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Monthly Archives: December 2012

Petro China Plunks $1.2 Billion on the Table With $ECA for Alberta Shale Access

PetroChina Co. (857) agreed to pay Encana Corp. (ECA) C$1.18 billion ($1.2 billion) for a 49.9 percent stake in an Alberta shale formation as Asia’s biggest oil producer steps up acquisitions of overseas oil and gas assets.

PetroChina will also pay C$1 billion over four years to fund development of the project, Encana said in a statement yesterday. The accord follows Beijing-based PetroChina’s agreement this week to pay $1.63 billion for a stake in the Browse liquefied natural gas venture in Australia.

The two deals more than double PetroChina’s spending on overseas assets this year, and come less than a week afterCanada approved the $15.1 billion takeover of Nexen Inc. (NXY)by rival Cnooc Ltd. (883) The state-owned company wants half its oil and gas output to come from overseas by the end of the decade.

“It seems obvious that they were waiting for the government approval for Nexen so they could get clarification of the rules surrounding state-owned ownership,” Eric Nuttall, a portfolio manager who oversees C$100 million at Sprott Asset Management LP in Toronto, said in a phone interview.

The deal marks the first between Canada and a state-owned company since Canadian Prime Minister Stephen Harper unveiled new foreign investment rules on Dec. 7. The rules, announced after the approval of Cnooc’s purchase of Nexen, prohibit state- owned enterprises from taking control of Canadian oil-sands businesses unless there are “exceptional circumstances.” Joint ventures and minority stake acquisitions aren’t barred under the rules.”

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China Manufacturing May Expand at Faster Pace This Month

China’s manufacturing is expanding at a faster pace this month, suggesting the factory recovery in the world’s second-biggest economy may withstand a slowdown in exports.

The December preliminary reading was 50.9 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. That compares with the 50.8 median estimate in a Bloomberg News survey of 12 economists and a final reading of 50.5 for November, the first time in 13 months it was above the expansion-contraction dividing line of 50.

Chinese stocks had their biggest gain in three years as the report bolstered confidence in the economic recovery even as November’s trade and new loans trailed estimates. The data add to signs of a strengthening rebound including factory output and retail sales, which may smooth the transition to China’s new leadership headed by Xi Jinping.

“China’s ongoing growth recovery is gaining momentum mainly driven by domestic demand conditions,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. At the same time, a drop in new export orders and last month’s below-forecast overseas shipments suggest “external headwinds” are persisting, Qu said.

“This calls for Beijing to keep an accommodative policy stance to counter-balance the external weakness, provided inflation stays benign,” he said. ”

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The Shanghai Composite Jumps 4.3%, The Most Since 2009

 

China’s stocks jumped the most since October 2009 on speculation state-backed institutions were buying shares as a manufacturing survey added to optimism the world’s second-largest economy will rebound.

The Shanghai Composite Index (SHCOMP) climbed 4.3 percent to 2,150.63 at the close, with trading volumes more the double the 30-day average. A gauge tracking financial companies surged 6.7 percent as brokerages jumped on signs the government will allow more funds to buy equities. Sany Heavy Industry Co. (600031) led a rally by industrial companies after a preliminary reading for a factory output index rose.

“It looks like institutional investors are re-entering the market and they have to increase their stock positions now in order not to miss the boat,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “The economy has stabilized.”

The CSI 300 Index (SHSZ300) surged 5.1 percent to 2,355.86, with all 10 industry groups adding more than 2.4 percent. TheHang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong rose 1.4 percent to a nine-month high. The IShares FTSE A50 China Index ETF (2823), which mimics the performance of the 50 biggest A share companies, jumped 4.5 percent in Hong Kong.

The Shanghai Composite advanced 4.3 percent this week, the biggest gain in 13 months and extending last week’s 4.1 percent rally. Shares have rebounded 9.7 percent from an almost four- year low reached on Dec. 3. The gauge is still down 2.2 percent this year, heading for a third straight annual loss.

The 994-member index trades at 11.9 times reported earnings after valuations fell to 10.8 this month, the lowest level since at least 1997, data compiled by Bloomberg show.”

 

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OECD Suggests Australia Will Need More Rate Cuts to Control a Rising Currency

“The Reserve Bank of Australia may need to cut its benchmark interest rate further as the local dollar’s resilience impedes economic growth, the Organization for Economic Cooperation and Development said.

Growth will slow to 3 percent in 2013 from 3.7 percent this year, the OECD said in a survey released in Paris today. The OECD urged the government to abandon efforts to prop up industries such as carmakers that are struggling to adjust to intensified competition from abroad.

Australia’s central bank lowered borrowing costs by 1.75 percentage points to 3 percent in the past 14 months as the local currency’s sustained strength contains inflation and a mining investment boom crests. The local dollar has risen about 10 percent since this year’s low on June 1 as offshore investors sought a safe haven, even as Australia’s key commodity prices eased in the past year.

“The conduct of monetary policy needs to cope with the conflicting pressures on the currency,” the OECD said in the report on Australia. “A lower sensitivity of the currency to falling commodity prices might require stronger cuts in the cash rate to support demand.”

