Saturday, 4 March 2017

Weekend Update 04/03/2017 The Bond Bear At The Door.

The US Treasury Bond bear has finally arrived at the door, after months of circling the market. Unknown at present if it’s a Grizzly bear or something smaller. One thing is certain, however, the Great US Bond Bull market that started all the way back in 1981 is over. In collateral damage, Europe’s negative interest rate era is about to end in tears. Is it all over for Italy’s Three Card Monte di Siena, and Germany’s Deutsche Bank?  I suspect that we won’t have to wait too long to find out.

Yellen Hints at More Aggressive Rate Path Upon Locking in March

by Rich Miller and Christopher Condon
3 March 2017, 21:57 GMT
  • Fed chief cites risk of central bank being too slow to move
  • Yellen says rate hike this month ‘likely’ appropriate
Federal Reserve Chair Janet Yellen left little doubt on Friday that the central bank will raise interest rates this month. More importantly, she dropped hints that it might end up having to increase them this year more than planned.

In a speech to The Executives’ Club of Chicago, Yellen singled out the danger of the central bank being too slow in boosting rates.

“We realize that waiting too long to scale back some of our support could potentially require us to raise rates rapidly sometime down the road, which in turn could risk disrupting financial markets and pushing the economy into recession,” she said.

Yellen all but declared that the Federal Open Market Committee would increase rates for the first time this year at its March 14-15 meeting, saying that such a move “would likely be appropriate” if the economy stays on its current track. She also suggested that would not be the last increase this year.

Fed’s Lacker says inflation stability should not be taken for granted

By Greg Robb Published: Mar 3, 2017 10:38 a.m. ET
The stability of inflation since the early 1990s should not be taken for granted, said Richmond Fed President Jeffrey Lacker on Friday.
That’s because the relative stability of inflation was based on a policy regime in which the Fed has acted pre-emptively against incipient inflationary pressures,” Lacker said in a speech to the University of Chicago Booth School of Business U.S. Monetary Policy Forum.

But did Deutsche Bank just buy itself a get out of jail card, by tossing the existing shareholders under the bus? It’s a funny old time in continental Europe.

Deutsche Bank Is Nearing a Plan to Boost Capital by $10.6 Billion

Manuel Baigorri, Dinesh Nair, Ruth David, Jan-Henrik Foerster, Steven Arons
3 March 2017, 18:59 GMT 3 March 2017, 19:35 GMT
Deutsche Bank AG is nearing a plan to boost capital by more than 10 billion euros ($10.6 billion) through an equity offering and the partial sale of its asset management unit, according to people with knowledge of the discussions.

The measures, which executives may review as soon as this weekend, would be a way for the bank to boost capital buffers instead of by selling its Postbank unit, said the people, who asked not to be identified because the plans haven’t been announced. Deutsche Bank is now leaning toward reintegrating the consumer banking business, the people said. No final decision has been made, they said.

It’s also studying management changes, including a new role for Chief Financial Officer Marcus Schenck, some of the people said. The firm is weighing recombining its investment banking and trading divisions, with Schenck gaining some oversight of the business, some of the people said. Among the options the bank is considering is creating a deputy chief executive officer role, the people said.

----The supervisory board is scheduled to meet for two days starting March 16 to discuss potential measures, three people said earlier Friday.

Deutsche Bank has almost doubled in market value since Sept. 26, reflecting relief over its U.S. mortgage securities settlement and the brighter outlook for banks following Donald Trump’s election. Selling Postbank, which employs 18,000, had been a cornerstone of CEO John Cryan’s strategy to boost capital and profitability, but the bank has has been unable to find a buyer.

“A capital increase is probably the best option given the alternatives, everything else would cut into real business,” said Michael Huenseler, an investor at Assenagon Asset Management, which has stock in Deutsche Bank. “But it will be an enormous dilution for shareholders at the current price-book ratio.”

In energy news, it’s increasingly looking like OPEC may have run out of road. But will events in Libya save the day?

A Fit U.S. Shale Industry Challenges OPEC Once Again

by Javier Blas
3 March 2017, 00:00 GMT 3 March 2017, 10:58 GMT
  • Lower oil price forced industry to cut costs, boost efficiency
  • Now drillers plan to increase their spending in 2017 by 25%
When the who’s who of the oil industry met a year ago in Houston, Saudi Arabia’s energy minister had harsh words for U.S. shale drillers struggling with the worst price crash in a generation.

