to revive its political fortunes before the 2012 campaign kicks into high gear. More than half of Mr. Obama’s plan consists of payroll-tax cuts for employees and employers—an idea the White House hopes will appeal enough to Republican lawmakers—and is the policy that could have the best chance to pass. Among other measures, the president also called for more than $62 billion in spending to extend unemployment insurance benefits through 2012 and fund programs to alleviate long-term joblessness. He also proposed $140 billion in infrastructure spending and aid to states.http://online.wsj.com/article/SB10001424053111904103404576559062901863074.html?mod=WSJAsia_hpp_LEFTTopStories

Reuters.com

Spot gold eased 0.36 percent to $1,861.46 an ounce by 0013 GMT, well below a lifetime high around $1,920 hit this week. Lingering debt crisis in Europe and volatile currencies have sent gold prices to a series of record highs this year. U.S. gold GCcv1 added $5.2 an ounce to $1,862.7 an ounce. http://www.reuters.com/article/2011/09/09/markets-precious-idUSL3E7K901220110909

Federal Reserve Chairman Ben Bernanke on Thursday said the U.S. central bank would spare no effort to boost weak growth, but to the dismay of investors stopped short of a full plunge into further monetary support. “The Federal Reserve will do all it can to help restore high rates of growth and employment in a context of price stability,” Bernanke told the Economic Club of Minnesota. In what could be taken as a bid to quell concerns among some of his colleagues that further easing could spark inflation, Bernanke said a rise in consumer prices this year would likely to be transitory.http://www.reuters.com/article/2011/09/08/us-usa-fed-idUSTRE7870W120110908

The U.S. economy may be stumbling, but it is still standing. That was the message from two economic reports that pointed to a weak labor market but also a better performance on trade that should boost third-quarter gross domestic product. Still, Federal Reserve Chairman Ben Bernanke, highlighting an elevated jobless rate and sluggish underlying growth, hinted the central bank may ease monetary policy further at its September meeting. http://www.reuters.com/article/2011/09/08/us-usa-economy-idUSTRE77U25D20110908

G7 finance chiefs meet on Friday under heavy pressure to take action to revive flagging economic growth in rich nations and to calm the biggest confidence crisis in markets since the 2007-09 credit crunch. Host country France has called for a coordinated response from the Group of Seven industrialized nations after mounting anxiety over Europe’s debt crisis and the fragility of its banks caused a big fall in  world stockmarkets in recent weeks. Differences between the economic problems facing the United States, Britain and eurzone states are complicating the task though, meaning one-size-fits-all solutions, like moderating government budget cutbacks or unleasing more monetary stimulus, will not work. http://www.reuters.com/article/2011/09/09/us-g-idUSTRE7880S620110909

Bloomberg.com

Rising food prices that defy easing global inflation may challenge policy makers in countries including China to control costs without hurting economic growth, panelists at a forum said yesterday.  A growing middle class seeking higher-protein foods is contributing to increased demand and prices, Abby Joseph Cohen, partner and senior U.S. investment strategist at Goldman Sachs (GS) said at the Bloomberg Global Inflation Conference in New York hosted by Bloomberg Link. http://www.bloomberg.com/news/2011-09-08/food-price-gains-defy-policy-makers-bid-to-ease-inflation-panelists-say.html

Almost 13 years after its demise, the deutsche mark retains enough potency to haunt Jean-Claude Trichet’s final days as European Central Bank president.  Trichet, 68, lost his cool yesterday with a reporter who asked whether Germany should abandon the euro and return to the mark as Europe’s debt crisis roils markets and spooks voters.  “I would like very much to hear the congratulations for an institution which has delivered price stability in Germany for almost 13 years,” Trichet said in Frankfurt in an uncharacteristically raised voice. “It’s not by chance we have delivered price stability,” he said. “We do our job, it’s not an easy job.” http://www.bloomberg.com/news/2011-09-08/trichet-loses-his-cool-at-prospect-of-deutsche-mark-s-revival-in-germany.html

CNBC.com

The race to the bottom in picking economic growth figures this year seems to have stopped nearly as quickly as it started.  No, that doesn’t mean that economists suddenly believe US gross domestic product will hit the pace it normally would see two years after the end of a recession.  But Wall Street’s biggest names have backed off earlier doom-and-gloom predictions of near-zero growth and now believe the economy at least has a better chance of avoiding an outright recession The impetus for the optimism: Thursday’s trade balance report which showed that the US deficit unexpectedly slid to $44.8 billion in July from $51.6 billion in June, primarily on the strength of a 3.6 percent surge in exports. http://www.cnbc.com/id/44442250

Nytimes.com

Taking a bleak view of Saab Automobile’s prospects for recovery, a Swedish court on Thursday rejected the troubled carmaker’s application for protection from creditors. The decision sharply narrows its room for maneuvering and pushes it a step closer to financial collapse. Saab employees have not been paid for August, and the company’s unions had been considering legal action that could have forced the company into liquidation when the bid for protection from creditors was announced on Wednesday. Saab’s unions had given guarded support to bankruptcy protection, partly because the government would have been asked to guarantee workers’ salaries. But with its prospects dwindling, unions may feel they have no choice but to press on with their legal action. http://dealbook.nytimes.com/2011/09/08/court-denies-saab-protection-from-creditors/?ref=global

USAtoday.com

Fixed mortgage rates fell this week to the lowest levels in six decades. But few Americans can take advantage of the rates to refinance or buy a home. The average rate for a 30-year fixed mortgage fell to 4.12%, from 4.22%, Freddie Mac said Thursday. That’s the lowest level on records dating back to 1971. Freddie Mac says the last time rates were cheaper was 1951, when most home loans lasted just 20 or 25 years. The average rate on a 15-year fixed mortgage, a popular refinancing option, fell to 3.33% from 3.39%. That’s the lowest on records dating to 1991 and likely the lowest ever, according to economists.http://www.usatoday.com/money/economy/housing/story/2011-09-08/Mortgage-rates-fall-to-lowest-level-since-1950s-few-qualify/50319086/1

