Oil prices rise on talk of Russia, Opec coordination

Oil prices were lifted on Tuesday by talk of possible coordination between Saudi Arabia and Russia to cut petroleum output. 

PHOTO: AFP

JAN 27, 20166:41 AM

[NEW YORK] Oil prices were lifted on Tuesday by talk of possible coordination between Saudi Arabia and Russia to cut petroleum output.

US benchmark West Texas Intermediate for March delivery rose US$1.11 to US$31.45 a barrel on the New York Mercantile Exchange.

In London, Brent North Sea crude for March delivery rose $1.30 to US$31.80 a barrel.

Iraqi Oil Minister Adel Abdulmahdi said at a conference in Kuwait that Baghdad was "ready to cooperate" on cutting production to raise oil prices, but only if non-Opec producers did so as well.

Mr Abdulmahdi was also quoted by Bloomberg as describing increased "flexibilty" on output between Russia and the Organisation of the Petroleum Exporting Countries.

State-owned Russian news agency Tass reported that Russian oil company Lukoil has asked the Kremlin to work with Opec to limit output.

That followed remarks Monday from Opec secretary general Abdullah el-Badri calling for Opec and non-Opec producers to work together to boost prices.

Analysts expressed skepticism that oil producers are close to such an agreement.

"The need for a reduction in output is clear - as it has been to us for the past 18 months - but it remains uncertain whether Saudi Arabia and its allies within Opec are ready to return to the bargaining table," said Tim Evans, analyst at Citi Futures.

"And without Saudi Arabia on board, there's simply no deal and the market will be left to rebalance naturally as non-Opec output declines, a slow and still painful process."

"Vague talk of a possible joint production cut with Russia and Opec is doing the rounds again," noted CMC Markets analyst Jasper Lawler.

"Any joint action seems unlikely since US shale producers would just use the resulting higher prices as an opportunity to ramp up their own (output) again."

AFP

    
 

China slowdown hits consumer brands as P&G, J&J see weak results

 

Consumer product giants Procter & Gamble Co and Johnson & Johnson reported slowing sales for some brands in China last quarter, as weakness in the world's second-largest economy starts to hurt multinationals that have spent years building up their businesses there.

PHOTO: REUTERS

JAN 27, 20168:46 AM

[NEW YORK] Consumer product giants Procter & Gamble Co and Johnson & Johnson reported slowing sales for some brands in China last quarter, as weakness in the world's second-largest economy starts to hurt multinationals that have spent years building up their businesses there.

P&G Chief Financial Officer Jon Moeller said Tuesday on a conference call that certain brand categories in China are growing 5 per cent to 8 per cent annually, "somewhat slower than they were two and three years ago." Likewise, J&J said international sales from businesses such as its baby care and skin lines were hurt by the Chinese slump.

"We did see a slowdown in China, primarily in the consumer business," said Dominic Caruso, J&J's chief financial officer. He said the company's medical-devices and pharma businesses still had high single-digit growth, and that the company was still optimistic about business in the country.

China's emerging middle class has been a source of optimism for multinational companies for years as people move to cities from rural areas, find higher-paying jobs, and increasingly spend their discretionary income on brand-name products like the ones sold to J&J and P&G. Yet, that story has been changing lately. China's economic growth slowed in the December quarter, marking the weakest period since the 2009 global recession, with industrial production, retail sales and fixed-asset investment all facing headwinds.

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Still, companies like New Brunswick, New Jersey-based J&J don't expect that even a significant slowdown in China would hurt their businesses substantially. Caruso estimated that the country contributes less than 5 per cent of total revenue, and he views it as a longer-term opportunity.

"Any short-term changes in the economy are unlikely to have any significant impact on our results," he said Tuesday on a conference call with investors.

J&J has been operating in China for more than 30 years. It doesn't break out results for the country, though two years ago it said its business in China brought in US$2.8 billion in annual sales.

