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Submitted by Michael McDonald of OilPrice

Downturn Now Hitting The Refining Sector

As all energy investors know, it has been a terrible year for oil and natural gas companies. Many stocks are down half or more from their 52-week highs. Yet amidst the carnage, one energy group has held up very well – refiners.

Companies like Valero (VLO) and Phillips 66 (PSX) have traded flat or even moved higher over the last year. This reality has largely been driven by the glut of crude bringing down input prices for these firms while continued stable demand for gasoline and diesel has led to better crack spreads. The crack spread refers to the profit per barrel of oil that refiners earn from turning oil into finished products like gasoline, diesel, and jet fuel.

While 2015 was a strong year for downstream operators, refiners could soon follow oil companies’ downward trajectory. Crack spreads are increasingly coming under pressure as the laws of supply and demand come into balance. Highly profitable crack spreads are drawing more refining capacity online and leading to more supply for many derivative oil products. Established refiners are struggling to combat already high inventories of gasoline and other products by cutting production at key plants, but that effort is unlikely to help sustain cracking margins over the short term. Energy analysts are forecasting that cracking spreads will fall substantially and margins in certain areas of the country such as the Midwest are already under severe pressure or are even negative thanks to limited storage capacity for final delivery products.

The situation is little better overseas. Asian fuel producers are facing increasing competition from China, which is exporting a surging level of refined crude products. Chinese net product exports are forecast to rise by 31 percent this year over and above robust export increases last year. Diesel exports rose 75 percent from China last year much to the chagrin of Indian and South Korean refiners.

Just like in the U.S., margins for cracking have fallen hard as new supply has rushed to take advantage of lucrative opportunities in the field. Singapore Dubai cracking margins are running around $1.90 per barrel so far for 2016 versus $3.96 a barrel in the fourth quarter of 2015.

China is hurting refiners and the global petroleum market in two ways then. First, the sudden shift in Chinese economic models has curtailed domestic oil demand, leading to falling oil prices and falling domestic demand for industrial oil derivatives. Second, to help Chinese refineries cope with the new harsh market conditions, China has started allowing many independent Chinese refineries to ship their output abroad. Diesel margins are particularly at risk as the product has seen a significant slowing of domestic Chinese demand and thus a very rapid build in export volumes.

With diesel exports authorized up to 1.8 million barrels per day for China, versus 900,000 barrels per day last year, there is little doubt that Asian diesel prices will fall dramatically. This may cause a chain reaction that slowly spreads west perhaps ultimately hampering margins in Europe as well.

Investors cannot do anything to stop this negative chain of events and there is little sign of the situation improving in the near term. While crude has managed to rebound off of its recent lows, that reality is cold comfort for most investors and only serves to hide the fact that oil prices are likely at least $20 per barrel below where most producers need them to be. If cracking margins ultimately plumb the same relative depths of profitability (or lack thereof), then 2016 could prove to be a harsh year indeed for refiners.

via Zero Hedge http://ift.tt/1VmVWVz Tyler Durden

Back in October, Quebec put taxpayers on the hook for a $1 billion bailout of planemaker Bombardier, which was having one hell of a hard time creating a buzz around its CSeries commercial jet program.

Bombardier has been around for nearly 8 decades and employees more than 40,000 people in the province. The company’s role in the provincial economy is “incalculable,” Quebec’s Economy Minister Jacques Daoust said last year. “How can I let them go?” he asked.

For its money, Quebec would get a 49.5% stake in a new business that will own the assets and liabilities of the CSeries commercial jet program, which isn’t exactly going well. In exchange, the company promised to manufacture the aircraft in the province for at least 20 years. “How confident is Quebec that this will fan out for the economy and taxpayers? That’s what we don’t know,” Paul Boothe, a former senior Canadian official who was the federal government’s lead negotiator with the domestic units of GM during bailout talks in 2009 said at the time.

Well, now we do know. On Wednesday, Bombardier announced it’s cutting 7,000 jobs as part of a “global workforce optimization.”

“Impacted positions are mostly based in Canada and Europe,” the company said this morning, after reporting results that missed estimates on both the top and bottom line. Here’s the breakdown:

So obviously that sounds bad, but don’t worry because the job losses will be “partially offset” by hiring in “certain growth areas.” Like the CSeries program. Which is “growing” so fast that the company had to take a $1 billion bailout from the provincial government to shore it up.

“Production rates for some models have been modified,” Bombardier goes on to say, in an attempt to explain the layoffs, “due to macroeconomic conditions.” For those who don’t read a lot of quarterly reports, that’s a polite way of saying this: “demand is really, really soft.”

The company says the CSeries program has “generated new jobs at the Bombardier facility in Mirabel, Québec,” although the number of new jobs isn’t specified nor does the company indicate what the net job creation (or, more likely, “job destruction”) will be in Canada after the “optimization” is implemented. 

As for the company’s 2016 outlook, revenue guidance looks well short of estimates at $16.5-17.5 billion (consensus was $18.2 billion), while FCF usage is generally in line at between $1 billion to $1.3 billion, although if it comes in at the high end, that will be close to the highest analyst estimate. The company burned $1.82 billion in 2015. Here’s the full guidance breakdown:

On the bright side, Bombardier and Air Canada announced today that they’ve signed a Letter of Intent for the sale and purchase of 45 CS300 aircraft with options for an additional 30 CS300 aircraft, including conversion rights to the CS100 aircraft. 

Oh, and the company is going to try a reverse split to make it seem like its shares aren’t worthless.

So there you go Canada, Bombardier thanks you for the $1 billion you gave it. Any time you want to fork over some more money in exchange for thousands of layoffs, make sure to let the company know. They’ll be happy to oblige.

