Black Gold Falls on Cyprus Deal Despite Shut In of Libya Pipeline

“West Texas Intermediate crude fell from the highest price in three weeks as an unprecedented levy on bank savings in Cyprus threatened to worsen Europe’s debt crisis. Libya shut an oil pipeline after protests.

Futures slipped as much as 1.4 percent in New York, dropping for the first time in three days. Cyprus bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.6 billion) by taking a piece of every bank account, sending the euro tumbling and sparking public outrage. The closing of the Waha Oil Co. pipe after a strike by truck drivers cut Libyan crude output by 120,000 barrels a day, according to Oil Minister Abdulbari al-Arusi.

“Confidence is rattled,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen said by phone. “We have to figure out where this Cyprus debacle leaves us. Until we know for sure what’s happening, it’ll probably keep the market on the defensive for a few days.”

WTI for April delivery declined as much as $1.31 to $92.14 a barrel in electronic trading on the New York Mercantile Exchange and was at $92.25 at 10:40 a.m. London time. The contract climbed 42 cents to $93.45 on March 15, the highest settlement since Feb. 20. The volume of all futures traded was 75 percent more than the 100-day average.

Euro Weakness

Brent for May settlement dropped $1.76 to $108.06 a barrel on the London-based ICE Futures Europe exchange. The number of futures traded was 5 percent below the 100-day average. The European benchmark grade was at a premium of $15.43 to WTI for the same month. That’s down from $16 on March 15 and is the lowest since Jan. 17.

The euro fell as low as $1.2882, the weakest since December. A declining euro and stronger dollar typically decrease the appeal of investing in dollar-priced commodities such as oil…..”

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“Gold rose above $1,600 an ounce in London for the first time this month after an unprecedented levy on bank deposits in Cyprus increased demand for a protection of wealth.

Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. The country became in June the fifth euro-area nation to request a rescue. The euro fell to the lowest since December versus the dollar and global equities declined.

“Gold looks poised to benefit from its safe-haven properties amid renewed risks coming out of the euro zone,” Joni Teves, an analyst at UBS AG in London, wrote today in a report. “As people start to worry about the safety of their deposits, gold would become an attractive alternative and an escalation of these worries would prompt a return of fear- related physical buying.”

Gold for immediate delivery rose 0.7 percent to $1,603.68 an ounce by 9:49 a.m. in London. Prices reached $1,608.60, the highest since Feb. 27, and added 0.8 percent last week. Futures for April delivery were up 0.6 percent at $1,602.40 on the Comex in New York. Futures trading volume was 56 percent above the average in the past 100 days for this time of day….”

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“Airbus SAS won an order from Indonesia’s PT Lion Mentari Airlines for 234 planes worth $24 billion at list price, giving the European planemaker entry into a market that competitor Boeing Co. (BA) has long dominated.

The order, announced at a ceremony this morning at the French presidential palace in Paris, includes current-generation A320s as well as planes from the newer A320neo series. Customers typically buy planes at discounts.

The Indonesian carrier needs more aircraft as it adds flights in a region where air travel is expected to grow more than 6.4 percent annually through 2031. Lion Air, which flies to more than 36 destinations within Indonesia and overseas, is establishing a low-cost carrier in Malaysia to challenge AirAsia Bhd. (AIRA), Airbus’s biggest A320 customer.

“We’ve always wanted to be a big player in Indonesia, a country of 17,000 islands and 240 million people,” John Leahy, chief salesman of Airbus, said in a telephone interview as the order was announced. “Boeing’s been dominant there for a long time and I think it’s important that in using planes like the A320neo we’re able to break into that market.”

The Asian airline had already signed a record order with Boeing for 230 additional 737s in February last year. That deal was worth $22.4 billion at list prices. The purchase, which also included 150 options, was Boeing’s biggest in dollar value and plane numbers at the time.

Major Orders

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“European policy makers signaled flexibility on the application of an unprecedented bank tax in Cyprus, seeking to overcome outrage that threatened to derail the nation’s bailout. European shares and the euro fell.

While demanding that the levy raise the targeted 5.8 billion euros ($7.6 billion), finance officials said easing the cost to smaller savers was up to Cyprus. A vote on the tax, needed to secure 10 billion euros in rescue loans, was delayed for a second day. Banks may not reopen tomorrow after a holiday today, state-run broadcaster CYBC reported.

“If the government wants to change the structure of the solidarity levy for the banking sector, the government can decide as such,” European Central Bank Executive Board member Joerg Asmussen said today in Berlin. “What’s important is that the planned revenue of 5.8 billion euros remain.”

