Tag: news

Authored by Cyril Widdershoven via OilPrice.com,

The OPEC+ member countries are on the brink of a financial crisis if the latest assessments of the International Monetary Fund (IMF) are accurate. The IMF has presented a very bleak outlook for an economic recovery in the Middle East and Central Asia, predicting a 4.1% contraction for the region. The main driving factor behind this bearish outlook is the IMF’s forecast that oil prices will remain in the $40 to $50 range in 2021. An extension of the current low oil price environment for another year would badly hurt oil and gas exporting countries, which includes all of the OPEC+ members.

In its statement, the IMF predicted an economic contraction of 2.8% in April for the Middle East and Central Asia. IMF director Jihad Azour highlighted a large disparity in the projected economic loss of oil-importing and exporting countries, forecasting a negative 6.6% growth for oil-exporting countries, compared to a contraction of 1.3% for oil-importing countries. With many of the OPEC+ members being rentier-states, the need for higher oil prices cannot be overstated. A vast part of the government budgets of OPEC member states depends on oil and gas-related revenues.

As such, all OPEC countries are looking at significant budget deficits this year, especially Saudi Arabia, the UAE, Bahrain, Iraq, Iran, and Kuwait. Former OPEC member Qatar is in a similar situation, even as it tries to mitigate the damage by increasing its LNG exports. As both oil and gas demand has seen significant demand destruction this year, prices for both have plunged. At present, Brent oil prices are still 40% below their pre-COVID levels. 

There is little hope of a significant rise in prices any time soon as global oil and gas storage volumes are still at historically high levels, and demand looks set to dip again due to new COVID-related lockdowns and a further economic recession. The frequently cited breakeven price for the Saudi government budget is $80 per barrel, although Saudi government budget discussions seem to revolve around an oil price of $50. Iraq has also stated that it expects price levels of $50 per barrel for 2021. These optimistic predictions seem to be based solely on Chinese post-Covid economic figures, which have proven to be highly untrustworthy and don’t take into account the fact that global demand for Chinese products will also need to pick up. The impact of the second wave of COVID cases in Europe and America will undoubtedly hurt this demand for Chinese goods.

But of all the parties that will suffer from low oil prices and the continued impact of a global pandemic, OPEC+ members will suffer the most. Some oil and gas producers were already in a dire financial situation before COVID, including Libya and Venezuela. The major oil market contango and storage glut has been largely overlooked recently, but it still very much exists. Reports of demand recovery in some markets appear to be more wishful thinking spurred by multi-trillion-dollar cash injections rather than a viable economic recovery. OPEC and the IEA both agree that demand is still fledgling, having both cut world oil demand forecasts. The IEA cut its outlook for worldwide oil demand to 91.7 million barrels per day this year while OPEC brought its forecast down to 90.2 million in 2020. OPEC reiterated that future cuts could still be made.

With the financial environment outlined above, OPEC+ members can no longer afford to base their economic stability and future on hydrocarbons alone. Economic diversification has to be put in place, even if the effects won’t be felt for years. Government budget cuts are imminent and could destabilize the region if not done prudently. OPEC+ discussions on stabilizing the market should not be focused at present on price levels or market share only. The real question is how to create a market that is resilient enough to cope with Black Swan events without toppling the current ruling elite. Instability is not only increasing in the Arab producer regions, but also in Russia where sanctions and low oil prices are taking their toll.

OPEC+ members cannot simply bet on the death of U.S. shale as it is an industry that has proven incredibly hard to kill over the years. U.S. shale will almost certainly reemerge, possibly in a different form, but it is reasonable to assume the sector itself is far from dead. Leaders in Riyadh, Abu Dhabi, Moscow, and Kuwait City now have to find a way to survive. With oil at $50 per barrel in 2021, some OPEC members will be in a real crisis. With that in mind, a conventional OPEC+ JMMC statement today or tomorrow will be seen by some as a white flag.

Summary:

• India sees lowest new cases in 3 months
• Kansas nursing home sees all its patients infected
• Moderna CEO says expects to apply for FDA EUA in December
• Australia sees another shipborne outbreak
• Argentina tops 1 million cases, 5th country to do so
• Singapore Airlines to resume non-stop flights to NY
• Chinese officials in Qingdao claim to have detected live virus on frozen food packaging

* * *

Perhaps the biggest news overnight, aside from Ireland adopting the most restrictive lockdown across Europe after announcing plans to return to its highest level of COVID-19 alert, is that the number of new cases diagnosed in India is finally starting to slow, even as PM Narendra Modi continues to reopen the country.