Congratulations @Bombardier on this important milestone! #CSeries #CS100 http://pic.twitter.com/jYlQYlepsk

— Transport Canada (@Transport_gc) December 18, 2015

via Zero Hedge http://ift.tt/1R7S2i9 Tyler Durden

• Futures rise as oil gains hold steady (Reuters)
• China promises economic stability as G20, parliament loom (Reuters)
• Obama scolds Senate Republicans for Supreme Court threat (Reuters)
• China Deploys Missiles on Disputed South China Sea Island (WSJ)
• China Ramps Up Rhetoric, Plans New Steps to Juice Up Economy (BBG)
• China Loses Control of the Economic Story Line (WSJ)
• Banks are still the weak links in the economic chain (FT)
• The Great Iron-Ore Flood Claims Anglo as Biggest Victim (BBG)
• Apple CEO opposes court order to help FBI unlock iPhone (Reuters)
• Ferrari Jumps After Soros Emerges Among Top 10 Shareholders (BBG)
• Wall Street Girds for Commercial-Property Debt It Must Invest In (BBG)
• The eurozone can’t survive another banking crisis (MW)
• Glencore Wins Vote of Confidence After Signing Refinancing (BBG)
• Japan Shelves Plan to Let Pension Fund Directly Invest in Stocks (WSJ)
• Japan automaker unions’ underwhelming pay demands challenge Abenomics (Reuters)
• Negative rate not having intended effect (Nikkei)
• Minimum Wage Hikes Aren’t All Bad News for Wal-Mart (BBG)
• Lost in translation: Wal-Mart stumbles hard in Brazil (Reuters)
• Slowing Trade Flows Jolt Asia’s Exporting Nations (WSJ)
• Greenlight Capital Exited Micron Stake in Fourth Quarter (WSJ)
• Can a Reality TV Show Help Cut America’s Power Bill? (BBG)
• Big Media’s Fortunes Wane as Cable Operators Prosper (WSJ)

 

Overnight Media Digest

WSJ

– President Barack Obama said he seeks an ‘indisputably’ qualified successor to Justice Antonin Scalia, while administration officials indicated he wants a Supreme Court nominee who can attract some Republican support. (http://on.wsj.com/1QkclMs)

– Valuations of companies such as Viacom and Walt Disney are under pressure, as cable operators including Comcast and Cablevision hold steady amid cord-cutting fears. (http://on.wsj.com/1Qkcrng)

– Saudi Arabia and Russia said they would cap production if major producers followed suit, but oil prices fell as Iran balked and investors looked for more concrete action to reduce a global glut. (http://on.wsj.com/1QkcteW)

– The Dodd-Frank Act didn’t go far enough; more needs to be done to end the risks posed by banks that have grown too big to fail, Minneapolis Fed chief Neel Kashkari said. (http://on.wsj.com/1QkctLQ)

– China has positioned surface-to-air missiles on a disputed island in the South China Sea in one of the most aggressive military steps so far by Beijing in a burgeoning standoff with Washington. (http://on.wsj.com/1ontAQd)

 

FT

Anglo American said on Tuesday it plans to sell its iron ore, coal and nickel units as part of a sweeping strategic overhaul to cope with a commodities rout that has triggered a fight for survival even among heavyweight miners.

Daimler AG Chief Executive Dieter Zetsche’s contract was extended by three years on Tuesday, setting the stage for a younger generation of automotive managers to succeed him.

British lender Metro Bank Plc <IPO-METRO.L> is cutting the price of its initial public offering by about 17 percent, following the recent sell-off across the banking sector, investors in the UK bank were told on Tuesday night.

 

NYT

– Saudi Arabia, Russia, Venezuela and Qatar agreed to hold production steady, a move intended to bolster energy prices. But they will proceed only if others join. The plan indicates how deeply prices have fallen, as Russia and Saudi Arabia have previously resisted tempering production.(nyti.ms/20YpYWK)

– A newly declassified report by the National Security Agency’s inspector general suggests that the government is receiving far less data from Americans’ international Internet communications than privacy advocates have long suspected. (nyti.ms/1KoNy7r)

– European Union authorities on Tuesday stepped up efforts to reduce reliance on Russian natural gas as the two sides face off over a litany of geopolitical disputes, from the conflict in Ukraine to the civil war in Syria. (nyti.ms/1onlw1Z)

– Teams of government lawyers, the FBI and Homeland Security are trying to recover assets the United States says were stolen by foreign officials. (nyti.ms/1mGwAWG)

 

Canada

THE GLOBE AND MAIL

** Investment by automakers in Canada doubled last year from 2014 levels, but the country failed to win any of the three new assembly plants that were announced for North America. (bit.ly/1R7Fbwn)

** Finance Minister Bill Morneau says balancing the books is now a long-term goal, providing further evidence that the Liberal government is backing away from its pledge to erase the deficit before the next election. (bit.ly/1Q0Y3OR)

** The British Columbia government used its balanced budget on Tuesday as leverage to wrestle with the country’s hottest real estate market, introducing tax incentives designed to spur housing construction. (bit.ly/1SRIETq)

NATIONAL POST

** After a bizarre appointment snafu that blew up a normally secretive process, Ontario finally has a permanent ombudsman in Paul Dube, who will formally assume the role on April 1. (bit.ly/1PEXdFW)

** Hundreds of maple syrup producers braved snow and freezing rain in Quebec City on Tuesday to march on the National Assembly in protest against a new government report that they say, if implemented, will ruin their industry. (bit.ly/1Q10PDx)

 

Britain

The Times

– Vodafone Group Plc’s decision to go double Dutch by combining its mobile network in the Netherlands with Liberty Global’s cable network Ziggo has prompted fevered speculation that it could be a forerunner for a full merger. (http://thetim.es/2496kpP)

