Month: September 2013

Why oil prices may remain strong, war or no war

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Uncertainty over rising tensions in Syria has driven oil prices to fresh highs in recent weeks, but analysts say the bullish sentiment is expected to stay regardless of whether or not the scenario escalates into a full blown war.

“Even if there is a war in Syria or no war in Syria I think oil will remain strong,” said Sean Hyman, editor of Moneynews at the monthly newsletter Ultimate Wealth Report. “WTI could go from USD 108 to USD 117 [a barrel] and Brent could go from USD 115 to USD 125 [a barrel] very easily.”

“You’ve got strikes of oil workers in Libya…you’ve got Egypt really still in limbo with their government…and you’ve also still got what could turn into a war in Syria. I believe you’ve got a big case for oil and oil stocks to go higher,” he said.

Syria tensions were renewed this week after key US Congressional leaders voiced their support for President Barack Obama’s call for a military strike against Syria to retaliate against its use of chemical weapons against civilians, making the likelihood of action look more imminent.

Libya’s oil production has fallen to about one sixth of its pre-2011 civil war levels in recent weeks due to a month-long disruption by armed security guards who shut the country’s main export ports. Meanwhile an attack on a ship passing through the Suez Canal over the weekend has flagged continued geopolitical risk in Egypt.

Han Pin Hsi, global head of commodities at Standard Chartered, said if Syria tensions ease, he doubted Brent would spike as high as USD 125 a barrel. It would likely trade in a USD 105-USD 115 a barrel range, while WTI would trade at a USD 5 discount to Brent, he said.

“Oil will remain firm because of risks to supply from other oil producers: Iran is not coming back quickly, there are issues with Libya and tensions in the Middle East North Africa area will keep oil firm,” he said.

However, oil could reach USD 125 a barrel if tensions in Syria escalate, Hsi added.

“It’s anyone’s guess what would happen to oil then, but we would probably see a spike. But oil at USD 125 a barrel would be a significant headwind for the already fragile global economy, causing a lot of problems, so it would not be sustainable for long,” he said.

Last week, Societe Generale analysts laid out a case for Brent to spike to USD 150 a barrel temporarily if Syria’s supporters seek to punish the U.S. and its allies for a military strike, a development many industry watchers see as a worst case scenario.

Last week US crude reached its highest level in over two years, while Brent crude moved to its highest level since February. They have since pulled back; on Wednesday, Brent traded at USD 115.77 a barrel at mid-morning in Asia, while WTI traded at USD 108.29 a barrel.

Copyright 2011 cnbc.com

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Baptism of fire for India’s new central bank chief

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Raghuram Rajan becomes India’s central bank chief this week and the well-respected economist is expected to come under immediate pressure to restore confidence in the country’s battered currency.

Rajan succeeds Duvvuri Subbarao as Reserve Bank of India Governor under bleak circumstances: the Indian rupee has shed over 25 percent of its value against the US dollar in the space of three months, the economy is growing at its slowest rate since 2009 and inflation is high.

Also read: Goldman upgrades China growth, cuts India outlook

India, Asia’s third largest economy, is facing its worst predicament since 1990-1991 when a balance of payments crisis led to a sharp devaluation in the rupee, economists say.

Rajan officially becomes RBI Governor on Wednesday and will take charge operationally on Thursday.

“In some ways you could argue that Rajan has made his first mistake before he’s formally started in not being active enough in reassuring markets about his commitment to stabilize the rupee,” Robert Prior-Wandesforde, director for Asia economics at Credit Suisse, told CNBC Asia’s “Squawk Box.”

“The market has been crying out for some jaw-boning from him. I hope the RBI and government together set currency stability as their chief priority. If they do not, the rupee could continue to drop, inflation will rise and rates will be forced higher,” he added.

The middle of a storm

The rupee closed at about 67.63 per dollar on Tuesday, off last week’s record high of 68.8. Analysts say that steps such as last week’s decision by the RBI to provide dollars directly to state oil companies have helped shore up the battered rupee, but more needs to be done to restore confidence.

India’s wide current account deficit and the slow pace of economic reforms have put the country at the center of the storm sweeping through emerging markets, as investors brace for an unwinding of the US monetary stimulus that has pumped liquidity into global markets in recent years.

