Reuters - Macron win could revive joint euro bond plan, scheme's architect says

Macron win could revive joint euro bond plan, scheme's architect says

By John Geddie | LONDON
Emmanuel Macron's victory in France's presidential election is the biggest step yet in pursuit of pushing the idea of joint euro zone bonds past robust German opposition, the author of one of the first proposals for such a scheme told Reuters.

In a year when a populist upsurge in elections in the euro zone was to be its biggest test since the 2011/2012 debt crisis, Sunday's clear win for the pro-European Macron over far-right nationalist Marine Le Pen has sowed expectations for greater financial and economic integration in the bloc.

This view is shared by Jacques Delpla, who told Reuters this impulse could revive a joint borrowing plan he helped devise in 2010 that aims to prevent debt crises in weak member states.

"When I first launched it I knew it was a long-term idea. After with (former French president Francois) Hollande and the likes they managed to freeze everything," Delpla said.

"Now we have a combination of a liberal in France who is willing to push for such an agenda and then growth, which will help a lot."

While Macron's position on euro bonds is not clear-cut, a source close to the president-elect told Reuters he favored the creation of a bloc-wide euro zone budget, which would provide for joint borrowing. Macron outlined this position in June 2015 with Sigmar Gabriel, now Germany's foreign minister, in a joint column for Britain's The Guardian newspaper.

Delpla's concept for these "euro bonds" is one of many.

EU institutions are examining another, which envisages a trans-national synthetic "safe" bond backed by debt from euro zone states.

GERMAN OPPOSITION

Macron's victory was applauded in Germany and some believe he may be able to soften German opposition to euro bonds, which could anyway be about to change.

Martin Schulz - the Social Democrat contender in Germany's Federal elections in September - repeatedly advocated euro bonds during the debt crisis but recently backed off the plan, which does not play well with frugal German voters.

Schulz has lost two regional elections to Chancellor Angela Merkel's conservatives this year, and faces another test in populous North-Rhine-Westphalia on Sunday.

But even in defeat, Schulz's socialists could barter for control of the finance ministry in coalition talks. A euro zone official told Reuters that in this case, German opposition to euro bonds may become less categorical, or there could be highly conditional support.

Germans, who have paid the lion's share of bailouts to Greece, Portugal and Ireland, have long opposed joint borrowing as they fear it would cost them more and remove the incentive for struggling states to reform their economies.

But Berlin does want to tackle the problem of regional banks holding too much of their own government's debt, the so-called "doom loop" which can threaten both in a crisis.

This has brought to the fore the idea of a "safe" bond, which does not require joint guarantees like Delpla's euro bond but creates a proxy euro wide synthetic asset that could diversify bank holdings of sovereign debt.

Frederik Ducrozet, a senior economist at Pictet, said greater trust between France and Germany could be more important than details of the bonds.

"There is a window of opportunity after the German election, especially with Macron as the next French president," he said.

"It would be perhaps negotiating tactics that you discuss all options including euro bonds with the idea that you can get a deal in between... perhaps something like safe bonds."

ALREADY EXIST?

In some senses euro-wide bonds already exist.

An emergency bailout vehicle was set up in 2010 to raise funding for countries in distress on the back of a guarantee from each euro zone member. A permanent bailout fund followed in 2012 into which each member paid in start-up capital.

Kalin Anev Janse, the Secretary General of these bailout facilities, said there were wide differences of opinion on what constitutes a euro bond and more discussions on the subject might follow later this year.

"A good time for Europe to look at issues regarding the future of the euro area will be in the autumn, at the end of the year, once the French and German elections are completed. Then we would need to sit down together and see where we want to take Europe over the next 5-10 years," said Janse.

Even if France and Germany reach agreement though, euro bonds would still likely need approval from the other 17 euro zone states. That could still prove difficult.

"Countries in very different situations should focus more economic policies to lift growth and less on financial engineering," Lithuania's Finance Minister Vilius Sapoka told Reuters, adding the time was not yet right for jointly-underwritten bonds.

REuters - Exclusive: Barrick faces sanctions for Argentina cyanide spills, judge

Exclusive: Barrick faces sanctions for Argentina cyanide spills, judge says

Barrick Gold Corp failed to complete improvements to the Veladero mine in Argentina that could have prevented the third spill of cyanide solution in 18 months, leading to eventual sanctions for the world's biggest gold miner, a judge told Reuters.