India logged the fewest new cases in 3 months, reporting just 46,790 cases in the last 24 hours. The numbers brought its countrywide total to 7,597,063. India is now within 750,000 cases of the US.

Circling back to Ireland, the government has ratcheted up the coronavirus alert level to 5, the highest level on a scale of five introduced in September. People are being asked to stay at home, while those who can work from home must do so. There will be a penalty for anyone traveling beyond 3 miles of their home, unless they’re doing so for essential work, or an essential purpose.

People will be able to meet up outdoors with one other household away from their home for the likes of exercise, within the 3-mile limit. No social or family gatherings are allowed in homes or gardens, but visits on compassionate grounds and for the purposes of caring for a relative can continue.

Finally, in the US, the New York Post reported overnight that a Kansas nursing home saw every single one of its 62 residents test positive, while 10 died.

On the vaccine front, Moderna CEO Stephane Bancel said Tuesday that the company expects to file for emergency use approval with the FDA by the end of the year, a comment that sent the company’s stock up by double-digits in premarket trade. Moderna has officially stepped up to become one of the front runners as mRNA vector vaccines overtake adenovirus vector vaccines in the race to be the first to receive FDA EUA.

A total of 72,968 people have been infected with the coronavirus in Kansas, while 872 deaths have been attributed to the illness.

Global cases hit 40,327,407 after Johns Hopkins counted 439,890 new cases in a single day, the second daily record in four days.

Meanwhile the worldwide death toll hit 1,117,252 after reporting another 4,981 deaths. Even has hospitalizations have risen around the world, COVID-19 deaths – at least on a global scale – have shown little adherence in to trend in cases and deaths.

Here’s some more COVID-19-related news from overnight and Tuesday morning:

Pfizer and BioNTech SE announce the Japan start of combined Phase I and Phase II clinical trials of their mRNA vaccine candidate. The study will recruit 160 people 20 to 85 years old. The pharmaceuticals earlier agreed to supply Japan with 120 million doses of their now experimental coronavirus vaccine in the first half of 2021 (Source: Nikkei).

A Kuwaiti-flagged livestock ship docked off Australia’s west coast is evacuated after at least half the 52 crew test positive for COVID-19, Reuters reports. The cluster is the fourth detected aboard a ship arriving at a Western Australia port over the past month, in a state that has otherwise been free of the virus for weeks (Source: Nikkei).

South Korea confirms 58 cases, marking the fifth straight day of fewer than 100 cases. Of the new infections, 41 were locally transmitted (Source: Nikkei).

Officials in Qingdao, where 12 cases have surfaced this month, say they have found sufficient evidence for the first time showing the virus can survive for long periods on the outer packaging of frozen food, then be transmitted. To prevent further infections, Qingdao will test every package of frozen goods, and handlers will be required to stay in designated areas and be tested every three to five days (Source: Nikkei).

Singapore Airlines will next month resume non-stop flights between the city state and New York to cater to cargo traffic as well as a growing number of transfer passengers travelling via the island (Source: FT).

Greater Manchester is seeking an extra £90m in financial aid in return for tighter coronavirus restrictions as a noon deadline for talks with the UK government approaches (Source: FT).

Argentina has become the fifth country to record more than 1m coronavirus infections after it added almost 13,000 cases on Monday. The South American country reported 12,982 new cases on Monday, taking its overall tally to 1,002,622. The US leads the global count of coronavirus cases with more than 8m, followed by India with 7.6m, Brazil with 5.3m and Russia’s 1.4m, according to data from Johns Hopkins University. Argentina also reported 451 new deaths, taking Covid-related fatalities to 26,716 or the ninth-highest in the world (Source: FT).

One of the most bizarre decouplings in capital markets following the March crash, was the directional divergence between real and breakeven rates, something we addressed two months ago in “What’s Behind The Bizzare Break Between Breakevens And Crashing Real Rates.” However, in recent weeks, this unprecedented divergence appears to have finally ended, because since the start of August, US 10y rates have increased from 51bp to 74bp on the back of inflation expectations moving higher alongside real yields (+10bp).

As Goldman’s Alessio Rizzi puts it mildly, “a positive correlation between 10y breakevens and real yields has not been a feature of 2020”, which after hitting 7 months before finally inflecting, has been one the longest periods with breakevens and real rates moving in opposite directions.

The previous longest such period of divergence was exiting GFC, when similarly to now, the Fed committed to keep financial conditions easy and anchored nominal rates while the economy was improving from depressed levels. In a risk-on environment – such as the one since March – this usually pushes inflation expectations higher, real rates lower and nominal yields remain roughly unchanged.

In fact, as we have discussed previously, lower real yields provided a strong support for valuations while growth expectations were improving at the same time. And, as Goldman echoes today, “longer-duration equities like Tech and Gold have been the key beneficiaries in this regime while the dollar usually suffers.” For this reason, real rates correlation with the S&P 500 remained firmly in negative territory over the last 3 months.

Of course, the flipside to this is ominous: if lower real yields were supportive for asset prices, then rising real yields will likely lead to a decline in risk assets. Sure enough, as Goldman’s Rizzi observes, “given the negative correlation between real rates and equity, many investors are wondering if a potential rise in interest rates driven by real rates could weigh on risky assets.”

In response to such concerns, Goldman suggests that it is the speed of the move that will matter most. In the next chart, the Goldman strategist plotted S&P 500 monthly returns based on US rates moves since 1998, when the negative equity/bond correlation regime started. The chart shows that higher nominal yields have usually reflected better growth and positive equity performance. And while a 2-sigma increase in nominal yields (which would equate to +41 bp currently) has on average led to relatively flat S&P 500 returns and positive equity/bond correlation, Rizzi warns that “investors should be more focused on an equivalent increase in real rates.” In fact, a swift move higher in real rates (roughly +31 bp now) usually weighs the most on equities.

Looking ahead, Goldman notes that positive news on the vaccine together with a Democratic sweep in the US election could further interrupt the negative correlation between breakeven and real rates, as both could move higher together further. In this scenario, Goldman sees the potential for “a large rotation into more reflationary and risk-on trades and equities might be able to digest higher rates if supported by positive growth sentiment.” As such, even a jump in rates could end up being friendly environment for risky asset… as long as real rates don’t move too fast.

Which could be problematic, as the gamma positioning is already betting on a sharp – and potentially quite rapid – move higher. Why? Because as the last chart shows, the positive option skew on US bonds suggests markets are already discounting the potential for US rates to move higher.

The question is how fast will this move be once it begins, because if it leads to another sharp correction in risk assets, then the reflationary move itself will be unwound, taking us back to square one.

Authored by Bill Blain via MorningPorridge.com,

“Yeah, sure they are environmentally friendly.. says so on the plastic wrapper.”

The glorious march forward of the correct thinking European superstate takes another great leap forward this morning with the launch of the first socially targeted bonds under the most intelligently designed SURE programme. All credit to the diligent double-plus-good Eurocrats of Brussels for their foresight in launching this epoch defining issue! 

The EU will issue its first 10 and 20-year SURE bonds this morning. Officially the €100 bln programme is to finance “the social needs of EU Member States following the coronavirus pandemic and its consequences.” The SURE Programme is part of a larger €750 bln Recovery bond binge cooked up between the EU and ECB to solve Europe’s growth issues in the wake of the virus. The SURE Programme will run till the Recovery Bonds kick in next year with over 200 bln issuance expected.

[ZH: As Bloomberg reports, social bonds are defined by funding for projects that help society, such as improving social welfare or serving disadvantaged populations. They are the “perfect financial response” to the shock that welfare systems experienced from the pandemic, according to a report by Maia Godemer, a research analyst for green and sustainable finance at BNEF.]

Whoopee. 

I shall avoid obvious cynicism… but… it’s difficult to keep a straight face at the way these bonds are being marketed as “social bonds” by the EU and its bankers to smokescreen what they really achieve.

Today’s bonds will be priced with a negative yield, but investors will lap them up because they are slightly less of a negative yield than Bunds, and they expect the EU bonds will tighten in price as the ECB drives European rate ever lower into the sub-zero zone to create the recovery and inflation that has thus far eluded them. (A policy that has achieved nothing the last 5 years.. but, hey, keep trying..) 

“I was expecting a three-digit book but not quite this high,” said Jan von Gerich, chief strategist at Nordea Bank Abp.

