Leave a comment

Final call for the emerging market carry trade?

Emerging markets currencies took it on the chin Monday as commodity prices and China’s devaluation continued to wreak havoc around the world, with one analyst telling that the selling would only intensify.

The Russian rouble was around 1 percent lower against the dollar and managed to hit a six-month low, before regaining some ground. TheTurkish lira also fell sharply and hit a fresh record low of 2.847 against the U.S. dollar. The Israeli shekel also saw significant weakness as did Asian currencies overnight like the Thai baht and the Malaysian ringgit.

Luis Costa, the head of CEEMEA FX and rates strategy at Citi, told CNBC via email that he believes there is a now a “concerted move” in emerging market foreign exchange and predicted that it will have more room to run.

“Our flow monitors show very clearly investors corrected very sharply their complacent USD-EM positions,” he added in a note on Monday.

A board lists foreign currency rates against the Russian ruble outside an exchange office in central Moscow on Dec. 17, 2014.

Yuri Kadobnov | AFP | Getty Images
A board lists foreign currency rates against the Russian ruble outside an exchange office in central Moscow on Dec. 17, 2014.
Currency trade dead
Costa also suggested that the carry trade for emerging markets – where investors borrow in a low yielding currency to fund investments in higher yielding assets somewhere else – was now dead.

The conflict in northern Iraq and Syria was seen as a major driver behind the fall of the Turkish lira alongside a rate decision which is due from its central bank this week. Increased fighting in eastern Ukraine and lower oil prices also accentuated the move lower for the rouble, according to analysts. Oil is another factor, according to John Haynes, head of research at Investec.

“Undoubtedly there is a polarization of the prospects of commodity producing and reliant economies and those who use commodities. I think we’re very well aware of those people who are on the other side of the coin and clearly Russia is one of them,” Haynes told CNBC Monday.

However, market-watchers were clear that China’s devaluation of the yuan last week and an imminent rate rise by the U.S. Federal Reservewere the real forces currently weighing on the currency markets.

“We sense investors are re-focusing once again in Fed policy,” Costa added in his morning note Monday. “We now have ample reasons to believe the trend in USD-EM may probably intensify in the run-up to the September policy meeting.”

Hit to other assets?

The dollar has enjoyed a stellar appreciation against a basket of major global currencies in the last year or two and the dollar index is up nearly 7 percent year-to-date. Ultra-low interest rates and quantitative easing had seen money flow into emerging markets in the years following the financial crash of 2008. However, that now looks to be reversing with U.S. investors pulling their money homewards with the promise of higher yields.

Reports in the Australian media over the weekend drew comparisons between current events and the Asian currency crisis of 1997. Stuart Richardson at RMG also shared similar concerns in his research note on Monday morning.

Meanwhile, Valentin Marinov, director of FX Strategy at Citi, told CNBC Monday that the fall in commodity currencies could also hit asset prices in countries whose economies rely on commodities such as iron ore. Costa added in his research note that emergency market funds were seeing cyclical highs in short-interest.

“It wouldn’t take much to see further downside pressure on equity flows to a few selected economies,” he said. “In Turkey, that becomes an important negative catalyst, given the high uncertainty on the political front.”

Leave a comment

Commodities bounce, stocks tank as China weakens currency again

After a second day in a row of currency-related turmoil thanks to the Chinese central bank, risk-off was definitely the order of the day as stocks sold off and investors rushed into safe haven government bonds along with gold.

Equities around the world headed south on Wednesday, with stocks in both Asia and Europe both tumbling between 2 and 3 percent.

Continue Reading »

Leave a comment

China strengthens hold over oil market as price-maker


Oil fracking

David McNew | Getty Images

China’s growing ability to buy and sell millions of barrels of crude oil on the Asian physical market in a matter of minutes through its main trading firms has given China so much clout that other traders are often forced to follow its agreed prices.

Leading Chinese oil traders have cornered the market on several occasions since October last year. Early this month, Chinaoil, the trading arm of PetroChina, bought 5 million barrels of crude in just 30 minutes through Asia’s main price-finding mechanism organized by Platts, part of McGraw Hill Financial.

Market power is shifting towards big consumers, with oil output at record highs and global demand slowing. China’s main oil traders Unipec and Chinaoil have been able to cherry-pick the best offers and take advantage of cheap oil to build strategic reserves.

“China’s view of supply security is now increasingly a question of becoming a price maker and being involved in the entire supply chain globally,” said Michal Meidan, director of consultancy China Matters.

This year, China is challenging the United States as the world’s No. 1 crude buyer, with weaker oil prices lowering the cost of building China’s strategic petroleum reserves. China bought nearly 11 percent more crude in the first seven months of 2015 from a year earlier.

For China, the cost of importing roughly 200 million barrels of crude a month has fallen to $10 billion at current prices around $50 a barrel, from $23 billion when prices were at $115 a barrel last summer.

‘Get out of the way’

Nowhere has China’s move from price taker to maker been more obvious than in daily physical crude oil trading. Unipec, the trading unit of Sinopec, and Chinaoil often dominate daily trading, surpassing volumes dealt by Western majors.