Barrick appears to have missed deadlines on three orders from local authorities, including replacing pipes, before the March 28 spill, said Pablo Oritja, the judge overseeing cases related to Veladero in the nearby town of Jachal, where “Barrick out" graffiti lines the streets.

"If they had changed pipes as ordered, the decoupling (of pipes) would not have occurred," Oritja told Reuters on Friday, the day after meeting the head of the mining police in western Argentina's San Juan province, where Veladero and Jachal are located.

The findings "will eventually end in sanctions against the company," said Oritja, judge at the Judicial Court of Jachal.

The investigation into past negligence, along with the provincial government's review of Barrick's mine improvement plan, could delay the Canadian company's goal of restoring one of its top five mines worldwide to normal production in June.

Barrick (ABX.TO) (ABX.N) has followed established regulatory procedures to comply with the requirements issued by San Juan authorities following the recent spills at Veladero, spokesman Andy Lloyd told Reuters in response to Oritja's comments.

Sanctions would come from the San Juan government and could include a fine and restrictions to operating Veladero. Oritja, who indicted nine current and former Barrick executives accused of negligence after Barrick's first spill in 2015, could also levy more charges if he determines cyanide posed harm to people or the environment.

San Juan's government suspended the addition of cyanide to Veladero's gold processing facility after the latest spill, and gave the mine an ultimatum to overhaul safety and environmental operations. Cyanide is used to separate the gold from ore.

In September, all operations at Veladero were temporarily shut down, adding to Barrick's troubles in South America, where its Pascua-Lama project on the Argentine-Chile border has been on hold since 2013 due to environmental issues, political opposition, labor unrest and development costs.

San Juan province Mining Minister Alberto Hensel says the repeated Veladero spills may result in a fine higher than the $9.8 million Barrick paid after the first spill, when a United Nations agency said 1 million liters of solution containing cyanide spilled into a river providing drinking water.

The spills in September 2016 and March of this year were smaller and contained in the mine site, Barrick and the San Juan mining police said.

Still, Oritja ordered blood tests last month to check for health problems related to cyanide in residents of Jachal, a town of mostly mud homes 150 kilometers from Veladero that remains poor despite its proximity to Argentina's largest gold reserves.

Lloyd said there have been no health risk to communities or the environment, though the company seeks to improve transparency and relations with nearby towns.

'URGENT REVIEW'

The incomplete orders referenced by Oritja were given in December and February and involve fixing Veladero's pipe system, a source at the San Juan government told Reuters.

Hensel said Barrick also failed to complete an "urgent review" of the pipe system before the third spill. Lloyd said an engineering report on the pipes was completed "in recent weeks."

Lloyd said Veladero had 2,685 active environmental obligations and a compliance rate of 99 percent, and was taking action on the one percent.

"This is a strong track record when you step back and consider the number of permits and obligations involved, and the fact that at any mine, there is always an ongoing process to respond to and implement regulatory actions that take time to complete and involve ongoing discussions with regulators," Lloyd said.

Barrick presented San Juan province with a new plan in late April, Hensel told Reuters, after an initial one was rejected. All proposed work would need to be approved and completed before restrictions are lifted, he said.

Primary repairs, included in a $500 million five-year investment plan, should be finished before a recently announced sale of half of Veladero to Shandong Gold Mining Co (600547.SS) is finalized, Lloyd said, though Shandong will share future costs.

Barrick could complete the work in May and is targeting normal operations in June, depending on local government approvals and the resolution of all legal matters, Lloyd said.

In addition to investigations from the San Juan government and Oritja, Federal Environment Minister Sergio Bergman has asked another court to halt all operations at Veladero pending repairs.

"The repeated incidents imply negligence," Bergman said in an interview. "Barrick did not comply with what was demanded."

