September 26, 2016
MAKR - Share Class Report
Last week, our share class book won 0.33% globally, almost catching up all our MTD loss.
Summary:
1 - Last week overview
2 - Share Class Spread Monitor
3 - Share Class Spread Chart
4 - Past trades & performance
5 - Dividend Calendar
Last week moves:
- This week we played with the UHR / UHRN spread.
o Unwound at 98.10% on 23/9/16 a trade we set up on 7/9/2016
o and we were able to rebuild it at 99.10% on 8/9/16
- And we entered the + UN US / - UL US spread (up 47 bps this week)
- This week we benefited from:
o a rebound of the REN / REL and RYAAY/RYA spreads and in the TITR / TIT Chinese
o the continuous good performance of RWE3 / RWE. Despite good performance, we’d keep spread for
now, INNOGY IPO next month can lead to a conversion of the RWE3 into RWE
o the HEN / HEN3 spread performed poorly (-80 bps). We think we’re close to entry points on this one
- For the week to come, we should see some action on the CCL LN / CCL US spread, which kept us busy last week as CCL to publish its numbers on Monday. A good publication should help the spread we think.
Makor Capital
11 Menachem Begin St., 26th FL
Ramat Gan 52681
ISRAEL
Tel +972 3 5453 762Fax +972 3 7162 680
Research Disclaimer
This publication has been prepared by Makor Capital Limited (“Makor Capital”) and is intended for professional or qualified investors only. Makor Securities London Ltd (“Makor Securities”)is distributing this material to its clients who are Eligible Counterparties or Professional Clients under FCA Rules. It may also be disseminated to persons who are Investment Professionals within the meaning of the Financial Services and Markets Act 2000 (Financial Promotion Order 2005). In the United States, Makor Capital only distributes this material to major US institutional investors (as that term is defined in Rule 15a-6 of the Securities and Exchange Act of 1934) and to SEC-registered broker-dealers or banks acting in a broker–dealer capacity. This material is not intended for distribution to any other persons and should not be redistributed. If you do not fall into any of these categories you should disregard it.
This material is a marketing communication. It is not investment research and has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It is not subject to any prohibition on dealing ahead of the dissemination of investment research under U.K. law. This material is not a research report and is not intended to be a research report as defined under U.S. securities laws and regulations. This material is not intended to provide information reasonably sufficient upon which to base any investment decision.
This material does not take into account the particular investment objectives, financial situation or needs of individual clients or other recipients. Before acting on this material, clients and other recipients should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice.
This material should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action.
In the United States, Makor Capital does not offer securities services to U.S. persons except pursuant to SEC Rule 15a-6 only to major US institutional investors and SEC registered broker-dealers or banks acting in a broker–dealer capacity. Transactions in the United States must be effected through the U.S. broker-dealer, Oscar Gruss & Son Incorporated. Oscar Gruss & Son has not prepared, reviewed or distributed this material.
Some of this material is produced by providers which Makor Securities believes to be reliable, but Makor Securities does not warrant or represent (expressly or impliedly) that it is accurate, complete, not misleading or as to its fitness for the purpose intended and it should not be relied upon as such.
Opinions expressed will be the current opinions of those producing this material as of the date appearing on this material only. We expect those producing the material in this publication to update it on a timely basis but can give no undertaking that they will do so and regulatory compliance or other reasons may prevent them from doing so (or us from disseminating updated material).
Members and employees of Makor Securities London Ltd, employees of Makor Capital, Makor Capital Markets may from time to time have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this material. For Makor Securities, this information is set out in our Conflicts of Interest Policy which is available on request. Policies for the production of research from other research providers are available on request. Unless otherwise stated, share prices provided within this material are as at the close of business on the day prior to the date of the material.
Neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without prior consent. This material is issued for general information and discussion purposes only. None of Makor Securities, Makor Capital, Makor Capital Markets accepts liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material.
The services, securities and investments discussed in this material may not be available to, nor are suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and it should be noted that investment involves risk, including the risk of capital loss. Past performance is no guide to future performance. In relation to securities denominated in foreign currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable.
All investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and it should be noted that investment involves risk, including the risk of capital loss. Past performance is no guide to future performance. In relation to securities denominated in foreign currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable.
Entities
Makor Securities London Ltd is authorised and regulated by the Financial Conduct
Authority (FCA registration number 625054)
Makor Capital, company number 514456466, is incorporated in Israel and is a 100% held
subsidiary of Makor Holdings Pte Ltd incorporated in Singapore.
Makor Capital Markets SA, company number CH-660.2.999.011-0 is incorporated in Switzerland
and is also a 100% held subsidiary of Makor Holdings Pte Ltd.
Having trouble viewing this email? Click here
lchekroun@makor-cm.comThis email was sent to by Research@Makor-Capital.com
V.I.Plus e-mail marketing
French state bank CDC plans run of share sales
The Caisse des Dépôts, France’s state-backed bank, is planning to sell hundreds of millions of euros worth of shares in some of the country’s largest companies as it shifts its focus away from large historical shareholdings.
Pierre-René Lemas, who was previously the chief of staff to President Francois Hollande before taking over as head of the CDC in 2014, told the Financial Times that it made “no sense” for the group to keep many of its positions.
“Many of our companies are there for historical reasons. We have to reduce the number of companies we own, and that is what we are doing,” he said in an interview from his Paris office.
The CDC, created in 1816 in the wake of the Napoleonic wars, holds about €30bn worth of stakes in groups such as the waste and water company Veolia, the transport company Transdev and the construction company Egis.
It also has an eclectic set of holdings in smaller companies such as Compagnie des Alpes, which owns ski-lifts around France and the Parc Astérix theme park. It also owns a stake in Belambra clubs, which owns holiday homes in France.
“We have around 16 subsidiaries. We are in the process of looking at what we will sell and what we will keep,” he said, adding that some targets had already been identified.
The CDC last week raised €456m through the sale of about 4 per cent of the capital of in Veolia. The bank is also considering selling all or a part of its stake in motorway operator Sanef, majority owned by Spain’s Abertis, according to people close to the situation.
The shift in strategy away from owning larger groups comes amid a wider debate in France about the role of the government in French business after a string of failures in the state-controlled nuclear industry this year.
Mr Lemas said he wanted the CDC, which is a quasi-government body managed by parliament, to add to the economy in ways beyond simply being a shareholder in large companies. The sale of stakes in large companies could yield hundreds of millions of euros that could be used elsewhere in France, he added.
“The CDC should be focused on supporting the French economy, promoting the energy transition towards renewables and helping with social housing in France,” he said. “That is where we can be the most helpful.”
The group has €225bn worth of regulated savings deposits collected by French banks and is a major financier of the French economy via a group called BPI France, which invests in small and mid-sized groups.
National Grid takeover would not be subject to new rules on foreign buyers of critical infrastructure
An acquisition of National Grid's [LON:NG], gas distribution network by a Chinese company would not be subject to new rules on foreign acquisitions of “critical infrastructure,” The Mail on Sunday reported.
The newspaper quoted a government source who said the UK secretary of state will consider the existing law when a deal is transacted. The source added that a government review will look at whether National Grid’s gas network should be considered critical infrastructure.
National Grid began a sale process for a majority stake in its UK gas distribution network earlier this year, as previously reported.
The government this month indicated that it will introduce new laws to prevent the sale of key infrastructure to foreign companies, the item said. The new legislation is to be part of a review of the Enterprise Act of 2002.
The GMB Union this weekend urged National Grid to suspend the sale pending completion of the review, the article said.
The deadline for offers for the gas distribution stake was Friday, 23 September, the report said. It is thought that Chinese government-backed China Resources Gas [HJ:1193] submitted an offer for the stake, the article added.
As previously reported, the Hong Kong-based businessman Li Ka-Shing is believed to have been forming a bid consortium headed by his Cheung Kong infrastructure investment vehicle.
Canada Pension Plan Investment Board is thought to have teamed up with the sovereign wealth funds of Abu Dhabi and Kuwait to make an offer for the gas networks stake, the item said.