BBC.co.uk

German exports fell by 1.8% in July, much more than expected, official figures have shown. The month-on-month fall compares with a 1.2% decline in June. Economists had only expected exports to contract by 0.1% in July. At the same time, Germany’s imports fell 0.3% in July, again surprising analysts who had expected a 0.2% rise. Separate data showed France’s exports rose 0.3% in July, while its imports also increased, adding a sharp 2.9%. http://www.bbc.co.uk/news/business-14833474

Spanish home sales fell 41% in April to June from a year earlier, official figures have shown. This was a bigger fall than the 30% drop in the first quarter of 2011. The declines follow after Spain ended tax deductions for property purchases on 1 January. These had been introduced after the 2008 housing market crash. The fall in sales also reflects the continuing weakness in the Spanish economy. A new tax cut on the purchase of new homes was introduced last month http://www.bbc.co.uk/news/business-14835957

Telegraph.co.uk

The Bank of England has kept interest rate unchanged at a record low of 0.5pc and resisted calls for more quantitative easing to boost economic growth. Thursday’s decision by the nine-member Monetary Policy Committee on Thursday was in with forcasts.  However, the minutes for the meeting due in around two weeks time is expected to reveal discussions on more economic stimulus – or money printing – as evidence grows that the economy is faltering. http://www.telegraph.co.uk/finance/economics/8749608/BoE-keeps-rates-unchanged-holds-off-on-more-stimulus.html

Germany and Holland have threatened to block rescue payments to Greece unless the country complies to the letter with bail-out terms, raising the spectre of default and a chain-reaction through southern Europe. German finance minister Wolfgang Schauble said there will be no more money until Grecce “actually does” what it agreed to do. “I understand that there is resistance among the Greek population to austerity measures. But in the end it is up to Greece whether it can fulfil the conditions necessary for membership of the common currency. We offer no discounts,” he told Deutschlandfunk.http://www.telegraph.co.uk/finance/financialcrisis/8751180/Germany-pushes-Greece-to-the-brink-in-dangerous-brinkmanship.html

Britain is at “significant risk” of a double-dip recession said the Organisation for Economic Development and Co-operation, as it slashed its growth forecasts in a gloomy assessment of the wider G7 economy. The OECD predicted in its ‘interim assessment report’ that the UK economy would come to a virtual halt in the second half of 2011, with growth of just 0.1pc in the third and fourth quarters. That was a significant downgrade from the 0.4pc quarter-on-quarter growth it was forecasting in May. http://www.telegraph.co.uk/finance/financialcrisis/8749436/OECD-warns-of-double-dip-threat-in-UK-and-cuts-forecasts.html

One in three UK households ‘never worked’ in Liverpool. Almost one in three households in Liverpool, Nottingham and Glasgow has no-one in work – the highest concentration in the UK for the second year running, official figures show. In Liverpool, 31.9pc of houses last year were without anyone who has ever had a paid job. The figure fell from 32.1pc the previous year, but it is still the worst in the country. Glasgow had 31.1pc of workless households, down form 30.7pc the year before. But Nottingham’s “never-worked” rate increased slightly to 31.6pc. http://www.telegraph.co.uk/finance/jobs/8749282/One-in-three-UK-households-never-worked-in-Liverpool.html

Independent.co.uk

Britain faces a very real chance that the lights could go out in the next five to 10 years, as its ailing energy infrastructure struggles to attract the massive investment needed to ensure a reliable electricity supply, according to a warning by the CBI. Companies named the potential absence of a secure, affordable energy supply as their biggest concern in a damning report published today by the employers’ organisation and KPMG. The report also finds that the UK’s road and rail systems are falling further behind the EU average, while 58 per cent of respondents said that, overall, the country’s infrastructure is more expensive, less reliable and inferior to that of the Continent. http://www.independent.co.uk/news/business/news/lack-of-infrastructure-investment-could-leave-britain-in-the-dark-2351518.html

Smh.com.au

Crude prices were up in Asian trade, boosted by data showing a drop in US oil stocks, analysts said. New York’s main contract, West Texas Intermediate (WTI) light sweet crude for delivery in October, gained 23 cents to $US89.28 per barrel. Brent North Sea crude for October delivery rose 21 cents to $US114.76. US crude oil inventories fell by four million barrels last week, according to weekly data published Thursday by the Department of Energy. http://www.smh.com.au/business/markets/oil-up-in-asia-as-us-crude-inventory-falls-20110909-1k0gf.html#ixzz1XQjEH7Nf

Theglobeandmail.com

Greece ruled out quitting the euro on Thursday, shrugging off warnings by its biggest creditor Germany and yet another set of bad economic figures showing it is struggling under the weight of EU/IMF-imposed austerity. Anger at Greece’s failure to meet fiscal targets that are a condition for its international bailout is nearing breaking point in Berlin and other European capitals, with senior German politicians now talking openly about the possibility of Athens exiting the euro zone. http://www.theglobeandmail.com/report-on-business/international-news/greece-rules-out-euro-zone-exit/article2157654/

Xinhuanet.com

China’s Producer Price Index (PPI), a major measure of wholesale-level inflation, rose 7.3 percent year-on-year in August, the National Bureau of Statistics said Friday. August’s PPI growth was lower than July’s 7.5 percent increase, the NBS said in a statement on its website. During the first eight months of this year, the country’s PPI climbed 7.1 percent from the same period last year.http://news.xinhuanet.com/english2010/china/2011-09/09/c_131121423.htm

