With borrowing costs already in negative territory and recent data showing a moderate improvement in the euro zone economy, the European Central Bank (ECB) have made subtle indications that they would be reluctant to push interest rates down and investors are toning down their bets on the possibility.
Mario Draghi, ECB chief, said last Monday that the central bank was aware of the growing costs their ultra-loose fiscal policies are having on the euro zone banking sector and said he would not like to keep the policy for much longer.
The euro zone overnight index average (Eonia) for just before the ECB’s next meeting in the first week of December was at minus 0.3532 percent in the middle of the week, nearly the same as the previous overnight mark, showing investors are no longer backing a 10 basis point cut by the end of 2016. It’s already ultra-low at 0.45 percent.
“We certainly weren’t expecting this situation back in June when the Brexit happened,” a senior spokesperson at CITIC Tokyo International commented in a note to investors. “The market was pricing in a whopping 85 percent likelihood of an ECB cut at that time. Everyone was worried that Britain’s outlook for inflation and expansion was in the balance.”
Since the UK’s vote to leave the European Union, several positive economic reports have surfaced and across the Atlantic U.S. figures have improved so much that a Federal Reserve interest rate hike is expected before the end of the year.
All indicators currently reveal that interest rates have bottomed out, an encouraging sign for the banks, which previously were being charged money just for keeping their funds in central bank vaults.
“The lower boundary for rates looks like it has been reached, which is why investors are pricing out of any further rate cuts in the foreseeable future,” says ABN AMRO chief analyst Kim Liu. “The probability of further easing by the ECB is extremely low now, but not out of the question.”
Further fiscal stimulus by the ECB is likely to come in the form of asset purchasing, and particularly an expansion of their 1.8 trillion euro bond purchasing program.
The detrimental effect of negative rates on banks has been underlined recently with the concerns over Europe’s largest lender, Deutsche Bank, who is facing a $15 billion fine from U.S. authorities for their part in the sub-prime mortgage affair in 2008 and is finding it difficult to pull in revenue in the current financial environment.
Friday, 28 October 2016
Thursday, 27 October 2016
Traders betting on oil price bump regardless OPEC call
Investors are betting on an oil price rise even though the chances OPEC nations will agree to a production cap are fading now that Iraq has joined those requesting an exemption.
OPEC will meet next month, and representatives have been scrambling to hammer out details of the proposed output freeze in time. Meanwhile, oil prices have risen to the highest in 2016, showing a 15 percent increase in the last month since Saudi Arabia, the largest oil producing country in the cartel, proposed the agreement.
Details of the deal are sketchy at the moment, but inside sources say recent discussion in Algiers ended with a framework in which OPEC would cut production to around 31.5 million barrels per day from the current 33 million.
“We are going long on oil and most investors will tell you the same right now,” said a key spokesperson at CITIC Tokyo International in a TV interview for Reuters. “We have no idea which countries are going to be involved or how much they will cut from their production but the general trend is to raise bets on options and futures for a continuation of oils price increase.”
It’s the fastest monthly pace that fund managers have added to their bets on an oil prise rise for any October on record according to reports from the U.S. Commodity Futures Trading Commission. Nearly 220,000 crude futures have changed hands this month alone as investors are bolstered by falling inventories.
“The oil landscape is certainly looking a lot better than many of the experts in the field have described it in recent months, it just seems to be more balanced now,” says Kevin Norrish, Barclays commodities chief analyst. “It’s looking more and more likely that crude oil price risk will trend towards the upside and that view will solidify if OPEC can reach some kind of agreement next month, even if it’s not the exact proposal that Saudi Arabia originally wanted.”
The position on crude has roughly doubled since Saudi Arabia put the proposition forward, with total net holdings of U.S. and Brent crude oil options and futures sitting at over 680,000 lots, which is equivalent to seven days of global oil usage.
Non-OPEC producers like Russia will also be invited to join the pact to freeze production next month.