Worries about Fed tapering have led to an exit of cash from emerging markets. India’s stock market, for instance, has tumbled more than 10 percent since late July and the broader MSCI emerging markets stock index has shed about 4 percent over the same period.

Also read: Emerging Asia rout start of a multi-year bear market?

“The market is saying all the money that flooded into India has been misspent, funding a credit bubble, so when that is being unwound you have to kill domestic demand in order to come back to a surplus,” independent economist Andy Xie told CNBC.

“India is facing the same situation as Thailand did 15 years ago when it tried to hold onto growth,” he added. “It is very dangerous to change the captain in the middle of a huge storm.”

The right guy?

One thing that Rajan, a former chief economist at the International Monetary Fund, has in his favor is that he is viewed with credibility in financial markets.

“One is tempted to say that if Rajan can’t help restore confidence in India’s battered currency, nobody can,” Nicholas Spiro of Spiro Sovereign Strategy said in a note.

Others add that the sell-off in the rupee has been blown out of proportion and Rajan would do well to turn the market’s focus to how the central bank will help boost economic growth.

Data last week showed India’s economy expanded 4.4 percent year-on-year in the April to June period, well short of analyst forecasts for a 4.7 percent rise.

Economists have slashed their forecasts for the full year growth ending in March 2014, highlighting just how much India’s economy has slowed from the 8 percent plus growth rates enjoyed just a few years ago.

Also read: The rupee rout will be over soon

“The best thing he [Rajan] could do is call the currency speculators’ bluff and say: we’re not focused on every day currency moves but long-term growth,” said Stuart Oakley, managing director for Asian currency trading at Nomura.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Vodafone CEO: We will spend cash pile on our networks

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Vodafone’s priority following the USD 130 billion sale of its stake in Verizon Wireless will be to use the cash pile for accelerating investment in its own wireless networks, Vittorio Colao, CEO, Vodafone told CNBC late Monday.

While acquiring overseas assets is an option, that won’t be immediate.

“We will be a great data company, we will do it investing in ourselves, and if we find good opportunities, eventually buying assets. But we will continue to be disciplined and value oriented as we have been in the last years,” Vittorio Colao, CEO, Vodafone told CNBC late Monday.

After the close of trade on the London Stock Exchange Monday, Vodafone confirmed the sale of its 45 percent stake in Verizon Wireless to Verizon Communications, in the third largest deal in corporate history after Vodafone’s USD 203 billion takeover of Germany’s Mannesmann in 1999 and AOL’s USD 181 billion acquisition of Time Warner the year after.

The company wants to use the cash to launch a £6 billion (USD 9.3 billion) investment plan named Project Spring to speed up the introduction of 4G networks and increase investment in installing fiber optic cables to offer faster broadband services to customers.

The majority, or 71 percent, of the deal’s proceeds, however, will be handed back to shareholders. The company plans to return USD 84 billion in cash and shares to shareholders.

“Let me say that this is a very large deal. We are fortunate enough that the size of the deal itself allows us to return a large percentage to shareholders. But even the remaining 21 percent is large enough to strengthen the company and to allow us to accelerate our strategy,” Colao said.

Responding to speculation that the smaller Vodafone entity may emerge as an acquisition target for AT&T, the largest U.S. telecoms group, he said: “I would not speculate about situations that are not present. I have to remind everybody that we have a great company, a great strategy. And this strategy we’re confident will generate good returns to shareholders. This company, this brand has chapter three of its history to write.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Larry Summers the next big risk for emerging markets?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Thought speculation about Federal Reserve tapering was bad for emerging markets? Then just wait to see what happens if Larry Summers is appointed as the next US central bank chief, analysts say.

They argue that if Summers replaces Ben Bernanke, whose second term as Fed chairman expires in January, any scaling back in the central bank’s asset-purchase program would be ramped up by the hawkish Summers and deal a further blow to battered emerging markets.

Also read: Obama source predicts Summers will be named Fed chief soon

Paul Krake, founder of the consultancy View from the Peak: Macro Strategies, said that it isn`t when the Fed starts to take back its massive monetary stimulus but who takes over as Fed chairman next year, that`s important to markets right now.

