China Stocks Rise With Bonds as Yuan Drops on Surprise Rate Cut

China’s stocks and bonds rallied, sending the 10-year yield down by the most since 2008, after the central bank unexpectedly cut interest rates. Interbank lending rates dropped and the yuan slid the most in two weeks.

The Shanghai Composite Index (SHCOMP) of shares advanced 1.9 percent and a gauge of Chinese equities in Hong Kong jumped 3.8 percent, the biggest gain in a year. The yield ongovernment bonds due September 2024 fell 17 basis points to 3.53 percent in Shanghai, which ChinaBond data indicate would be the largest drop in six years for a benchmark 10-year bond. The seven-day repurchase rate and the yuan declined by the most since September.

The People’s Bank of China lowered its one-year lending and deposit rates for the first time in more than two years, stepping up efforts to combat a slowdown in the world’s second-largest economy. Gross domestic product will expand in 2014 by the least in more than two decades, based on the median estimate in a Bloomberg survey, and the inflation rate held last month at the lowest level since January 2010.

“The rate cut has released a signal of looser monetary policies and that the government wants to stabilize growth,” said Wu Kan, a money manager at Shanghai-based Dragon Life Insurance Co., which oversees about $3.3 billion. “It’s quite positive for stocks, particularly those sectors sensitive to interest rates such as developers.”

Poly Real Estate Group Co. jumped by the 10 percent limit in Shanghai, while Country Garden Holdings Co. (2007) surged 11 percent in Hong Kong. Gree Electric Appliances Inc. climbed 3 percent in Shenzhen as household appliance makers gained on speculation lower rates will spurconsumer spending.

‘Prudent’ Policy

The central bank said the move in interest rates was “a neutral operation and doesn’t mean any change in monetary policy direction.” As China is still able to keep medium to high growth rates, it “has no need to take strong stimulus measures, and the direction of prudent monetary policy won’t change,” the central bank said in a statement.

The rate cut was a “surprise” that will boost investor sentiment and spur further gains for the stock market, said Hao Hong, managing director of China research at Bocom International Holdings Co. The yuan weakened 0.27 percent to 6.1417 per dollar in Shanghai.

The central bank lowered its one-year lending rate by 0.4 percentage point to 5.6 percent, and the one-year deposit rate by 0.25 percentage point to 2.75 percent. Only one of 20 economists surveyed by Bloomberg this month forecast the lending rate would be cut this quarter. The one-year prime lending rate, a weighted average of nine major lenders’ best loan rates, fell 0.2 percentage point today to 5.56 percent.

IPO Demand

The PBOC has primarily used open-market operations and targeted changes in lenders’ reserve requirements to adjust monetary policy in the past two years. It pumped 769.5 billion yuan ($126 billion) into the banking system in the last two months to spur lending and was said to have again added funds on Nov. 21 as new share sales led to a spike in cash demand.

A rate for overnight loans on the Shanghai Stock Exchange soared to 12.75 percent, from 3.09 percent on Nov. 21, as Shenyin Wanguo Securities Co. estimated initial public offerings due this week will lock up 1.6 trillion yuan.

The seven-day repurchase rate in the interbank market, a gauge of funding availability, fell 15 basis points to 3.51 percent after climbing 53 basis points last week, according to a weighted average compiled by the National Interbank Funding Center. A one-year interest-rate swap based on the seven-day repo fell 23 basis points to 2.89 percent.

Slowing Growth

“The market is clearly pressing for more rate cuts from what we see in the swap move,” said Eugene Leow, a fixed-income strategist in Singapore at DBS Group Holdings Ltd. “I see no clear signs of the economy bottoming out yet. There isn’t sufficient demand if you look at consumer and producer prices.”

GDP will increase 7.4 percent in 2014, the slowest growth since 1990, according to the median estimate of economists surveyed by Bloomberg. Consumer prices rose 1.6 percent from a year earlier in each of the last two months, while producer prices fell in October by the most since March, official data show.

ING Groep NV lowered its year-end forecast for China’s 10-year bond yield to 3.3 percent from 3.5 percent, according to a report today by Tim Condon, Singapore-based head of research in Asia. The bank is also predicting 100 basis points of reductions in the nation’s reserve-requirement ratios in the next two quarters, having previously forecast no change.