(ZH) Market Mocks OPEC Crude Jawboning; Morgan Stanley Warns Of Risks To 2018 Oi

Market Mocks OPEC Crude Jawboning; Morgan Stanley Warns Of Risks To 2018 Oil Price

In the clearest indication yet that OPEC jawboning no longer has an effect on markets, and especially headline scanning algos, following numerous headlines from Saudi energy minister Khlaid Al-Falih overnight warning that the oil rebalancing is imminent, and in case it isn't, it will come in 2018 when OPEC and Non-OPEC producers may extend their production cuts, this morning oil is firmly hugging the flatline after a failed attempt to push higher earlier in the session.
As Bloomberg reports, Saudi Arabia and Russia signaled they may extend production cuts into 2018, doubling down on an effort to eliminate a supply surplus as oil prices continue to drop.


In separate statements just hours apart on Monday, the world’s largest crude producers said publicly for the first time they would consider prolonging their output reductions for longer than the six-month extension widely expected to be agreed at the OPEC meeting on May 25. "We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing” the Russian Energy Minister Alexander Novak said in a statement.
Speaking in Kuala Lumpur earlier Monday, Saudi energy minister Khalid Al-Falih said he was “rather confident the agreement will be extended into the second half of the year and possibly beyond” after talks with other nations participating in the accord.
“The producer coalition is determined to do whatever it takes to achieve our target of bringing stock levels back to the five-year average,” Al-Falih said. While U.S. shale output growth and the shutdown of refineries for maintenance have slowed the impact of cuts by OPEC and its partners, the Saudi minister said he’s confident the global oil market will soon rebalance and return to a “healthy state.”
The response was less than enthusiastic however, with Brent and WTI giving up earlier, while a drop in Chinese crude imports suggested that the demand side of the equation is becoming a growing concern.
“It hasn’t moved that much on those statements, I’m not sure we’ll get a meaningful upturn unless we see stocks drawing down,” says Torbjorn Kjus, chief oil analyst at DNB Bank. “Maybe it’s not possible to talk the market up anymore.”
A major hurdle for the oil bulls, as discussed here often, is that s OPEC and its allies curbed supply, U.S. production has risen to the highest level since August 2015 as drillers pump more from shale fields. “Given the extent of the over-hang I think they always knew the market was not going to rebalance in six months which is why our base case was always for a deal lasting at least one year, and if not longer,” said Virendra Chauhan, an analyst at industry consultant Energy Aspects Ltd. “Market expectations were lofty, and so OPEC will need to surprise the market with either a deeper cut, or possibly a longer than six-month extension to get prices to move higher.”
Adding to the downbeat sentiment, was a note overnight from Morgan Stanley's Martjin Rats, in which he warned that Market while the "balance looks favorable" for the rest of 2017, the oil price outlook for 2018 is now at risk, adding that "if stocks build rather than draw next year, 2018 futures do not need to be in backwardation. Recently, the market has priced this in, moving 2018 into contango, and putting pressure on front-month prices too."
More details from his full note:
The Mechanics of the Oil Price
Sell-Off
Oil prices have come under pressure despite a robust 2017 outlook:
Notwithstanding the recent oil price decline, our analysis continues to suggest a tightening market over the next few months. Lower OPEC production is still to have its full impact on OPEC shipments, imports into consuming countries, and subsequently on visible inventories. Although demand has gone through a soft patch early in the year (see Exhibit 2), it is still set to strengthen seasonally into 2H. As these two effects combine, a period of inventory draws this year is still in the cards.
However, risks are emerging to 2018 balances: It appears however that oil markets are already looking beyond this, and into 2018. Our base case expectation for 2018 is for a balanced market with stable prices around end-2017 levels. Yet, the risks to that outlook are becoming skewed to the downside.
  • First, the US rig count continues to surprise, and this has production implications. As shown in Exhibit 3, the US rig count recovery has recently overtaken even the stellar rebound after the 2008/09 downturn, which was supported by oil prices rallying from ~$45 to ~$85/bbl within a year. Yet, the US rig count has increased by 7.3 rigs/week over the last 52 weeks, making this the strongest recovery of the last 30 years. As a rule of thumb, an increase in the rig count of 10 units boosts production by ~40 kb/d a year later. With ~390 rigs added since the trough in
    May 2016, the US is set up for strong supply growth next year, that could exceed 1 mb/d.
  • On top, we expect the current OPEC agreement to be extended in May but it is unlikely to be extended again by December. Exhibit 4 highlights the shift in market share away from OPEC towards US producers. We doubt OPEC will allow this to go on for long. If the OPEC/Non-OPEC production agreement comes to an end by late-2017, the cartel's cut of ~1.2 mb/d, as well as Russia's cut of 0.3 mb/d, could be reversed next year.
  • In total, these three sources could bring 2.5 mb/d of extra supply back onto the market, which would need to be absorbed by demand growth of 1.3 - 1.4 mb/d and declines elsewhere. The latter may not be sufficient, as declines in countries like Mexico, China and Colombia are likely to be canceled out by growth in Brazil, Canada, Kazakhstan and elsewhere. If OPEC's production cuts fail to create an under- supplied market in 2017, the oil market may be oversupplied in 2018. It appears this is creeping into investors' expectations and time horizons.
As 2018 futures moved back into contango, front-month prices have come under pressure: Until a few weeks ago, 2018 futures were in backwardation, indicating that investors foresaw per period of market tightness during that period. However, if inventories build rather than draw next year, this part of the forward curve does not need to be backwardated.
This is precisely what has happened: over the last few weeks, oil markets have started to discount a weaker 2018, driving 2018 futures into contango. Although the market balance for 2017 is still robust, this has put substantial pressure on the front part of the curve too.
Looking ahead: Our thesis for 2017 remains unchanged. As mentioned, our analysis still suggests inventory draws in the balance of 2Q and into 3Q. With oil prices sold off, and still a potential positive catalyst from an OPEC deal extension, this should provide support for prices in the short term. However, prospects for 2018 are looking more uncertain