While Cyprus accounts for less than half a percent of the 17-nation euro economy, the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 inGreece. Moody’s Investors Service said that the move is a significant step toward limiting support for bank creditors across Europe and shows that policy makers will risk financial- market disruptions to avoid sovereign defaults.

The tax is “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future,” Joachim Fels, chief international economist at Morgan Stanley (MS) in London, wrote in a client note.

On Line…”

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“STMicroelectronics NV (STM) and Ericsson AB (ERICB) agreed to split up their unprofitable ST-Ericsson chip venture after failing to find a buyer for the business, cutting about 1,600 jobs as they divide the assets.

Ericsson said today it plans to assume about 1,800 of the venture’s 4,350 employees and contractors in countries including Sweden and Germany, and will continue developing ST-Ericsson’s modem technology. STMicroelectronics will take on the venture’s existing products and 950 employees, mainly in France and in Italy, and incur costs of as much as $450 million.

STMicroelectronics and Ericsson are winding down the 50-50 partnership, which designs chips used in mobile phones, after a three-month search for a buyer failed to produce results. The partnership has accumulated $2.7 billion in net losses since it started in 2009 as it struggled to introduce higher-powered chipsets and platforms while the low-end handset business at customer Nokia Oyj (NOK1V) shrank.

“In 2009 the situation was different, we started with a great base of European customers,” STMicroelectronics Chief Executive Officer Carlo Bozotti said on a conference call. “Unfortunately this customer base has changed.”

Ericsson fell 1.4 percent to 84.25 kronor at 10:30 a.m. in Stockholm. It had advanced 31 percent this year before today. STMicroelectronics, which had gained 9.6 percent this year, climbed 3 percent to 6.06 euros in Paris. The stock lost 4.4 percent on March 12 after Bloomberg reported that ST-Ericsson failed to find a buyer….”

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“Treasuries gained for a second day as an unprecedented levy on bank deposits in Cyprus threatened to reignite the euro region’s debt crisis, boosting demand for the safest assets.

Benchmark 10-year yields fell by the most in three weeks after euro-area finance ministers agreed to tax bank deposits in Cyprus to finance part of a 10 billion-euro ($13 billion) bailout for the nation. Moody’s Investors Service said the levy is negative for bank depositors acrossEurope, while Bill Gross at Pacific Investment Management Co. said it moves “risk-on” trades to the back seat. German bunds and U.K. gilts also gained, with German two-year yields falling below zero for the first time in two months.

“The demand today for safe havens is justified as we just don’t know what the outcome in Cyprus will be,” said Michael Markovich, head of global interest-rate research at Credit Suisse Group AG in Zurich. “We continue to be overweight U.S. Treasuries. Elevated risk aversion should persist in the next few weeks.”

The U.S. 10-year yield fell six basis points, or 0.06 percentage point, to 1.93 percent at 7:01 a.m. in New York, according to Bloomberg Bond Trader prices. The 2 percent note due in February 2023 rose 17/32, or $5.31 per $1,000 face amount, to 100 19/32. The yield dropped as much as nine basis points, the most since Feb. 25.

Deposit Levy…”

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“The Australian and New Zealand dollars fell, halting two days of gains, after an unprecedented levy on Cypriot banks raised concern a new round in Europe’s debt crisis will damp demand for higher-yielding assets.

Australia’s currency touched a one-week low against the yen and local bonds rallied after Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in Cyprus. Losses in the so-called Aussie were limited before the Reserve Bank of Australia releases minutes of its latest meeting tomorrow.

“Aussie, kiwi opened this week’s trade quite a bit lower,” said Peter Dragicevich, a Sydney-based currency economist atCommonwealth Bank of Australia (CBA), the nation’s largest lender. “Whilst there are no direct linkages between Australia, New Zealand and Cyprus, the currencies are reacting to changes in market sentiment. There could be some fears in the market that if another sovereign required a bailout, they may tax the deposits of that particular country as well.”

The Australian currency fell 0.5 percent to $1.0358 as of 4:19 p.m. in Sydney from March 15, when it touched $1.0415, the highest since Feb. 5. It dropped 1.1 percent to 98.06 yen, after earlier touching 97.06, the lowest since March 7.

The New Zealand dollar weakened 0.4 percent to 82.37 U.S. cents. The currency, nicknamed the kiwi, touched 77.01 yen, the lowest since March 5, before trading at 77.96, down 1.1 percent from last week.

Australia’s three-year bond yield fell 18 basis points, or 0.18 percentage point, to 2.94 percent. The 10-year yield declined 16 basis points to 3.47 percent. New Zealand’s 10-year rate slid nine basis points to 3.71 percent.

Cyprus Turmoil….”