"Lower costs, borrow cash or liquidate," said Ali Naimi, who managed the world’s largest oil-exporting business for more than two decades.

In the year since, the drillers have largely taken Naimi’s advice. While more than 100 have gone bankrupt since the start of 2015, the companies that survived have reshaped themselves into fitter, leaner and faster versions that can thrive with oil at $50 a barrel. Now, it’s OPEC that’s seeking solutions, desperate to drive prices up even further in a push to repair the economies of the countries it serves.

"The shale business is rejuvenated because of the difficulties it has been through," Ben van Beurden, the chief executive officer of Royal Dutch Shell Plc., said in comments last month.

After a two-year downturn spurred by oil’s plunge to $26 from $100, U.S. production is on the rise once again, opening the door for another showdown with the Organization of Petroleum Exporting Countries. The number of U.S. drilling rigs has grown 91 percent to 602 in just over nine months. Meanwhile, production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April.

And as shale returns with a vengeance, it’s not just the pioneer cowboys that dominated the first phase of the revolution in the Bakken of North Dakota. This time, Exxon Mobil Corp. and other major oil groups are joining the rush. It’s a new reality that OPEC and Russia -- the main forces behind the production cuts approved last year as a solution to re-balance the global market -- are starting to acknowledge.

"With $55 a barrel, we see everyone very happy in the U.S.," said Didier Casimiro, a senior executive at Moscow-based Rosneft PJSC.

Long a world leader in multi-billion dollar oil developments that take years to build and even longer to profit, Exxon is diverting about one-third of its drilling budget this year to shale fields that will deliver cash flow in as little as three years, Chief Executive Officer Darren Woods said this week. In January, Exxon agreed to pay as much as $6.6 billion in an acquisition designed to more than double the company’s footprint in the Permian basin of west Texas and New Mexico, the most fertile U.S. shale field.

Fri Mar 3, 2017 | 7:50pm EST

Armed faction enters major Libyan oil ports, putting output at risk

An armed faction entered two major Libyan oil ports on Friday, pushing back forces that captured and reopened the terminals in September, officials and residents said.

The move risks increasing the fighting around the ports and casts new doubt over Libya's attempt to revive its oil production. The terminals at Es Sider and Ras Lanuf are two of Libya's largest, with potential combined production capacity of about 600,000 barrels per day (bpd).

It was unclear late on Friday to what extent the faction that attacked, the Benghazi Defence Brigades (BDB), had gained control over the area. There was no statement from the Libyan National Oil Corporation (NOC) in Tripoli, which restarted operations at the ports after the eastern-based Libyan National Army (LNA) took them over seven months ago.

Since then the LNA's opponents have launched several unsuccessful attacks against the ports in Libya's eastern Oil Crescent, in a campaign linked to a broader conflict between factions based in eastern and western Libya.

The LNA had said the ports were well secured. But it said the BDB had launched a rapid, three-pronged attack early on Friday that pierced its defenses.

Air strikes repelled an attack targeting a third port, Brega, but the LNA withdrew men and equipment around Es Sider and Ras Lanuf to avoid a damaging fire fight, LNA spokesman Ahmed al-Mismari said.

Updates later as this develops.

In EUSSR news, scandal piles on scandal.

Fri Mar 3, 2017 | 11:43am EST

Italy's Renzi sees comeback threatened by public tenders scandal

A criminal investigation involving several people close to Matteo Renzi, including his father and his right-hand man, is muddying the image of the former Italian prime minister and threatening his prospects of a return to power.

Renzi's father Tiziano was questioned on Friday by prosecutors who suspect him of influence peddling to ensure a public contract was awarded to a businessman friend. Tiziano Renzi denies all wrongdoing.

The anti-establishment 5-Star Movement presented a motion of no-confidence against Sports Minister Luca Lotti, Renzi's closest political aide, who is suspected by prosecutors of revealing legal secrets in a strand of the same investigation.

Lotti, who served as cabinet undersecretary in Renzi's government, also denies all wrongdoing.
Renzi resigned as prime minister in December after losing a referendum on constitutional reform and was replaced by his former foreign minister, Paolo Gentiloni.

Last month he also quit as head of the ruling Democratic Party (PD) under pressure from internal critics who accuse him of moving the party too far to the right.

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