It is thought that the Australian bank Macquarie, backed by China Investment Corporation, has has also tabled an offer for the stake, the newspaper said.
Fosun, a privately-owned Chinese group, was also working on an offer for the gas networks stake last week, according to the report.
Feedback from our Annual Swiss Watch Investor day in Geneva
We hosted our 3rd Annual Swiss Watch Investor day in Geneva last week. Feedback
from the event was that whilst the industry is undergoing a consolidation phase there
remains optimism on a rebound. However, this rebound will still take some time, with a
recovery more volume driven and average selling price under pressure. This is because
new demand is coming from the upper middle class Chinese consumer rather than the
very high end.
Price positioning is a key industry question; new products at the "entry" level
Prices within hard luxury are aligned globally. However, following significant price/ mix
shifts over the last few years there has been a gap at retail left at ~CHF 5,000 price
point where there is currently high demand. Our UBS Evidence Lab work shows that
Cartier watches have just 11% of SKU's below €7,500 currently suggesting more work
ahead. We are seeing stronger trends in the export data at the lower price points with
CHF500-3,000 up +4.9% in August versus CHF3,000 down -14.4%.
Swiss watch export data for August -8.2% shows further caution from retailers
Retailers remain overstocked and this ongoing inventory pressure is reflected by latest
August Swiss watch export data as wristwatches declined -8.2%. By region, Hong
Kong remains soft at -28.7%, while Mainland China improved +29.1% supported by
better retail trends. Europe recovered slightly at -5.4% helped by the UK +23.5% (July
+13.4%), while the US remained difficult -12.4% (-14.7% in July).
How much of a risk is the Apple Watch?
Our analysis suggests that the Apple Watch/ wearables are a tangible threat at the
entry price point. UBS Evidence Lab commissioned a proprietary survey of 6,336
smartphone users across the US, UK, Germany, mainland China and Japan in March
2016. The results indicated that the first generation of Apple Watch still has further to
run to be materially attractive, with 57% of people surveyed unlikely to purchase an
Apple watch, although this is an improvement from the 62% in our last survey in
September/October 2015. There may yet still be further risk in our view that the
second-generation Apple Watch can improve consumer perceptions further and we see
this as an overhang for Swatch through 2016.
Top 10 Takeaways :
1. The Swiss watch industry is currently in a consolidation phase but there is a belief it will rebound
2. There is big demand potential from the middle class Chinese consumer but at a lower price point. The industry is starting to respond to this but it is leading to negative mix.
3. Tourism spending is now starting to enter an easier comparison base with the long term trend seen at +3-5% p.a.
4. Online is an opportunity for hard luxury
5. Brick and mortar distribution remains important but driven by larger multibrands and monobrand stores with independents losing traction
6. The Apple watch would be second to Rolex in the Swiss watch industry
7. Rolex is the strongest brand within the industry
8. UK market and Switzerland are now recovering along with Mainland China
9. The US consumer remains a core area of focus despite recent volatility
The second hand market remains strong
- One-off headwinds blowing in 2016 are abating - we expect a constructive 2H16E:
1. Chinese spend repatriation; 2. Elimination of “single child” policy; 3. Tail end of wholesale destocking.
- Structural moderation remains on the cards:
1. Sufficient retail network development; 2. Maturing Chinese early adopters => Fading benefit for
“high end” brands from the “mega-brand bathtub” (e.g. Chanel, BV) and for “late” categories from
the “category spend shift” (e.g. Jewellery).
- Higher competition in most categories is a reality:
1. Fewer new consumers, plenty of brand/product choices; 2. Need for faster innovation; 3. “Locust
effect”.
- Macro risks persist, but don’t look like a clear and present danger:
1. Question marks on the Chinese economy; 2. Consensus seeing a macro slowdown over the
next two years; 3. Luxury goods consensus expectations still skewed towards faster growth in
outer years – but the buyside seems to know better.