Brazil’s inflation has peaked, the country’s Monetary Policy Committee (Copom) said Thursday, apparently in response to doubts about its decision to slash interest rates last week. Inflation will start to drop in September, and the inflation rate in 2012 will further go lower, said Copom in a report. Given those aspects, the committee cut Brazil’s annual basic interest rate by 0.5 percentage points to 12 percent last week, and said there was room for further cuts in the future, according to the report. http://news.xinhuanet.com/english2010/business/2011-09/09/c_131123059.htm

South Korea’s producer prices grew at a faster pace last month than a month earlier due to higher food and energy prices, the central bank said Friday. The producer price index (PPI), a barometer of future consumer price inflation, jumped 6.6 percent in August from a year earlier, slightly faster than a 6.5 percent on-year gain in July, the Bank of Korea (BOK) said in a statement. The August growth was the highest in five months, keeping an on- year rise for the 21th straight month. From a month earlier, producer prices rose 0.3 percent last month, slightly down from a 0.4 percent on-month advance a month before. http://news.xinhuanet.com/english2010/business/2011-09/09/c_131122249.htm

U.S. consumer credit increased at an annual rate of 5.9 percent in July, the tenth consecutive monthly growth, offering some relief to a string of weak economic data in recent weeks, the Federal Reserve reported on Thursday. The U.S. central bank said that total borrowing in July rose to 2454.5 billion U.S. dollars from the revised figure of 2442.5 billion dollars in June. The Fed said demand for revolving credit, the category that includes credit cards, dropped 5.2 percent in July after rising 3. 9 percent in June. http://news.xinhuanet.com/english2010/business/2011-09/09/c_131119438.htm

France’s central bank Banque de France (BdF) on Thursday revised down growth rate forecast during the third quarter of the year to 0.1 percent from an initial estimation of 0.2 percent. According to the bank’s economic monthly report, “industrial activity rose very slightly in August” with the capacity utilisation rate reported an “ongoing decline” at 78.7 percent. In short term, the bank’s “forecasts point to stability in industrial production.” In August, services showed a tepid performance despite a buoyant activities in computer and information services. But, the BdF expected the sector’s improvement over the coming months. http://news.xinhuanet.com/english2010/business/2011-09/09/c_131119373.htm

Thehindu.com

Food inflation eased to single digit at 9.55 per cent for the week ended August 27 from 10.05 a week ago but provided hardly any relief to the common man as all items, except wheat and pulses, continued to rule at higher levels.  As per the WPI (Wholesale Price Index) data released here on Thursday, while pulses and wheat saw a decline in prices by 1.56 per cent and 1.04 per cent, respectively, on yearly basis, all other food items turned dearer. Prices of onions surged by 42.03 per cent and potatoes by 13.38 per cent on an annual while vegetables, as a whole, were 22.42 per cent dearer.http://www.thehindu.com/business/Economy/article2435339.ece

Union Commerce and Industry Minister Anand Sharma on Thursday said that India would meet its commitment of reducing tariff lines under sensitive list by 20 per cent for all by next month under the South Asian Free Trade Area (SAFTA) agreement signed by South Asian Association for Regional Cooperation (SAARC) member countries. “The time has come to take a call on reduction of barriers to trade. SAFTA is moving forward on the path of economic integration and India should give full support so that the region realises its full potential,” http://www.thehindu.com/business/Industry/article2436543.ece

A sharp jump in refunds eroded the Centre’s net direct tax collections by 3.4 percent during April-August 2011. However, gross tax collections for the first five months of the current fiscal grew 25.89 percent, higher than the 24 percent growth seen in the first quarter.  The improved performance mainly came through higher corporate taxes that grew about 30 percent during April-August this year.  The overall refund payout of the tax department jumped 156.04 percent in April-August to Rs 57,622 crore (Rs 22,505 crore). Net direct tax collections declined 3.4 percent to Rs 96,738 crore (Rs 100,113 crore). http://www.thehindubusinessline.com/industry-and-economy/article2436435.ece

Economictimes.com

India is unlikely to yield to a fresh effort by the developed countries to push for greater concessions by the larger emerging economies to salvage the World Trade Organisation’s Doha Round of global trade talks. WTO Director General Pascal Lamy told ET that some developing countries now expect the larger emerging economies, including India, to compete on a level playing field. “The question is whether emerging countries are rich, developing countries or poor, developed countries, which will determine the future course of events,” he said. http://economictimes.indiatimes.com/news/economy/foreign-trade/india-to-resist-fresh-pressure-from-developed-nations-at-wto/articleshow/9918528.cms

Yonhapnews.co.kr

South Korea plans to expand its economic cooperation with South Asian countries in a bid to capitalize on one of the fast-emerging markets in the world, the finance ministry said Friday. The move comes amid growing demand for export market diversification as the world’s major economies such as the United States and European Union remain fragile, posing a threat to South Korea’s trade-reliant economy.http://english.yonhapnews.co.kr/business/2011/09/09/55/0502000000AEN20110909003500320F.HTML

Fin24.com

South Africa’s manufacturing output fell by a more than expected 6.0% year-on-year (y/y) in volume terms in July, compared with a revised 0.8% increase in June, Statistics South Africa said on Thursday. Economists in a Reuters poll saw a contraction of 0.6% y/y in July’s factory output.  Compared to June, production in volume terms also contracted by a seasonally adjusted 6.0% in July. It was down 3.5% in the three months to July, compared with the previous three months. http://www.fin24.com/Economy/Factory-output-slows-down-20110908

Thetrader.se

You might want to check out Dalio’s Secret Rules after reading the below. Dalio and Renaissance are the Winners this year. Link to Dalio’s Rules. From FinAlternatives; Amidst August’s hedge fund carnage, some managers were able to produce some impressive returns. Perhaps not surprisingly, some that did are among the biggest and most successful in the industry. http://www.thetrader.se/2011/09/08/and-the-winner-are-mr-dalio-and-renaissance/