The OECD backed the government’s drive to return its budget to surplus, citing a good backdrop of low unemployment, a growth outlook “close to potential” and still high terms of trade, referring to a gauge of export prices relative to import prices.”

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Emerging Markets Rise on China PMI Data

“Emerging-market stocks fell, snapping a seven-day rally, as a drop in technology companies overshadowed signs of a recovery in Chinese manufacturing growth.

Largan Precision Co. (3008), a lens supplier for Apple Inc., sank 6.9 percent in Taipei on speculation shipments are slowing, dragging a gauge of technology stocks to its steepest loss in a month. Hon Hai Precision Industry Co. retreated the most since April after Macquarie Group Ltd. downgraded the stock on weaker demand for iPhone 5. The Shanghai Composite Index (SHCOMP) rose the most since 2009 on bets state-backed institutions were buying shares. Turkiye Garanti Bankasi AS, a Turkish lender, headed for its highest level in two years.

“There’s a lot of speculation that iPhone shipments in the first quarter will be weak so related suppliers slumped,” Parker Wu, who helps oversee the equivalent of $98 million at Agriculture Bank of Taiwan, said by phone in Taipei today. “China’s PMI adds to evidence the economy is bottoming.”

China’s factory production may expand at a faster pace this month, based on a report today by HSBC Holdings Plc and Markit Economics. Data today may show consumer prices in the U.S. fell last month and factory output edged up as President Barack Obama and Republicans remain deadlocked over the budget. ”

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S&P Ordered by Japanese Regulator to Improve Ratings System

“Standard & Poor’s Japan unit was ordered by the nation’s financial watchdog to improve its system for verifying and updating credit ratings in the regulator’s first action against a ratings company.

“Significant problems were identified with the company’s business operations from the perspective of the public interest and investor protection,” the Financial Services Agency said in a statement in Tokyo today. The regulator issued the order on Dec. 11 and gave S&P until Jan. 18 to submit its first report.

The rating company’s woes in Japan came to light less than a month after it was found liable by an Australian judge for issuing misleading ratings on securities bought by municipalities ahead of the global financial crisis. S&P failed to properly confirm information that would affect the ratings of synthetic collateralized debt obligations, the FSA said.

“Investors often rely on ratings by agencies like S&P for complicated securities such as CDOs,” Tsuyoshi Ueno, a Tokyo- based senior economist at NLI Research Institute, said by telephone. “Now what can they trust?”

Credit rating companies face increased regulation after a U.S. Senate panel found they provided inflated grades for risky mortgage bonds, helping cause the credit crisis in 2007 and 2008 that tipped the global economy into a recession.

In Europe, they may face curbs on when they can assess government debt and restrictions on their ownership as the European Union seeks to limit the industry’s influence and tackle conflicts of interest.”

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Black Gold Rises on China and U.S. Manufacturing Data

Oil rose in London, heading for a weekly gain as a report signaled manufacturing may expand at a faster pace this month in China, the world’s second-largest crude consumer.

“Futures advanced as much as 1 percent and headed for the first weekly increase in three. A preliminary purchasing managers’ index for China by HSBC Holdings Plc and Markit Economics showed a reading of 50.9, higher than a median estimate of 50.8 in a Bloomberg News survey. A figure above 50 indicates an expansion. U.S. industrial production probably climbed 0.3 percent in November, according to a separate Bloomberg survey before Federal Reserve data today.

“China has been showing decent economic progress lately and so has the U.S.,” said Andrey Kryuchenkov, an analyst at VTB Capital in London who predicts Brent crude will trade from $104 to $114 a barrel this month. “The market is comfortable with supplies, and this will keep volatility down next year.”

Brent for January settlement, which expires today, advanced as much as $1.09 to $109 a barrel on the London-based ICE Futures Europe exchange. It was at $108.88 at 12:42 p.m. London time. The more actively traded February contract gained 97 cents to $107.43. The European benchmark grade, up 1.7 percent this week, was at a premium of $22.14 to West Texas Intermediate, the U.S. marker.

WTI for January delivery rose as much as $1.03 to $86.92 a barrel in electronic trading on theNew York Mercantile Exchange. ”

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The Supreme Court Decides Over “Pay to Delay” on Generic Drugs

“The Supreme Court is going to decide this term whether it’s okay for brand-name drug companies to pay generic drug makers to delay the release of their cheaper alternatives.

This so-called “pay for delay” practice costs consumers $3.5 billion each year in higher drug costs, the Federal Trade Commission claims.

On Friday, the justices agreed to hear three of these cases — including Federal Trade Commission v. Watson Pharmaceuticals.

Here’s how pay-for-delay typically works.

Brand-name drug makers sue generic companies for patent infringement, and then agree to withdraw the suits and pay some money to generics if they agree not to sell their cheaper drugs for a while…”

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More Than One Way to Get Sick on the High Seas

High seas will make most people sick. Luxury liners get rid of that factor by choosing course and boating style, but they seem to have a hard time containing all sorts of illness.