P&G's Moeller said on the conference call that the Cincinnati-based company is seeing its strongest growth in China in premium categories such as the SK-II skin cream line. Baby care and feminine products have been weak, however.

Moeller said he's been spending a lot of time in China, travelling there just before Christmas and again last week. He's trying to figure out how the consumer products giant can capitalize on the lifting of China's one-child policy. He said he doesn't expect the recent hiccups to continue.  "The current guidance does expect an improvement in China in the back half, and that should be very doable just based on the math alone," he said on the call. "We really think that there is significant continued opportunity there, both top and bottom line."

BLOOMBERG

      

World's biggest wealth fund speaks out on liquidity banks miss

JAN 26, 201611:19 PM

[OSLO] As some of the world's best-known investment banks blame tougher capital rules for contributing to the lack of liquidity in financial markets, the world's biggest sovereign wealth fund has a different take.

The argument is "an excuse for something else," Oeyvind Schanke, chief investment officer of asset strategies at Norway's US$790 billion fund, said in an interview in Oslo on Tuesday.

One week after bank executives met in Davos, Switzerland, where they spent some time discussing the fallout of stricter financial requirements, Norway's wealth fund is questioning a tendency to blame regulators.

"New regulations have reduced volume on a normal day because you don't have that type of market-making activity from the investment banks and other large players," Schanke said.

"But in times of big movements they wouldn't be there anyway. 2008 is a perfect example. You didn't have any tough regulation in 2008, but somehow the fixed-income market froze up - which you would have expected because this type of activity is to facilitate normal trading days."

"Obviously they are used to making money on this activity and now they can't make money anymore," he said. "They're trying to find reasons for what's going on."

Concerns that markets face a liquidity crunch are growing as the world's biggest investment banks retreat from capital- intensive fixed income, currency and commodities trading to meet tougher regulatory demands. Liquidity has been affected by banks committing less capital. But the same regulations that are contributing to that have made the world of finance much safer, according to Schanke. "You can't have it all."

Goldman Sachs Group Inc President Gary Cohn said last week that China is suffering from a lack of liquidity in markets. Asia's largest economy is going through structural changes "in an era where we just got through re-regulating all of the financial institutions around the world and we've taken an enormous amount of liquidity out of the markets," he said during a panel debate in Davos.

The comments echo concerns raised by other finance industry executives and policy makers, including Blackstone Group LP CEO Steve Schwarzman, who said last week that in times of stress, fixed-income markets have "huge gaps" where dealers are no longer able to facilitate bids, resulting in "huge losses." Schwarzman went as far as to say that "regulation has made the world more dangerous" on certain levels.

Schanke's says that it's not the role of the regulator "to keep up liquidity. It's the role of the regulator to have an environment that doesn't hinder liquidity."

BLOOMBERG

    
 

Oil concerns bleeding into regional banks: Markit

JAN 27, 201612:17 AM

[NEW YORK] Investors have shown their concerns for banks that financed the boom in shale oil by increasing their short positions, with regional banks particularly hit, according to a report on Tuesday by data firm Markit.

The average short interest across North American banks has increased by 30 per cent since the start of 2015, reaching 2 per cent of shares outstanding on loan for short selling, Markit data shows.

At the forefront of that increase are regional banks, with the iShares US Regional Banks ETF showing 3.5 per cent of its shares out on loan, up from 2.5 per cent in early 2015.

As oil prices languish near $30 a barrel, banks in the Texas region are leading the rise in shorting action with the average stock on loan of the 13 banks domiciled in the state over the past 12 months showing an average of 3.6 per cent of shares outstanding on loan, Markit said.

San Antonio-based Cullen/Frost Bankers, is the most shorted among the Texas banks, as short sellers have built up US$246 million in positions. On January 20, the bank said its provision for loan losses in the fourth quarter is expected to be US$34 million due to the downturn in the energy sector and the stock is down 28 per cent for the year.