“Get out of the way when the train is running,” said a trader with an Asian refiner. “Little guys like us can get run over easily.”

Read MoreUS oil settles at a six-year low of $43.08 a barrel

Riding on China’s growth of the past decade, which has not only seen it become a top crude importer but also a large exporter of refined products, Sinopec and PetroChina have evolved from being passive oil importers to sophisticated traders of crude oil and refined fuels.

Since the second half of 2014, both firms saw oil traders ascend to top management, replacing executives of either planning or refinery manager background, company sources said. Sinopec and PetroChina do not comment on trade-related matters.

The huge volumes exchanged by China’s two major traders are straining Asia’s benchmark price-finding mechanism in the physical oil market, the Dubai Market-on-Close (MoC) by Platts.

In a process called “the window” by many traders, the soaring activity of these traders has often led little space for other participants to trade in the oil price-making process.

“The concern which I and a lot of others have is that the Dubai market does not reflect the true market price of Middle East crude with this kind of action,” said Oystein Berentsen, managing director of crude oil with Singapore-based Strong Petroleum.

Read MoreCommodities take another hit on China’s currency devaluation

Additionally, the government is slowly deregulating its import market, granting more licenses to independent refiners to buy overseas crude, further boosting demand not just for physical crude from the Middle East, but also for the main international crude futures benchmarksBrent and West Texas Intermediate (WTI).

“Granting of crude import licenses is one step towards deregulating China’s oil industry. This also helps boost demand for lighter grades,” said Singapore-based brokerage Phillip Futures this week in a note to clients.

“Thus, it could help support both WTI and Brent, which are of the lighter grades.”

Leave a comment

‘Stay the course’ on media, biotech sell-off, trader says

Last week, the sudden and swift decline in both media and biotech stocks had traders pressing the sell button. The Dow Jones Industrial Average had seven straight losing sessions, the longest streak since October.

Overall, approximately $45 billion worth of market value was lost last week among major media companies. The biggest losers were marquee names like Disney, Time Warner, 21st Century Fox and Viacom, widely considered by analysts to be the industry’s leaders.

Read MoreWhy streaming plans may hurt media companies

In an era where consumers are “cutting the cord,” or shedding pricey cable television packages in favor of specialized options or Internet streaming media, Wall Street fears many media companies could lose precious viewers and ad dollars.

Yet despite the bad news, one closely followed technician says that it’s providing investor with a great opportunity, and he planned to buy the dip.

“Stay the course,” Rich Ross of Evercore ISI told Fast Money on Thursday.

Media bloodbath

Ross pointed to the fact that the S&P 500 is nearing a level that it has responded positively to over the past four years.

“We’ve tested and held the 50-week moving average four times now back over the past four years, and I think history repeats itself,” Ross said. “You test and hold again, and all this consolidation is likely to resolve itself to the upside,” he added.

In addition to the 50-week moving average, he’s also watching the 200-day on the S&P 500. While the S&P 500 IS testing those levels, he expected the market to shake itself out of the doldrums, with key levels expected to hold.

“We’ve had a rotation today or this week from the winners tot he sinners. We’re taking out the generals; Apple, Tesla, Biogen, Disney,” he said. And we’ve started to hit healthcare and discretionary after a summer pummeling mercilessly the energy space,” said Ross.

Overall Ross remains bullish. “Traders are on the beach, not on the bid. Ultimately this market goes higher,” he added.

Leave a comment

Oil settles at $45.15 a barrel, hits fresh 5-month low

Oil prices fell to a fresh March low on Wednesday after a surge in U.S. gasoline stockpiles as the summer season, the country’s biggest demand period for motor fuels, nears its end.

U.S. crude for September delivery closed down 59 cents, at $45.15 a barrel—its lowest since March 19. September Brent crude futures were flat at $49.50 a barrel after hitting a fresh six-month low earlier in the session.

U.S. crude stocks fell last week, while gasoline and distillate inventories rose, data from the Energy Information Administration showed Wednesday.

Crude inventories fell by 4.4 million barrels in the last week, compared with analysts’ expectations for a decrease of 1.5 million barrels.

Read MoreIn the oil market, $30 is the new $50

EIA also reported Wednesday U.S. refiners ran at their highest rates last week since 2005. The utilization rate for U.S. refiners was 96.1 percent, the highest since August 2005.

Growing oversupply, slowing demand from China and the prospect of crude flooding onto the market from Iran after Tehran’s deal with the West over its nuclear program have knocked 21 percent off the oil price this quarter.

A floor hand for Raven Drilling, pauses while drilling for oil in the Bakken shale formation outside Watford City, North Dakota.

Getty Images
A floor hand for Raven Drilling, pauses while drilling for oil in the Bakken shale formation outside Watford City, North Dakota.

“The overarching theme in the oil market … is the status of U.S. oil supply and whether or not we’ll be facing an imminent decline and the latest weekly data hasn’t brought any comfort relative to those kind of expectations,” BNP Paribas oil analyst Harry Tchilinguirian said.