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“China’s stocks fell, dragging the Hang Seng China Enterprises Index (HSCEI) down 12 percent from this year’s high, as slowing growth and faster inflation spurred JPMorgan Chase & Co. to downgrade the nation’s shares.

The Hang Seng China index slumped 2.1 percent to close at a three-month low of 10,794.70. The Shanghai Composite Index (SHCOMP) declined 1.7 percent to 2,240.02 and the CSI 300 Index lost 1.5 percent to 2,502.49. JPMorgan cut China to underweight and recommended bearish derivatives tied to the country’s four biggest banks, Adrian Mowat, its chief Asia and emerging-market strategist, wrote in a report today…..

“Investors are concerned about the possibility of slowing growth and monetary tightening,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The departure of Guo is perceived as negative for the market as he’s reform-minded and pushed forward innovative measures for the brokerage sector and the stock market.”

The measure of 40 Chinese stocks traded in Hong Kongentered a so-called correction after falling more than 10 percent since Feb. 1. The gauge has lost 5.6 percent this year, compared with a 5.8 percent advance by the MSCI All-Country World Index, and trades at 8 times earnings for the next 12 months, less than its five-year average of 10.3, according to data compiled by Bloomberg.

‘Nasty Combination’…”

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“Moody’s Investor Services said China’s local-government financing vehicles face greater risk of default, as regulators warn 20 percent of their loans are risky.

A rally in LGFV bonds may reverse, particularly should delinquencies emerge, Christine Kuo, a Moody’s analyst, wrote in an e-mailed response to questions on March 8. The average yield may rise to 7 percent by June from 6 percent now, according to Shenyin & Wanguo Securities Co., the first brokerage incorporated in China and ranked the nation’s most influential research provider by New Fortune magazine in 2010.

“I see increased risk of LGFV defaults because the financial profiles of many remain weak and heavy refinancing is needed,” Hong Kong-based Kuo said. “Regulators have asked banks to control their LGFV exposures. Some of the projects could default unless other sources of funds are found.”

People’s Bank of China Governor Zhou Xiaochuan said in a March 13 press briefing that about one-fifth of loans to the financing arms of local governments are risky. Net debt issuance by these entities surged 179 percent in 2012 to 1.132 trillion yuan ($182 billion), accounting for 50 percent of corporate bond sales, according to Bank of America Corp. data.

The China Banking Regulatory Commission warned lenders to exercise caution and limit their holdings of bonds sold by local governments’ financing arms, the 21st Century Business Herald said on March 13. Banks aren’t allowed to increase outstanding loans to LGFVs above the level as of Dec. 31, 2011, the report said. Phone calls made by Bloomberg News to the regulator’s press office went unanswered.

Loan Curbs…”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

“Researchers say a massive earthquake and tsunami could soon strike the Northwest US coast, killing more than 10,000 people, flooding entire towns, and causing economic damages totaling $32 billion.

An alarming report published by the Oregon Seismic Safety Policy Advisory Commission warns about the dire effects of the quake and claims that it is imminent and could strike anytime. The report, which was compiled by a group of more than 150 volunteer experts, was requested by the Oregon legislature in order to adequately prepare for the looming disaster.

The last high magnitude earthquake in the region occurred in the year 1700 in the Cascadia Subduction Zone. The quake had a magnitude between 8.7 and 9.2, and geologists in 2010 predicted that there is a 37 percent change of another such quake occurring within 50 years. The new report claims that there is a 100 percent chance of a monster earthquake occurring in the region – but scientists don’t know when.

“This earthquake will hit us again,” Kent Yu, an engineer and chairman of the commission, told lawmakers. “It’s just a matter of how soon.”

Jay Wilson, vice chairman of the commission that put together the report, told AP that “we’re well within the window for it to happen again.”

With no time frame for the predicted earthquake, Oregonians need to be constantly prepared for one. The report warns of death and devastation ranging from British Columbia to Northern California, the worst of which will strike Oregon.

“Oregonians as individuals are underprepared,” Maree Wacker, chief executive officer of the American Red Cross of Oregon, told AP…..”

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“Bullish sentiment posted its largest weekly gain in nearly three years, as neutral sentiment plunged according to the latest AAII Sentiment survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, surged 14.4 percentage points to 45.4%. The spike in optimism was the largest since an 18.4-point weekly gain on July 15, 2010. This week’s jump puts optimism at a six-week high. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, plunged 7.9 percentage points to 22.5%. Neutral sentiment is now at its lowest level since November 15, 2012. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.5 percentage points to 32.0%. Even with the decline, pessimism is above its historical average of 30.5% for the fourth consecutive week.