    >>> Tyson Foods misses by $0.01, reports revs in-line; reaffirms FY17 EPS guidan

    Tyson Foods misses by $0.01, reports revs in-line; reaffirms FY17 EPS guidance (63.33)
    • Reports Q2 (Mar) earnings of $1.01 per share, excluding non-recurring items, $0.01 worse than the Capital IQ Consensus of $1.02; revenues fell 0.9% year/year to $9.08 bln vs the $9.07 bln Capital IQ Consensus; adj. operating income +8% to $1.6 bln.
    • Co reaffirms guidance for FY17, sees EPS of $4.90-5.05, excluding non-recurring items, vs. $5.02 Capital IQ Consensus Estimate.
    • In fiscal 2017, USDA indicates domestic protein production (beef, pork, chicken and turkey) should increase ~3-4% from fiscal 2016 levels, but strong export markets should partially offset the increase. As we continue with the integration of Hillshire Brands, we expect to realize synergies of around $675 million in fiscal 2017 from the acquisition as well as our profit improvement plan for our legacy Prepared Foods business with some incremental synergies expected to be realized in fiscal 2018. The majority of these benefits will be realized in our Prepared Foods segment.
    • "Our Beef and Pork segments generated tremendous operating income in the second quarter, allowing us to invest in the long-term growth of our value-added businesses. Our Prepared Foods segment results were negatively affected by the on-going challenges in our pizza toppings and ingredients meats businesses discussed last quarter. We expect our results to improve as we continue to address operational efficiency and capacity through fiscal year 2018. Unfortunately, we experienced fires in two chicken plants in our second quarter. Had it not been for the fires, our Chicken segment return on sales would have been within its normalized range."

    >>> US Early premarket gappers

    Early premarket gappers
    Gapping up:
    • HSGX +12.3%, KATE +8.1%, CIE +8%, NWL +7.8%, JD +7.5%, TSEM +6.5%, VTTI +4.3%, AUY +3.6%, HL +2.8%, IAG +2.4%, DRD +2.3%, BMCH +1.7%, SBGL +1.6%, ON+1.2%, ABX +0.9%, MNK +0.8%, TSLA +0.7%
    Gapping down:
    • HZNP -22.9%, OMED -16.9%, CS -6.5%, SDRL -5.9%, AU -3.5%, BBVA -3.2%, SAN -3.1%, STM -2.9%, MU -2.7%, AUO -2.7%, MT -2.7%, WYNN -2.6%, DB -2.2%, BHP-1.9%, HRG -1.9%, ING -1.8%, BBL -1.8%, FCX -1.7%, ASML -1.6%, RIO -1.6%, VRX -1.4%, GOLD -1.2%, TAC -0.9%, PAH -0.8%

    Reuters : Buffett says deal partner 3G follows 'standard capitalist formula': CN

    Warren Buffett said on Monday 3G Capital, its controversial partner on multiple transactions, follows a "standard capitalist formula" when it sweeps away thousands of jobs and imposes deep expense cuts to make the companies it buys more efficient.