Oil inventories as reported by the EIA have fallen for two weeks in a row at a much faster rate than expected, but stocks are still just 6 percent below April’s record high.

The dollar hovered around its highest in over three months after a voting member of the Federal Reserve’s policy-setting committee expressed support for an interest rate hike in September, which outweighed softer jobs market data.

Read MoreRetail investors try to pick oil bottom and fail

A stronger dollar tends to undermine crude oil by making it more profitable for non-U.S. investors to sell it.

The oil price hit a six-month low below $50 a barrel earlier this week.

“All the negative news we’ve had in the last few weeks and months, starting with the nuclear deal with Iran, through to economic weakness in China and the strength of the dollar have all added up and, at least in our view, this (selloff) was overdone,” said Commerzbank strategist Eugen Weinberg.

“When prices are oversold, a rebound becomes more likely.”

Leave a comment

Boeing loses satellite deal on trade credit woes: sources

A Boeing 747-8 Intercontinental airliner

Getty Images
A Boeing 747-8 Intercontinental airliner

Boeing is scrambling to find alternate financing for a satellite contract worth “several hundred million dollars” that was scuttled by privately held commercial satellite provider ABS due to uncertainty about the future of the U.S. Export-Import Bank, three sources familiar with the matter said on Tuesday.

ABS, based in Bermuda and Hong Kong, terminated its order for the satellite in mid-July, citing the expiration of the trade bank’s charter on June 30, according to the sources, who asked not to be named given the sensitivity of the issue.

The termination marks the first known casualty of the ongoing congressional debate over the future of the trade bank, which lends money to U.S. exporters and their foreign customers.

ABS told Boeing, the largest U.S. exporter, that it would have to consider non-U.S.-based producers to build ABS-8, given the absence of U.S. export credit financing, the sources said.

Boeing first announced the ABS contract in June, saying the new satellite, scheduled for delivery in 2017, would expand broadcast and enterprise services to Australia, New Zealand, the Middle East, Russia, South Asia and Southeast Asia.

Boeing Chairman Jim McNerney, expressing frustration about the refusal of a small minority of lawmakers to accept majority support for the bank, last week said the company is now looking at moving some commercial work to other countries.

Tea Party conservatives in the U.S. Congress have attacked the trade bank as a promoter of “crony capitalism” for multinationals such as Boeing and General Electric.

Read MoreBoeing posts earnings of $1.62 a share vs $1.37 expected

The bank’s backers argue that it actually provides revenues for the U.S. government, and helps level the playing field for U.S. exporters given similar trade credits available for other manufacturers around the world.

Boeing, which competes with Lockheed Martin and privately held SpaceX in the commercial satellite market, said it might consider sites in countries that offer export credits, McNerney said.

He said the failure of Congress to extend the bank’s charter as part of a short-term extension of highway funding, meant the bank’s fate would now remain uncertain through September or October. He said was more worried than ever that Congress could ultimately fail to reauthorize the bank.

GE last week said it was also taking steps to shift some manufacturing work overseas now that the bank will be shuttered at least until September.

Leave a comment

Got growth? Investors shun titans of buybacks

The titans of tech buybacks have not been cutting it this earnings season. Apple and Microsoft fell on their earnings reports, while more growth-oriented tech companies that don’t lean on share repurchases, like Google and Netflix, have surged.

To some, that divergence serves as yet another sign that investor predilections are changing.

“I think growth has been more in favor this year,” said Oppenheimer portfolio strategist Andrew Burkly. “As we’ve gotten later in the cycle, I think investors are not as enamored with buybacks anymore—they want to see underlying growth. And we have seen growth companies do a little bit better this year based on that. So you may be at the point where buybacks are supporting EPS [earnings per share], but the stocks aren’t really being rewarded for that.”

According to RBC, Apple’s EPS growth has outpaced its earnings growth by 6.7 percent, which implies that the net effect of share repurchases has been to increase earnings per share by 6.7 percent. Similarly, Microsoft’s buyback program has increased EPS growth by 3.7 percent compared with earnings. Apple and Microsoft shares fell 4.5 percent and 2.3 percent, respectively, in the two days surrounding earnings, compared with the S&P 500 as a whole. And since reporting earnings, Apple shares are down by more than 10 percent.

Similarly, slow-grower and serial share repurchaser IBM fell sharply after its report.

The story is very different for Google, which actually saw EPS growth that was slightly smaller than its earnings growth, meaning shareholders actually suffered dilution rather than reaping the benefits of buybacks. That stock surged 19 percent in the two days surrounding earnings (again, this is a relative performance measure) making it the best-performing S&P 500 information technology company off of this quarter’s earnings.

On the even more speculative side of things, growth-oriented Internet companies Netflix and Amazon rallied on their results.

That said, when one zooms out to look at the overall tech sector, the picture changes a bit. According to an RBC analysis, there is actually a weak (that is, not statistically significant) positive relationship between contributions from buybacks and relative performance off of earnings. And the tech sector company with the biggest EPS growth contribution from buybacks, Juniper Networks, enjoyed a relative 6.8 percent rise off of earnings.