Another Tilt of the hat to our blogging brethren for the heads up about a primer on Egypt out Monday from Capital Economics.
We were struck by this chart showing the components of Egypt’s current account (im)balance. Click to expand: Read more
The price of oil briefly hit $100 a barrel, but strong US earnings and an uptick in hopes for the eurozone crisis gave investors cover to return to riskier assets as unease over unrest in Egypt diminished slightly, reports the FT’s global market overview. Oil traders briefly pushed the price of Brent crude above $101 for the first time since September 2008. However, on Monday, Abdalla el-Badri, OPEC secretary-general, said: “If we see a real shortage we will have to add”. With Egypt’s markets closed, investors expressed their opinion through credit default swaps. Protection against default by the government is still highly elevated, at 440bp, according to Markit. However, that narrowed slightly from Friday evening, when the cost was 455bp. The S&P 500 index was recovering, adding 0.8 per cent to 1,286.12, its best one-day performance in 3 weeks. US Treasury bonds were also falling after surging on haven demand, up 6 basis points to 3.38 per cent. The levelling of Egypt fears came as CDS prices on some of Europe’s peripherals also narrowed. Greece was 10bp narrower, at 860bp, after reports in Greek papers that the EU and other authorities had reached an understanding that some kind of default, with a resulting haircut on bonds, was inevitable.
India has approved a controversial $12bn steel investment in the eastern state of Orissa after a six-year struggle between South Korea’s Posco and environmental campaigners, reports the FT. The environment ministry’s approval of the deal, the biggest single foreign investment in India, is seen as a sign of the government’s willingness to compromise, as it balances the need to attract more foreign investment with concern for the environment.
US private equity firm Bain Capital and Government of Singapore Investment Corporation, the sovereign wealth fund, are close to an agreement to buy a minority stake in listed Indian motorcycle maker Hero Honda from the controlling Munjal family, said people familiar with the matter. The expected transaction, for which an exact price has not been disclosed, could be as much as $1.75bn, reports the FT.
An independent inquiry into India’s telecoms ministry threatens to prolong a parliamentary furore over corruption after naming officials behind irregularities in the award of mobile telephone licences, reports the FT. The report by Shivraj Patil, a former Supreme Court judge, addresses corruption allegations in the handling of the award of 2G licences that an earlier audit claimed could have cost the exchequer $39bn.
Burma’s newly elected lawmakers gathered for the first time in more than two decades on Monday, setting the tone for the country’s much criticised experiment with democracy by electing a regime stalwart to the position of speaker, reports the FT. The 664 members of the upper and lower houses met amid tight security in the vast and sterile grandeur of the new capital of Naypyidaw. The session was held behind closed doors: ordinary Burmese citizens, journalists and diplomats were forbidden entry.
Spirits are running high before this week’s Chinese New Year holiday as prices of a popular grain liquor soar, reports the FT. Moutai, the fiery official liquor for state banquets since the Communist revolution, has been variously described by foreign dignitaries as “liquid razor blades” and “smelling like a barnyard and tasting like turpentine”. With annual food inflation hitting 7.2 per cent last year and with stocks running dry, the state-controlled company that makes China’s most famous moutai brand raised wholesale prices 20 per cent this month – its first increase in a year.
The European Central Bank suspended its emergency purchases of eurozone government bonds last week as the debt crisis eased, allowing it to focus on combating rising inflation, reports the FT. Official data published on Monday showed annualised eurozone inflation reached 2.4 per cent in January, the highest for more than two years and beyond the ECB’s target of “below but close” to 2 per cent. The ECB is expected to hold its interest rate unchanged at 1 per cent on Thursday. However, the larger than expected rise in prices is likely to prompt warnings from Jean-Claude Trichet, bank president, that the ECB will act on any signs of inflation spinning out of control. Eurozone inflation was 2.2 per cent in December.
The BP chief executive’s hopes of winning round the investment community on Tuesday were clouded by the group’s Russian partners in TNK-BP declaring that they would block last year’s final dividend from the joint venture, reports the FT. Bob Dudley is expected to use his first results presentation to outline growth plans for BP and announce a resumption of dividend payments by the group, which were suspended after last year’s Gulf of Mexico spill. But the Russian partners, represented by Alfa-Access-Renova, confirmed on Monday they had decided to block the payment of TNK-BP’s fourth-quarter dividend of $1.8bn as part of a dispute over BP’s recently announced share swap and Arctic exploration alliance with Rosneft, Russia’s state oil group.
ExxonMobil, which has bet heavily on the US gas market through the $41bn purchase of XTO, depended on higher oil prices in the latest quarter as US natural gas prices continued to fall, reports the FT. The world’s largest private sector oil company by market capitalisation has a long-term forecast of robust growth in demand for gas, expecting it to provide an increasing share of power generation at the expense of coal. In the fourth quarter, however, its net profit was lifted by higher income from oil production and gas outside the US, and improving margins at its refineries and chemicals plants.
A political standoff between the regime of Hosni Mubarak, Egyptian president, and forces calling for democratic change hardened on Monday as a new government was sworn in but dismissed by protesters as irrelevant, reports the FT. Mr Mubarak has made a few small concessions but they have been presented in vague language that has failed to convince the tens of thousands of people demonstrating in favour of regime change and democracy. Meanwhile, the Egyptian army announced on state TV that it would not fire on protesters, who are expected to gather on Tuesday as part of a ‘March of Millions’, according to the New York Times.