Remember when the World did care about Oil, Opec and Saudi Arabia? Well it is time for an OPEC meeting on Sep 9th. Some insight by Stratfor on OPEC and Saudi Arabia. On Sept. 9, OPEC will be holding one of its regular summits to decide what to do about their oil output quotas – raise them, lower them or keep them the same. The decision will be made with an eye towards Libya. When Libya descended into civil war a few months ago, it took about 1.8 million barrels per day of high-quality low-sulfur crude offline. There are many among the OPEC talks who are concerned what will happen in the aftermath of the fall of the Gadhafi government. If the replacement government, whatever that happens to look like, is able to bring oil back online quickly, oil prices could go into a tailspin, they fear.http://www.thetrader.se/2011/09/08/opec-meeting-overshadowed-by-saudi-arabia/

While doing some analytics last week I realized that there is a pure (not statistical) arbitrage situation in VXX options. By the time I noticed it was too small of an edge to try to trade manually so I did not do anything, and since this is something that is very unlikely to happen again I’ll disclose all the details that came up in my analysis. All data obtained fromNanex(nXCore) – a very high quality datafeed. This feed has all messages from exchanges, although to create the charts below I took 1 second snapshots. When VXX split in Nov 2010 OCC decided to leave the “old” unadjusted strikes, so one can trade both after-split VXX and before-split VXX which has quarter of its value. On August 30th some options were trading out of line with the others, I guess because some market-maker did not properly adjust volatility skews that day. Because options are so far OTM early exercise is not a consideration, and the mispricing is a pure arbitrage. http://www.thetrader.se/2011/09/08/volatility-arbitrage-still-exist/

Tags: Barack Obama, Ben Bernanke, Brazil, Bureau Of Statistics, Canadian, Chinese Government, Consumer Price Index, Crude Oil, European Banks, Fannie Mae, Fannie Mae And Freddie Mac, Finance Giants, Freddie Mac, Ft Reports, Gold, Good Chance, India, Infrastructure, Monetary Policy, Mortgage Finance, National Bureau Of Statistics, News That Matters, Outlook, Price Increases, September 9, Slowdown, Subprime Loans
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Energy and Natural Resources Market Cheat Sheet (July 18, 2011)

Sunday, July 17th, 2011

Energy and Natural Resources Market Cheat Sheet (July 18, 2011)

Strengths

• China’s steel production hit another record high in June. According to data from the National Bureau of Statistics, China produced 59.9mt of steel in June, equivalent to 729 million tonnes per year (a 11.9 percent year-over-year increase and a 2.8 percent month-on-month increase), beating the previous record high of 718 million tonnes per year set in April this year.
• Gold prices hit a new nominal high of over $1,580 and ounce in Wednesday trading as the combination of dovish comments from Federal Reserve Bank Chairman Bernanke and ongoing uncertainty over contagion in European sovereign debt markets saw a further push in the yellow metal. White metals also rose strongly, with the breakdown in wage negotiations in South Africa likely to lead to strikes.
• Corn prices rebounded this week as a WASDE report released earlier this week showed a smaller-than-expected increase in 2011-12 U.S. ending stocks despite a projected record crop, highlighting tight balances for corn.
• Data from the International Trade Commission showed that total U.S. coal exports for the January–May 2011 period was at 44.52 million tonnes, up 37 percent year-over-year.
• Commodities generally rallied this week on economic data out of China. China’s GDP rose 9.5 percent year-over-year in the second quarter, the statistics bureau said, after a 9.7 percent gain in the previous three months. This was higher than consensus estimate of 9.3 percent. Industrial output advanced 15.1 percent in June. Fixed-asset investment, excluding rural households, also rose 25.6 percent year-over-year in the first half, the report showed.
• Japan’s ten utilities consumed 31 percent more liquefied natural gas (LNG) in June than a year ago, according to data from the Federation of Electric Power Companies of Japan.

Weaknesses

• Peru’s copper production dropped 4.7 percent year-over-year in May to 98,628 tonnes, with big declines from Southern Copper’s mines, according to the country’s mining ministry. Meanwhile, zinc production fell 6.9 percent year-over-year to 121,253 tonnes and tin by 24.7 percent year-over-year to 2,189 tonnes.

Opportunities

• In its monthly Oil Market Report, the International Energy Agency forecast that oil use will increase by 1.47 million barrels per day to 91 million barrels per day amid growth in emerging economies.
• BHP Billiton agreed to acquire all the shares of Petrohawk Energy for $38.75 per share, representing a total equity value of approx $12.1 billion and a total enterprise value of approx $15.1billion, including the assumption of net debt. The deal adds three shale oil and gas assets across about one million net acres in Texas and Louisiana with proved reserves of 3.5 trillion cubic feet equivalent of natural gas.
• In a report from the Financial Times, U.S. ethanol producers are consuming 40 percent of the U.S. corn crop which is the first time fuel use has exceeded use by farmers for livestock feed.
• China has ordered local governments to phase out a total 2.04 million tonnes of aluminum, copper, lead and zinc smelting capacity in 2011 as part of a multi-year plan to crack down on energy-intensive and polluting industries, raising the target by 13 percent from the prior target set in May. The iron smelting industry was ordered to cut 31.22 million tonnes of capacity, up 17.7 percent from the May target, as issued by the Ministry of Industry and Information Technology.
• China has announced that it will be increasing rare earth exports by 8.9 percent versus first half 2011 and 97.3 percent versus second half 2010; however, on an annualized basis, total rare earth exports will be slightly lower year-on-year. The move comes amid pressure from the World Trade Organization regarding China’s virtual monopoly on rare earth supply.