“The rate cuts show China sees the need to increase stimulus as it’s concerned that an economic slowdown could deteriorate this quarter,” said Daniel Chan, an analyst at Brilliant & Bright Investment Consultancy Ltd. in Hong Kong. “The yuan is likely to stay weak for now.”

Extract: http://www.bloomberg.com/news/2014-11-24/china-swap-rate-drops-most-in-17-months-after-surprise-rate-cut.html

OPEC Watchers Set 50-50 Odds on Production Cut in Vienna

To understand just how contentious next week’s OPEC meeting will be, take a look at the confusion it’s created among professionals paid to predict the outcome.

The 20 analysts surveyed this week by Bloomberg are perfectly divided, with half forecasting the Organization of Petroleum Exporting Countries will cut supply on Nov. 27 in Vienna to stem a plunge in prices while the other half expect no change. In the seven years since the surveys began, it’s the first time participants were evenly split. The only episode that created a similar debate was the OPEC meeting in late 2007, when crude was soaring to a record.

The split now reflects the difficult choice OPEC nations have to make. They could cut output to revive crude prices from a four-year low, at the risk of losing more market share to rival suppliers, including U.S. shale drillers. Or they could do nothing and allow prices to fall low enough to deter growth in U.S. output, a move that would also squeeze the finances of poorer members like Venezuela and Nigeria. With half the analysts in the market headed for a surprise, prices will be volatile after the meeting, according to BNP Paribas SA.

“It’s going to be a critical day,” Doug King, chief investment officer of the $200 million Merchant Commodity Fund, said by phone from London Nov. 14. “If there’s no action from the meeting, one of the most important OPEC meetings in the last 10 to 15 years, then the market will test them on the downside. If they cut 1.5 million barrels a day, you could get the Brent market back up into the $80 to $90 range.”

Output Decision

Oil collapsed into a bear market last month as U.S. drillers pumped at the fastest pace in more than three decades and global demand growth slowed. OPEC, responsible for about 40 percent of global oil output, needs to reduce production by 1 million to 1.5 million barrels a day to better balance supply and demand, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said by e-mail from London on Nov. 11.

The group faced the opposite situation when analysts were at odds about OPEC’s intentions seven years ago. Brent futures had climbed about 55 percent in the 11 months up to the December 2007 meeting, putting pressure on the group to increase its production target. At the same time, the U.S. economy was on the verge of its worst recession since the 1930s, following a collapse in the housing market.

Before the meeting on Dec. 5, 2007, 23 of 42 people surveyed by Bloomberg predicted OPEC would maintain its production target, while the others forecast an increase of between 500,000 and 750,000 barrels a day. On the day that the group decided to maintain output, Brent crude futures slumped as much as 1.9 percent, before settling 1.2 percent higher.

Trashed Market

“If OPEC does nothing, I think we’re seeing this market get really trashed, another $10 from where it is,” Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital AG, a Zug, Switzerland-based hedge fund, said by phone Nov. 14. Brent futures for January settlement rose $1.03 to close at $80.36 a barrel yesterday on the ICE Futures Europe exchange in London. The front-month contract posted its first weekly gain since September.

The group’s decision is made more difficult by the size of the supply cut needed to offset growth in production outside OPEC, Kocayusufpasaoglu said. “They’re going to have to cut 2 million barrels a day over time,” he said. “That’s a lot of money to leave on the table.”

U.S. crude production will surge 800,000 barrels a day to a 43-year high of 9.4 million in 2015, adding to 1.1 million barrels a day of growth projected for this year, the Energy Information Administration said on Nov. 12.

Bakken Formation

Back in 2007, production of oil from shale rock formations that’s driving the current boom had barely started. North Dakota’s Bakken formation, one of the biggest shale oil producers in the U.S., pumped just 33,000 barrels a day in December 2007, barely 3 percent of the 1.12 million barrels a day it produced in September, data from the North Dakota Industrial Commission shows.