Oil prices broke through the $100 a barrel level for the first time in more than two years, amid market fears that Egypt’s turmoil will hit oil flows, reports the FT. Although both the Suez Canal and a pipeline linking the Red Sea with the Mediterranean continue to operate, the popular uprising to unseat Hosni Mubarak, Egypt’s president, has brought much of the rest of the economy to a halt. The FT adds that the world’s shipping industry is watching the situation in Egypt especially carefully because of the potential for the country’s unrest to disrupt traffic on the Suez Canal, one of the world’s most important international waterways. Meanwhile, FT Alphaville urges caution on those joining a simple line from Brent at $100 a barrel and fears over the closure of the Suez canal.
We mentioned last week that bank business lending in the US had finally begun to recover, if weakly, after precipitous double-digit declines during and after the recession.
With oil on the rise, what next for equity markets?
That’s the question KBW try to answer in a note out on Monday. The analysts look for correlations over the last 50 years between big (ten and 20 per cent quarter on quarter) WTI rises and changes in the S&P500 and the Keefe Bank Index. Read more
Brent’s finally done it:
(Reuters) Brent crude oil futures surged above $100 a barrel for the first time in 28 months on Monday on concerns that anti-government protests in Egypt could create instability across the Middle East, possibly disrupting oil shipments through the Suez canal. Read more
Remember when Bob the Bear went bullish?
Bob Janjuah and Kevin Gaynor — global macro strategists formerly of RBS, now based at Nomura — said in October that markets were set to turn strongly ‘pro-risk’, ‘pro-policy’ et cetera into the medium term, largely thanks to the Fed’s restoration of quantitative easing. Read more
FT Alphaville has been keeping an eye on the composition of the Federal Reserve’s US Treasury purchases for a while.
It’s important to watch because the more the Fed buys of any particular issue, the less of a free float is available for everybody else — a fact which may skew pricing or encourage a security’s so-called ‘specialness‘ in the market. Read more
John picked up the phone. It was the bank’s legal counsel, Peter Thompson, calling. He had dramatic news. Garland Brothers, one of the world’s oldest banks, would declare bankruptcy tomorrow. As he lay there in his spacious air-conditioned bedroom, unable to return to sleep, John tried to reconstruct the events of the last four years…
So starts a 28-age report by consulting firm Oliver Wyman, ominously titled: “The Financial Crisis of 2015: An Avoidable History.” It’s grabbing some headlines this week, thanks to a Davos-related set-piece by Bloomberg, and is worth a read. Read more
Live markets commentary from FT.com
Egypt’s critical role in the transportation of the world’s oil has given global markets an unnerved start to the week, Reuters says. The Nikkei closed down 1.2 per cent overnight. European markets fell almost 1 per cent at their open, the WSJ says. Brent crude nevertheless remained below the $100 per barrel threshold. Even so, Egypt’s unrest has brought attention once again to the risks posed by high oil prices to the economic recovery, especially if protests spread to other Middle Eastern refiners or producers, the Journal adds. For now, UK markets may be relatively more exposed to Egypt than other developed economies, with strong banking, tourism and energy exploration links, FT Alphaville reports.
As the situation in Egypt worsens, quoted UK travel operators are coming under selling pressure.
Tui Travel and Thomas Cook are among the biggest fallers on Monday morning as analysts downgrade to reflect the impact of the unrest in Egypt, and also Tunisia: Read more
Europe’s banking system is returning to health amid signs that financial institutions are no longer hoarding cash, according to overnight lending rates, says the FT. Eonia rates have jumped above official ECB interest rates of 1 per cent for the first time since June 2009, while money held at the central bank above reserve requirements fell to €7bn ($9.5bn) last week from €350bn at its peak last June. In the equity markets, European bank and insurance stocks are set for their best January since at least 1998 as concerns diminish for now, Bloomberg reports.
Moody’s has downgraded Egypt’s government bond ratings to Ba2 based upon ‘the recent significant rise in political event risk,’ FT Alphaville says. Massive anti-government protests have already broken down Egyptian transport networks and sharply increased food prices, the NYT reports. Container shipping has stacked up at ports while bakeries have not had money to bake government-subsidised bread. Oil and gas production is being closely watched in the meantime: Israel is highly dependent on Egyptian natural gas, while European economies would be hit by any interruption to supplies of jet fuel, heating oil and distillates refined in the region and shipped or pipelined through Suez.
Western companies have been sent scrambling to find alternative suppliers and have slowed down their orders, as Chinese inflation begins to infect the country’s exports, the NYT says. Some shipping companies have cancelled around a quarter of trips between US and Chinese due to the slowdown. A bigger delay in the system could even allay the China’s vast $275bn trade surplus with the US, which has set off battles over the undervaluation of its currency. Rising inflation is also giving more power to China’s central bank over rival, less hawkish, pro-growth groups in Beijing, Reuters says. High prices give the bank more leeway to drain liquidity from the system — but still, only two or so interest rate hikes are expected this year.
Fitch seems angry.
In a Friday statement, the rating agency dealt with a recent ruling by a judge in the Spanish province of Navarra, which said that giving a mortgaged house back to a bank is sufficient to cancel mortgage debt, even if the house has negative equity (H/T mh arb). This is rather different to what normally happens in the Spanish system, with banks able to go after the assets of defaulted borrowers for up to 15 years. Read more
BP’s Russian billionaire partners in TNK-BP have called an extraordinary board meeting to discuss withholding the payment of last year’s final dividend as they step up their attempts to frustrate the group’s proposed alliance with state oil company Rosneft, the FT says. The dividend is worth $1.8bn, half of which would go to BP. The AAR consortium, which owns half of the venture, are trying to keep TNK-BP as the energy company’s main vehicle in Russia, Reuters reports. For its part BP wants to begin ‘fast-track’ arbitration with the shareholders. The Russian partners have also asked London’s High Court to halt BP’s recently announced share swap with Rosneft as well as their plans to explore in the Arctic. A hearing is set for Tuesday.