– Politicians outraged by Mike Ashley’s refusal to appear before parliament may get the chance to grill the founder of Sports Direct International Plc over the running of his sports fashion company. The entrepreneur is reported to have offered to meet MPs and answer any questions about working conditions at the retailer’s headquarters and giant warehouse facility. (http://thetim.es/2498Ooe)

The Guardian

– The price of an average home in Britain rose 18,000 pounds ($25,729.20) last year, according to government figures that also revealed sharp regional differences in the housing market. The 6.7 percent pace of growth was slower than the 9 percent rise recorded in 2014, but far exceeded increases in wages or general inflation. (http://bit.ly/2496EVO)

The Telegraph

– UK inflation crept up by 0.3 percent in the year to January, from 0.2 percent in December, rising for a third month in a row. But economists said cuts to energy bills and the recent oil price rout were likely to keep inflation “close to zero” in the coming months. (http://bit.ly/2496RIt)

– India has warned Vodafone Group Plc it may seize the telecoms giant’s assets in the country if it does not pay a disputed 142 billion rupees ($2.07 billion) tax bill. Vodafone received a letter from the deputy commissioner of income tax in India earlier this month that warned of potential action in the event of non-payment. (http://bit.ly/2496Zrm)

Sky News

– Documents sent to shareholders disclose that the value of B-shares allocated to roughly 70 current and former Metro Bank executives will convert into ordinary shares worth just over 18 million pounds after market turmoil forced bosses to slash the price of the lender’s forthcoming listing. (http://bit.ly/2497aDg)

– French energy giant EDF will extend the life of four of its eight UK nuclear power plants – safeguarding 3,000 jobs in the process. Heysham 1 and Hartlepool will continue to generate power for an additional five years – up until 2024, while Heysham 2 and Torness will see their life extended by seven years to 2030. (http://bit.ly/2497hhX)

The Independent

– Ikea has been accused of avoiding up to 1 billion euros ($1.11 billion) in corporate taxes between 2009 and 2014, according to a report by Green Party ministers in the European Parliament. (http://ind.pn/2497wcN)

via Zero Hedge http://ift.tt/1U7AZj0 Tyler Durden

Yesterday was the last day for hedge funds to submit their Q4 13-F filings, and the biggest reactions this morning can be found in the stock of Kinder Morgan which rises 9% pre-mkt after Berkshire reported a new stake. Autodesk also gained 2% post-mkt yday after Lone Pine took a new position. Several funds boosted or reported new stakes in JD.com while Jana Partners reported a new stake in Valeant. Both Icahn and Einhorn trimmed their AAPL holdings.

Below is a summary courtesy of Bloomberg of 4Q equity holdings from Dec. 31 13-F filings by the most prominent hedge funds, with some of the new, added, cut and exited positions for each; some stakes may have previously been reported in separate filings.

ADAGE CAPITAL

• Reports new stakes in SYF, IR, MMM, KLAC, FE
• Boosts DOW, MSFT, HON, CVX, DAL
• Cuts GE, PEP, UTX, MPWR, AXP
• No longer shows D, RCII, ABY, RLGY, UGI

APPALOOSA MANAGEMENT

• Reports new stakes ETP, KMI, ABY, PFE
• Boosts GOOG, ALL, LUV, DAL, WHR
• Cuts NXPI, GT, EXP, AAPL, EMN
• No longer shows JBLU, TEX, USG, KBR, AXLL

BAUPOST GROUP

• Reports new stakes in EMC
• Boosts AR, PYPL, RUN, KLXI, BITI
• Cuts FTR, KOS, NG
• No longer shows AA, PXD, EBAY, AER, LOCK

BERKSHIRE HATHAWAY

• Reports new stakes in KMI
• Boosts WFC, DE, AXTA
• Cuts T, WBC
• No longer shows CBI

BLUEMOUNTAIN

• Reports new stakes in SLH, WTW, CLACU, CDE, TROX
• Boosts NWSA, TERP, MGLN
• Cuts VRX, TWC, TSO, EURN, CLNY
• No longer shows BIIB, PXD, AXP, AYA

BRIDGEWATER ASSOCIATES

• Reports new stakes in HFC, AKAM, INTU, BRK/B, ADBE
• Boosts VMW, M, MAR, BCE, ADI
• Cuts SYMC, KO, RL, EMN, CTL
• No longer shows GOOGL, MON, AMAT, WFM, FDX

COATUE MANAGEMENT

• Reports new stakes in VRX, GPRO, FIT, ETE, WMB
• Boosts GOOG, MSFT, ATVI, JD, NFLX, EQIX, W
• Cuts AVGO, EXPE, AKAM, AGN, HAIN, DDD, SSYS
• No longer shows KHC, WBA, Z, ADSK, VIPS

CORVEX MANAGEMENT

• Reports new stakes in GOOG, BAC, COMM, CMA, P
• Boosts PFE, SIG, YUM
• Cuts BEAV, AGN, TWX, PAH, FNF
• No longer shows AET, TAP, APC, BUD, PRGO

DUQUESNE FAMILY OFFICE

• Reports new stakes in RTN, NOC, GOOGL, PSTG, SYF
• Boosts AMZN
• Cuts FB, HDB, MSFT, CTRP
• No longer shows WFC, WDAY, JD, ILMN, UA

ELLIOTT MANAGEMENT

• Reports new stakes in CAB, CNP, XLE, RRTS
• Boosts AGN, EMC, CTXS, VMW, PLCM
• Cuts PRGO, FCB, CCL, FBIO
• No longer shows CMCSA, FOX, APC, JNPR, SQM

EMINENCE CAPITAL

• Reports new stakes in HOT, LQ, CAA, CCE, BERY
• Boosts ADSK, GMCR, YHOO, YUM
• Cuts PRT, GNC, FOSL, G, LNKD
• No longer shows KORS, AIG, CTRP, CSOD, MCD