    Speaking on CNBC television, Buffett said, "It's a defect of mine" that he doesn't focus as closely on the efficiency of business units at Berkshire Hathaway Inc (BRKa.N), the conglomerate he has run since 1965.

    Berkshire and 3G control Kraft Heinz Co (KHC.O) and recently tried to merge it with Unilever NV (ULVR.L) UNc.AS> for $143 billion, but was rebuffed.

    The Brazilian firm is known for "zero-based budgeting," where it requires managers to periodically defend all of their expenses, and cuts waste where possible.

    "They have followed the standard capitalist formula ... of trying to do the same business with fewer people," Buffett said. "People live better when there is more output per capita."

    Nonetheless, he acknowledged that cutting jobs can be a "painful process."

    Separately, Buffett expressed regret over his failure to invest early in Internet search company Google, now part of Alphabet Inc (GOOGL.O), saying "I should have some insight into" what became an "extraordinary business" with attributes of a monopoly.

    He said he was more comfortable buying shares of Apple Inc (AAPL.O), in which Berkshire has disclosed a 133 million share stake, worth close to $20 billion on Friday.

    Buffett noted that many iPhone purchasers are repeat customers who know a new phone will be introduced regularly, or buy them for such occasions as graduations.

    "I can very easily determine the competitive position of Apple now and who is trying to chase them," he said.

    He said "the shares, when we bought them, were much more reasonable" in price. Asked if he had stopped buying Apple, Buffett said: "Maybe, may not."

    Buffett said he was not bothered by initial U.S. data showing the economy grew at just 0.7 percent in the first quarter, saying it was "more or less" growing at 2 percent a year.

    He said some of Berkshire's industrial units saw upticks in business this year, as have credit card companies such as Visa Inc (V.N) and American Express Co (AXP.N), a longtime Berkshire investment.

    "Credit cards will tell you a lot about the consumer, what their attitude is," he said

    FT : ChemChina and Sinochem plan merger

    ChemChina and Sinochem plan merger
    Asian bankers prepare for creation of world’s largest chemicals group


    ChemChina and Sinochem are planning to merge next year, creating the world’s largest chemical group with $100bn of revenues, according to several senior bankers in Asia.

    The merger would follow ChemChina’s $43bn purchase of Swiss agrochemicals leader Syngenta, backed by 80 per cent of the Swiss agribusiness’s shareholders on Friday, amid more general consolidation of the global agrochemicals industry.

    With 1.4bn mouths to feed, China is eager to control technology in seeds, herbicides and pesticides despite widespread domestic opposition to genetically modified crops.

    Bankers say the merger of the two domestic groups is politically driven, aimed at ensuring ChemChina has the financial strength to absorb Syngenta. The heavily indebted chemicals conglomerate will have achieved China’s largest overseas acquisition when the Syngenta purchase is concluded.

    Bridge financing for the Syngenta purchase has been in place for more than a year, thanks to a banking consortium led by HSBC. But ChemChina has revealed few details of its final financing plans — a mix of loans, equity and support from Chinese conglomerate Citic.

    ChemChina had a debt-to-equity ratio of 256 per cent at the end of 2015, while Sinochem’s ratio was 128 per cent, according to Bloomberg.

    Since then, Sinochem has completed $1.4bn in acquisitions, with another $113m offer pending. ChemChina has embarked on at least $2.5bn of deals, not including the Syngenta purchase, according to Dealogic. Both companies have also closed several acquisitions of undisclosed value. 

    Both groups and their chief executives have repeatedly denied plans for the corporate combination in the past and declined to comment for this article.

    Nonetheless, several senior bankers close to the groups and their leadership say the State-owned Assets Supervision and Administration Commission, the government entity that controls the two companies, plans to combine them to form a chemicals group with total revenues of $100bn. Asked about the merger, Sasac head Xiao Yaqing said: “I have not yet seen news reports about this.”

    Senior corporate and investment bankers in Asia say they will soon vie for the combined group’s business. Lower-ranking employees at both companies say they are preparing for a merger — or seeking jobs elsewhere in anticipation of consolidation.

