On the actual reality of no more petrodollars

About a year ago — a few days before Opec spooked the world with its decision to wage war on shale producers with an oil production race to the bottom, but following a few months of steady oil declines post the Fed’s decision to start signalling an upcoming tightening path — we speculated regarding a what if scenario based on the hypothetical eventuality of no petrodollars :

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Markets Live: Wednesday, 7th October, 2015

Live markets commentary from FT.com 

A straitened new world for commodity traders

Right, so Glencore most probably isn’t the next Lehman.

But that doesn’t mean it can’t also herald a rather large change. Take this from BofAML:

With increased regulatory scrutiny on bank commodity exposure, we think that “business as usual” won’t be an option. While we don’t see an imminent liquidity crisis, we note that bank credit may inevitably tighten, albeit over time. Also, business models may need to be reengineered to be less dependent on cheap and easy access to financial leverage.

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Here’s relooking at Chinese FX reserves

Not so bad this month, particularly when you take into account expectations and the headline $94bn fall we saw in August.

From Nomura:

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Further reading

Elsewhere on Wednesday,

- A Chinese town being buried under the coal that made it.

- “I’ve come to their tax-haven sex mansion to hear their improbable story—how two sons of an ultrareligious Jewish neighborhood in Brooklyn witnessed the birth of a new kind of lending, made a fortune, and then saw it all come to an end.”

- Data as a waste product.

- The NY Fed is still talking about bond market liquidity. No. ReallyRead more

FirstFT – Global growth slumps, a month to forget for hedge funds and Facebook vigilantes

The IMF said global growth this year would fall to its slowest pace since the financial crisis Read more

Here’s looking at Chinese FX reserves releases

Chinese GDP or employment data, meh.

These days the only data that really matters are Chinese FX reserve statistics. The latest month’s position is due to be released overnight, and Daniel Tenengauzer of RBC Capital Markets expects we could be in for another episode of declining coffers:

We believe China will continue to post outflows for two reasons. First, interest rate differentials against the US declined by 200-250bp since January 2014. Even assuming no imminent lift-off in the Unites States any time soon, the flows will likely pull USD/CNY higher. We believe there is about USD400-500bn of pipeline demand in short-term international claims just to reverse some of the flows observed since 2010.

We estimate that in August there were about USD100bn of outflows. As global FX reserves accumulation turns around, the same things FX reserve managers aimed to buy in the past ten years or so will also turn around as well; this includes a variety of short duration fixed income products and alternative currencies to diversify trade weighted index baskets.

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Light, where there was once dark – Glencore funding edition

Glencore has put out a funding fact sheet on Wednesday in a bid to settle nerves over the scale and scope of its market-dependent leverage.

You can find the statement here.

The notable points are:

Terms and conditions, related to committed, unsecured facilities
No financial covenants, no rating events of default or rating prepayment events, no material adverse change events of default or material adverse change prepayment events.

Everything, essentially, is at the goodwill of the market. But there’s also a section worth reading about how the funding of Glencore’s “readily marketable inventories” (RMI) works: Read more

Guest post: What Chinese rebalancing? Cash flow edition

By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World. The TL;DR of this post might be that rebalancing the Chinese economy without a hard landing will be… difficult. Read more

Markets Live: Tuesday, 6th October, 2015

Live markets commentary from FT.com 

What is cybercrime really?

From a speech by Cyril Roux, deputy governor of the Central Bank of Ireland on Sept 30 (our emphasis):

The risk/reward trade-off for cybercrime is very attractive. Cybercriminals know there is a low likelihood of being detected, caught or prosecuted and many attack strategies can be executed cheaply. This has led to a substantial broadening of the attacker base. Due to the proliferation of the cybercrime-as-a-service business model, the cybercrime industry is no longer just the domain of highly skilled IT people.

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FT Opening Quote – Melrose’s rosy return to investors

Melrose has a nice surprise for shareholders this morning while Greggs aims to shock this Halloween with “spooky ring buns”. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

For the world is cold and less full of inflation

So charted by Citi.

As they say, the coolness of global inflation is not just an energy price story:

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Further reading

Elsewhere on Tuesday,

- The pre-requisites for the next default cycle are now in place.