OPEC will meet next month, and representatives have been scrambling to hammer out details of the proposed output freeze in time. Meanwhile, oil prices have risen to the highest in 2016, showing a 15 percent increase in the last month since Saudi Arabia, the largest oil producing country in the cartel, proposed the agreement.
Details of the deal are sketchy at the moment, but inside sources say recent discussion in Algiers ended with a framework in which OPEC would cut production to around 31.5 million barrels per day from the current 33 million.
“We are going long on oil and most investors will tell you the same right now,” said a key spokesperson at CITIC Tokyo International in a TV interview for Reuters. “We have no idea which countries are going to be involved or how much they will cut from their production but the general trend is to raise bets on options and futures for a continuation of oils price increase.”
It’s the fastest monthly pace that fund managers have added to their bets on an oil prise rise for any October on record according to reports from the U.S. Commodity Futures Trading Commission. Nearly 220,000 crude futures have changed hands this month alone as investors are bolstered by falling inventories.
“The oil landscape is certainly looking a lot better than many of the experts in the field have described it in recent months, it just seems to be more balanced now,” says Kevin Norrish, Barclays commodities chief analyst. “It’s looking more and more likely that crude oil price risk will trend towards the upside and that view will solidify if OPEC can reach some kind of agreement next month, even if it’s not the exact proposal that Saudi Arabia originally wanted.”
The position on crude has roughly doubled since Saudi Arabia put the proposition forward, with total net holdings of U.S. and Brent crude oil options and futures sitting at over 680,000 lots, which is equivalent to seven days of global oil usage.
Non-OPEC producers like Russia will also be invited to join the pact to freeze production next month.
Wednesday, 26 October 2016
Trade deal “still a possibility” between Canada and euro zone
Despite several Belgian regions voting against a new free trade agreement between Canada and the E.U., representatives of the two sides say they remain hopeful the deal can still be pushed through.
The agreement, known as Ceta, is being blocked by Belgium because three French speaking regions of the country, including Wallonia, are virulently opposed to it. Nevertheless, Canada’s trade minister and E.U. Council President Donald Tusk have both made comments revealing they still think the deal is alive and kicking.
The agreement cannot go through unless all 28 European Union countries support it, and it is the biggest free trade agreement attempted by the E.U. in its history, after being discussed for the last eight years. Every country apart from Belgium is in favour of the deal.
Charles Michel, Belgian Prime Minister, revealed on Monday he didn’t have the support of all his nation’s provincial governments and couldn’t sign the agreement, dashing hopes the deal could be signed by all member states towards the end of the week.
Two separate elected Belgian bodies, as well as the staunchly socialist Wallonia, refused to support Ceta.
Canadian PM Justin Trudeau was still optimistic about the deal despite the Belgian setback, and said in a statement that “Ceta is not dead, there is still time for all relevant parties to find common ground.”
“It’s now up to Europe to sort out their differences,” Canada's federal minister for international trade Chrystia Freeland said. “We need to be patient but the situation can most definitely be salvaged, there is still a possibility for further talks”.
“Under the Ceta agreement, 97 percent of tariffs on trade goods would be abolished, a stipulation agreed upon in the last 5-years of negotiations,” said a key spokesperson at CITIC Tokyo International in a note to clients. “We believe this would boost trade between the two entities by around 30 percent and would be especially advantages to small and medium sized companies.”
However, some critics say the deal would negatively impact product standards and that the terms of the agreement are heavily slanted towards larger businesses.
“We see through this so called ‘free trade’ deal and we will not be pressured into accepting it with the use of ultimatums,” said Wallonia's regional leader Paul Magnette.
Other regional leaders, such as Flanders regional chairman Geert Bourgeois said the veto was “a temporary setback that can be rectified with communication”.
The agreement, known as Ceta, is being blocked by Belgium because three French speaking regions of the country, including Wallonia, are virulently opposed to it. Nevertheless, Canada’s trade minister and E.U. Council President Donald Tusk have both made comments revealing they still think the deal is alive and kicking.
The agreement cannot go through unless all 28 European Union countries support it, and it is the biggest free trade agreement attempted by the E.U. in its history, after being discussed for the last eight years. Every country apart from Belgium is in favour of the deal.