“The US president is a pretty important job; but ask the Indians, the Indonesians, the Brazilians who`s had more influence over their lives and the answer would be the Fed chief,” he told CNBC.

“Larry Summers is not an advocate of QE [quantitative easing] and the reality is that all things being equal, he will unwind QE fast,” Krake added.

Emerging markets from Brazil to India and Turkey have been hit hard since May on talk of an unwinding of the U.S. monetary stimulus that has provided global markets with liquidity in the past few years.

Talk that Larry Summers, a former Treasury secretary, is the choice candidate to become the next head of the Fed has gained ground in recent weeks. The other favored candidate is Janet Yellen, currently the Fed`s vice chairman.

Also read: Summers as Fed chief is a ‘black swan’ event, analysts warn

Break in continuity?

Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank in Singapore, said markets would view Summers becoming Fed chief as a break in the continuity in policy making.

“Markets would prefer Janet Yellen to become the next Fed chief to continue the policies we are familiar with under Bernanke,” Idris said. “A Summers appointment would be taken as a policy break and so you need to price a risk premium into emerging markets as a result and emerging markets would weaken on talk of a Summers appointment,” he said.

Also read: Wall Street wants Yellen, not Summers, as next Fed chief

According to research from Bank of America Merrill Lynch (BofAML), what happens in the US has a disproportionate impact on Asian markets, with the transition in the Fed chairmanship one challenge for regional markets.

“In the months preceding, and immediately after a transition of the Fed chairmanship, interest rates almost always rise,” BofAML said in a note published on Monday.

This is important because rising government bond yields in the US have been cited as one of the reasons encouraging money to leave emerging markets.

“The problem for the new Fed chief is to manage market expectations and that could be a challenge for Summers,” Kumar Palghat, founder and director at Kapstream Capital, told CNBC Asia`s ” Squawk Box ” on Tuesday.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Spotlight falls on India’s new central bank chief

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India should remain firmly in focus this week, as a new central bank governor takes the helm at a time of financial crisis in Asia`s third largest economy. He`s not the only central banker in the spotlight with the Reserve Bank of Australia and Bank of Japan scheduled to meet this week.

In China, economic data could be scrutinized closely for more signs of a pick-up in economic growth, while attention is likely to turn to the prospects for an unwinding of US monetary stimulus with the release of the closely-watched US non-farm payrolls report Friday.

Raghuram Rajan officially becomes the new governor of the Reserve Bank of India (RBI) this week, taking over as the rupee tumbled almost 20 percent against the dollar this year and confidence has been hit hard by India`s wide current-account deficit.

Analysts say the priority of the new RBI chief should be to stabilize the currency, which hit a record low close to 69 per dollar last week. The currency has bounced back a little in the past two trading sessions.

“Rajan is the best [central bank governor] India could get and it is a coup to get him at this time,” Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank, told CNBC Asia`s “Squawk Box” on Monday.

“He needs to bang on the table and say: we need to stabilize the currency by hook or by crook. Further out, it will be up to the government to help out,” he added.

The Reserve Bank of Australia (RBA) meets on Tuesday, while the Bank of Japan (BOJ) concludes a two-day meeting on Thursday. The Bank of England and European Central Bank also meet Thursday.

No major changes are expected from the RBA and BOJ. The RBA cut its key interest rate to a record low in August and is not expected to act ahead of this weekend`s election.

“Given the proximity to the election and its [the RBA`s] signal that another interest rate cut is not imminent, rates are likely to be left on hold,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note.

“However, the post meeting statement is likely to retain an easing bias, particularly with the capex [capital expenditure] outlook weakening further and inflation benign, which the RBA is likely to act upon at its October or November meetings unless the Aussie dollar falls rapidly,” he added.

China recovery?

Elsewhere, data on Monday showed the final reading of HSBC`s August purchasing manager`s index (PMI) for China`s manufacturing sector rose to 50.1 from 47.7 in July.

That follows the official PMI data from China on Sunday which showed factory activity expanded at the fastest pace in more than a year.

The data is the latest sign of stabilization in China`s economy, which has slowed quickly in recent months.

“Things do appear to have now stabilized in China,” Paul Krake, founder of the consultancy View from the Peak: Macro Strategies, told CNBC.

