Monday, March 30, 2015
- As Iran nears a potential nuclear deal with U.S. that eases Western sanctions, the country is emerging again as a potential prize for Western oil companies such as BP, Royal Dutch Shell (RDS.A, RDS.B), Eni (NYSE:E) and Total (NYSE:TOT); the Chinese also are likely to enter the race, while U.S. companies are expected to be further down the pack.
- Iran is a big prize for oil companies, as it holds 10% of the world’s oil reserves - no. 4 globally after Venezuela, Saudi Arabia and Canada and ahead of Iraq - and almost a fifth of global gas reserves - second only to Russia.
- Raymond James says Iran could add 500K bbl/day to world oil supply by year-end 2016 if an agreement is reached.
- However, experts believe Iran is in a much weaker position since it last negotiated with Western oil majors in the late 1990s, as Iraq is now open to outside investors, Mexico is allowing foreign investment in oil for the first time since 1938, and $50 oil has forced companies to focus on investments that deliver stronger returns and less risk.
3:35 PM| Comment!
- The WisdomTree Europe Hedged Equity ETF (HEDJ +1.2%) has been a popular target for investor dollars this year - gathering $10B of assets while rising 16.6%.
- S&P Capital IQ's Todd Rosenbluth is as bearish on the euro as the next guy, but he suggests some of the fund's most heavily-weighted holdings are expensive, particularly consumer staples, which account for 23% of the ETF's assets. In fact, says Rosenbluth, the three largest consumer staples stocks in HEDJ - Anheuser-Busch, Unilever, and L'Oreal - are all rated Sell by S&P Capital IQ.
- Now all three of these names are in other European ETFs - including currency-hedged ones like HEZU and EZU - but not in such a high concentration.
- Rosenbluth: "We think investors need to be careful when reviewing European ETFs and understanding not just whether they are hedged."
- Source: Barron's
- ETFs: VGK, FEZ, IEV, HEDJ, EPV, EZU, FEU, FEP, UPV, EURL, ADRU, FEEU, DBEU, IEUR, FIEU, ESTX, HEZU, SBEU, DBEZ, FEUZ
- Toyota (TM +0.1%) announces it will offer lower-cost versions of its next-gen safety packages available on its new SUVs.
- The devices will be available across most Toyota and Lexus models by the end of 2017.
- The safety package typically includes automatic braking and collision alerts.
- Watch for some early reviews on the Toyota safety features out of the New York Auto Show this week.
- The ECB's €60B per month QE program includes sovereign bonds from two to 30 years in length, but the interest rate must be above the central bank's benchmark deposit rate of -0.2% - typically not an issue, but fixed-income these days is far from typical.
- German bonds are a cornerstone of the purchase program, writes Chris Whittall, accounting for about €11B of the monthly purchase total. The trouble is, 42% German paper is trading at yields below the -0.2% cutoff, leaving it ineligible for purchase by the ECB.
- “There are not enough long-term bonds unless there is a short-term selloff.” says HSBC's Elie El Hayek, and Morgan Stanley's Andrew Millward sees German paper all the way out to six years eventually trading at less than -0.2%, leaving 62% of that market ineligible for central bank purchase.
- The ECB could end up changing policy - i.e. lowering the deposit rate further, or lifting the cap of not owning more than 25% of any single bond issue.
- ETFs: EU, BUNL, ITLY, ITLT, GGOV, BUNT
- Heineken (OTCQX:HEINY, OTCPK:HINKF, OTCPK:HKHHF) is raising some eyebrows with a new advertising campaign in which the brewer offers money-back guarantees in the U.S. to consumers on its Heineken Light brand.
- The ads, which feature actor Neil Patrick Harris, are running online and in 15-second TV spots.
- The company has had trouble gaining traction with Heineken Light in the U.S.
- “In theory lower oil prices mean [putting] more money in consumers pockets, but . . . if an oil company cancels [an investment] project, laying off a worker, that guy will not have the money to buy a new pick-up truck. That spreads pretty quickly,” says Bank of Canada Governor Stephen Poloz in an FT interview. “The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us."
- Poloz has already unexpectedly cut interest rates thanks to oil's crash, and he says the bank has many options left, including so-called forward guidance (a pledge to hold rates low for a long time), as well as asset purchases.
- The good news, says Poloz, is the sharp decline in the loonie, and he notes U.S. investment is "starting to fire on all cylinders," and manufacturing is rebounding. "We were losing a lot of the auto parts manufacturing to Mexico. That calculus has shifted."
- ETFs: EWC, FXC, CNDA, EWCS, FCAN, QCAN
7:54 AM| Comment!
- After pulling away from a 12-year trough the last two weeks, the euro fell to as low as $1.0830 (-0.6%) this morning, hurt by the uncertainty of whether Greece would be able to strike a deal with its creditors before it runs out of cash.
- After sending a list of reforms to bailout monitors late last week, both sides held lengthy talks over the weekend, with Greece pledging to finalize the list by Monday.
- The proposals include measures to increase tax revenue and investment, and would raise some €3B, according to Greek officials.
- Athens' ATG stock index -1.1%.
- ETFs: FXE, EUO, ERO, DRR, EUFX, ULE, URR
- Chinese stocks took off today after policy makers signaled the country had capacity to ease monetary policy and boost sluggish growth at the Boao Forum for Asia on Sunday.
- PBOC governor Zhou Xiaochuan outlined that China's policy makers had to be "vigilant" against the risk of disinflation and suggested that the nation had "room to act."
- China's central bank has already taken a series of easing steps since November, cutting interest rates twice and slashing banks' reserve requirements.