Outside of Texas, Oklahoma-based BOK Financial is down nearly 23 per cent for the year and has seen an increase in short positions with shares outstanding on loan up to 6.5 per cent. The bank raised its provision for loan losses as a result of the commodity downturn on Jan 13 and is scheduled to post quarterly results on Wednesday.

REUTERS

    
 

US dollar slips vs euro ahead as Fed meets

The US dollar dipped against the euro on Tuesday as the Federal Reserve opened its first monetary policy of 2016, a year marked so far by global market turmoil. 

PHOTO: BLOOMBERG

JAN 27, 20166:33 AM

[NEW YORK] The US dollar dipped against the euro on Tuesday as the Federal Reserve opened its first monetary policy of 2016, a year marked so far by global market turmoil.

The Fed is not expected to announce any change in policy after the meeting Wednesday following its historic interest rate increase in December.

All eyes will be focused on the Federal Open Market Committee's policy statement for signs of whether the Fed will back away from its signal of four rate hikes this year.

Analysts also will be looking for clues of a change in FOMC views on persistently weak inflation, amid a continued fall in oil prices.

The dollar slipped to US$1.0868 per euro around 2200 GMT, down from US$1.0851 at the same time Monday.

"Key for the dollar will be the Fed's take on the market turmoil," said Joe Manimbo, analyst at Western Union Business Solutions.

"Have the global headwinds of slowing growth in China and sinking oil prices been strong enough to blow Fed plans to raise rates off course?" If the FOMC statement appears dovish, the dollar could come under pressure, he said.

AFP

    
 

NYSE proposal to limit dark pool trading put under review by SEC

Plans by the New York Stock Exchange to limit trading in so-called "dark pools" during an industry-wide experiment aimed at boosting trading in small-cap stocks have been put under review by the US Securities and Exchange Commission. 

PHOTO: BLOOMBERG

JAN 27, 20167:20 AM

[NEW YORK] Plans by the New York Stock Exchange to limit trading in so-called "dark pools" during an industry-wide experiment aimed at boosting trading in small-cap stocks have been put under review by the US Securities and Exchange Commission.

The proposed rules by Intercontinental Exchange Inc's NYSE governing broker-run private trading venues, known as dark pools, are more restrictive than originally approved by the SEC, the regulator said in a filing late on Monday.

NYSE's proposed rules are also more restrictive toward dark pools than proposals by rival exchange BATS Global Markets and the Financial Industry Regulatory Authority, prompting confusion and concern that the dispute could delay the two-year programme's October start date.

If "these different proposals are both approved by the Commission, member compliance with the differing rules would be virtually impossible," the Securities Industry and Financial Markets Association said in a letter to the SEC in December.

The disagreement involves the SEC's so-called "tick-size pilot," which will widen trading increments, or "ticks," for 1,200 smaller companies' stocks to 5 cents from a penny.

Many such stocks rarely trade, and the programme would test whether wider spreads would prompt market makers, which post buy and sell orders for others to trade against, to post more orders, making markets more liquid.

The wider spreads are also expected to drive more trading into dark pools, which compete with exchanges, but do not display trade sizes and prices to the public prior to trades taking place. Unlike exchanges, dark pools can execute trades in between the spread, potentially lowering brokers' costs.

When the SEC approved the programme, it included a provision that would force some types of trades in some of the stocks involved to stay on exchanges, but it also included exceptions.

NYSE's proposed rules would limit the ability for trading firms to use one of the exceptions, the SEC said in its filing.

NYSE justified the additional restriction as a protection against BATS' and FINRA's separate rule proposals, which would create a loophole that would "eviscerate" the on-exchange requirement, the exchange said in a letter to the SEC dated Jan 15.

The SEC said it was reviewing NYSE's rules in part to ensure they were not "designed to permit unfair discrimination," and they do "not impose any burden on competition that is not necessary or appropriate."

REUTERS