Threats

• BHP Billiton is facing more strikes at its coking coal mines in Australia this weekend after making small progress at talks with the miners earlier this week, a labor union said. Workers will hold 12-hour stoppages at the Gregory mine on July 17, Stephen Smyth, a division president at the Construction, Forestry, Mining and Energy Union in Queensland said. The industrial action follows another round of six-hour stoppages this week at seven coking coal mines owned by BHP Billiton Mitsubishi Alliance in Queensland’s Bowen Basin, he said. The next round of meetings with the management will be held next week.
• Saboteurs blew up an Egyptian pipeline distribution station in northern Sinai that supplies natural gas to Israel, the MENA news agency reported. This marked the fourth attack on facilities supplying Egyptian gas to Israel this year.

Tags: Asset Investment, Bernanke, Bureau Of Statistics, China China, Coal Exports, Commodities, Consensus Estimate, Copper Production, Corn Prices, Debt Markets, Federal Reserve Bank, Gas Lng, Gold Prices, Liquefied Natural Gas, National Bureau Of Statistics, National Bureau Of Statistics China, Record Crop, Statistics Bureau, Wage Negotiations, Wasde Report, White Metals
Posted in Commodities, Markets | Comments Off

Emerging Markets Cheat Sheet (May 16, 2011)

Saturday, May 14th, 2011

Emerging Markets Cheat Sheet (May 16, 2011)

Strengths

• In spite of political uncertainty in Peru, Credicorp reported solid first quarter results with net income rising 40 percent year-over-year, well ahead of consensus estimates. However, the bank cautioned that its future performance will be linked to economic stability in the country that, in a large measure, will depend on the outcome of the forthcoming election on June 5.
• Mexican-listed airport groups have reported satisfactory traffic data for April: ASUR led with a 4.8 percent increase, while GAP/OMA registered a 1 percent rise in the number of passengers.
• The 2009 combined middle and affluent (MA) class population of Emerging Europe was equal that of China. Russia has the second largest MA emerging market population, and Poland’s rivals that of India. At $17,856, Turkey has the second highest MA class GDP per capita in emerging markets.

• Taiwan’s April exports rose 24.6 percent, driven by information and communication products, minerals, and machineries.
• National Bureau of Statistics of China shows real estate investments reached RMB 1.3 trillion for the first four months of this year, up 34.3 percent from the same period last year. New project starts were up 24.4 percent year-over-year; sales were up 13.3 percent to RMB 1.4 trillion.
• Korean central bank freezes benchmark interest rate at 3 percent, after inflation in April declines to 4.2 percent from 4.7 percent in March, indicating a direction that inflation might start to peak. Also, Indonesia froze its benchmark rate at 6.75 percent in the week after its inflation was stabilizing at around 6.5 percent. If this is a trend, emerging Asia countries might be successful at curbing inflation.
• China International Capital Corp (CICC) says China’s Internet revenue will grow to RMB 1.5 trillion by 2013, which equates to a compound annual growth rate of 40 percent and 6.5 percent of total retail in the country. Sina, in its first quarter earning release, said its Weibo membership has grown to 140 million registered users, adding 40 million since February. CICC also believes the growth in Internet users will drive Internet infrastructure investment. It is estimated that China has 450 million active internet users, the largest in the world.
• In April, China has achieved its targeted money growth rate of 15 percent, i.e., M2 money supply is at 15.2 percent. If maintained, China might be able to manage a soft landing for its high flying GDP growth.
• China’s macroeconomic numbers also show robust consumer spending with retail sales growing 17.1 percent in April.
• Investment momentum remains high in China. Urban fixed-asset investment growth surprised the market on the upside by strengthening to 25.4 percent.
• China’s April exports grew 29.9 percent, which is a desirable growth given the RMB appreciation pressure and cost increases for Chinese manufacturers.
• Power generation in China was up 11.7 percent in April, but it still faces power shortage across the country.

Weaknesses

• Since 2004, public sector wages grew faster than wages in the private sector in Poland. Higher wages, combined with better social benefits and stable employment, lead many Poles to cast a wary eye toward privatization plans. Powerful unions were recently able to block initial public offering (IPO) plans.
• China’s consumer price index was 5.3 percent in April, slightly lower than 5.4 percent in March. Although the number is still above the government’s desired target of 5 percent for the year, a key component of the index, food, has declined 0.4 percent from March, indicating the government measures on price control have worked.
• Industrial production growth in China slowed to 13.4 percent year-over-year in April, compared to 14.8 percent in March, caused by government tightening of the housing market and inflation control.
• Auto sales in April fell 0.25 percent year-over-year in China, indicating a spillover effect from the government’s tightening on the housing market.
• China has just increased the reserve replacement ratio (RRR) another 50 basis points, reaching 21 percent for the large banks. Considering the fact that deposit growth year-to-date in China was 17 percent, the impact on the banks’ loan book is minimal.
• Chinese high speed rails are having a negative impact on airline traffic, particularly in the mid-to-short distance travel. According to the China Ministry of Railways, it takes four hours by high speed train from Wuhan to Guangzhou, while it takes three hours by airplane, including time spent traveling to the airport or train station and check-in.

Opportunities

• The number of listed airlines in Latin America increased this week with a successful IPO of Avianca from Colombia – the stock gained 18 percent on the first day of trading.
• There are indications that Mexico and Panama might be considering joining a combined equities platform (MILA) that will also include Chile, Colombia and Peru.
• Falabella, the Chilean retailer, has received a license to start banking services in Colombia.
• According to Metal Bulletin, Russian producers are looking for a $10 to 20 per ton increase in hot rolled coil export prices in June, which could signal some improvement in demand on the export markets. This could help maintain stable prices on the domestic market, while any signs of recovery in construction demand in Russia would be quite supportive for Russian steel companies.
• Deutsch Bank China Economist Ma Jun recently boosted his forecast of RMB deposits in Hong Kong to 2 trillion by the end of 2012, driven by rapidly rising trade settlement between China mainland and Hong Kong. RMB deposits soared to 407 billion in February 2011, six times the amount in the same period last year. Among the many opportunities arising from this growth is that Macau casino business will be the low hanging fruit for investors since it benefits directly from the RMB out-flows. The chart shows the correlation between RMB deposit in Hong Kong and Macau gaming revenue.