- Disrupting disruption.

- Praet charts the eurozone’s shabby recovery.

- Dan Davies on political protest and journalism.

- “On Monday, the two major fantasy [sport] companies were forced to release statements defending their businesses’ integrity after what amounted to allegations of insider trading…”

- Pain in the hedge, Read more

FirstFT – TPP sealed, Air France execs left shirtless and the secret world of London’s luxury hotels

The US and 11 Pacific Rim nations strike the Trans-Pacific Partnership deal Read more

Why fintech is a marketing story

Could industry+”tech” be the most annoying portmanteau since Jennifer Lopez combined with Ben Affleck to form Bennifer? We think so.

A quick list of some current entries:

  • It’s not biology, pharmaceuticals or science, it’s biotech or healthtech.
  • It’s not financial e-commerce anymore, it’s fintech.
  • It’s not advertising, it’s adtech.
  • It’s not food provision, it’s foodtech.
  • It’s not media, it’s mediatech.

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For Glasenberg, market ignominy…

In a table:

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Markets Live: Monday, 5th October, 2015

Live markets commentary from FT.com 

About that ‘flash surge’ in Glencore

Which idiots do we blame for this?

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Further reading

Elsewhere on Monday,

- In which the IMF worries about EM corporate leverage.

- Uncle Sam spam.

- People. Get. A. Grip: Glencore is not the next Lehman.

- “Streetlamp corruption” in China.

- China’s middle-class dream is in peril.

- “The Turing scandal has shown just how vulnerable drug pricing is to exploitative, rent-seeking behavior.”  Read more

FT Opening Quote – Tories time Lloyds retail sale

Lloyds bank shares will be sold to the public at a 5 per cent discount by the Treasury, as George Osborne prepares to address the Tory conference today. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

FirstFT – Russia scuppers no-fly zone plans, the gun-buying rush and the prospect of a mega tsunami

Moscow has in effect scuppered US coalition plans for a no-fly zone over Syria Read more

Negative rates as a precursor to death of banking, redux

Back in 2012, we argued that:

“The simple fact of the matter is that in a negative carry world – or a flat yield environment for that matter there is no role or purpose for banks because banks are forced into economically destructive practices in order to stay profitable.”

Which was short for: banks and zero interest rates don’t get on. Read more

Yieldcos and interest rates

When is a yieldco actually a money-printing device? And when is it not?

Or put differently: how sensitive are yieldcos to interest rate and tax changes?

[Yieldcos are pitched to investors as dividend growth-oriented companies which distribute predictable cash-flows to investors on tax efficient terms.]

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When energy inventory snaps looks like this

Simply amazing exploding crude inventory charts from BNP Paribas:

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Markets Live: Friday, 2nd October, 2015

Live markets commentary from FT.com 

William Macaulay, the reluctant Glencore insider

On the face of it, another Glencore director has done the decent thing: following the example this week of fellow directors Tony Hayward and John Mack, Glencore non-exec William Macaulay has picked up a parcel of distressed Glencore stock.

And it looks substantial — 1.7m shares, purchased on Thursday at 90.91p — until you look at what Macaulay trousered barely three months ago… Read more

Alphachat: Anne-Marie Slaughter on gender equality, invisible Xi, and Emily Parker on the Internet in Cuba

We’re thrilled to announce that today we are launching a new longform-only* podcast about economics and business — a kind of spinoff from Alphachat, which will continue to run weekly.

We received a lot of suggestions throughout the last two months of producing Alphachat consistently, but the two most common kinds of feedback were directly contradictory. On the one hand, a lot of people asked for more long-and-wonky chats like our hour-long conversation with Joe Stiglitz. On the other hand, many other listeners also wanted a slightly shorter Alphachat: an hour was too long for them. Read more

Why fintech is a jobs story

McKinsey have warned banks are facing a wipeout scenario in some financial services because of the challenger threat from fintech.

As the FT’s Martin Arnold reported this week:  Read more

That was yen, this is now

A brief history of Japan’s stock market, charted by Nomura. Do click to enlarge/ to spot the bubbles:

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