Thursday, January 22, 2015

Today's Headlines

  • Draghi Commits to Trillion-Euro QE in Deflation Fight. (video) Mario Draghi led the European Central Bank into a new era, pledging to buy government bonds in an asset-purchase program worth at least 1.1 trillion euros ($1.3 trillion) to counter the threat of a deflationary spiral. The ECB president unveiled a quantitative-easing plan of 60 billion euros per month until at least the end of September 2016 in a once-and-for-all push to put more cash into circulation and revive inflation. The region’s 19 national central banks were handed responsibility for 80 percent of the additional purchases and put on the hook for their own losses, a move intended to assuage critics. 
  • German Officials at ECB Led Opposition to Draghi’s QE. The two German members of the European Central Bank’s Governing Council led opposition to the expanded asset-purchase program that President Mario Draghi announced today, according to euro-area central-bank officials. Bundesbank President Jens Weidmann and Executive Board member Sabine Lautenschlaeger were against implementing the plan now, said the people, who asked not to be identified because the deliberations were private. Klaas Knot of the Netherlands, Ewald Nowotny of Austria and Estonia’s Ardo Hansson also expressed reservations against starting the program at this time, the people said. An ECB spokesman declined to comment. 
  • Merkel Cool on ECB Plan as Germans Reject ‘Sweet Poison’. Chancellor Angela Merkel left her allies in Germany to voice outrage over the European Central Bank’s bond-buying program and instead issued an indirect warning over its potential risks. “The world is amply supplied with liquidity right now,” and governments should seize the moment to reduce debt, Merkel said at the World Economic Forum in Switzerland. “This liquidity supply is such that you can’t really precisely see who is competitive or who isn’t quite there yet.” Merkel’s comments highlighting the risk of undermining economic reforms were her most detailed critique of the $1.3 trillion asset-buying plan.
  • Ukrainian Deaths Surge as Merkel Sharpens Rhetoric on Russia. German Chancellor Angela Merkel slammed Russia for undermining neighboring Ukraine’s sovereignty and cited “many setbacks” in peace efforts as the death toll in the conflict jumped. As Ukraine’s army suffered its worst casualties in two weeks, an attack Thursday in Donetsk killed eight civilians and the government accused its pro-Russian adversaries of ignoring a diplomatic push to withdraw heavy weaponry. Merkel said Russia’s annexation of Crimea can’t be allowed to pass and sanctions should remain. NATO said violence is at pre-truce levels.
  • Latin American Default Wave Just Getting Started: Credit Markets. Latin America is turning into the world leader in corporate-bond defaults. Four companies in the region have skipped dollar-denominated debt payments this month, the most of any other area and almost half the total in all of 2014. In a sign bond investors are increasingly concerned about Latin American companies’ ability to repay debt, borrowers led by Mexico’s oil-rig operators have pushed the amount of the region’s bonds trading at distressed prices to $58 billion, about a third of all emerging-market debt trading at such levels. The strains that have investors from Prudential Financial Inc. to Hartford Investment Management Co. bracing for more defaults are showing few signs of abating. An oil-led collapse in commodities prices has persisted, growth is flagging in economies from Mexico to Colombia, and the biggest corruption scandal in Brazil’s history is spreading. That raises the risk of even bigger losses for investors saddled with the worst returns in emerging-markets this year. “The defaults will come in Latin America,” Jennifer Gorgoll, who helps manage $4.1 billion of emerging-market debt at Neuberger Berman Group LLC, said by telephone from Atlanta. “Some of these are slow-moving train wrecks. You have to be able to determine which companies are survivors and which are not.” 
  • China Provinces Cut 2015 Growth Targets as ‘New Normal’ Spreads. China’s regions are setting lower economic growth targets as policy makers adjust to the “new normal” of a slower expansion pace for the world’s second-largest economy. Of seven provinces, municipalities and regions that have so far published 2015 growth targets, six have cut the rates. Economists expect the central government will lower its national target to about 7 percent from last year’s 7.5 percent at the People’s Congress in March
  • Euro Falls to 11-Year Low as ECB Expands Bond-Buying. The euro fell 2.1 percent to $1.1371 at 1:35 p.m. in New York and touched $1.1363, the weakest level since September 2003. The last time the euro and dollar traded one for one was in 2002. The shared currency declined 1.8 percent to 134.44 yen and touched 134.29, lowest since Oct. 16. The dollar added 0.2 percent to 118.25 yen.
  • Europe Stocks Post Biggest Six-Day Gain Since 2011 After Draghi. European stocks rose, posting the biggest six-day gain since December 2011, as ECB President Mario Draghi announced a plan to buy government bonds. The Stoxx Europe 600 Index climbed 1.7 percent to 364.05 at the close of trading, the highest level since December 2007. The gauge extended gains after Draghi’s announcement and later briefly erased them