ETON PARK CAPITAL

• Reports new stakes in EMC, AGN, TWC, GMCR, ADSK
• Boosts CRTO
• Cuts PRGO, ODP, ADBE, AER, CI
• No longer shows WMB, BEAV, GOOG, SNN

FAIRHOLME CAPITAL

• Boosts LE, DNOW, MRC, SRG
• Cuts BAC, CNQ, LUK, IBM, AIG
• No longer shows C, NOV

GATES FOUNDATION

•    Cuts BRK/B
•    No longer shows BP

GLENVIEW CAPITAL MGMT

•    Reports new stakes in CSC, TWC
•    Boosts HCA, CI, HUM, FMC, MON
•    Cuts CDNS, PVH, CYH, TMO, WRK
•    No longer shows ENDP, AGN, TER, DG, A

GREENLIGHT CAPITAL

•    Reports new stakes in M, AGR, MYL, AGN, DSW
•    Boosts TWX, KORS, IAC, AER, FOXA
•    Cuts AAPL, CBI, ON, ACM, SEMI
•    No longer shows MU, BK, SC, AMAT, KS

HIGHFIELDS CAPITAL MGMT

•    Reports new stakes in YHOO, AGN, KSU, BK, DIA
•    Boosts DD, MCD, ABBV, HOT, TRIP
•    Cuts BEN, CBS, IRM, MHFI
•    No longer shows APD, IBM, LLY, PG, QCOM

ICAHN ASSOCIATES

•    Boosts HTZ, LNG, FCX
•    Cuts AAPL, TGNA, GCI

ICONIQ CAPITAL

•    Reports new stakes in VXUS, QQQ, CVX
•    Boosts GLD, IWB, JD, VTI, XLE
•    Cuts IAU, PARR, VNQ, LLNW, TSLA
•    No longer shows XES, XOP, GDX, BP, RDS/A

JANA PARTNERS

•    Reports new stakes in PFE, AIG, VRX, CSRA
•    Boosts MSFT
•    Cuts QCOM, BAX, AGN, CSC, TWX
•    No longer shows HTZ, BKD, MAT, ZTS
•    NOTE: Jan. 27, Jana Is Short Royal Mail, Dixons Carphone, InterContinental

LAKEWOOD CAPITAL

•    Reports new stakes in QRVO, AMLP
•    Boosts AGN, CFG, WRK, HCA, TWC
•    Cuts CDW, JBLU, IM, SPR
•    No longer shows BABA, BLL, AAL
•    NOTE: Feb. 8, Bozza’s Lakewood Capital Shorting Adeptus, Dycom, Dean: ValueWalk

LANSDOWNE PARTNERS

•    Reports new stakes in RACE, CLVS, LIVN, SYF, MTCH
•    Boosts GOOGL, AAPL, V, AMZN, JPM
•    Cuts GS, WFC, DIS, NKE, FIT
•    No longer shows XLE, KW, IAC, SEMI

LONE PINE CAPITAL

•    Reports new stakes in NOC, ADSK, LULU, GOOGL, GOOG
•    Boosts DLTR, AMZN, MSFT, V, STZ
•    Cuts VRX, CHTR, JD, PCLN, MA
•    No longer shows AGN, DVA, SCHW, SBAC, MBLY

MARCATO CAPITAL

•    Reports new stakes in M, TPHS, HZN, BLDR
•    Boosts CBPX, VRTS
•    Cuts GT, BID, MDCA
•    No longer shows NCR, MIC, LEA, SGMS, JMG

MAVERICK CAPITAL

•    Reports new stakes in NWL, CHTR, UNH, HDS, KHC
•    Boosts ARRS, PFE, ADBE, WCN, YELP, PACB, KSU, SABR
•    Cuts AER, GOOG, BUD, PCLN, ARMK
•    No longer shows VRX, MTG, TMH, TWX, SYMC

MELVIN CAPITAL

•    Reports new stakes in DLTR, SIG, NKE, BABA, LVS
•    Boosts JD, DPZ, FB, ADBE, CTRP
•    Cuts AMZN, KR, LULU, EXPE, SWK
•    No longer shows EL, CASY, VFC, YUM, TJX

MILLENNIUM MANAGEMENT

•    Reports new stakes in SYF, ITC, AGR, PEP, GMCR
•    Boosts MRK, KEY, AAPL, NEE, PNW
•    Cuts DOW, CMCSA, AMZN, SLB, AEE
•    No longer shows ILMN, WFC, RDC, APA, SKX

MOORE CAPITAL

•    Reports new stakes in CTRP, XOP, MSFT, RH, ICE
•    Boosts BAC, C, BABA, AMZN, FB
•    Cuts JPM, MGM, NRF, NSAM, TCO
•    No longer shows FXI, EAGLU, PACEU, GRSHU, BLVDU

OMEGA ADVISORS

•    Reports new stakes in FDC, EEM, MSFT, SYF, AET
•    Boosts AIG, NAVI, WBA, ASPS, LORL
•    Cuts PFE, TWX, TRGP, MSI, GPOR
•    No longer shows PCLN, VRX, SUNE, CI, LYB
•    NOTE: Nov. 16, Omega Sold Entire Valeant Stake, Reuters Says

PASSPORT CAPITAL

•    Reports new stakes in GE, SYT, MCD, LLY, RTN
•    Boosts MSFT, NKE, BMY, SBUX
•    Cuts DLTR, SRE, DAL, PFE
•    No longer shows SCTY, VIPS, NRG, RICE

PAULSON & CO.

•    Reports new stakes in LRCX, AKRX, PFE, BIIB, ABBV
•    Boosts MYL, TEVA, MNK, LIVN, VRX
•    Cuts GLD, TWC, HOT, AGN, TMUS
•    No longer shows HCA, CAM, MGM, WWAV

PERRY CORP.