    ChemChina’s handling of the Syngenta deal was received poorly by China’s top leadership, say people familiar with the matter. While the strategic nature of the merger dovetails with China’s efforts to buy foreign technology and improve its agricultural yields, group chairman Ren Jianxin made enemies by initiating the deal without full clearance from the country’s most important decision makers.

    Mr Ren has proved to be a relentless dealmaker. After creating ChemChina from a number of state-owned chemicals plants, his deals over the past five years have included a €7.3bn buyout of Italian tyremaker Pirelli.

    Merging ChemChina and Sinochem pits him against another of China’s most high-profile executives, Sinochem chairman Ning Gaoning, for control of the merged group. Mr Ning, who goes by the English name Frank, rose to prominence among leaders of state-owned companies as an aggressive dealmaker for Cofco, the state grain trader.

    Mr Ning put Cofco on the map with a number of international deals, including the buyout of Dutch grain trader Nidera and Asian grains trader Noble. He transferred to Sinochem last year.

    In addition to the clash of personalities, the merger would incorporate two radically different corporate cultures. Founded as a trading group during the US embargo of China in the 1950s, Sinochem is now a slow-moving state conglomerate with decision-making by consensus and several business arms with little integration. By contrast, ChemChina has operated like a state enterprise in name only, instead functioning as an aggressive private business under Mr Ren’s 30-year leadership.

    FT : Investors to trade crowdfunding shares

    Investors to trade crowdfunding shares
    Platform Seedrs is first to launch a restricted secondary market

    A crowdfunding website will allow investors to trade their shares with each other for the first time in a move that signals the growing popularity of the asset class.

    Seedrs, the UK’s second-largest crowdfunding company, will next month launch a secondary market for shares bought on its website, allowing investors to sell down or increase their stakes.

    Some of the platform’s most most susccessful fundraising has been for emerging tech companies, including POD Point, a supplier of electric car chargers, and Moteefe, an online marketplace for fashion designers.

    The absence of a secondary market has been one of the major downsides to equity crowdfunding to date, with investors being required to hold their shares in a start-up until it lists on the stock market or is bought out.

    Jeff Lynn, chief executive officer of Seedrs, said the launch of a secondary market was the “natural evolution” of crowdfunding.

    However, the company, which is backed by high-profile fund manager Neil Woodford and City grandee Lord Rothschild, will not offer full and unrestricted trading straight away.

    Seedrs said it would first launch a “beta” version of its market, which will only open for trading for a one week a month. It will also only allow a share to be traded between two people who already hold shares in that company.

    Mr Lynn said this was to prevent some investors trading with more knowledge of a company than others — unlisted companies generally give financial updates only to their investors, and not the wider market.

    The platform has also said it will fix the price of the shares trading on its marketplace to the last valuation Seedrs agreed to, rather than allowing supply and demand dynamics to dictate the price.

    “This will be the simplest version, I’m confident that what we’re announcing will work,” said Mr Lynn, who added that in “two to three months” the company would look at removing some of these restrictions following conversations with the companies being traded.

    “There’s a lot we need to understand about how it will work and how users actually use it,” said Mr Lynn.

    While Seedrs will be the first crowdfunder to launch regular secondary market trading sessions, other companies have attempted to increase share liquidity by arranging share purchases on specific companies.

    Earlier in the year, rival Crowdcube organised a one-off share buyback for investors in Celixir, a small unlisted biotech company.

    In December last year, the City watchdog published an update on its review of crowdfunding rules, signalling intentions to tighten its regulations on both equity crowdfunding and peer-to-peer lending.

    The Financial Conduct Authority said it was concerned that investors might find it difficult to assess the risks and returns they were taking on by investing through a crowdfunding website, and that some start-ups’ financial promotions may be misleading.

    In early 2015, the regulator said crowdfunders risked giving a “misleading or unrealistically optimistic impression of investment” while attracting customers with limited experience of investing.

    While equity crowdfunding is popular among retail investors, the market has not grown as rapidly as peer-to-peer lending. Unlike P2P lending, equity crowdfunding investments cannot be held in an Isa.

    According to figures from AltFi Data, start-ups have raised around £92m through Seedrs since it launched in 2012. Its rival Crowdcube is the only larger UK crowdfunder, having originated £190m of deals since 2011.