-By CNBC.Com`s Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC

Copyright 2011 cnbc.com

More CNBC copies
Syria hangs over market while traders await job report
India`s woes deepen as GDP misses expectations
Is a Volcker on the cards for the RBI?

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Syria, US payrolls divide oil market sentiment

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Uncertainty over whether Friday’s key US job report will be strong enough for the Federal Reserve to start winding down bond purchases combined with delays to military action against Syria are dividing opinion in the oil market over near-term price direction, CNBC`s latest sentiment survey shows.

(Read more: Syria hangs over market while traders await jobs report)

About half of those polled – nearly 46 percent, or 11 out of 24 – believe prices will gain this week while the exact same number said prices will fall. The split result suggests heightened volatility in the first trading week of a new month which is replete with global risk events spanning US monetary policy and Middle Eastern tensions to weakness in emerging markets. Two respondents expect the market to trade at around current levels, CNBC`s poll showed.

“We are cautiously bullish in what will be headline driven trade” this week, said David Nevin, an energy broker at Xconnect Trading in London. How much Friday`s non-farm payrolls data and associated “taper fears” affect the oil market “will depend on whether the strike on Syria has passed without any retaliation.”

Brent crude oil futures fell in volatile trade on Friday ahead of a long holiday weekend in the United States, as the Obama administration made a case for a “limited” strike against Syria, Reuters reported. For the week, Brent and US crude both posted gains , going against last week`s CNBC survey. Brent`s monthly rise in August was its biggest such gain in a year.

Brent crude fell USD 1.15 to settle at USD 114.01 a barrel on Friday, gaining 2.7 percent in the past week while US crude fell USD 1.15 to end at USD 107.65 after hitting a session low of USD 106.75 US crude finished the week up 1.2 percent.

(Read more: ‘Death by a thousand duck bites’ for Mideast oil )

A consensus view that has emerged is that any Syria-led price gain may be temporary.

Last week`s jump in Brent crude to six-month highs has been blunted as the West delays military action against Syria paring risks of a broader regional conflict and possible associated supply disruptions.

However, if the regime of Bashar al-Assad is targeted by punitive airstrikes for the alleged use of chemical weapons in a Damascus suburb last month, some fear a short, sharp spike in Brent to as high as USD 125 a barrel and possibly slightly higher.

(Read more: Syria conflict and the oil market: Worst and best scenarios )

A jump in Brent crude to between USD 120 and USD 127 “should be short lived with prices likely to revert to levels at around USD 100 and USD 105 in three to six months, as the strong seasonal demand growth this quarter starts to level off in the fourth-quarter,” said Dominic Schnider, Head of Commodity Research at UBS AG’s wealth-management unit in Singapore. “In our base case scenario of a limited military strike on Syria lasting a couple of days, additional oil supply disruptions are unlikely.”

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India swamped by wave of growth downgrades

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India has been hit by a wave of growth downgrades, with many analysts predicting the slowdown to worsen in the coming months, after gross domestic product (GDP) figures on Friday showed second quarter expansion falling to lowest rate in four years.

Industry watchers CNBC spoke to are now predicting full year growth ending March 2014 to fall short of their earlier targets of between 5.0 percent and 5.5 percent, with one bank calling for growth to slow to 3.7 percent. This is a marked deceleration from the 9 plus percent growth rates seen in 2010.

“This (April-June) is not the bottom. High-frequency indicators, such as HSBC’s PMI (purchasing managers index) indices and business sentiment indicators suggest that the growth momentum eased further during the July-September quarter in both the manufacturing and services sectors,” Leif Eskesen, chief economist, India and ASEAN at HSBC wrote in a note on Monday after the bank cut its growth forecast to 4 percent from 5.5 percent.

India’s GDP growth slowed to 4.4 percent in the April-June quarter from the year before, underperforming market expectations of 4.6-4.7 percent, driven by a contraction in the country’s mining and manufacturing sectors. Investment and private consumption – which grew at its slowest pace since 1999 – were also notable weak spots.

“Reform announcements have yet to translate into action on the ground. Moreover, the Reserve Bank of India’s currency stabilization measures have raised funding costs. Finally, heightened macroeconomic uncertainty is making consumers and businesses more cautious about spending,” said HSBC’s Eskesen.