•    Reports new stakes in HCA, SE, CPGX
•    Boosts TWX, AER, UAM
•    Cuts AIG, WMB, CYH, ETE, BLL
•    No longer shows ZTS, PRGO, CBS, INVA, DPM

POINT72 ASSET

•    Reports new stakes in AAP, GLW, CSRA, AMAT, PBF
•    Boosts NKE, SIG, MCD, DLTR, WHR
•    Cuts AMZN, LULU, MSFT, SBUX, PXD
•    No longer shows CMCSA, TMUS, JWN, FTR, XLU

POINTSTATE CAPITAL

•    Reports new stakes in AGN, HUM, HYG, JD, DOW
•    Boosts TEVA, TWC, CLVS, LNG, CFG
•    Cuts GOOGL, AYA, PXD, LYB, MDCO
•    No longer shows TCO, VRTX, TLRD, WBA, AET

SACHEM HEAD

•    Reports new stakes in ADSK, MYL
•    Boosts AGN, AKRX, TWC, FIS
•    Cuts CDK, PTC, ZTS
•    No longer shows APD, FOXA

SANDELL ASSET

•    Reports new stakes in ARG, YOKU, FCE/A, ABG, CIT
•    Boosts CVC, TVPT
•    Cuts BOBE, VSLR, SLH, VIAV, ALLY
•    No longer shows BKD, QCOM, WIN, DK, SUNE

SOROS FUND MGMT

•    Reports new stakes in SYF, HYG, CPGX, MPC, GOOGL
•    Boosts LVLT, EQT, LYB, MCD, DAL
•    Cuts YPF, AGN, FB, CIT, TWC
•    No longer shows VIPS, NEE, SLB, NRG, LUV

STARBOARD VALUE

•    Reports new stakes in NYRT, CI, LNCE
•    Boosts BAX, MEG, M
•    Cuts ODP, WRK, CW, ACM
•    No longer shows GIS, LXU, TSRA, AGN, MSGN

TEMASEK

•    Reports new stakes in SYF, JD, TOUR, MON, REGN
•    Boosts GILD, BMRN
•    Cuts Q, BABA
•    No longer shows HXL

TIGER GLOBAL

•    Reports new stakes in AAPL, PCLN, QSR, SQ
•    Boosts VIPS, JD, CHTR, TWC, SPLK
•    Cuts ATHM, ETSY, VDSI, BABA, MA
•    No longer shows KATE, EROS, IBM, HDP

THIRD POINT

•    Reports new stakes in CB, MS, AXTA
•    Boosts DOW, SJM, TWC
•    Cuts YUM, KHC, EBAY, CWEI, STZ
•    No longer shows TMUS, NXPI, IAC, XON

TRIAN FUND

•    Boosts MDLZ, PNR
•    Cuts DD, GE
•    No longer shows IR, CC

TUDOR INVESTMENT

•    Reports new stakes in CSRA, HPY, LH, KING, EEM
•    Boosts ULTI, ADP, CSC, EFX, IYR
•    Cuts NCR, WDAY, FB, SPLK, PCLN
•    No longer shows MRKT, SINA, GE, PG, ADS

VALUEACT

•    Cuts HAL
•    No longer shows AXP

VIKING GLOBAL
•    Reports new stakes in PCLN, CMG, ENDP, PFE, BIIB
•    Boosts TEVA, NFLX, PXD, QUNR, AVGO
•    Cuts WBA, MA, LYB, KSU, AET
•    No longer shows SEE, MHK, HLT, HOT, ILMN

WILLIAM STIRITZ

•    Cuts HLF

via Zero Hedge http://ift.tt/1QkLmjM Tyler Durden

It has been a morning session of two halves.

In Asia, the mood was somber, and stocks fell with the Shanghai Composite (+1.1%) outperforming on another late session binge-fest by the National Team, and the Nikkei 225 (-1.4%), Hang Seng -1%, Kospi -0.2%, ASX -0.6%, Sensex -0.4% and the South Korean Won all down following news of the biggest Chinese Yuan devaluation in five weeks.

 

The European session, on the other hand was a different matter and after the USDJPY slid as low as 113.35 at the European open, it then proceeded to soar 100 pips and push European stocks (Stoxx 600 +1.7%) and US equity futures up with it, with the ES trading above 1900 as of this posting, adding to the best 2-day rally in the S&P in five months.

Shares in Europe also rose as companies including Credit Agricole SA and Schneider Electric SE reported better-than-estimated results. 

Among the key corporate news, Glencore Plc pushed a gauge of commodity stocks higher, advancing 8.6 percent after the Swiss trader said it won new loan commitments from banks to replace an existing $8.45 billion revolving credit facility. Its bonds also gained. Total SA dropped 1.7 percent after a shareholder sold a stake at a discount. ABN Amro Group NV bucked the banking industry trend, sliding 2.2 percent after its quarterly profit missed analysts’ projections as regulatory costs rose.

Some observations were optimistic, such as this one by Justin Urquhart Stewart, co-founder of Seven Investment Management in London: “I’d love to think this is the start of a lasting rebound but it’s too early to tell. Any gains have been pretty fragile and short-lived lately, even though earnings haven’t been all that bad and economic figures have been quite supportive.”

Others less so, such as this UBS technical analyst note: “We see Europe starting our suggested multi-week corrective/volatile rebound into later 1Q/early 2Q before resuming its underlying bear trend into deeper summer on the back of the recent break down in small and mid-caps. After the undershooting in banks, we expect a bounce in the Euro Stoxx 50 to remain capped at 3050 to best case 3200. On the sector front, a bounce should be led by autos, chemicals, industry, energy and miners, whereas a rebound in financials should sooner or later lose momentum.”