There’s only a “remote possibility” OPEC will agree to a cut in Vienna, Seth Kleinman, Citigroup Inc.’s head of European energy research, said in a report on Nov. 10. Members including Algeria, Nigeria and Venezuela are unwilling to reduce their own production while Saudi Arabia, the group’s biggest producer, will refuse to do so alone, he said.

Saudi Arabia plans to let U.S. shale producers be the first to cut in the face of slumping prices,Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., said in an interview with Bloomberg Television on Nov. 13.

Below $80

“With prices below $80, and the recent signal that the Kingdom is doing what it can with other producers to ensure stability, the market should not rule out an OPEC cut entirely,” Amrita Sen, chief analyst at London-based consultants Energy Aspects Ltd., said in a report on Nov. 17. “But predicting the timing of the cut is more challenging.”

Saudi Arabia is committed to seeking a “stable” oil price and speculation of a battle between crude producers “has no basis in reality” Oil Minister Ali Al-Naimi said at a conference in Acapulco,Mexico, on Nov. 12.

Even the group’s richest members would struggle to endure a year of $70 oil, which would be required to “dent” North American output, Tchilinguirian said.

Of the 10 analysts anticipating no formal change from OPEC on Nov. 27, three said it would pledge to bring output in line with the current target of 30 million barrels a day. The group would need to trim about 250,000 barrels from the 30.25 million a day it pumped in October, data from the organization shows.

Trimming Output

Ecuador and Venezuela will ask OPEC members in Vienna to trim production above this target, an official from Ecuador, who asked not to be identified in accordance with government policy, said on Nov. 18.

“Either OPEC disappoints the market by not cutting and prices fall, or OPEC makes a decisive cut that should allow prices to recover,” Tchilinguirian said. “The OPEC meeting will have binary outcome on oil prices. In other words, the price cannot stay where it is.”

For Related News and Information: Oil Price Plunge Tells Morgan Stanley OPEC Action Is More Likely Oil Diplomacy Takes New Twist as Venezuela Seeks Non-OPEC Help Hedge Funds Boosted Brent Oil Bull Bets Just Before Slump to $80 Saudi Arabia Leads OPEC Crude Output Lower Before Meeting

Extract: http://www.bloomberg.com/news/2014-11-21/confused-opec-watchers-are-more-divided-than-ever.html

Naira Falls to Record Low as Nigeria Stocks Decline

The naira slumped to a record low and stocks retreated the most in the world before Nigeria’s central bank meeting to review interest rates in Africa’s biggest oil producer.

The currency fell 1.2 percent to 176 per dollar by 4:11 p.m. in Lagos, the commercial capital, a fourth day of declines. The Nigerian Stock Exchange All Share Index (NGSEINDX) lost 2.1 percent to 33,428.76 in the worst performance among 93 primary indexes tracked by Bloomberg.

The Nigerian selloff came as investors weighed potential outcomes of an Organization of Petroleum Exporting Countries meeting next week, with Morgan Stanley saying a production cut looks increasingly likely. Nigeria is an OPEC member and crude oil exports account for about 70 percent of government revenue.

Foreign reserves dropped 2 percent this month as the Central Bank of Nigeria sold dollars to lenders to stem the naira’s slide. The regulator may increase its key rate from 12 percent next week to support the currency, according to ETM Analytics.

“Expectations are rising that the bank will throw in the towel and hike policy rates given the seeming futility of trying to keep the naira from depreciating,” Gareth Brickman, a Johannesburg-based Africaanalyst at ETM, said in a note to clients.

Macro Picture

The bank will give its decision on Nov. 25. Policy makers have left the benchmark rate unchanged since October 2011. Inflation slowed to 8.1 percent in October from 8.3 percent the previous month.

“I don’t think anything they can do at this point would significantly affect the naira,” Seun Olanipekun, an analyst in Lagos at Investment One Financial Services Ltd., said by phone. “Everything hinges onoil prices.”

The NSE all-share gauge dropped 5.5 percent this week, the worst African performer among global indexes tracked by Bloomberg. That almost erases last week’s 6.5 percent gain.