Though this week’s spike in bullish sentiment is large, it primarily represents a reversion to the mean. Two weeks ago, just 28.4% of surveyed AAII members described themselves as optimistic, the lowest level since November 2010. Furthermore, while large spikes in bullish sentiment are unusual, they are not extraordinary. Over the past five years, bullish sentiment has jumped by double-digits 17 times….”

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“Struggling companies that otherwise might not be able to stay afloat have found a friend in the Federal Reserve.

The central bank’s cheap-money policies have allowed borderline companies to get low-cost financing thanks to investors who are thirsting for yield and buying risky bonds as the Fed keeps its target funds rate near zero.

While that’s been a boon for poorly rated firms, it also poses the threat that companies that otherwise might fail are getting artificial support and in danger of causing substantial economic damage once interest rates rise.

“We’re paying the price for a dysfunctional system,” said Cornelius Hurley, director of the Boston University Center for Finance, Law and Policy. “Fiscal policy is dead in the water because of the political stalemate in Washington, and as a result the Fed in its monetary policy role has to overcompensate.”

While corporate cash gets cited often as one of the strongest positives for economic potential, corporate debt is swelling as well.

Nonfinancial companies added debt at an 8.75 percent pace in the fourth quarter, the biggest jump since 2007, with the majority of debt coming from corporate bonds, according to Fed flow of funds data.

Much of that has come from companies rated below investment grade.

High-yield debt soared to $326 billion in 2012 from $226.3 billion the previous year, according to Thomson Reuters.

In 2013, junk bond volume in the U.S. is at $69.2 billion compared to $78.3 billion for the same period in 2012 – off last-year’s record pace but still well ahead of any previous year and more than double what it was at the pre-financial crisis high in 2007.

Globally, high-yield bond issuance stands at a historic mark of $108.5 billion, buoyed by central banks around the world mimicking Fed policy and cutting rates at breakneck pace.

Spreads between junk bond yields and their benchmark measuring sticks are at the lowest since 2007…..”

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“On Tuesday, Jefferies strategist Sean Darby cranked up his year-end target for the S&P 500 to1,673 from 1,565, making him the most bullish strategist on Wall Street…..

“The recent trend in mergers and acquisitions might indicate that financial assets have become overheated in the short-term — or it may indicate that Fed policy is beginning to work in raising animal spirits,” said Darby.

For now, he seems to be more convinced of the latter.

Here’s the chart Darby sent us….”

Full article and chart

“Why is it that 17 nations have to fundamentally reorganize themselves and shift sovereignty away from national parliaments to new layers of transnational, beyond-control bureaucracies that can extract untold wealth from taxpayers—just to save the banks?

That’s what the Eurozone has to do, or else banks will topple, and the monetary union will not be sustainable, according to the “first ever European Union-wide assessment of the soundness and stability of the financial sector,” released Friday by the institution that the world couldn’t do without, the IMF.

“Financial stability has not been assured,” the report stated flatly about the fiasco in the Eurozone, despite ceaseless hope-mongering by Eurocrats and politicians, and banks remain “vulnerable to shocks.”

The report, which never mentioned banks or countries by name, discussed a number of “risks” that could topple these banks, with some of these “risks” already having transitioned to reality:

“Declining growth.” Banks with “excessive leverage, risky business models, and an adverse feedback loop with sovereigns and the real economy” are particularly vulnerable. Hence, most banks. A number of European countries have been in a deep recession, some of them for years. So “declining growth” is a reality, and these “shocks” are happening now, said the IMF in its more or less subtle ways.

“Further drop in asset prices.” Real estate prices are now dropping in some countries that didn’t see a collapse during the first wave, including France and the Netherlands—where it already took down SNS Reaal, the country’s fourth largest bank [A Taxpayer Revolt Against Bank Bailouts In the Eurozone]. So hurry up and do something, the IMF said.

The report points at other risks for banks…..”

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“On Thursday, Société Générale analysts made a prescient call on Europe.

“It is far too early to dismiss euro area crisis as a key [market] driver,” wrote SocGen’s Vincent Chaigneau. “We fear another shockwave in the spring.”

As it turns out, they may not have had to wait very long. News this weekend that the ECB, EU, and IMF bailout of the Cypriot banking system will include an instant 10 percent “tax” on bank deposits before banks re-open following Monday’s holiday has already triggered runs on ATMs there.

Now, the banks have a problem on their hands. “The Cypriot cabinet has declared Tuesday a bank holiday, for fear of capital flight, and this may even be stretched to Wednesday, as depositors are certain to withdraw huge sums from the Cypriot banks after the haircut imposed,” reports Greek newspaper Kathimerini.