But ultimately it all remains about oil, which after sliding to $29 yesterday after the disappointing summit between Russia and Saudi Arabia, has rebounded on hope that today’s follow up meeting between Iran, Iraq and Venezuela may provide something actionable. It won’t, as the following tweet from a WSJ correspondent indicates, and instead the stage for the fingerpoint is now set.

Gulf OPEC Official: “If Iran rejects the proposal, we cannot be blamed for not trying. The ball is in their court now.”

— Summer Said (@summer_said) February 17, 2016

 

Focusing on regional markets, we start in Asia where stocks shrugged off Wall St. gains to trade negative with energy losses weighing bourses. Nikkei 225 (-1.4%) underperformed on JPY strength, while the biggest decline in machine orders in over a year also added to the gloom. ASX 200 (-0.6%) saw energy names heavily pressured after crude retreated back below the USD 30/bbl level, while Woodside Petroleum shares also dragged the sector lower following a 99% decline in profits. Elsewhere, the Shanghai Comp (+1.1%) fluctuated between gains and losses after an early upbeat tone following reports of increased funds for infrastructure spending and officials also discussing a reduction in bad loan provision ratios, was counter-balanced by a somewhat reserved PBoC liquidity operation. Finally, 10yr JGBs saw spillover selling from T-Notes where large corporate issuances and firm US stock momentum weighed on US paper while the BoJ’s presence in the market today was for a relatively modest amount. Japanese PM Abe adviser Honda says the BoJ may increase stimulus at the March meeting and that the tax hike should be delayed until 2019.

In Europe, European equities started the session off on the front-foot with a slew of earnings reports and a paring of yesterday’s losses enough to out-muscle underperformance in energy names amid the latest OPEC/Non-OPEC¬related headlines. Furthermore, financials have also been dealt a helping hand by stellar earnings from Credit Agricole (+11.1%) and elsewhere to the downside, utilities are seen softer in the wake of RWE suspending their dividend for ordinary shares. From a fixed income perspective, Bunds trade modestly higher with no real sustained direction as participants awaited supply from both the UK and Germany for much of the morning, which was technically uncovered when auctioned. Portugal spent the European morning wider to the German benchmark as has often been the case over the past few week. Elsewhere in the periphery, concerns continue to linger for Spain as to whether or not the nation would be able to obtain a definitive outcome if they were to hold a fresh round of elections.

In FX, much of the focus has been on GBP this morning, with the backdrop of the EU renegotiations added to by the UK employment report. The jobless rate was unchanged at 5.1% which caused and immediate hit on the Pound, led by Cable. Earlier in the day, we saw losses through 1.4250 limited to 1.4242, held up by some strong bids at these levels, which then formed the basis of a sharp turnaround as the rest of the numbers proved very healthy. Claims fell by a much larger than expected 14.8k and once digested, saw Cable taking out 1.4300 and pushing the GBP to session highs against the rest of its major counterparts. Elsewhere, early stock market jitters saw USD/JPY dipping below 113.50, but as sentiment eased, we saw a slow grind back to 114.00 and above, but the Asia highs ahead of 114.40 cap for now. Oil prices moving higher despite ongoing wrangling over the production freeze (Iran), and this has given CAD some relief to send the spot rate back towards 1.3800.

In commodities, energy markets traded relatively unchanged through most of the session as participants await further headlines regarding any success/breakdown in negotiations regarding a co-orindated production freeze. However, in the lead up to the beginning of the 1030GMT meeting between Qatar, Venezuela, Iraq and Iran WTI and Brent futures both saw a bid, with the former heading higher, towards the USD 30/bbl level, although with no fundamental catalyst immediately behind the move. In terms of metals markets, Gold traded higher overnight amid weakness in Asia-Pac stocks and a pull-back in the USD, however, prices have since retreated from their best levels alongside the upside seen in European equities.

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Bulletin Headline Summary from RanSqawk and Bloomberg

• FX markets have seen USD/JPY and GBP/USD retrace earlier losses with both heading into US crossover seeing a bid, as participants shrug off mixed UK employment release and sentiment strengthens through the European morning
• While Asian equities failed to benefit from the positive Wall St close, European equities have traded higher this morning, benefitting from stock specific news as well as an uptick in sentiment
• Today’s highlight is the release of the FOMC Minutes, while participants will also be looking out for US housing starts, building permits, industrial production and API Crude Oil Inventories
• Treasury yields little changed as European equities and oil rally during overnight trading; Fed minutes to Jan. 26-27 meeting to be released at 2pm ET.
• The yuan posted the biggest two-day decline in more than a month as the central bank’s fixing for the currency tracked an overnight advance in the dollar and official media voiced concern that capital outflows will increase
• China’s unprecedented jump in new loans at the start of 2016 is fueling concern that excessive credit growth is piling up risks in the nation’s financial system. The increase could pressure the country’s credit rating, S&P said Tuesday
• China is stepping up support for the economy by ramping up spending and considering new measures to boost bank lending. The nation’s chief planning agency is making more money available to local governments
• The BOJ should act preemptively to change the deflationary mindset in Japan and this action could come as soon as March, said Etsuro Honda, an adviser to Prime Minister Shinzo Abe
• Wall Street firms are readying themselves for a provision of the 2010 Dodd-Frank law that takes effect in December that forces banks to keep a stake in the commercial-property loans they package into securities and sell off to investors
• Syria’s five-year war has turned into a tangled web of proxy conflicts between global and regional powers, with a growing risk that some of them could clash directly. Right now the most dangerous flashpoint is between Russia and NATO member Turkey
• Apple rejected a court order to help the Justice Department unlock an iPhone used by one of the shooters in a terrorist attack in California, accusing the U.S. government of “overreach” that will set a dangerous precedent
• $23.425b IG corporates priced yesterday (YTD volume $206b) and $350m priced yesterday (YTD volume $9.625b)
• Sovereign 10Y bond yields little changed; European stocks higher, Asian markets drop; U.S. equity-index futures higher. Crude oil, copper and gold rally