- Our investment recommendations move one notch closer to a “risk-on” approach
We downgrade Hermès to Underperform as we note a disconnect between its trading multiples
and growth outlook + expect lower investor appetite for it as a “safe haven”. We downgrade Kering
to Neutral, as we see smaller share price headroom from the brilliant Gucci self-help, and have
doubts on BV, SL, and a short-term Puma divestiture. Our top investment recommendation is
LVMH for its strong structural appeal, self-help with near-term benefits, and reasonable valuation.
Quiet session in Asia with focus falling on Energy and US Elections - Oil comes off Friday lows after Algeria Oil Min said negotiators will not come out from the meeting empty-handed, with a freeze deal remaining a potential outcome. Ahead of Monday's first Presidential debate, Hillary Clinton and Donald Trump are in a dead-heat according to Washington Post survey on both 2-party basis and including Libertarians and Greens. Some analysts have indicated that the market may come under pressure if Trump is perceived to be victorious when the candidates take the stage together for the first time. In notable press reports, outspoken former Japan MOF official Sakakibara (Mr. Yen) concluded that the yield curve strategy the BOJ announced last week is appropriate, but also forecast USD/JPY declining toward to ¥90 in 2017. Among emerging currencies, Turkish Lira plunged to a 6-week low near 3.00 after Moody's cut its credit rating on the sovereign by 1 notch to BA1. Rating agency said "Turkey continues to operate in a fragile financial and geopolitical environment, and its vulnerability has risen as a result of unpredictable political developments and volatile investor perception."
Nikkei -1.10% Hang Seng -0.86% CSI -098% Shanghai -0.95%
Eur$ 1.1227 CNH 6.6792 CNY 6.67 JPY 100.87 GBP 1.2979 CHF 0.9701 RUB 63.9949 WTI$ 44.88 +0.90%
S&P -0.21% EuroStoxx -0.60% DAX -0.65% fTSE -0.41% SMI -0.35%
Macro :
- Corbyn Is Re-Elected as U.K. Labour Leader, Urges Party Unity
- BOE Easing Makes Gilts Best Place to Be for Frankfurt Investor
- OPEC Deal Still Elusive Even After Saudis Offer Oil Cuts to Iran
- S&P 500 Bull Trend Versus EM at Risk as Curve Flattening Resumes
- Credit-Equity Correlation Marks Risk Perception Shift: Analysis
- EU Commissioner Moscovici to Propose EU Blacklist for Tax Havens
- Star trader Rokos eclipses his old Brevan Howard fund - FT - http://on.ft.com/2dtUViO
Keep an eye on :
- ABBN VX : Cevian May Seek Seat on ABB Board, Schweiz am Sonntag Reports
- ABG SM : Abengoa Says Acceptance Period Opens for Restructuring Plan
- AIR FP : Airbus Partners With Tata Advanced Systems in India: Les Echos
- AF FP : Air France-KLM in Accord With India’s Jet Airways, Tribune Says
- AKZA NA : Akzo Nobel Committed to U.K. Business, CEO Tells Guardian
- AAPL US : Apple Falls; IPhone Sales May Disappoint, GFK Report Says: CNBC
- ARAMCO IPO : *ARAMCO IPO LISTING MAY INCLUDE LONDON, NY OR HONG KONG: CEO
- AREVA FP : Areva: ASN Probing 87 Irregularities in French Nuclear Reactors
- ARYN VX : Aryzta FY EPS In Line, Sees FY17 EPS In Line With Consensus
- AZN LN : Impax, AstraZeneca Sue Par Pharma Over Generic Migraine Drug
- CRG IM : Banca Carige Seeking to Sell EU900m of NPLs: Il Sole
- BMPS IM : Qatar Funds May Be Interested in Paschi Cap. Increase: Corriere
- BAS GY : BASF Plans to Make Further Cuts in Asia Amid Slowdown in Demand