Charles Michel, Belgian Prime Minister, revealed on Monday he didn’t have the support of all his nation’s provincial governments and couldn’t sign the agreement, dashing hopes the deal could be signed by all member states towards the end of the week.
Two separate elected Belgian bodies, as well as the staunchly socialist Wallonia, refused to support Ceta.
Canadian PM Justin Trudeau was still optimistic about the deal despite the Belgian setback, and said in a statement that “Ceta is not dead, there is still time for all relevant parties to find common ground.”
“It’s now up to Europe to sort out their differences,” Canada's federal minister for international trade Chrystia Freeland said. “We need to be patient but the situation can most definitely be salvaged, there is still a possibility for further talks”.
“Under the Ceta agreement, 97 percent of tariffs on trade goods would be abolished, a stipulation agreed upon in the last 5-years of negotiations,” said a key spokesperson at CITIC Tokyo International in a note to clients. “We believe this would boost trade between the two entities by around 30 percent and would be especially advantages to small and medium sized companies.”
However, some critics say the deal would negatively impact product standards and that the terms of the agreement are heavily slanted towards larger businesses.
“We see through this so called ‘free trade’ deal and we will not be pressured into accepting it with the use of ultimatums,” said Wallonia's regional leader Paul Magnette.
Other regional leaders, such as Flanders regional chairman Geert Bourgeois said the veto was “a temporary setback that can be rectified with communication”.
Tuesday, 25 October 2016
BOJ governor may not achieve inflation target before leaving
Haruhiko Kuroda, governor of the Bank of Japan (BOJ) is unlikely to realise his pledge of 2 percent inflation during his tenure at the central bank as the nine-member board announced that they will be toning down monetary stimulus despite a downgrade in their price forecast.
The BOJ board are expected to discuss operational minutia related to the new policy framework introduced at the September meeting, such as how to practically implement the new “yield curve control” plan.
Inside sources have told Reuters that a strong yen has continued to hurt exports and weak consumption has also contributed to the poor performance of the economy during this quarter, so many analysts are predicting the BOJ may drop some hints of an overall downgrade at their quarterly review meeting.
The meeting may also shatter governor Kuroda’s dream of hitting 2 percent inflation before his tenure ends in 2018, as the board is likely to extend the timeframe for hitting what many economists thought was an overly ambitious target, with the BOJ themselves now projecting inflation will hit that particular level well into 2018 at the earliest.
The general purpose of the BOJ’s recent change in policy has been to bring in measures that are more focused on long-term solutions to counter deflation. Rather than simply swelling base money, they are now expected to continue with the 0.1 percent short-term interest rates and deliver on their promise to steer the benchmark 10-year government bond yields around the zero percent mark.
Japanese economists are worried that certain volatile political situations, such as the upcoming U.S. presidential election, might derail the country’s economic recovery.
Some experts believe that just because the central bank has downgraded their inflation projections it doesn’t necessarily mean additional easing won’t come with it.
“It’s a difficult environment to work in central banking this year and its tricky to predict with any certainty which way the BOJ are going to go with easing in the next few months,” said a senior spokesperson at CITIC Tokyo International in a phone interview. “The inflation forecast seems to have been put on the back burner, but some bank officials have said the BOJ are still willing and able to forge ahead with stimulus if the need arises.”
The BOJ board are expected to discuss operational minutia related to the new policy framework introduced at the September meeting, such as how to practically implement the new “yield curve control” plan.
Inside sources have told Reuters that a strong yen has continued to hurt exports and weak consumption has also contributed to the poor performance of the economy during this quarter, so many analysts are predicting the BOJ may drop some hints of an overall downgrade at their quarterly review meeting.
The meeting may also shatter governor Kuroda’s dream of hitting 2 percent inflation before his tenure ends in 2018, as the board is likely to extend the timeframe for hitting what many economists thought was an overly ambitious target, with the BOJ themselves now projecting inflation will hit that particular level well into 2018 at the earliest.
