“Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.
As Citi and others have noted – a year or so after we discussed the issue at length – uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. “The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow,” Citi wrote in September. Here’s a look at what the bank means:
1) Brazil’s central bank is not tapering its FX intervention plan
2) The Philippine central bank outlined the tools it will use to counter Fed tapering
3) The RBI is taking further steps to improve the liquidity situation and help stabilized capital markets
4) There were some notable trade data surprises out of Asia
5) Israel central bank delivered a dovish surprise rate cut
1) Brazil’s central bank is not tapering its FX intervention plan. Central bank president Tombini assured markets that the $60 bln intervention plan is not about to change. Given the positive performance of the BRL and the Bovespa, many had started to speculate that officials would soon start to get concerned again about excessive currency strength, especially after USD/BRL broke below the 2.20 level. The real should continue to trade on the strong side for now, but we would soon start to look for opportunities to take the other side, especially against the Mexican peso.
2) The Philippine central bank outlined the tools it will use to counter Fed tapering. The bank is sounding very confident about its ability to deal with further volatility in the PHP – and we mostly agree, at least compared with many other EM countries. According to Deputy Governor Guinigundo, “We can ride out any turbulence, as we have policy tools in our hand that we can deploy anytime.” He also said the measures include boosting dollar and peso liquidity, careful surveillance of risk, use of forward guidance, tapping currency swap agreements, and possible tightening of monetary policy. Read More
According to the latest whip count on Syria attack proposal in the House, 237 reps oppose a such a strike and 169 are undecided with just 27 are for. While this number guarantees that no vote will ever come to pass, and humiliate Obama, who if anything will revoke the punt to Congress from September 1 and unilaterally engage in strikes to appease assorted Saudi/Qatari interests, all that would take for the 27 Yay votes to become 28, would be for Obama to return the Nobel Peace Prize.
According to The Hill, a Republican lawmaker said he’ll vote to authorize military action against Syria if President Obama returns his Nobel Peace Prize. The line between reality and an alternative Onionesque universe is thin, but this is not a joke. Read More
Foreign investors have pulled out a staggering over Rs 62,000 crore (USD 10.5 billion) from the Indian capital market in the past two months amid concerns about the depreciating rupee.
Market analysts expect selling pressure by foreign institutional investors (FIIs) to continue in the near term.
FIIs had withdrawn Rs 18,124 crore (USD 3 billion) from the debt and equities markets in July after pulling out a record Rs 44,162 crore (USD 7.5 billion) in June, according to data available with Sebi.
More than Rs 45,000 crore (USD 7.7 billion) were pulled out from the debt market in June and July, while over Rs 17,000 crore (USD 2.8 billion) were withdrawn from equities.
Weakness in the Indian currency was instrumental in overseas investors exiting the capital markets as the rising cost of hedging a volatile rupee hurts the yield differential the FIIs work with, according to market experts. Read More
Europe’s banks need to shrink their balance sheets dramatically to ensure the continent can withstand another financial crisis, according to an analysis by Royal Bank of Scotland.
Eurozone banks must shed at least €2.7tn in assets by 2016 for their balance sheets to be “sustainable”, RBS economists have calculated in a research note
The sector’s assets are worth about €33tn currently, or nearly three and a half times the single currency zone’s annual gross domestic product.
“If you have a banking crisis and banks are three times the size of their underlying economy, then governments will not be able to support them all,” said Alberto Gallo, head of European credit research at RBS.
“[Europe’s banking system] is the biggest in the world and arguably too big . . . in Japan, Canada and Australia the banking sectors are about twice the size of the economy, while the US is around the same size [as the economy].”
Since mid-2012 eurozone banks have reduced their balance sheets by €2.4tn according to data from the European Central Bank in Frankfurt. However, there is “at least €2.7tn more to go” according to RBS – a reduction that would bring banks’ combined assets down to about three times eurozone GDP. Read More
As interest rates started to rise in May, global central banks boosted purchases of US Treasuries, with demand from China, France and Ireland particularly strong. But private investors, such as hedge funds based in the Caribbean, went the other way in droves.
The bulk of the buying was concentrated in Treasuries, with central banks adding $40.3bn of the securities, while private accounts sold $32,3bn in May, according to official data released on Tuesday. China and France bought $25.2bn and $6.2bn in Treasuries, respectively.
Vivianne Rodrigues, US Capital Markets correspondent, reports that global central banks took on the securities in the aftermath of strong US employment data in April, which sent the jobless rate to a four-year low. But the the move did not pay off. Read More
For many, there is a difference between how you think you will act in certain conditions and how you actually act when the time comes. The term used to describe this condition is called empathy gap.
There are two basic scenarios in which empathy gap can impact your performance as a trader/investor:
– you don’t cut your losses when they hit your pre-established exit level. This is the single biggest reason, so many people struggle in the capital markets. One solution to the issue is to enter exit orders, immediately after you initiate an opening order (caution: it does not work with illiquid names, where market makers can easily shake you out); – you don’t take the signals from your watchlist when they are triggered. Some stocks can really move fast after they pass their tipping point. When that happens, many traders feel like a deer in headlights and are not willing to pay the market price. They’ll put a limit order, hoping that the desired stock will come back and their order will be filled. The best stocks don’t come back. Don’t be afraid to pay the market price for proper breakouts.
In today’s information overloaded world, evidence suggests that 95 per cent of our decisions are made without rational thought. So consciously asking people how they will behave unconsciously is at best naïve and, at worst, can be disastrous for a business. Read More
Greece’s securities regulator has extended a short-selling ban on bank shares to the end of July to protect investors while the recapitalisation of the country’s cash-strapped lenders is completed.
Short-selling involves investors borrowing shares to sell on the market and later buying them back at a lower price to make a profit. Greek banking stocks have been heavily shorted as investors bet that stock prices would fall further during the country’s sovereign debt crisis.
“The board took into consideration the ongoing bank recapitalisation process,» the Capital Markets Commission said in a statement, confirming an earlier Reuters story.
A short-selling ban on all stocks was introduced in August 2011 to protect investors from the fallout of the country’s debt crisis. Greece scrapped the ban on short selling non-banking stocks in January as market confidence grew after the country averted bankruptcy last year.
The regulator said that the three-month extension has been approved by the European Securities and Markets Association (ESMA).