US Event Calendar

• 7:00am: MBA Mortgage Applications, Feb. 12 (prior 9.3%)
• 8:30am: Housing Starts, Jan., est 1.173m (prior 1.149m)
  • Housing Starts m/m Jan., est. 2.0% (prior -2.5%)
  • Building Permits, Jan., est. 1.2m (prior 1.232m, revised 1.204m)
  • Building Permits m/m, Jan., est. -0.3% (prior -3.9%, revised 6.1%)
• 8:30am: PPI Final Demand m/m, Jan., est. -0.2% (prior -0.2%)
  • PPI Ex Food and Energy m/m, Jan., est. 0.1% (prior 0.1%, revised 0.2%)
  • PPI Ex Food, Energy, Trade m/m, Jan., est. 0.1% (prior 0.2%)
  • PPI Final Demand y/y, Jan., est. -0.6% (prior -1%)
  • PPI Ex Food and Energy y/y, Jan., est. 0.4% (prior 0.3%)
  • PPI Ex Food, Energy, Trade y/y, Jan. (prior 0.3%)
• 9:15am: Industrial Production m/m, Jan., est. 0.4% (prior -0.4%)
  • Capacity Utilization, Jan., est. 76.7% (prior 76.5%)
  • Manufacturing (SIC) Production, Jan., est. 0.2% (prior -0.1%)
• TBA: Consumer Price Index benchmark revisions
• TBA: Mortgage Delinquencies, 4Q (prior 4.99%)
• Mortgage Foreclosures, 4Q (prior 1.88%)

Central Banks

• 2:00pm: FOMC Minutes, Jan. 26-27
• 7:30pm: Fed’s Bullard speaks in St. Louis

 

DB’s Jim Reid concludes the overnight wrap

While the rally in Europe succumbed to a bit of fatigue yesterday with the Stoxx 600 closing with -0.43% after a day of whippy price action, the US reopened after Monday’s holiday with a fairly positive tone to build on the momentum generated from the end of last week, culminating with the S&P 500 closing with a +1.65% gain. Much of the focus however was on oil markets and specifically the meeting between Saudi Arabia and Russia. The initial headlines appeared positive and saw WTI spike as high as $31.50/bbl before disappointment set in that actually there was little fundamental change from the meeting and instead realization set in that talks had moved from cuts to a freeze in production. WTI closed -1.36% on the day at $29.04/bbl.

In terms of the details, it emerged that Saudi Arabia and Russia, along with Venezuela and Qatar had agreed to freeze current production at January levels. As our Commodity strategy colleagues highlighted yesterday in their note, the Russia Oil Ministry stated that this freeze would only take effect if other producers participate, without specifying how many or which countries would be required to join the agreement. While a credible agreement to hold production flat by all OPEC members at the January level would be quite meaningful in tightening forward expectations of market balance, a lot of this would hinge on the need for the inclusion of Iran and Iraq. Talks are expected to continue in Tehran today but expectation levels are low given that Iran has publicly stated that it will restore production to pre-sanctions levels regardless of price.

A silver lining is that the talks are overall a positive step forward for sentiment in advance of the scheduled June OPEC meeting. Clearly though there is the need for negotiations to progress to achieve any sort of coordinated agreement in production cuts between OPEC and non-OPEC members however.

Glancing at our screens this morning it appears that weakness in energy names following the news yesterday is to blame for a broadly weaker start in Asia this morning. Bourses in Japan in particular have seen the greatest losses with the Nikkei currently -1.88%. Elsewhere the Hang Seng (-0.50%), Kospi (-0.27%) and ASX (-0.57%) are also in the red as we go to print, while Chinese bourses (Shanghai Comp +0.31%) have just nudged back into positive territory. Oil markets are actually about half a percent firmer while US equity index futures are unchanged.

Away from the focus on Oil yesterday there was also some data and Fedspeak for us to digest. With regards to the former first of all there was a notable downturn in this month’s German ZEW survey. The current situations index plunged 7.4pts to a below-market 52.3 (vs. 55.0 expected) which is the lowest in 12 months and clearly a reflection of the European banks, global growth and China woes which have played their part this year. The expectations survey fared little better, tumbling 9.2pts to 1.0 (vs. 0 expected). In the UK meanwhile the January CPI print was lower than expected at -0.8% mom (vs. -0.7% expected). That said the YoY rate did nudge up one-tenth to +0.3% with the core sitting at +1.2%. In the US we saw the February Empire manufacturing survey continue to remain weak this month at -16.6 (vs. -10.0) despite improving nearly 3pts from January. Meanwhile the NAHB housing market index declined 3pts to 58 which came as a slight surprise with consensus expectations having been at 60, although it still remains close to its cyclical high.

In terms of the Fedspeak, Philadelphia Fed President Harker (non-voter) provided a fairly cautious overview of the US economy. Harker opined that ‘it might prove prudent to wait until the inflation data are stronger before we undertake a second rate hike’ and that ‘I am approaching near-term policy a bit more cautiously than I did a few months ago’. Harker did highlight that his overall view of the US economy is upbeat, but that risks to his outlook are very much tilted to the downside. New Minneapolis Fed President Kashkari also made some interesting comments yesterday. The former US Treasury official was fairly up front with his views on US Banks, saying that ‘the biggest banks are still too big to fail and continue to pose a significant risk to our economy’. He remarked that ‘now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all’.