“These bonds were clearly eagerly awaited, and these issues only strengthen the picture that there is a huge demand for bonds at the moment.”

More to the point, this afternoon investors will be able to sell the bonds in the secondary market back to the ECB, probably at a small profit because of oversubscription, via its QE infinity programmes. The 5 investment banks leading the sale – which curiously includes Barclays, a bank domiciled on Airstrip1the UK – will be delighted to be sharing about €20 mm in fees. 

Meanwhile.. back in Frankfurt (the not-quite-the-centre of European finance the Germans imagine it to be) lone EU critic, Bundesbanker Jens Weidemann, is desperately saying any EU joint-borrowing should be one-off, and should not become a common budgetary tool. Sadly…. No one is listening Jens. He is a lone voice in the Frankfurt wilderness.. No one is listening. 

Too late. Common issuance looks inevitable. Today’s bonds establish a clear pathway towards a single European Bond Issuance vehicle, allowing AAA/Aaa/AAA rated Europe to dominate global issuance and for Brussels to set the funding agenda.

ECB Head Christine Lagarde wants joint issuance to be part of her armoury. While Jens points out that much “closer political integration would be needed and for the EU to develop into a democratic state” before common bond issuance is even contemplated, the reality is its happened. This bond redefines and strengthens the role of Brussels’ unelected Eurocrats in terms of financial power. This bond completes the state-capture of European national financing by Brussels. There will still be Bunds, Bonos, BTPs and OATs… for a while… for a while..

Wiedemann and the Germans had this curious notion that when countries joined the Eurozone they meet the strict membership rules of the Euro by exercising sound fiscal responsibility, reforming their economies, and ensuring solid accountable finances. Silly Germans. 

What this programme achieves is the centralisation of European finance despite the absence of any real democratic process or agreement on a European polity. Instead the ECB and Brussels will decide. They have captured the system. European states will no longer go to the market to raise Euros to bulwark unemployment or stem job losses – nope, now they apply to Brussel for handouts. No longer will they need to finance much needed projects via markets in their own name – Brussels now runs their budgets. 

The new EU funding programmes fit perfectly with the rules of Euro membership – independent nations can’t run up large state deficits under the terms of the Euro, but client states beholden to Brussels just need to ask nicely. 

Of course, you won’t find Brussels’ capture of national finances clearly stated on the bond prospectus or sales pitch this morning. Nope. Instead we have a very complex and convoluted smokescreen as the EU focuses the attention of the market and the market press on these bonds being sold to the world as a Social Bond Programme.  

WTF? 

It’s deflection and distraction.  I read through the issue pitch and there are lots of reassuring objective phrases like “spirit of solidarity”, “preserving productive capacity” and “mitigating direct societal and economic impact”, which I am sure are very laudable goals, but of anyone can explain this one, I am all ears:

 “The SURE instrument can be seen as an emergency operationalisation of the European Unemployment Reinsurance Scheme announced by the President of the European Commission in her Political Guidelines.”

Thank you Chairman Leyen for your political wisdom….  

It goes on to assure potential investors the bonds meet ICMA Social Bond Principles – even appointing an external party to opine they are aligned with ICMA!  The pitch conclusively says these are suitable as ESG investments.  I know what you are thinking… Can these bonds get any better?

To ensure investors are satisfied the bond proceeds are being used for the designated social purposes there will be regular reports (imposed by article 13(2) of the SURE regulation relating to the implementation of the planned public expenditure..) I can’t wait to read these reports – it will be fascinating to hear how the EU traces, say, the €504 mm it’s just given to Bulgaria under the programme. I wonder if they will do it as effectively as they’ve traced the billions skimmed off grants and aid programmes by Italian gangsters under previous aid programmes?

And just in case you are confused by the jargon the EU helpfully explains:

“It is EU’s ambition to align future EU bonds with the forthcoming EU Taxonomy for environmentally sustainable activities. To avoid any confusion, the bonds under the present Framework will be named “EU SURE Social Bonds”: they are not prefiguring the social part of the future EU Taxonomy nor a possible action of the Commission in the area of the EU Green/Social Bond Standard.”

I simply can’t wait… for the EU to institute their next programme: Governance bonds! These will lend EU cash directly to European companies that do exactly what Brussels tells them to do.. (US readers: dripping Sarcasm alert.)