  • Oil Slips as U.S. Crude Stockpiles Surge Most in 14 Years. Oil fell after a government report showed that U.S. crude supplies surged the most in almost 14 years. Inventories rose 10.1 million barrels in the week ended Jan. 16, the biggest gain since March 2001, according to the Energy Information Administration. Refineries operated at 85.5 percent of their capacity, the lowest level since April 2013 as units were idled for maintenance. “The 10 million-barrel plus increase was a big surprise,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “The big drop in refinery runs left nowhere for the crude to go but storage. This suggests that we’ll see more big supply builds in the future with production at such high levels.” West Texas Intermediate crude for March delivery slipped 85 cents, or 1.8 percent, to $46.93 a barrel at 12.55 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 35 percent above the 100-day average for the time of day.
  • Oil Drillers ‘Going to Die’ in 2Q on Crude Price Swoon. Oil drillers will begin collapsing under the weight of lower crude prices during the second quarter and energy explorers who employ them will shortly follow, according to Conway Mackenzie Inc., the largest U.S. restructuring firm. Companies that drill wells and manage fields on behalf of oil producers will be the first to fall after the benchmark American crude, West Texas Intermediate, lost 55 percent of its value in seven months, said John T. Young, whose firm led the city of Detroit through its 2013 bankruptcy. 
  • Copper Falls on China Demand Concern, ECB Stimulus. Copper declined for the first time in three days as the European Central Bank announced more stimulus and investors speculated demand is slowing from China. A private manufacturing Purchasing Managers’ Index due Friday is forecast to show factory activity contracted for a second month in China, the world’s biggest metals consumer. Copper for delivery in three months fell 1.5 percent to $5,685 a metric ton on the London Metal Exchange by 1:59 p.m. in London. The metal has declined 9.8 percent so far this month. Futures for March delivery slipped 1.4 percent to $2.575 a pound on the Comex in New York
  • Iron Ore Declines to 2009-Low as Steel Mills Seen Cutting Output. Iron ore declined to the lowest level in more than five years amid speculation that mills in China will reduce steel output in the runup to a holiday next month, curbing demand from the biggest user and worsening a glut. Ore with 62 percent content delivered to Qingdao, China, dropped 1.5 percent to $66.79 a dry metric ton, the lowest level since June 2, 2009, according to Metal Bulletin Ltd. Prices are headed for a third consecutive weekly loss.
  • IGC Raises Corn Outlook, Sees Grains Stockpiles at 30-Year High. World corn output will beat a November forecast, the International Grains Council said, lifting the estimate an eighth time on improved prospects for South America. Bigger corn and wheat crops will expand world grain output excluding rice to a record and lift inventories at the end of the season to the highest in about 30 years, the London-based organization wrote in a report today. Corn futures have dropped 9.7 percent in Chicago in the past 12 months as U.S. growers harvested a record crop and the outlook for production in Brazil and Argentina improved, while wheat futures have dropped 4.4 percent. Cheaper grain has contributed to a drop in international food prices.
  • Lagarde Sees Fed Starting Rate Increases in Mid-Year. International Monetary Fund Managing Director Christine Lagarde said the Federal Reserve will probably begin raising interest rates within months in a sign that the economy is on the mend. “Our expectation is that it’s more likely to happen mid-year than at the end of the year,” Lagarde said on a Bloomberg Television panel hosted by Francine Lacqua at the World Economic Forum in Davos. “The fact that the Fed is going to do that is good news in itself. It shows that things are moving in the right direction.” 
  • Lazard’s Gary Parr Sees ‘Darwinian’ Pressure on Banks to Shrink. Banks will be forced to cut back the number of businesses in which they operate in the next three years as new regulations make the universal model untenable, according to Gary Parr, vice chairman of Lazard Ltd. (LAZ) “In 18 to 36 months, there will be a much more intense pressure on some number of banks to break up,” Parr said in an interview with Tom Keene on Bloomberg TV at the World Economic Forum in Davos, Switzerland on Thursday. “It’s a Darwinian exercise, and what’s fascinating to me is how slowly it’s going. It seems obvious with regulators increasing the capital requirements, with the burden of regulation, with the charges particularly for systemically important institutions.” 
Business Insider: 
  • Oil majors seek to claw back costs from service firms. Global oil majors say they are demanding cheaper but better services from engineering and service companies, or simply taking work back in-house, after losing hundreds of billions on cost overruns in the last five years.
  • ECB's Impact Limited, Goldman's Pill Says. ECB's QE decision won't have 'dramatic' effect, Goldman's chief European economist, Huw Pill, says in interview. Bond yields, currency rate indicate that there's already some easing in place. Bond purchases less effective tool in Europe as lending is mainly done by banks, less by capital markets.

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