Recapping the rest of the price action yesterday, Gold extended its move lower for a third day, finishing -0.73% at $1200. US Treasury yields were a smidgen higher with the benchmark 10y in particular up 2.4bps to 1.773%. European credit indices and financials in particular were a touch wider, while US indices finished 1bp tighter although the real news was in the primary market with the new issue market in the US reopening with a bang. Indeed over $23bn of deals were said to have been raised yesterday in the second busiest day of the year, led by a bumper nine-part $12bn deal for Apple while IBM and Toyota Motor Corp were also out with sizeable deals of their own. Despite the volatility in credit markets of late, clearly demand hasn’t waned too much with the order book for Apple in particular said to have reached $28bn.

Taking a look at today’s calendar now, the only data of note in the European session this morning will again come from the UK where we get the latest employment report where focus will be on the December unemployment and weekly earnings prints in particular. This afternoon in the US we’ll see the January housing starts and building permits data. Last month’s PPI print will also be worth keeping an eye on before we get the January IP report where expectations are currently running for +0.4% mom. Capacity utilization and manufacturing production data is also due before we get the January FOMC minutes this evening (7pm GMT) although as we’ve since heard from Fed Chair Yellen at her semi-annual testimony so the minutes will now look a little outdated. There’s no Fedspeak due today while earnings wise we’ve got 13 S&P 500 companies set to report.

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Yesterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP.

That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on.

We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”

Well, not even 24 hours later, and another Harvard “scholar” and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled “It’s time to kill the $100 bill” in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that “a moratorium on printing new high denomination notes would make the world a better place.“

Yes, for central bankers, as all this modest proposal will do is make it that much easier to unleash NIRP, because recall that of the $1.4 trillion in total U.S. currency in circulation, $1.1 trillion is in the form of $100 bills. Eliminate those, and suddenly there is nowhere to hide from those trillions in negative interest rate “yielding” bank deposits.

So with one regulation, the Fed – if it listens to this Harvard charlatan, and it surely will as more and more “academics” get on board with the idea to scrap paper money – could eliminate the value of 78% of all currency in circulation, which in effect would achieve practically the entire goal of destroying the one paper alternative to digital NIRP rates, in the form of paper currency.

That said, it would still leave gold as an alternative to collapsing monetary system, but by then there will surely be a redux of Executive Order 6102 banning the possession of physical gold and demanding its return to the US government.

Here is Summers’ first shot across the bow in the upcoming war against U.S. paper currency, first posted in the WaPo:

It’s time to kill the $100 bill

Harvard’s Mossavar Rahmani Center for Business and Government, which I am privileged to direct, has just issued an important paper by senior fellow Peter Sands and a group of student collaborators. The paper makes a compelling case for stopping the issuance of high denomination notes like the 500 euro note and $100 bill or even withdrawing them from circulation.

I remember that when the euro was being designed in the late 1990s, I argued with my European G7 colleagues that skirmishing over seigniorage by issuing a 500 euro note was highly irresponsible and mostly would be a boon to corruption and crime. Since the crime and corruption in significant part would happen outside European borders, I suggested that, to paraphrase John Connally, it was their currency, but would be everyone’s problem. And I made clear that in the context of an international agreement, the U.S. would consider policy regarding the $100 bill.  But because the Germans were committed to having a high denomination note, the issue was never seriously debated in international forums.

The fact that — as Sands points out — in certain circles the 500 euro note is known as the “Bin Laden” confirms the arguments against it. Sands’ extensive analysis is totally convincing on the linkage between high denomination notes and crime. He is surely right that illicit activities are facilitated when a million dollars weighs 2.2 pounds as with the 500 euro note rather than more than 50 pounds as would be the case if the $20 bill was the high denomination note. And he is equally correct in arguing that technology is obviating whatever need there may ever have been for high denomination notes in legal commerce.

What should happen next?  I’d guess the idea of removing existing notes is a step too far. But a moratorium on printing new high denomination notes would make the world a better place.  In terms of unilateral steps, the most important actor by far is the European Union. The €500 is almost six times as valuable as the $100. Some actors in Europe, notably the European Commission, have shown sympathy for the idea and European Central Bank chief Mario Draghi has shown interest as well.  If Europe moved, pressure could likely be brought on others, notably Switzerland.

I confess to not being surprised that resistance within the ECB is coming out of Luxembourg, with its long and unsavory tradition of giving comfort to tax evaders, money launderers, and other proponents of bank secrecy and where 20 times as much cash is printed, relative to gross domestic, compared to other European countries.

These are difficult times in Europe with the refugee crisis, economic weakness, security issues and the rise of populist movements.  There are real limits on what it can do to address global problems. But here is a step that will represent a global contribution with only the tiniest impact on legitimate commerce or on government budgets. It may not be a free lunch, but it is a very cheap lunch.

Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100.  Such an agreement would be as significant as anything else the G7 or G20 has done in years. China, which is hosting the next G-20 in September, has made attacking corruption a central part of its economic and political strategy. More generally, at a time when such a demonstration is very much needed, a global agreement to stop issuing high denomination notes would also show that the global financial groupings can stand up against “big money” and for the interests of ordinary citizens.

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And then there was this from Bloomberg:

Lawrence Summers urged countries around the world to agree to stop issuing high-denomination banknotes, adding his voice to intensifying criticism of a practice alleged by police to abet crime and corruption.

“Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100,” Summers said on his blog on Tuesday. “Such an agreement would be as significant as anything else the G-7 or G-20 has done in years.”

The 500-euro note has been in circulation since the paper currency went live in 2002. British banks and money-exchange services stopped distributing the bills in 2010 after a report showed that 90 percent of demand for them came from criminals. ECB Executive Board member Yves Mersch said earlier this month that his institution still wanted to see “substantiated evidence” that the notes facilitate illegal activity.

For now, “I’d guess the idea of removing existing notes is a step too far,” Summers wrote. “But a moratorium on printing new high-denomination notes would make the world a better place.”

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First they came for the $100 bill and nobody said anything…

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