Threats

• A recent correction in commodities prices may be a headwind for resource dependent countries in Latin America, notably Brazil, Chile and Peru.
• A company press release by Magyar Telekom announced that the regulator in Hungary has obliged the operator to provide access to its passive network infrastructures, including ducts, poles, dark fiber, copper and optical local loops. It remains to be seen who will take advantage of this regulation to take share away from Magyar.
• April’s macro economic numbers show that the growth of the Chinese economy is slowing due to China’s monetary tightening. The market believes China will have one more interest rate hike in second quarter, and several RRR increases until inflation concerns subside. While the market is broadly predicting a soft landing in China, investors have yet to commit their money in the market, as shown by Hong Kong lower daily trading volume.

Tags: Asia Countries, Asur, Benchmark Interest Rate, Benchmark Rate, Brazil, Bureau Of Statistics, China International, China Russia, Cicc, Compound Annual Growth Rate, Credicorp, Emerging Asia, Emerging Europe, Forthcoming Election, Gdp Per Capita, India, Infrastructure, Internet Revenue, Market Population, National Bureau Of Statistics, National Bureau Of Statistics Of China, Political Uncertainty, Real Estate Investments
Posted in Brazil, India, Infrastructure, Markets | Comments Off

Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Saturday, April 16th, 2011

Energy and Natural Resources Market Cheat Sheet (April 18, 2011)

Strengths

• Copper inventories in warehouses monitored by the Shanghai Futures Exchange dropped 4.8 percent.
• China has exported 42,600 metric tons of refined copper during the first two months of 2011, eight times the amount in the last year.
• Mexico (up 13 percent year over year) and Argentina (up 20 percent year over year) became the largest contributors to mine supply according to Gold Fields Mineral Services (GFMS), GFMS estimates a rise of 2.5 percent to a record 22.9kt, driven by growth from the primary and Lead/Zinc sector.
• Seasonally adjusted US auto sales for the month of March remained above 13 million vehicles per year; the sales figures crossed the 13 million vehicle level the second time since the cash for clunkers program that ended on Nov 1, 2009.
• The National Bureau of Statistics reported this week that China’s crude steel rose 9 percent to 59.42mt in March from a year ago and 9.4 percent higher than February’s 54.3mt. This boosted China’s production to the second-highest level on record amid higher demand from builders.
• China’s Gross Domestic Product (GDP) increased 9.7 percent in the first quarter, which was higher than expected and despite inflation rising to the highest level in almost three years.

Weaknesses

• Manufacturing growth, which makes up about 80 percent of India’s industrial production index, was at 3.5 percent for the month, down from 16.1 percent a year ago.
• A drop of 16 percent to 8.37 million tons for the first quarter iron ore shipments was reported by Fortescue’s due to heavy rains in Australia, the company said it will raise output to 12 million tons in second quarter.
• China Iron and Steel Association reported a decline in China’s daily crude steel output in the last ten days of March to 1.922 million tonnes per day.
• After the African Union said Muammar Gaddafi had accepted a roadmap to end the civil war in Libya, as a result Brent crude fell below $126. Furthermore, Brent crude fell sharply to below $122 and U.S. crude dropped by $2 a barrel this week on concern high fuel prices will destroy demand.

Opportunities

• China’s preliminary March trade data shows a 29 percent month over month increase in copper imports. This could provide more support to this metal, which ended the week at a one month high.
• Gasoline is crowding out retail sales at rapid pace, its share of total retail sales exploded higher in March to 10.72 percent from an upwardly revised 10.49 percent in February.
• A Transocean owned rig has drilled the deepest-ever water depth well off the coast of India, drilling in 10,194 feet of water, more than the previous record of 10,011 feet.
• Diego Hernandez, CEO of state mining giant Codelco, said this week that the global salmon farming industry could need up to 50,000 tonnes of copper a year to build rearing cages thanks to the metal’s anti-bacterial qualities.
• One of the world’s main suppliers of grain, Argentina, may revive a controversial tax system on grain export. A similar plan to raise taxes on soy exports in 2008 sparked nationwide farmer protests that rattled global commodity markets and hit the popularity of President Cristina Fernandez, who plans to bid for re-election in October.
• The Association of American Railroad reported this week that Major Class 1 cross-continental railroads hauled almost 200,000 multi-modal shipping containers, which was easily a record for this time of the year, conforming business survey data suggesting the U.S. economy has entered a mini boom as cheap money revs up the recovery.

Threats

• Although copper prices have almost quadrupled after a two-year rally, largely driven by the belief that China has an insatiable appetite for this metal. Evidence recently surfaced of previously unreported copper stockpiles, which shows signs of about 15 percent of the country’s annual consumption of Copper hasn’t been yet put to use. Chinese buyers are facing a dual problem of higher copper prices and the government’s aggressive move to tighten credit.
• Eskom, a South African power supplier, has said power supply is likely to remain tight for the next five years; a potential risk for the Platinum Group Metals (PGMs) production.
• Plans to halt the approval of new aluminium plants in China to tackle serious overcapacity in the industry. The decision would put a hold on investment worth $ 11 billion.
• Mohammad Ali Khatibi, governor of OPEC, was quoted last week as saying that the global oil market is oversupplied; despite prices that have been pushed up by upheaval in the Middle East.
• Global 2010-11 cocoa surplus estimates last week have expanded to 184,000 tonnes and prices look set to fall further from the 32-year high hit last month. Cocoa exports from Cameroon, the world’s fifth largest grower, hit 186,305 tonnes by the end of March from the start of the season in August, up 21 percent year over year.