- COIC SS : Concentric could be a takeover target - Dagens Industri
- CSGN VX : Credit Suisse’s Grigg Quits to Start Independent Firm: Sky News (he was bank rescue advisor)
- AM FP : Rafale Deal to Create Jobs in France, Dassault Aviation CEO Says
- DBK GY : Merkel Unwilling to Help Deutsche Bank in U.S. DOJ Case: Focus
- DUFN VX : Airport Vendor Dufry Could Rise 20% or More - Barron's
- GLPG NA : Gilead could place takeover bid for Galapagos - tijd
- GKN LN : SAIC could be interested to bid for Company, 7bil price tage mentionned
- GN DC : GN Store Nord Gives 2017-2019 Financial Guidance
- GS US : Goldman Said to Plan 25% Cut of Asia Investment-Banking Jobs
- HSBA LN : HSBC Hires Headhunting Firm to Strengthen Management Team: FT
- INGA NA : ING Belgium Poised for Major Restructuring, L’Echo Reports
- IBAB BB : Ion Beam in EU70 Mln Contract for Proteus System in Beijing
- KTM IPO : KTM Industries, the Austrian motorcycle company, is to list in Switzerland soon, Finanz und Wirtschaft
- LXS GY : Lanxess to Buy U.S.-Based Chemtura for $33.50/Shr
- LHA GY : Lufthansa Has Right to Buy Brussels Airlines for EU2.6m: De Tijd
- LUN DC : Lundbeck, Otsuka Say FDA Approved Labeling Update of Rexulti
- MS IM : Mediaset Board to Meet Tuesday as Vivendi Offer Looms: JDD
- PBR US : Petrobras Rig Bids Could Bring $6b in Investments: Globo
- PFC LN : Tunisia Reaches Deal W/ Petrofac Protesters Over Jobs: Reuters
- UG FP : PSA’s Tavares: Open to Opportunities and Discussions: Figaro
- SFR FP : SFR to Invest EU2B Per Year on Network 2017-2020: Echos
- SIE GY : Siemens CEO Kaeser Seeks to Stay at Co. Past ’18: Handelsblatt
- SBRY LN : J Sainsbury shareholder Qatar Investment Authority could attract offer for 22% stake from Chinese bidder
- SAN FP : Regeneron, Sanofi’s Dupilumab Gets Priority Review by U.S. FDA
- SNAPCHAT IPO : Snapchat to Release ‘Spectacles,’ First Hardware Product: WSJ
- LOCAL FP : Solocal Suspended Before Financial Restructuring Statement
- SWEDA SS : Swedbank Open to More Acquisitions in Baltic Region: DI
- TEF SM : Telefonica Plans for IPO of O2 Advancing, Telegraph Reports
- TUI LN : Tuifly subject of sale talks with easyJet, other airlines - Boersen-Zeitung
- UBI FP : Ubisoft to Buy Bpifrance’s 3.2% Stake in Co. for $138 Million
- UBI FP : Ubisoft CEO Says Sees ’Very Few’ Synergies With Vivendi
- UBSG VX : France Seeks Info on 45,000 UBS Bank Accounts: Le Parisien
- UCG IM : UniCredit Said to Pick 4 Cos. in Pioneer Bidding Process: Rtrs
- VIE FP : French state bank CDC plans run of share sales - http://on.ft.com/2d1oVzX
- VIT CN : Victoria Gold could be a takeover candidate, analysts say
- VIV FP : Ubisoft CEO Says Sees ’Very Few’ Synergies With Vivendi
- VOW3 GY : Audi CEO Stadler to Help Clarify Emissions Scandal: Rheinische
- VOW3 GY : Audi Recalls 79,895 Cars, SUVS for Side Light Software Errors
>>> Up
*CENTAMIN RAISED TO OVERWEIGHT AT CI CAPITAL
*ENERGY TRANSFER RAISED TO OUTPERFORM AT BAIRD
*ERICSSON RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
*LUNDBECK RAISED TO BUY VS HOLD AT DNB MARKETS
*MONSANTO RAISED TO MARKET PERFORM AT BERNSTEIN
>>> Down
*HAYS CUT TO SECTOR PERFORM AT RBC CAPITAL
*IMPERVA CUT TO NEUTRAL AT NOMURA
*INTERCONTINENTAL HOTELS CUT TO UNDERWEIGHT AT MORGAN STANLEY
*LLOYDS CUT TO SELL VS NEUTRAL AT GOLDMAN
*LUNDBECK CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
*METRO BANK CUT TO SELL VS NEUTRAL AT GOLDMAN
*N BROWN CUT TO HOLD VS BUY AT HSBC
*QSC CUT TO HOLD VS BUY AT BANKHAUS LAMPE