“People have been taking profits based on their gains last week,” Ayodeji Ebo, head of research at Afrinvest West Africa Ltd. in Lagos, said by phone. “What’s responsible is the weak macro picture.” 

Extract: http://www.bloomberg.com/news/2014-11-20/naira-falls-to-record-before-bank-meeting-as-oil-declines.html

Iran Vows to Guard Oil-Market Share as OPEC to Review Output

Iran will protect its share of global crude sales under all circumstances, Oil Minister Bijan Namdar Zanganeh said, as OPEC members prepare to meet next week to review production levels.

The Persian Gulf nation can double oil exports in two months if sanctions against are removed, Zanganeh said, according to the ministry’s news website Shana.

The Organization of Petroleum Exporting Countries will gather on Nov. 27 in Vienna to assess its collective output amid a supply glut and a 30 percent drop in prices this year. Iran’s crude output has languished under international economic sanctions that deter foreign energy investors and limit its exports to approximately 1 million barrels a day.

“Under no circumstance will Iran decrease its share of the global market, not even by one barrel,” Shana cited him as saying.

OPEC producers are stepping up diplomatic visits before their meeting, discussing how to react to the plunge in oil prices to a four-year low. Saudi Arabia, the group’s biggest member, remains committed to seeking stable prices, Saudi Oil Minister Ali Al-Naimi said Nov. 12 in Mexico. Rafael Ramirez, Venezuela’s OPEC representative, visited Algeria, Qatar, Iran and Russia. Zanganeh traveled to the United Arab Emirates, Qatar and Kuwait.

OPEC members Libya, Venezuela and Ecuador have called for action to prevent crude from tumbling further. Brent crude futures added 25 cents to $79.58 a barrel on the ICE Futures Europe exchange in London at 12:42 p.m. Singapore time.

Lost Sales

Iran, which produced more than 4 million barrels a day in 2008, lost market share to other producers amid sanctions imposed to curb its nuclear program. It pumped 2.77 million barrels a day in October, according to data compiled by Bloomberg. The nation could boost output by 700,000 barrels a day within two months of the removal of sanctions, Zanganeh told reporters at the last OPEC meeting in Vienna in June.

“I don’t expect to see much more Iranian oil returning to the market in 2015,” Richard Mallinson, a London-based analyst at Energy Aspects Ltd., said by e-mail yesterday. “Iran faces technical challenges increasing output and needs foreign investment and expertise.”

The U.S. and allied countries are concerned that Iran may be seeking to develop technology to build nuclear weapons, an accusation Iran denies. The sanctions, which target Iran’s energy and financial services industries, include a European Union ban on imports of Iranian crude.

The Islamic republic and six world powers are negotiating to reach an agreement that would limitIran’s nuclear program in return for an end to sanctions. The deadline for the talks is Nov. 24, three days before OPEC’s meeting.

Zanganeh said countries in the southern Persian Gulf “are eager to maintain their market share, and a loss of market share is problematic for them,” according to the official Islamic Republic News Agency. OPEC members in the southern Gulf include Saudi Arabia, Kuwait, Qatar and the U.A.E.

“Zanganeh noted that in Vienna he will talk to Saudi officials about this matter on Wednesday,” IRNA reported. 

Extract:http://www.bloomberg.com/news/2014-11-20/iran-vows-to-defend-oil-market-share-as-opec-to-review-output.html

Britain Abandons Banker Bonus Fight After EU Court Blow

Britain abandoned a bid to overturn a European Union ban on banker bonuses of more than twice fixed pay after it suffered a setback in the EU’s top court.

Chancellor of the Exchequer George Osborne said he wouldn’t “spend taxpayers’ money” pursuing the legal challenge any further after Britain’s arguments were rebuffed by a senior official at the EU Court of Justice yesterday.

The U.K. government will instead redirect its efforts toward countering the effects of the “badly designed rules,” which include an increase in bankers’ overall pay, Osborne said in a statement. The U.K. Treasury said it may be necessary to “develop standards that ensure that non-bonus or fixed pay is put at risk,” echoing remarks this week by Bank of England Governor Mark Carney.