- The Shanghai Composite +2.8% to 3,795; Hang Seng Index +1.8% to 24,923.
- ETFs: FXI, EWH, KWEB, PGJ, YINN, GXC, FXP, ASHR, HAO, TAO, YANG, CHIQ, CQQQ, CHIX, MCHI, QQQC, PEK, XPP, YAO, YXI, CHXF, ECNS, FCA, CN, CHII, CHIE, CHIM, EWHS, FCHI, ASHS, KFYP, CNXT, CHNA, KBA, FHK, AFTY
Sunday, March 29, 2015
- Russia, Australia, Denmark and the Netherlands have now become the latest countries to join the China-led Asian Infrastructure Investment Bank despite misgivings in Washington.
- China has set a March 31 deadline to become a founding member of the bank, which is seen as a significant setback to U.S. efforts to extend its influence in the region and balance China's growing financial clout and assertiveness.
- At least 35 countries will join the AIIB by the deadline, the bank's interim chief, Jin Liqun, said last Sunday.
- Previously: AIIB steadily gains more members (Mar. 27 2015)
- Previously: Australia poised to join AIIB (Mar. 25 2015)
- Previously: AIIB gains more steam (Mar. 22 2015)
Friday, March 27, 2015
- Companies made key bets on India's wireless phone industry this week -- and Idea Cellular made the biggest of all -- in a spectrum auction that drew $17.6B overall.
- Idea -- India's No. 3 wireless carrier -- spent the most among carriers, with 300B rupees ($4.8B) in bids across three different bands (900 MHz, 1800 MHz and 2.1 GHz).
- Bharti Airtel (291B rupees, or $4.65B) and Vodafone (VOD; 259.6B rupees, or $4.15B) spent nearly as much. The three dominated the auction bidding due to license renewals they had to accomplish before a December expiration. Overall, bidders focused on 4G bandwidth in order to grow more high-speed services.
- The size of the auction raised eyebrows, and Idea said it would take advantage of a government-offered deferred payment.
- In a reflection of the recent U.S. wireless auction, Bharti Airtel complained about the auction format: "We hope that in future auctions, the government will make available adequate spectrum by securing it from agencies and operators who are underutilizing this vital resource," said the company's regional CEO Gopal Vittal.
- Profitability is on the rise among Indian carriers, with 120M smartphone users in country and sliding handset prices expected to fuel further subscriber growth.
- Fitch has downgraded Greece's long-term foreign and local currency issuer ratings, as well as its senior unsecured foreign and local currency bond ratings, to CCC (substantial credit risk, with a real possibility of default) from B (highly speculative).
- Fitch: "Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding. We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but the heightened risks have led us to downgrade the ratings ... The damage to investor, consumer, and depositor confidence has almost certainly derailed Greece's incipient economic recovery. The damage will take time to repair even if prospects for a successful programme completion improve over the coming days or weeks."
- ETF: GREK
- Previously: Greek bank deposits plunge further
- Previously: Deutsche: Greece could default as early as April 9
- European equity funds took in another $6B of inflows in the week ended March 25, according to EPFR Global, while Japanese funds brought in $2B.
- U.S. equity funds, meanwhile, saw outflows of $8B, with Q1 earnings season about on tap, and as investors handicap the timing of the first Fed rate hike (vs. easing in Europe and Japan).
- ETFs: VGK, FEZ, IEV, HEDJ, EPV, EZU, FEU, FEP, UPV, EURL, ADRU, FEEU, DBEU, IEUR, FIEU, ESTX, HEZU, SBEU, DBEZ, FEUZ
- Previously: Money pours into European stocks (March 24)
- Shares of Manchester United (MANU +2.9%) trade higher as the soccer club puts itself in a strong position to be playing in European competition next year.
- The Red Devils are in 4th place in the English Premier League which would qualify it for the Champions League, and even a 5th place finish puts into the Europa League.
- Broadcast revenue and matchday revenue have been off this year at the parent company due to the club's Europe league exclusion.
- Emerging markets equity funds saw $2.4B in outflows for the week ended March 25, led by $2.37B exiting China A-share ETFs.
- Investors could be cashing in their chips after nice runs year-to-date, but there's also the widening spread between valuations in Shanghai and Hong Kong - the Hang Seng China AH Premium Index is at 136.47, i.e. Shanghai shares are 36% more expensive.
- YTD, the Deutsche China A-Shares Fund (NYSEARCA:ASHR) is up 8.6%, the MarketVectors China ETF (NYSEARCA:PEK) is up 11.2%, the KraneShares MSCI China A Share ETF (NYSEARCA:KBA) is up 10.9%. In comparison, the iShares China Large-Cap ETF (NYSEARCA:FXI) is ahead just 2%, and the iShares MSCI China ETF (NYSEARCA:MCHI) 3.7%.
- Source: Barron's Shuli Ren
- Previously: Shanghai premium grows despite Hong Kong connect (March 25)
- ETFs: FXI, EWH, PGJ, YINN, GXC, FXP, ASHR, YANG, MCHI, PEK, XPP, YAO, YXI, CHXF, FCA, CN, FCHI, ASHS, CNXT, CHNA, KBA, FHK, AFTY
- Mercedes-Benz (OTCPK:DDAIF) plans to introduce its first pickup model by 2020.
- The automaker will target Europe, South Africa, and Latin America before deciding if it will roll out the Mercedes pickup in the U.S. where the F-150, Silverado, and Ram models are firmly entrenched.
- YTD Mercedes-Benz sales in the U.S. are +6.0% through the end of February.
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