*REC SILICON CUT TO HOLD VS BUY AT HSBC
*RESTAURANT BRANDS CUT TO UNDERPERFORM AT LONGBOW RESEARCH
*SHIRE CUT TO HOLD AT HSBC
>>> PT Change
*WIENERBERGER TARGET PRICE RAISED TO EU18.5 VS EU15 AT HSBC
>>> Initiation
>>> Call
>> Sector
*EUROPEAN STEEL EQUITIES CUT TO IN-LINE AT MORGAN STANLEY
Asia Mid-Session Market Update: New Zealand trade deficit rises to 2-year high; Clinton-Trump in dead heat ahead of first debate
***Economic Data***
- (NZ) NEW ZEALAND AUG TRADE BALANCE (NZ$): -1.27B V -0.7BE; biggest deficit since Sept 2014; 2nd consecutive deficit
- (NZ) NEW ZEALAND Q3 WESTPAC EMPLOYMENT CONFIDENCE INDEX: 110.1 v 101.5 PRIOR
***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 -0.7%, S&P/ASX flat, Kospi -0.3%, Shanghai Composite -0.7%, Hang Seng -0.7%, Dec S&P500 -0.2% at 2,154
***Commodities/Fixed Income/FX***
- Dec gold -0.3% at $1,338/oz, Nov crude oil +0.7% at $44.81/brl, Dec copper -0.2% at $2.20/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 0.3 tonnes to 951.2 tonnes; Highest since Sept 7th; 3rd straight increase
- SLV: iShares Silver Trust ETF daily holdings rise to 11,337 tonnes from 11,305 tonnes prior; multi-year high
- CitiGroup: 2016 will be the best year for commodities in 4 years - financial press
- (CN) PBOC to inject CNY120B in 14-day reverse repos and CNY10B in 28-day reverse repos
- (KR) South Korea sells 20-yr govt bond, avg yield at 1.505%
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs, ¥430B in 5-10yr JGBs and ¥25B in JGBs outright
- EUR 1.1225-1.1240; JPY 100.70-101.00; AUD 0.7605-0.7630, NZD 0.7220-0.7250
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6744 V 6.6670 PRIOR; weakest Yuan setting since Sept 19th
***Market Focal Points***
- Quiet session in Asia with focus falling on Energy and US Elections - Oil comes off Friday lows after Algeria Oil Min said negotiators will not come out from the meeting empty-handed, with a freeze deal remaining a potential outcome. Ahead of Monday's first Presidential debate, Hillary Clinton and Donald Trump are in a dead-heat according to Washington Post survey on both 2-party basis and including Libertarians and Greens. Some analysts have indicated that the market may come under pressure if Trump is perceived to be victorious when the candidates take the stage together for the first time.
- New Zealand dominated economic calendar, posting its biggest trade deficit in 2 years at -1.27B V -0.7BE. Exports came in at a 3-year low of 3.39B v 3.60Be while Imports were at a 9-month high of 4.65B v 4.30Be. Shipments of dairy were especially unsettling, falling 22% to NZ$475M, which analysts attributed to base-year effects. Q3 Westpac employment index rose to 110.1 from 101.5, but analysts warned "earnings expectations over the next 12 months continue to linger well below average levels and are only a touch above the all-time low reached late last year." Also down under, NAB chairman said Australia AAA credit rating may be at risk, while Treasurer Morrison stressed bringing the budget under control to borrow for infrastructure.
- In notable press reports, outspoken former Japan MOF official Sakakibara (Mr. Yen) concluded that the yield curve strategy the BOJ announced last week is appropriate, but also forecast USD/JPY declining toward to ¥90 in 2017. In China, Nanjing property regulators joined their 2nd tier city peers in imposing restrictions to cool the resurgent mainland housing market.