Tags: Bureau Of Statistics, China, Crude Oil, Crude Steel, Eight Times, Fortescue, Gold, Gold Fields, Heavy Rains, India, Industrial Production Index, Iron And Steel, Iron Ore, Metric Tons, Million Vehicles, Mineral Services, Month Of March, Muammar Gaddafi, National Bureau Of Statistics, oil, Refined Copper, S Industrial, Shanghai Futures Exchange, Steel Association, Steel Output
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Energy and Natural Resources Market Diary (December 20, 2010)

Monday, December 20th, 2010

Energy and Natural Resources Market

Strengths

• U.S. steel mills Nucor and Steel Dynamics announced price increases of $30 and $20 per short ton, respectively, on flat rolled carbon steel products this week. This marks the fourth price hike by these companies in the past three weeks.
• The latest Chinese data shows strong growth in key copper industry end-use data. According to National Bureau of Statistics (NBS) data, production of power cables was up 33.1 percent on a year-over-year basis in November and 26.9 percent year-over-year during the first 11 months of 2010.
• China’s crude oil processing hit a record 8.9 million barrels per day in November as refiners reduced output of other products to raise diesel production by 4.2 percent from October, the NBS showed.

Weaknesses

• Finnish stainless producer Outokumpu issued a profit warning this week, highlighting recent weakness in European stainless steel orders and prices.
• South African gold production fell 4.1 percent from a year earlier to 50,504.3 kilograms during the third quarter.

Opportunities

• Macquarie Capital highlighted data from research firm SXcoal illustrating that power plant coal inventories in China have fallen to 16 days of consumption. This is down from 21 days at the end of October. With inclement weather causing over 60 hours of downtime at Bohai Bay ports since December 1, coastal freight shipments have been adversely affected and power plants in Southeast China are down to 13 days of consumption in stock. This is likely to support firm domestic spot prices for thermal coal in the coming weeks.
• The International Energy Agency (IEA) raised its 2011 global crude oil demand forecast for a third month on consumption gains in North America and China. The Paris-based advisor said worldwide crude oil use will average 88.8 million barrels per day next year, about 260,000 barrels more than its previous forecast.
• Global aluminum demand will rise 8 percent in 2011, while China demand will rise 12 percent followed by U.S at 4.5 percent, Japan at 4 percent and Europe at 2 percent, United Company Rusal said. Aluminum may sell for $2,400-$2,500 a ton next year, supported in part by a weakening dollar and the start-up of funds for investment purposes. China’s aluminum imports will rise to 3–4 million metric tons a year by 2015, as it restricts the use of outdated plants and the country’s currency gains, according to Rusal.
• South Korea said it will nearly double its production of rare earths and lithium next year. The government aims to boost supplies of the two resources from Korean-owned mines to 10 percent of annual requirements next year, the country’s Ministry of Knowledge Economy said. This is up from 5.5 percent this year.

Threats

• The local government of Shanghai has told locally incorporated banks to stop fixed-asset lending for the remainder of the month. China’s urban fixed-asset investment through November is up 24.9 percent year-over-year, and new loans for the year are on pace to exceed the 7.5 trillion yuan target. China is expected to set a target of 7-7.5 trillion yuan for 2011.

Tags: bohai bay, Bureau Of Statistics, Carbon Steel Products, chinese data, Copper Industry, Currency, day in november, freight shipments, Gold Production, Inclement Weather, International Energy Agency, Market Strengths, National Bureau Of Statistics, power cables, rolled carbon steel, Short Ton, south african gold, southeast china, Steel Dynamics, Thermal Coal
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Emerging Markets Diary (November 29, 2010)

Sunday, November 28th, 2010

Emerging Markets Diary (November 29, 2010)

Strengths

• After taking measures in selling its food reserve and providing free or reduced transportation fares on November 11, China’s National Development and Reform Commission (NDRC) has seen soft commodity and vegetable prices drop 10 percent.
• Profits of sizable industrial companies in China have increased 51.6 percent on a year-over-year basis to 2.84 trillion RMB during the first 10 months of this year, according to the China National Bureau of Statistics. Sales increased 32 percent to 45.3 trillion RMB during the same period.
• In October, China’s current account surplus increased 103 percent on a year-over-year basis to $102 billion, according to the China State Administration of Foreign Exchange.
• Fitch upgraded Turkey’s credit outlook to positive from stable, reflecting the country’s strong economic recovery, increasing confidence of its macroeconomic transformation, and improving public finances. Fitch rates Turkey just one notch below investment grade. Fitch foresees Turkey’s budget deficit-to-GDP ratio at 4.0 percent in 2010 and 3.2 percent in 2011.

Weaknesses

• An artillery exchange between North and South Korea happened along the border between the two countries this week. The situation is still tense and could possibly escalate quickly.
• China is still in the process of figuring out price control measures to curb further inflation.
• China saw huge capital inflows during October. The country’s money supply growth during the month includes 519 billion RMB coming from purchases of foreign currency inflow.
• The Customs Union established by Russia, Kazakhstan and Belarus envisions duty-free trade in oil and related products within the Union’s borders. The Russian government plans to compensate for the missing budget revenue by charging higher product duties. Unicredit sees product duties reaching 60-90 percent of the crude duty, up from the 38 percent on dark and 71 percent on light products charged currently.

Opportunities

• China money supply is the largest in the world at $10.5 trillion, according to Bloomberg. This huge reservoir of money has to find its way into investments. China, at this moment, still restricts its domestic individual investors from free access to international capital markets so the only markets left for them are domestic property and equity markets—the two free markets in China. After the government limited the household ownership to one house in order to prevent a property bubble, investors are left with only the equity market in which to invest. The thought of money flowing into equity markets has been talked about since April of this year but has yet to make a substantial difference. However, we believe it will eventually become a significant factor in driving the market after the current market gyration is complete.
• In the twelfth Five Year Plan, China has identified industries on which to focus and provide favorable policy assistance, such as renewable energy, environment protection, agriculture, medicine, biotechnology and precision automation. China is in the process of changing its GDP growth model from fixed asset investment (FAI) and exports to being driven by consumer spending. Meanwhile, there is still huge FAI to be made in Western China and on the railways and highways needed to connect China with the rest of Asia. These connections include China to Pakistan through Afghanistan and China with Central Asia. Eventually, China plans to connect with Europe by highway and railway both through Southwest Asia and Russia. These are growth opportunities in which companies inside and outside China can participate.
• Residential real estate in Russia and Turkey stands to benefit from historically low interest rates, recovering unemployment, and improving consumer confidence, according to Merrill Lynch. However, affordability is currently better in Turkey than in Russia. The ratio of income-to-price per square meter in Istanbul is twice as high as in Moscow. Turkey also has the added benefit of a young and growing population.

Threats

• According to our calculations, China’s current monetary tightening is only enough to absorb new money created from trade surplus, foreign direct investment (FDI), and hot money. In October alone, China’s new money from purchasing capital inflow accounted for 519 billion RMB ($77.6 billion U.S. dollars). Hot money accounted for 286 billion RMB while 234 billion RMB is from trade surplus and FDI. To counter this hot money effect, the People’s Bank of China needs to raise the required reserve requirements (RRR) another 50 basis points. The market expects China to raise RRR a few times before all is stable. China also needs to withdraw excessive liquidity by raising interest rates and limiting new loans next year to below this year’s levels. If China’s money supply reverts to its mean, it should result in sustainable economic growth.

• The chart from Bloomberg shows the short interest as a percentage of shares outstanding for the MSCI Emerging Market Index touching the lowest level since January 2006. This bullish sentiment may foreshadow a nascent bubble forming in emerging markets.

Tags: Account Surplus, Budget Deficit, Bureau Of Statistics, Capital Inflows, China National Bureau Of Statistics, Control Measures, Credit Outlook, Customs Union, Food Reserve, Foreign Currency, Gdp Ratio, Increasing Confidence, Investment Grade, Money Supply Growth, National Bureau Of Statistics, Ndrc, Public Finances, RMB, Russia, State Administration Of Foreign Exchange, Vegetable Prices
Posted in Energy & Natural Resources, Markets, Oil and Gas, Outlook | Comments Off

Energy and Natural Resources Market Diary (August 16, 2010)

Saturday, August 14th, 2010

Energy and Natural Resources Market Diary (August 16, 2010)

Strengths

• The Baltic Dry Index of freight rates jumped 20 percent this week on improving charter activity.
• China’s copper imports climbed for the first time in four months as arbitrage traders sought profits by buying the metal in London and selling it in Shanghai. Shipments of copper and products gained 4.5 percent month-over-month in July, the customs office said. Buyers have reduced shipments since April as they drained domestic inventories. Stockpiles dropped to the lowest level in six months as of July 30, according to warehouses monitored by the Shanghai Futures Exchange.
• The Brazilian automotive sector continued to grow in July with auto sales increasing by 15.1 percent (up 302,300 units) over last month and up 5.9 percent versus a year ago. Analysts estimate that auto sales in Brazil will approach 3.4 million units in 2010.
• China’s power output rose to a record 377.6 billion kilowatt-hours in July, up 11.5 percent from a year ago, the National Bureau of Statistics said.

Weaknesses

• Latest U.S. trade data show that coking coal exports fell 10 percent from the previous month in June. This reflects weakness in European demand which is down 23 percent, ahead of scheduled blast furnace closures.
• Unofficial port data from India shows a collapse in iron ore exports in July, according to Analysts at Macquarie Securities. This could partly explain the recent sharp rally in iron ore prices. Indian exports were just under 4.5 million tonnes in July, the lowest July figure in over six years, reflecting the impact of the Indian monsoon season and a temporary ban on exports of iron ore from 10 ports.

Opportunities

• The Organization of Petroleum Exporting Countries (OPEC) raised its global oil demand outlook for 2010 and 2011 by 140,000 barrels per day in its monthly report despite growing concerns of an economic slowdown. The organization highlights that oil demand growth will remain moderate due to uncertainties regarding the recovery.
• The U.S. Energy Information Administration (EIA) trimmed its estimates for domestic natural gas output growth to 1.9 percent year-over-year in 2010 but raised the year-over-year demand forecast to 3.8 percent.
• China Railway Construction and Tongling Nonferrous Metals Group Holdings have indicated that they will invest $3 billion in a copper project in Ecuador. Initial production of 30,000 metric tons is expected to begin in 2013 and is eventually expected to approach 250,000 metric tons. A company official indicated that the ore from the mine will be shipped back to China.

Threats

• Anti-government protests are negatively impacting several zinc, silver, tin and lead mines in Bolivia. Production from San Cristobal, which accounts for nearly 3 percent of global zinc supply, has come to a halt. San Cristobal was the sixth-ranked zinc and fifth-ranked lead mine in the world output league in 2009.

Tags: Baltic Dry Index, Blast Furnace, Brazil, Bureau Of Statistics, China, Coal Exports, Commodities, Customs Office, Economic Slowdown, energy, Freight Rates, Global Oil, India, Indian Exports, Indian Monsoon, Iron Ore Exports, Iron Ore Prices, Kilowatt Hours, Macquarie Securities, Market Diary, Monsoon Season, National Bureau Of Statistics, Natural Gas, Natural Resources, oil, Oil Demand, Organization Of Petroleum Exporting Countries, Shanghai Futures Exchange, Silver
Posted in Brazil, Energy & Natural Resources, India, Markets, Oil and Gas, Outlook, Silver | Comments Off