Among the most bearish forecasters is BNP Paribas , which expects full year growth to slow to 3.7 percent, from an earlier 5.2 percent target, citing tightening financial conditions, a collapse in business confidence under the rupee’s rapid depreciation and rising energy costs.

Robert Prior-Wandesforde, the head of India and Southeast Asia economics at Credit Suisse, said the country’s recent economic performance is beginning to reflect a loss of the “country’s normally strong animal spirits”.

“The more we think about the current situation the more this seems to be a reasonable explanation. In our view, traditional economic logic cannot fully explain why the Indian economy is quite as weak as it is right now,” he noted.

Prior-Wandesforde, however, said the bank isn’t ready to “throw in the towel” and lower its annual growth forecast, which currently stands at 6 percent.

Some factors that may support growth include a bounce in exports, helped by a weak rupee and recovery in global demand, alongside increased agricultural output brought on by the favorable monsoon rains, he said.

In addition, he argues that as long as the Reserve Bank of India’s recent moves to tighten liquidity – in order to make it more expensive for investors to short the rupee – is not a precursor to meaningful hikes in the benchmark interest rate, damage from tighter liquidity conditions could be limited.

“While it goes without saying that the risks to our 2013/14 GDP growth forecast of 6 percent are on the downside we are not ready to capitulate. The consensus could yet be surprised on the upside,” he said.

Prior Wandesforde said that if he is wrong, and growth continues to deteriorate, India could suffer considerable financial stress, making the use of the word “crisis” more applicable than it is now.

“In particular, widespread bankruptcies and associated non-performing loans in the banking sector could rise to levels that wipe out capital, forcing the government to inject significant funds into the banking system which push the budget deficit sharply higher again. Currency weakness, rising bond yields and a falling equity market would almost certainly continue unabated in such a scenario,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Are financial risks in this wealthy Asian nation rising?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Singapore, resilient so far to the turmoil that has swept emerging markets, appears to be one of the most financially vulnerable countries in Asia, Bank of America Merrill Lynch (BofAML) said in a note on Monday.

Singapore, India and Malaysia have the poorest scores among major Asian markets excluding Japan, based on 10 factors used to measure financial vulnerability, the report said. Those factors include excessive real credit growth, the gap between credit and economic growth, the returns on financial stocks and the state of the current account.

According to BofAML, a number of major Asian markets have their financial vulnerability scores close to levels seen in mid-1997, just before the Asian financial crisis.

“Elevated financial vulnerability is often, but not always associated with currency and/or banking crises. Singapore (surprisingly), India and Malaysia score poorly on our measure,” they said.

The report added: “China, Hong Kong and Indonesia are also concerning. Korea and Taiwan look less vulnerable, while Thailand is in the middle.”

Huge current account deficits and a lack of confidence in policy makers` ability to deliver structural reforms have put India and Indonesia at the heart of the sell-off in Asian emerging-market assets.

And amid nagging worries about a possible unwinding of US monetary stimulus, the trigger for the rout in emerging markets that began in May, focus has also turned to which emerging-market countries should weather the storm and which might be the next to bear the brunt of selling.

Singapore, which has a current account surplus and relatively robust economy, has generally been viewed as one of the more resilient countries in the region to the emerging-market strife.

Still, according to BofAML there are reasons to be concerned. The city state scores poorly on some factors the bank uses to define whether a country`s financial system is vulnerable.

These include real loan growth, and, loan growth minus industrial production. On both these measures, Singapore scored the highest in the region, flashing red on BofAML`s financial vulnerability heat map to reflect the most unfavorable situation since 1990.

“In our view there is unlikely to be a currency or financial crisis, given the 20 percent of GDP /current account surplus, no short-term external debt, and strong capital buffers in the banking system,” BofAML said, referring to Singapore.

“The issue is the substantial rise in three-year cumulative real lending growth (at 69 percent, close to Russia and China`s numbers), and the gap between three-year cumulative loan growth and economic growth,” they said.

The BofAML analysts added that while it is possible to postpone a credit bust following a credit boom, the cycle is difficult to avoid.

“Singapore is in a neighborhood where financial vulnerability is rising. We are neutral,” they added.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow