Wednesday, January 21, 2015

Today's Headlines

  • Poroshenko Sees Grave Danger Ukraine Conflict Will Escalate. Ukraine is in “grave danger” of an escalation in its conflict against separatists, President Petro Poroshenko said, as diplomats prepare to revive peace talks and NATO accused Russia of involvement in the fighting. “The situation can get worse in days,” Poroshenko said on Wednesday in an interview with Bloomberg TV in Davos, Switzerland. Additional Russian fighters and equipment crossing the border are putting pressure on Ukraine’s army, which is “defending democracy and freedom,” he said. Russian Foreign Minister Sergei Lavrov reiterated there was no proof that his country is providing military support to the separatists. 
  • Swiss Add to Russian Corporate Despair as Debt Costs Jump. Thomas Jordan just cost some of Russia’s biggest state-run companies half a billion dollars. The Swiss National Bank president’s surprise decision to ditch the franc cap last week swelled what Russian corporates owe through the end of next year on debt denominated in the currency by 33 billion rubles ($502 million). Since the Jan. 15 change, the extra yield investors demand to hold OAO VTB Bank’s franc notes due in May 2018 versus its dollar debt jumped 2.70 percentage points. As recently as Dec. 24, the rate was at a record discount of 2.63 percentage points. Rising costs for the debt is another hurdle for at least nine companies already reeling from the fallout of sanctions over the war in Ukraine, plunging oil prices, the slumping ruble and an economy teetering on the edge of a recession.
  • ECB Seeks to Inject Up to 1.1 Trillion Euros Into Economy in Deflation Fight. (video) Mario Draghi called on the European Central Bank to make its biggest push yet to fend off deflation and revive the economy by unleashing a debt-buying spree of 1.1 trillion euros ($1.3 trillion). The ECB president and his Executive Board proposed spending 50 billion euros a month through December 2016, two euro-area central-bank officials said. The plan still faces a tense debate in the Governing Council and may change before the final decision on Thursday, the people said, asking not to be identified as the talks are private. An ECB spokesman declined to comment.
  • Top Concern for Davos Bankers: Credit Disruption After Fed Tightens. Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain’s biggest worry this year? Unexpected aftershocks when the Federal Reserve starts tightening, especially in the corporate bond market. “A disruptive credit event following a Fed turn would be at the top of my worry list,” Jain said at a panel discussion at the World Economic Forum in Davos, Switzerland on Wednesday. “Sometime in the next six, max 12 months, we are going to get that Fed turn. That’s going to be very significant.”
  • IMF Says Gulf States Set to Swing Into Deficit as Oil Falls. The oil-rich nations of the Persian Gulf are set to post budget deficits this year after a plunge in crude prices, the International Monetary Fund said. The six nations of the Gulf Cooperation Council will have a collective fiscal gap of 6.3 percent of gross domestic product, a swing of about 11 percentage points from last year’s surplus, the IMF said in a report published in Washington on Wednesday. While many nations have enough savings to avoid steep cuts and “limit the drag on growth,” they will need to adjust spending plans in the longer term, it said.
  • Manhattan Luxury Condos Sit on Market While Foreign Buyers Manhattan real estate agent Lisa Gustin listed a four-bedroom Tribeca loft for $7.45 million in October, expecting a quick sale. Instead, she cut the price this month by $550,000. “I thought for sure a foreign buyer would come in,” said Gustin, a broker at Brown Harris Stevens who is still marketing the 3,800-square-foot (353-square-meter) apartment at 195 Hudson St. “So many new condos are coming up right now. They’ve been building them for the past few years and now they’re really hurting the resales.” A flood of new high-priced condominiums and mansions are coming to market in New York, Miami and Los Angeles just as international buyers, who helped fuel demand in the three cities, are seeing their purchasing power wane with the strengthening dollar. Signs of a pullback may already be showing in Manhattan, where luxury-home sales have slowed amid a surge in construction of towers aimed at U.S. millionaires and foreign investors.
  • Central Banks Step Up Low-Inflation Fight as Canada Cuts Rate. Global central banks intensified their battle against slowing inflation as the risk of defeat mounts. The Bank of Canada unexpectedly cut its main interest rate for the first time since 2009 on Wednesday in Ottawa, saying the oil-price shock will drag down inflation. The Bank of Japan expanded and extended a lending program, while two Bank of England policy makers dropped calls for higher interest rates. 
  • ECB Proposes QE Stimulus of 50 Billion Euros a Month. (video) European stocks extended a seven-year high as the European Central Bank was said to plan further stimulus measures. The Stoxx Europe 600 Index rose 0.6 percent to 358.12 at the close of trading in London, reversing earlier losses after two euro-area central-bank officials said the ECB Executive Board has recommended asset purchases of 50 billion euros ($58 billion) a month until December 2016.
  • Kurd Oil Producers Unrelenting to Boost Supply at low Prices. Oil producers in Iraqi Kurdistan are unrelenting in their goal to boost output even after the collapse in international prices to below $50 a barrel. Genel Energy Plc (GENL), headed by former BP Plc chief Tony Hayward, is sticking with plans to increase capacity 74 percent to 400,000 barrels a day this year at its Kurdish Taq Taq and Tawke fields. Norway’s DNO ASA (DNO) owns 55 percent of Tawke.
  • Crude Collapse Has Investors Braced for ’80s-Like Oil Casualties. When a glut of crude flooded the market in the 1980s, scores of energy companies disappeared through almost five years of depressed prices. Investors are worried history is repeating itself. The supply overhang led to a 66 percent slide in prices over four months, starting in November 1985. Bankruptcies and mergers reduced the number of U.S. producers by 54 percent before a price rebound took hold in 1990
  • Oil Rebounds From Biggest Drop in Week as Drilling Slows. Oil rebounded from the biggest drop in a week amid signs that prices near a 5 1/2-year low are slowing drilling in the U.S. Futures rose as much as 3.7 percent in New York and 3.3 percent in London. BHP Billiton Ltd., the largest overseas investor in U.S. shale, said it will cut the number of active drill rigs in the country by almost 40 percent. The rapid decline in oil prices may deter investment in all types of energy needed to meet future demand, the head of the International Energy Agency said.
  • Fat Junk-Bond Fees Are Hard to Get in Latest Wall Street Lament. Wall Street’s biggest bond brokers just limped through a rough year for trading revenues. They may be in for more pain as one of their most lucrative businesses dries up. They’ve shepherded only $9.7 billion of U.S. junk bonds into the hands of investors this year, making 2015 the slowest start in six years, according to data compiled by Bloomberg. The fees to underwrite this debt are about three times those on higher-rated corporate notes -- and will be sorely missed by the likes of JPMorgan Chase & Co. (JPM), Bank of America Corp. and Citigroup Inc. (C) The three biggest U.S. banks just posted their first annual decline in aggregate net income since the global financial crisis.
Wall Street Journal:
  • J.P. Morgan(JPM) Creates Unit to Meet New Bond Trading Patterns. J.P. Morgan Chase, the world’s largest investment bank in fixed income trading by revenue, has set up a new 12-person unit focused solely on trading credit index products such as credit default swap benchmarks and exchange-traded funds. The bank says the Global Credit Index business, which it claims is the first of its kind at a major investment bank, was established in response to a boom in customer demand for trading indexes instead of individual bonds, where investors and bankers complain that liquidity has been drying up.
Fox News: 
Business Insider: 
  • Rajan Says Capital Flows Threaten Emerging Markets. Global liquidity flows prompted by central banks in industrial countries could threaten financial stability in emerging markets if they're not properly managed, Reserve Bank of India Governor Raghuram Rajan says in opinion article. "Global growth remains weak. In the U.S., it may look as if the recovery is strengthening, but the euro area is threatening to follow Japan into recession. Emerging markets are concerned about suffering, through their export-oriented strategies, because of stagnation abroad."

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