U.K. banks face a running battle with regulators over the EU remuneration rules, with Barclays Plc (BARC), HSBC Holdings Plc (HSBA), Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc among more than 30 lenders that have tried to circumvent it by introducing so-called role-based pay. The four banks declined to comment on the court opinion.

The European Banking Authority, which brings together financial watchdogs from throughout the 28-nation EU, said in October that role-based allowances violate EU rules in “most cases,” and urged regulators to ensure compliance.

Osborne and Carney have criticized the EU bonus curb as counterproductive. Britain started the legal fight against the measure last year.

EU legislation limiting the ratio of bonuses compared with basic salary is valid because it doesn’t amount to a cap on total pay, Advocate General Niilo Jaeaeskinen of the EU Court of Justice said in his non-binding opinion. The Luxembourg-based court follows such advice in a majority of cases.

‘Here to Stay’

“It looks like the bonus cap is here to stay and that could lead to further regulation if basic, non-performance-related salaries rise as a result,” said Paul Randall, head of incentives at law firm Ashurst LLP in London, after yesterday’s court announcement.

The U.K. argued in the court case that the EU rules exceed the bloc’s powers, are “disproportionate” and give too much responsibility to the EBA to flesh out how the measures should be applied.

The court’s advocate general said that “fixing the ratio of variable remuneration to basic salaries does not equate to a cap on bankers bonuses, or fixing the level of pay, because there is no limit imposed on the basic salaries that the bonuses are pegged against.”

Fixed Pay

Osborne wrote to Carney yesterday saying he was “concerned by recent developments that appear to be driving up fixed compensation in the banking industry.”

“I think this issue requires serious examination,” Osborne wrote.

European Parliament lawmakers campaigned for the bonus limit in a bid to rein in the gambling culture blamed for helping trigger the 2008 financial crisis. It was included in an overhaul of banking standards adopted by the EU in 2013.

Carney indicated this week that the EU rules had shifted the battle against excessive banker pay from curbing bonuses toward taming fixed salaries.

Salaries for senior bankers rose an average of 26 percent in 2012 as banks prepared for bonus caps, the EBA said in a June report, which surveyed 137 banks across the EU. This signals a “material shift from variable to fixed remuneration,” it said.

Losing Streak

The bonus-rule challenge was one of a series of court battles the U.K. has embarked upon against EU financial rules, and it is on a losing streak.

Britain has failed to overturn EU powers to ban short selling, and was told in April that an early challenge against a financial-transaction tax plan was premature. The U.K. is also contesting European Central Bank policies on clearinghouses that it says discriminate against countries outside the euro area.

“The Chancellor revealed his true priorities when he decided a year ago to spend taxpayers’ money fighting a bank bonus cap while working families face a cost-of-living crisis,” Ed Balls, Treasury spokesman for the U.K. opposition Labour Party, said in a statement.

“He should tell taxpayers how much money he has now wasted on this challenge, which we warned him against.”

Extract: http://www.bloomberg.com/news/2014-11-20/u-k-may-lose-fight-against-bonus-caps-eu-court-aide.html

NERC to hike electricity tariff from Dec

Nigerian Electricity Regulatory Commission (NERC) may review upward the electricity tariff with effect from December 1, 2014.

The sudden ‎development may be the result of the gas price increase to $3.30 as against the regulatory authorities’ assumption of $2.30.

Vice Chairman of NERC, Muhammad Lawal Bello, while speaking during a presentation in Abuja, Thursday at the review of basic assumptions for semi-annual review of Multi Year Tariff Order (MYTO2) revealed a $1.00 difference from the assumption and the actual price of gas.

He noted that though tariff review is a very sensitive issue to the consumers, the way to go is to pay what is due to ensure improvement in the sector.

“From what I have seen in the initial report, not much has changed. The tariff review is a sensitive issue to the consumer who considers paying higher and not seeing improvement in electricity supply as inappropriate. But there is a general consensus that the way to go is paying what is due so that power will begin to improve,” he said.

Based on the changes in some assumption parameters, such as inflation rate, exchange rate, gas price and generation capacity, there may be an upward adjustment to the tariff.