Many market observers are expressing concerns that the decision could have a ripple effect throughout Europe come Monday when markets open. After all, if European leaders have decided to violate the unspoken rule of bank bailouts – that deposits are sacrosanct – what’s to say it can’t happen in a bigger eurozone country, like Spain?

In a Sunday morning note to clients, Morgan Stanley economist Joachim Fels wrote, “I view this as a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future.”

“This will probably go down as an ill-thought-out rescue plan with consequences for peripheral Europe,” says Galy. “It breaks a cardinal rule — namely, public trust on which money relies.”

The decision, therefore, has everyone scratching their heads. Why would European leaders play with that public trust in bank deposits?

The SocGen report last week predicting a new eurozone “shockwave” this spring summed it up concisely: “Germany, now six months into a general election, will not be keen to share further risks and tolerate policy slippage.”

In other words, German politicians are up for re-election in September, and bailouts of other countries with German taxpayer funds don’t help their cause much. So, Cyprus had to be made to share in the burden somehow — hence the haircut on deposits…..”
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“SAN FRANCISCO — What if your home was foreclosed on even if you never missed a payment?

That’s what the two dozen supporters of San Francisco resident Yin Wong, who gathered in front of the Market Street offices of PNG Financial Services Group on Friday afternoon, argue happened to the 64-year-old former lab technician after the banking giant attempted to evict her from her home of ten years.

Wearing Occupy SF buttons and chanting “PNC you know you’re wrong, don’t evict Yin Wong,” the group, organized by a coalition of anti-foreclosure activists from the Alliance of Californians For Community Empowerment (ACCE), handed out flyers listing the home phone number of PNC CEO James Roar and the cell phone number of PNC President William Demchak urging people call and pressure the company to let Wong and her daughter stay in their home.

After spending a few minutes demonstrating on Market Street’s busy sidewalk, the group pushed past a pair of security guards into the building’s recessed plaza, but were stopped at the locked front door.

“We never paid late,” Wong insisted to the assembled media. “We always paid on time.”

For a decade, Yin Wong and her adult daughter had been living in a house in the city’s Bayview district with a home loan held by National City Mortgage. During the 2008 financial meltdown, PNC, the sixth largest bank in the United States, purchased National City Mortgage and acquired Wong’s home loan in the process.

In November of the following year, Wong received notice from the bank that it was no longer accepting her electronic payments. Partially due to her limited English skills, she was unable to determine how to reconfigure her payments so they would be accepted. A few days later, she received notice that the bank had begun foreclosure proceedings.

The next summer, PNC, which had reportedly increased Wong’s monthly mortgage payment from $1,000 to $1,800, attempted to sell the home at auction, but Wong blocked the action by personally going to the sale and urging potential purchasers not to buy.

The company has since offered to sell Wong her house back. However, she can’t afford the price of $222,000, which is more than the $160,000 she still owed on the mortgage….”

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“Neil Barofsky, the former watchdog for the government’s financial crisis bailout program, tweeted Friday that JPMorgan Chase appears guilty of “fraud,” or something very much like it:

Barofsky was referring to Sen. Carl Levin’s (D-Mich.) questioning of top JPMorgan executives during a Friday Senate hearing in regards to the bank’s 2012 loss of more than $6.2 billion dollars, often referred to as the “London Whale” scandal. The hearing, as well as a Senate report released late Thursday, are the culmination of a nine-month investigation into the loss….”

Full article and video

“A new poll (Tweeted by Fabrizio Goria) shows surging support for Grillo. The election only added to his momentum, and he’s now at 30 percent. Almost as worrisome for Europe: Berlusconi’s PDL has also gained since the election.

These both represent protests aimed at austerity and Brussels. Remember, Italy has gotten its borrowing costs down, because it;s engaged in austerity/reforms that the ECB likes. If Italy goes back on them, the ECB backstop becomes less politically tenable, and then you could have surging borrowing costs in Europe’s largest debt market….”

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“In the near-term, investors are having a tough time deciding how to position themselves with stocks near their all-time highs.

But those thinking longer-term are probably more concerned about which stocks they should be in.

Morgan Stanley just published a massive 32-page report for its “20 For 2016,” a list of 20 stock picks.

“The main criterion is sustainability — of competitive advantages, business model, pricing power, cost efficiency, and growth,” the analysts wrote.

“We are taking a long term view,” they continued. “There was no prerequisite in our analysis that they be rated Overweight, nor specific assumptions about where we are in the economic cycle or any other valuation considerations. Our driving principle was to create a list of companies whose business models and market positions would be increasingly differentiated by 2016.” ….”

Full list & article