Now in case you are wondering – no, these bonds are not joint and severally guaranteed by European Community member states.. but they are guaranteed by €25 mm voluntarily contributed by member states.. Don’t ask how that works, but the EU is AAA rated.. so what’s the problem…? and the ECB will buy them.

Actually.. if you have any questions on the bond… they can all easily be answered: The ECB will buy them. What’s to worry? Buy the bonds. Pay the EU 26 basis points per annum for the privilege of owning them and what can possibly go wrong when the ECB will buy them. 

I give up… 

Meanwhile… back in the UK – I did a video y’day explaining why Rishi Sunak would be mad to listen to Tory MPs telling him to balance the budget. Last thing the UK needs is austerity and tax hikes – and since the UK controls its own money we can make as much money as we like… Please nip on to the Shard Website and give it a like… 

Hours before Politico reported the existence of a letter signed by ’50 former senior intelligence officials’ who say the Hunter Biden laptop scandal “has all the classic earmarks of a Russian information operation” – providing “no new evidence,” while they remain “deeply suspicious that the Russian government played a significant role in this case,” Tucker Carlson obliterated their (literal) conspiracy theory.

According to the Fox News host, he’s seen ‘nonpublic information that proves it was Hunter’s laptop,‘ adding “No one but Hunter could’ve known about or replicated this information.”

“This is not a Russian hoax. We are not speculating.”

Watch:

TUCKER: “This afternoon, we received nonpublic information that proves it was Hunter’s laptop. No one but Hunter could’ve known about or replicated this information. This is not a Russian hoax. We are not speculating.” pic.twitter.com/cl2ktdmdVc

— August Takala (@AugustTakala) October 17, 2020

Meanwhile, the Delaware computer repair shop owner who believes Hunter dropped off three MacBook Pros for data recovery has a signed work order bearing Hunter’s signature. When compared to the signature on a document in his paternity suit, while one looks more formal than the other, they are a match.

Going back to the ’50 former senior intelligence officials’ and their latest Russia fixation, one has to wonder – do they think Putin was able to compromise Biden’s former business associate, Bevan Cooney, who gave investigative journalist Peter Schweizer his gmail password – revealing that Hunter and his partners were engaged in an influence-peddling operation for rich Chinese who wanted access to the Obama administration?

Did Putin further hack Joe Biden in 2011 to make him take a meeting with a Chinese delegation with ties to the CCP – arranged by Hunter’s group, two years they secured a massive investment of Chinese money?

The implications boggle the mind.

Here’s the clarifying sentences from the ’50 former senior intelligence officials’ that exposes the utter farce of it all:

While the letter’s signatories presented no new evidence, they said their national security experience had made them “deeply suspicious that the Russian government played a significant role in this case” and cited several elements of the story that suggested the Kremlin’s hand at work.

“If we are right,” they added, “this is Russia trying to influence how Americans vote in this election, and we believe strongly that Americans need to be aware of this.”

It would appear these former intel officials are not aware of the current intel official views, confirmed by DNI Ratcliffe yesterday that:

“Hunter Biden’s laptop is not part of some Russian disinformation campaign.”

And then there’s the fact that no one from the Biden campaign has yet to deny any of the ‘facts’ in the emails.

I’ve read a lot of stories about the process through which the Hunter Biden story has been handled inside newsrooms and not one yet that has said these critical words: “they are not true”

— Saagar Enjeti (@esaagar) October 19, 2020

Perhaps the real question is; what does Chuck Schumer know about this?

We should start an immediate investigation into @SenSchumer and his ties to Russia and Putin. A total hypocrite! pic.twitter.com/Ik3yqjHzsA

— Donald J. Trump (@realDonaldTrump) March 3, 2017

Despite soaring, record high homebuilder sentiment, US housing starts and permits disappointedly dropped in August but analysts now expect another rebound in September.

The data was mixed with Starts up 1.9% MoM (worse than the expedcted 3.5% jump) but Permits popped 5.2% MoM (ebtter than the expected 3.0%)…

Source: Bloomberg

This is the highest level for Building Permits since Feb 2007…

Source: Bloomberg

Driven by a surge in single-family housing permits (up 24.3% YoY to their highest since March 2007)

Additionally, single-family starts jumped 22.3% YoY to 1.108mm – the highest since June 2007…

Finally, a reminder that while homebuilders are ebullient, homebuyers are not…

Source: Bloomberg

If we build it, will they come?