- Among emerging currencies, Turkish Lira plunged to a 6-week low near 3.00 after Moody's cut its credit rating on the sovereign by 1 notch to BA1. Rating agency said "Turkey continues to operate in a fragile financial and geopolitical environment, and its vulnerability has risen as a result of unpredictable political developments and volatile investor perception."
***Equities***
US equities / ADRs:
- CHMT: LANXESS signs contract to acquire Chemtura for $33.50/shr (€2.4B enterprise value)
- WFC: Former employees file a $2.6B class action law suit in California - NY Post
Notable movers by sector:
- Consumer discretionary: Olympus Corp 7733.JP -4.5% (Macquarie cuts to Neutral); Nichirei Corp. 2871.JP +5.9% (Daiwa raised to outperform); Fonterra FCG.NZ -0.2% (Jun-Aug milk collection)
- Industrials: Hyundai Merchant 011200.KR +7.2% (company may assess Hanjin assets); Daewoo Engineering & Construction 047040.KR +2.1% (KDB to sell stake); Calsonic Kansei Corp.7248.JP -2.1% (Mizuho cuts to neutral)
- Technology: Japan Display Inc 6740.JP -5.5% (asked banks for loan); TDK Corp 6762.JP -6.5% (Credit Suisse cuts to Neutral); Nikon Corp 7731.JP +2.3% (Citi raised to buy); E Ink Holdings Inc 8069.TW +4.7% (Apple said to assess electronic paper display)
- Materials: Sumitomo Bakelite Co 4203.JP +0.8% (Mitsubishi UFJ Financial Group raised to overweight); Chinalco Mining Corp International 3668.HK +25.7% (Chalco privatization plan); Rio Tinto RIO.AU +0.5% (Yancoal and Glencore said to acquire its certain assets); Resolute Mining RSG.AU -0.5% (Morgan Stanley cuts to equal weight)
Saudis Offer To Cut Production By 500,000 Barrels: "The Oil Market Situation Is Much More Critical"
Saudi Arabia's oil policy, unveiled just under two years ago, at the November 2014 OPEC meeting where it effectively splintered the OPEC cartel by announcing it would produce excess quantities of oil in hope of putting shale and other high-cost producers out of business has backfired spectacularly: not only has OPEC failed to crush the US shale industry, which as a result of increasing efficiencies, and debt-for-equity exchanges has seen its all in production costs tumble, making even far cheaper oil prices profitable (especially with the addition of hedges), not to mention Wall Street's ravenous desire to buy any debt paper that offers even a modest yield allowing US oil producers to delay or outright avoid bankruptcy.
But while shale has avoided annihilation, it is Saudi Arabia that has been suffering. In "Kingdom Comedown: Falling Oil Prices Shock Saudi Middle Class", the WSJ reports that "a sharp drop in the price of oil, Saudi Arabia’s main revenue source, has forced the government to withdraw some benefits this year—raising the cost of living in the kingdom and hurting its middle class, a part of society long insulated from such problems."
The kingdom is grappling with major job losses among its construction workers—many from poorer countries—as some previously state-backed construction companies suffer from drying up government funding. Those spending cuts are now hitting the Saudi working middle class.
Saudi consumers in major cities, the majority of them employed by the government, have become more conscious about their spending in recent months, said Areej al-Aqel from Sown Advisory, which provides financial-planning services for middle-class individuals and families. That means cutting back on a popular activity for most middle-class Saudis: dining out.
“Most people are ordering less food or they change their orders to more affordable options,” she said.
We have previously documented the soaring interbank funding costs and plunging bank stock prices, but that's just part of it: Saudi's entire economy is suddenly collapsing. To boost state finances, Saudi Arabia cut fuel, electricity and water subsidies in December, after posting a record budget deficit last year. It also plans to cut the amount of money it spends on public wages and raise more non-oil revenue by introducing taxes. But in response to these moves, inflation more than doubled from last year to about 4% now, crimping consumers even more.