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Home Seizures Rise as Banks Adjust to Foreclosure Flow

“Home seizures in the U.S. rose 5.4 percent last month, the first annual gain in two years, as lenders seek to manage the flow of distressed properties without disrupting the housing recovery, according to RealtyTrac.

Banks repossessed 59,134 homes, up from 56,124 from November 2011, the Irvine, California-based data firm said today in a report. The increase was the first since October 2010, when foreclosures slowed after allegations that lenders were using faulty practices to take property from delinquent homeowners. Seizures climbed 11 percent from the previous month.”

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Gallup: Small Business Curtail Cap. Ex.

“U.S. small business owners are planning to put capital spending on hold next year, according to a recent survey by Gallup. Only 20% of business owners expect to increase capital spending in 2013, compared with 34% who expect to spend less. The difference yields Gallup’s index reading of -14, the lowest level in more than two years…”

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Business Inventories Rise Though Sales Decline

“The U.S. Census Bureau reported this morning that U.S. business inventories rose 0.4% month-over-month in October, inline with the consensus estimate published by Bloomberg. Trade sales and manufacturers’ shipments fell 0.4% month-over-month, but were 3.1% higher than sales in October 2011. Inventories were 5.7% higher than a year ago.”

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With the Fed Announcement Why are We Seeing a Selloff in Bonds?

“The Fed has announced that in addition to the $40 billion of monthly MBS purchases, it will also commence $45 billion in treasury purchases. This unprecedented open-ended program will swell bank reserves and ratchet up the monetary base.

The announcement of this new asset purchase program should be a big positive for treasuries, right? Turns out that it wasn’t. Longer dated treasuries rallied immediately after the announcement, but sold off shortly after, now trading at the lows for the week (see charts below).

With the FOMC doves running the show, the Fed announced it would target a specific combination of unemployment and short-term inflation expectations.

Bloomberg: – Thirty-year yields reached a one-month high after the Federal Open Market Committee said interest rates will stay low “at least as long” as the jobless rate stays above 6.5 percent and inflation “between one and two years ahead” is at no more than 2.5 percent.

The two-year inflation expectation (the so-called breakeven rate) however now stands at about 1.3% – which means the Fed has given itself quite a bit of room to get to 2.5%. And that was the reason for the selloff – such an open-ended policy clearly runs inflation risks.

Bloomberg: – “The Fed is losing some of its credibility as an inflation fighter,”

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10 Things You May Not Know About Gold

“With gold and silver down this morning – following a mysterious vertical plunge last night (once again) – we thought ConvergEx’s Nick Colas’ timely discussion of gold was worthwhile. As he notes, Gold is the ultimate personality test for investors.  Some hate it, excoriating its adherents for their lack of faith in human ingenuity – gold has been valuable since before humans could write. And some swear by the yellow metal, in the belief that it is the last vestige of rationality in a world of financial assets manipulated by central banks and opaque trading venues.  What gets lost in the wash is that gold is a commodity and can be analyzed as such. On that basis, here is the ‘Top 10’ list of real-world fundamentals for gold.”

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Is Housing in a Real Recovery or Temporarily Driven Higher by Investors ?

“(Moneywatch) Even as U.S. economic growth stutters, the housing market is showing real signs of a rebound: home prices are up, pending sales and constructing activity is rising, and the number of existing homes for sale continues to drop. The big question, amid slow job growth and stagnant personal income: Will it last?

If the housing upswing does continue, it will likely because of the trend’s unique characteristics, with investors, more than consumers, sustaining momentum.

The indicators of a housing recovery are both plentiful and nationwide. According to the most recent Fiserv Case-Shiller data, the real estate market during the spring and summer this year was the strongest since the peak of the housing bubble in 2006. Other green shoots for housing:

 

 

 

  • Fiserv reports that average U.S. home prices have increased 1.2 percent since summer 2011 
  • Home prices were up in more than one-half of the 384 metro area markets in the second quarter of 2012 
  • Many of the biggest price increases have been in markets hardest hit by the housing crash, including Phoenix (14.5 percent), Detroit (11.6 percent) and Miami (6.9 percent) 
  • Home prices in October rose 6.3 percent over a year ago, according to research fire CoreLogic

 

  • Pending sales of existing homes were up 5.2 percent in October, according to the National Association of Realtors

 

  • Overall housing inventory is down 22 percent year-over-year and probably at the lowest level since the early 2000s, according to DeptofNumbers.com

Despite the positive signals, analysts are tempering their enthusiasm, nothing that the recovery in housing is only relative to the calamity that befell the real estate sector during the financial crisis…”

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Realtytrac Reports a Nose Dive in Foreclosures

“Foreclosures have nose dived. However, the states hardest hit by the real estate disaster remain in deep trouble — another reminder that all housing problems are local and need to be solved at the local level.

Realtytrac reports that foreclosure starts declined 28% year-over-year to a 71-month low. In detail, it released its U.S. Foreclosure Market Report for November 2012: ”

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