Archives of “April 2019” month

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S&P 500’s eight-day winning streak ends as growth concerns resurface

  
Analysis, US Market

The S&P 500 failed to extend its recent winning streak, tumbling on Tuesday as a list of risk factors prompted caution among traders around the world.

A lower global growth forecast from the International Monetary Fund, White House rhetoric on potential tariffs on imports from the EU and the stubborn prospect of a disorderly withdrawal from the bloc by the UK muted the mood.

Wall Street’s S&P 500 finished 0.6 per cent lower, registering its first decline in nine sessions and scuppering what had been its longest winning streak since October 2017. All sectors with the exception of utilities, a typically defensive group, finished in the red on Tuesday.

The decline comes ahead of the release on Wednesday of minutes from the Federal Reserve’s most recent meeting, as well as the policy meeting for the European Central Bank.

The Europe-wide Stoxx 600 was down 0.3 per cent overall, with brisker moves for shares at the centre the Trump administration’s attention. Airbus lost just over 2 per cent after news that the US was considering putting tariffs on civilian aircraft as part of an $11bn series of measures aimed at EU products. Engine maker Rolls-Royce fell 1.1 per cent.

Frankfurt’s Xetra Dax 30 fell 0.7 per cent per cent and London’s FTSE 100 was down 0.2 per cent.

Brent crude slipped from five-month highs which were touched as fighting in Libya intensified, raising the prospect of further supply-side tightening. Opec supply cuts, sanctions against Venezuela and Iran, and expectations of strengthening global demand helped push Brent over the $70 mark last Friday for the first time in 2019. It slipped back to $70.65 by the late afternoon New York time.

Draft of EU summit: EU to agree to Brexit delay

  
  Analysis

Draft conclusion

  • EU to agree to further Brexit delay
  • extension cannot be allowed to undermine the regular functioning of EU institutions
  • if UK still EU member on 23-26 May 2019, and has not ratified Brexit deal by May 22, it must hold EU Parliament elections
  • extension cannot be used to start negotiations on future relationship
  • UK will remain EU member with full rights and obligations, can revoke leave notification anytime
  • UK shall facilitate achievement of EU tasks and refrain from any measure which could jeopardize the attainment of EU objectives
  • Delay only as long as necessary but leave blank exact date for maximum Brexit delay to be agreed by leaders on Wednesday (Tusk believes June 30 is too close).

US EIA raises 2019 and 2020 US oil production estimates

  
Analysis, Crude

Latest forecasts

The EIA sees 2019 oil output at 12.39 million barrels per day, up from 12.30 mbpd in the prior forecast. For 2020, they now see 13.1 mbpd compared to 13.03 mbpd previously.
All the indications I’m seeing are for slower investment in US production so I’m not really on board with this but we’re talking about some very small changes here. WTI has been steady since the release and is down 34-cents to $64.05 on the day.

Putin: Ready to sit down with OPEC+ to discuss H2 cuts, not ready to say if Russia will cut

  
  Analysis

Comments from Putin on oil

  • Russia and OPEC+ are ready for cooperation
  • Watching market closely
  • Russia is against uncontrollable increase of oil prices
  • We are generally ok with current oil prices
  • Not ready to say if Russia will reduce output or not
  • Russian companies have their own plans
Oil has ticked lower on the comments with WTI slipping to $64.07 from $64.40 a few minutes earlier.

IMF cuts 2019 global growth outlook to 3.3% from 3.5%

  
Analysis, Economy

The latest forecasts from the IMF (prior ones were in Jan)

  • 2020 unchanged at 3.6%
  • Says risks to the downside based on Brexit and US-China talks
  • Says growth will stabilize in first half of 2019, sees gradual recovery afterwards
  • Sees global trade volume up 3.4% vs 4.0% in Jan
  • Cuts eurozone growth to 1.3% from 1.6%
  • Cuts US to 2.3% from 2.5%
  • Raises 2020 US forecast to 1.9% from 1.8%
  • Raises 2019 China growth forecast to 6.3% from 6.2%

China’s $1.4tn distressed debt pool draws global buyers

  
Analysis, Economy

International investors are making big purchases in China’s $1.4 trillion pool of distressed loans as they pile up at faster than state-owned banks can clear them away.

Foreign buying of Chinese distressed loans totaled 22 billion yuan ($3.27 billion) by book value in 2018, said Li Jiaqi, an executive director at Shenzhen Qianhai Financial Assets Exchange, a brokerage for bad debts. That is double the value in 2017, and 2019 is expected to be even larger.

American and European funds have waded in. Oaktree Capital Management CEO Jay Wintrob said his firm invested in distressed Chinese loans during the October-December quarter. Foreign investors were buyers in more than 10 bulk sales last year, with some, including Lone Star Funds, Bain Capital and Goldman Sachs, making multiple purchases.

The foreign money pouring into China’s distressed debt market, chasing after discounts, reflects the depth of the country’s bad-loan problem and hints at the limits of Beijing’s deleveraging effort.

Buying opportunities can be found in the victims of China’s slowing economy, such as a shuttered textile factory two hours west of Shanghai in the Jiangsu Province city of Suzhou. The 100,000 sq. meter grounds are abandoned, and the factory’s interior is littered with material.

The site was sold in early March by a distressed debt disposal company under state-owned Agricultural Bank of China, one of the country’s big national lenders.

The company recruited buyers in a bulk sale of more than 200 loans, selling them for 20% to 30% of their 5.9 billion yuan book value, according to a broker for such deals.

China’s commercial banks carried 2 trillion yuan in nonperforming loans at the end of 2018, up roughly 300 billion yuan from a year earlier, according to the China Banking and Insurance Regulatory Commission. Although disposals quickened to an annual pace of 1 trillion yuan, loans have gone sour at an even quicker rate.

(more…)

Trump says ‘will now put tariffs on $11 billion of EU products’

  
  Analysis

Trump tweets following the earlier decision by the US Treasury

The tweet reads:

“The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!”

I can’t see how this would bode well for risk assets despite the fact that this comes off as being a defensive measure to aid Boeing. This is how things began with China and down the road, expect auto tariffs to follow suit soon enough.
Tariff man

Orders for first Saudi Aramco bond hit $85bn

  
  Analysis

audi Aramco’s debut international bond sale has drawn $85bn of orders from investors, with the world’s largest oil producer set to wrap up its landmark US dollar debt raising later on Tuesday.

Aramco opened books on the six-part deal — which is expected to be at least $10bn in size — on Monday, after marketing the deal in a series of meetings across Europe, Asia and the US last week.

A banker close to the deal said that the $85bn of investor orders are skewed towards the bond sale’s longer tranches, with Aramco offering investors the chance to buy 20- and 30-year at higher yields.

The Saudi state-backed oil company is marketing the new bonds at a price in line with Saudi government bonds. As borrowers typically look to drive in pricing levels before the close of a bond sale, it suggests that Aramco is targeting a cheaper borrowing cost than the Saudi government.

Credit rating agencies rate Aramco in line with the Saudi government due to its close interlinkages with the Saudi state. The oil company has told investors that credit rating agency Moody’s would have given it a top-notch triple-A credit rating if not for this, however, as Aramco is the most profitable company in the world, producing enough cash each year to cover its debt many times over.

The bond sale is due to wrap up later on Tuesday, with order books closing for European investors at 11am London time.

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