NERC has also declared that the sector is challenged with what will be the direction of such variables as inflation, foreign exchange rate in 2015, and whether generation companies and their gas suppliers guarantee increased generation under the new gas price.

Also speaking, Mr. Roland Achor, Tariff and Rates, NERC, noted that the actual price at the moment is $3.30 as against the assumption of $2.30 by NERC in the MYTO methodology assumptions, adding that gas price has been regulated since the adoption of the MYTO in 2008 and the regulated prices are applied in the 2012-2016 price regime.

According him, the regulated gas price for 2014 is $1.80/mmbtu. However, the Ministry of Petroleum and NERC have agreed to a gas price of $2.50/mmbtu and transportation cost of $.80 effective December 2014.

Also, there is the gas price assumption of $2.30 by NERC, which actual price has risen to $3.30 resulting in a difference of $1.00, which is expected to impact on the final aggregate technical commercial and collection losses (ATCC & C) review which takes effect December 1, 2014.

MYTO methodology is done based general assumptions to Disco retail tariff such as inputs to the tariff, forecast of load, capacity, fuel costs, investment, levels of losses, customer numbers, and M costs and other economic and technical data, which are all correlated to arrive at the retail tariff to the consumers.

He said the inflation rate received from the Central Bank of Nigeria (CBN) shows a figure of 8.3 per cent as at September 30, 2014 but the inflation rate at the last minor review was 7.8 per cent even though MYTO 2 has an assumption of 13 per cent inflation rate, stressing that the effective inflation rate is now pegged at 8.3 per cent.

He explained that effective exchange rate is now N156.29 to $1.00 over the next six months, adding that the retail tariff will be based on generation of 3,675MW throughout the period from December 1, 2014 to May 31, 2015, though the gross capacity was estimated to be 5,556MW. 

Extract: http://sunnewsonline.com/new/?p=91945

Statistical association seeks review of crude oil laws

The Nigerian Statistical Association (NSA), has called on the Federal Government to review existing laws relating to crude oil sales data collation process and those relating to transactions in the Free Trade Zones.

The association said this will enable the country get reliable statistical data on all trade transactions on export commodities for effective planning and economic development.

Making the call recently in a lecture delivered to mark the African Statistics Day in Abuja, President of the NSA, Dr. Muhammed Tumala, said current laws were inhibiting open data production and denying the country the opportunity of knowing the actual volume and values of transactions on key sectors of the economy.

Tumala, who spoke on the topic, “Open Data for Accountability and Inclusiveness: Prospects and Challenges for Nigeria”, noted that even though the Statistics Act 2007 established the Nigerian Statistical System with coordination by the National Bureau of Statistics (NBS), translating the provisions of the Act to national economic advantage remains a challenge as other systems and processes for open data are still lacking.

For instance, he explained that while demographic data is still being produced and managed outside the coordination of NBS, data production also remained too scanty in terms of functional and sectional coverage thereby making it difficult for planners and data users to have access to a comprehensive data on most sectors of the economy.

On the need to review the FTZs and other export trade laws, particularly those relating to crude oil lifting, the NSA President noted that exclusion of the Nigeria Customs Service (NCS) from assessing the oil lifting transactions and those of entities operating in the FTZs continued to raise questions about the validity of statistical figures on such trade being bandied by the government.

He said: “The importance of data in policy making cannot be overemphasised and all open data says is that such data should now be available to everyone that would either want to undertake research or carry out business decisions or design policies. That is what open data is saying.

“It is for citizens to insist on accountability and if they are to be accountable there is no other way of expressing accountability other than using data. It is for the media to also educate both the public on the need to use facts to hold public officers responsible for their actions.

“Such laws and policies on the FTZs and those that inhibit effective statistical data collation on all facets of our national life should be reviewed and amended. For instance, the exclusion of oil trade from the responsibility and activity of the Nigeria customs is one of such laws. There is no country in the world that does that.

“By doing that, you are unable to capture your trade data in that sector and unfortunately for Nigeria, over 90 per cent of our external trade is based on that sector. You can imagine that when over 90 per cent of your trade data is questionable then your entire data is questionable,” the NSA President added.

Extract: http://sunnewsonline.com/new/?p=91947