The general purpose of the BOJ’s recent change in policy has been to bring in measures that are more focused on long-term solutions to counter deflation. Rather than simply swelling base money, they are now expected to continue with the 0.1 percent short-term interest rates and deliver on their promise to steer the benchmark 10-year government bond yields around the zero percent mark.
Japanese economists are worried that certain volatile political situations, such as the upcoming U.S. presidential election, might derail the country’s economic recovery.
Some experts believe that just because the central bank has downgraded their inflation projections it doesn’t necessarily mean additional easing won’t come with it.
“It’s a difficult environment to work in central banking this year and its tricky to predict with any certainty which way the BOJ are going to go with easing in the next few months,” said a senior spokesperson at CITIC Tokyo International in a phone interview. “The inflation forecast seems to have been put on the back burner, but some bank officials have said the BOJ are still willing and able to forge ahead with stimulus if the need arises.”
Monday, 24 October 2016
Chinese conglomerate purchase quarter of Hilton
According to a statement from hotel group Hilton, Chinese multinational conglomerate HNA have acquired a 25% stake in the company in a deal thought to be worth around $7 billion.
The purchase continues the trend of Chinese firms investing in tourism-orientated operations abroad, which many analysts see as a shrewd move amid a surge in Chinese tourism.
HNA’s chief executive Adam Tan has been keen to push the company forward and make it a worldwide tourism business for years and the latest move has satisfied part of that vision.
Only a few months ago the company announced it had signed a deal to takeover Carlson Hotels, which runs the Park Plaza and Radisson brands.
This is all a far cry from HNA’s early days in the early 90’s when it started out as a regional airline, but it moved quickly into a sprawling and diverse business involved in tourism, real estate, financial services and logistics employing over 250,000 people over three continents.
“HNA now have over two thousand hotels, 1300 aircraft and are rated as one of China’s biggest tourism firms,” said a senior spokesperson at CITIC Tokyo International in an email to investors. “The big plus for Hilton is how much extra Chinese business they are going to be getting into their hotels now.”
Hilton chief executive Christopher J Nassetta said in a statement, “This is absolutely the right move for the company at this point in time and it is going to give us more freedom and opportunity to improve and diversify our brand hotels. HNA have a hugely impressive position in the Chinese tourism industry and we are really excited to be working with them in the near future.”
Hilton has over 4500 managed and franchised premises in over a hundred countries under famous brand names such as Double Tree, Conrad Hotels and Curio. The terms of the agreement stipulate that HNA are not allowed to reduce or increase their 25% stake without the permission of the Hilton board of directors.
The purchase continues the trend of Chinese firms investing in tourism-orientated operations abroad, which many analysts see as a shrewd move amid a surge in Chinese tourism.
HNA’s chief executive Adam Tan has been keen to push the company forward and make it a worldwide tourism business for years and the latest move has satisfied part of that vision.
Only a few months ago the company announced it had signed a deal to takeover Carlson Hotels, which runs the Park Plaza and Radisson brands.
This is all a far cry from HNA’s early days in the early 90’s when it started out as a regional airline, but it moved quickly into a sprawling and diverse business involved in tourism, real estate, financial services and logistics employing over 250,000 people over three continents.
“HNA now have over two thousand hotels, 1300 aircraft and are rated as one of China’s biggest tourism firms,” said a senior spokesperson at CITIC Tokyo International in an email to investors. “The big plus for Hilton is how much extra Chinese business they are going to be getting into their hotels now.”
Hilton chief executive Christopher J Nassetta said in a statement, “This is absolutely the right move for the company at this point in time and it is going to give us more freedom and opportunity to improve and diversify our brand hotels. HNA have a hugely impressive position in the Chinese tourism industry and we are really excited to be working with them in the near future.”
Hilton has over 4500 managed and franchised premises in over a hundred countries under famous brand names such as Double Tree, Conrad Hotels and Curio. The terms of the agreement stipulate that HNA are not allowed to reduce or increase their 25% stake without the permission of the Hilton board of directors.
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