Making matters worse, Saudis are beginning to speak out about a sense of anxiety about the economy. “I think we are going through a difficult period,” said Emad al-Majed, a Riyadh-based pharmacy technician. “There will be suffering.”
Which is probably why as OPEC prepares for an "informal" meeting in Algiers this week, Saudi Arabia is now officially panicking and, according to Algeria's oil minister is prepared to slash its production by as much as half a million barrels.
As Bloomberg reported, Saudi Arabia offered to cut its oil output to January levels, according to Algeria’s energy minister, as the group’s members seek ways to stabilize crude prices at talks this week in Algiers.“Saudi Arabia is ready to freeze production at the January level,” Boutarfa said, calling the offer “an interesting step.” Saudi Arabia pumped a record 10.69 million barrels a day in August compared with 10.2 million in January, data compiled by Bloomberg show.
Fellow OPEC member Algeria wants the group to cut its collective output by 1 million barrels a day, Boutarfa said.
However, for that to happen, Iran would have to agree to curb its output at current levels, which is precisely the intent of Saudi Arabia, which went into a production spree in the past few months, just so it can appear to be "generous" with its production cut offer which will keep the Kingdom's output just shy of all time high supply, while impairing Iran's ability to capture further market share, mostly in India, Japan and various other Asian importers.
The oil market is in a “much more critical” state than when the Organization of Petroleum Exporting Countries last met three months ago, and its members must seek ways to shore up crude, possibly by freezing or trimming production, Noureddine Boutarfa, said Sunday in an interview. Aside from the Saudis, producers have made additional proposals, he said later at a news conference, without giving details. OPEC ministers plan talks in the Algerian capital on Sept. 28.
What until recently was sound assurances that the global market would return to balance as soon as, well, a few months ago remains oversupplied by as much as 1 million barrels if not more. According to Bloomberg, more than 800,000 barrels a day of additional crude is flooding into the global market this month compared with August as Russia pumps at an all-time high and Libya and Nigeria restore disrupted supplies, according to statements from their ministry officials in those nations. The surplus will last for longer than previously thought, persisting into late 2017 as demand growth slumps courtesy of a suddenly plunge in Chinese teapot refinery demand, as well as a slowdown in Chinese imports to fill the country's almost full strategic petroleum reserve, while supply - mostly out of the US - proves resilient, the International Energy Agency said. Tumbling crude has put financial pressure on OPEC members from Saudi Arabia to Gabon.
In fact, some calculate that even an 800,000 barrel cut would not be sufficient to bring the market back into balance.
Meanwhile, it is not just Saudi Arabia who is panicking: “The situation since the last meeting in June has worsened, the situation is much more critical,” said Boutarfa, who’s been involved in talks with Saudi Arabia and other members in the run-up to the meeting. “So it’s important to see what measures can be adopted in the short term and very short term to find a solution to this situation that isn’t helping any OPEC country.”
That said, it's all up to Iran which however resolutely refuses to cut production knowing it can easily capture market share - from Saudi Arabia at that - even if the price of oil remains under pressure and capping maximum potential revenues.
Saudi Arabia and Iran, whose rivalry blocked a deal with other major producers in April, did not reach an agreement after two days of preparatory talks in Vienna, including a Saudi offer to pump less crude if Iran caps output at current levels, according to two people familiar with the negotiations. Saudi Arabia doesn’t anticipate any formal decision on supply in Algiers, a delegate familiar with its policy said.
The main difference between the Algiers talks and producers’ failed attempt to agree on a freeze in April in Doha is that Iran will be present for this week’s discussions, Boutarfa said. Iran is more concerned with its market share than with actual output levels, he said.
OPEC’s talks in Algiers will be informal but can be converted into an extraordinary meeting, which could result in a decision by the group, Boutarfa said.
While odds of a deal in Algiers are virtually nil, keep an eye on oil vol: with a barrage of "headlines" (mostly from anonymous Reuters "sources") imminent, the only guarantee move is that oil will move dramatically higher and lower in the next three days.