Monday Digest #109
Weekly summary of finance, economic and tech news. Vision from DreamTeam. With 💜
The Federal Reserve Chair Janet Yellen:
“More frequent hikes in interest rates would be appropriate if economic development is to meet expectations of the Federal Reserve on inflation and employment. During the upcoming meeting, the Committee will assess whether the labor market and inflation continues to develop in line with these expectations then further adjustments of the federal funding rate is likely to be appropriate.
Waiting too long to remove accommodation would be unwise, potentially requiring the (Fed) to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.”
Janet Yellen did not comment on the timing of raising rates.
Bloomberg: Futures estimate the chances of increasing the rate by a quarter percentage point in March at 30%. However, Rick Reeder, director of investments in bonds of the world’s largest management company of BlackRock, believes that this probability is about 50%. BofA also admits rate hike in March.
Pimco economist Joachim Fels:
“The Fed could actually turn hawkish and tighten policy too much. Keep in mind that the Fed is not overly expansionary at this stage. So, if you think that if we get a more hawkish Fed and that we will see more rate hikes than the market is pricing in right now, it may well be that the Fed becomes contractionary at a relatively early stage”
Traders of derivatives estimate the probability of increase of the rate at the meeting on March 14–15 at 42% compared to 24% as at 6 February.
Traders still believe that the rate will be raised only twice in 2017, but their expectations are approaching the Fed’s forecasts, which assume three raises this year. Changing market sentiment could push the yield of US Treasury bonds higher.
Note that the implied inflation rate in 10 years, which is an indicator of inflationary expectations of the market, is approximately 2%, being close to a peak since 2014, but investors are buying insurance against inflation at the fastest pace since the post-election period in the United States.
Chief financial economist at Jefferies LLC in New York, Ward McCarthy:
“The acceleration in the inflation picture along with the continued strong performance of the consumer sector opens the door and increases the probability that the Fed will raise rates as soon as March.”
Fink, at the Yahoo! Finance All Markets Summit on Feb. 8:
“I see a greater chance that the 10-year U.S. yield dips below 2 percent again, though it could climb to 4 percent. Technological advances and possible global trade disruptions mean deflationary risks remain.”
Director General of BlackRock Inc. Laurence Fink:
“I’m pretty confused.”
So feels the market a person who is in the market since its inception. This phrase can sum up the thoughts of many traders working with bonds.
Reuters: According to a recent survey of the Federal Reserve Bank of New York, the inflationary expectations of consumers make up 3% at the end of this year. This is one and a half times more than the Fed’s target values.
Most investors do not expect that the Fed will raise rates until June, according to futures: Chance of a tightening of monetary policy at the June meeting of the regulator is 73.1%. Nevertheless, signs of strain on the labor market may put pressure on the regulator.
#macro #finance
The head of the Central Bank of France François Villeroy de Galhau said that a potential exit from the Euro zone will lead to a serious increase in the cost of debt service of France, and increase other costs.
According to the President of the Bank of France, interest rates on government bonds of the country have already started to increase due to revaluation by investors of the situation with the upcoming presidential elections in France. He stated this in an interview with radio France Inter on Monday, February 13.
François Villeroy de Galhau:
“Since we introduced the euro, interest rates have decreased by about 1.5 percent Hypothetically, if we leave the eurozone, financing of the French state debt will increase by more than 30 billion euros a year. That might seem a bit abstract to listeners, but 30 billion euros, to be very concrete, is equivalent to France’s annual defense budget.”
According to various public opinion polls, in the first round of the French presidential election, the head of the party “National front” marine Le Pen will win. She repeatedly stated that she advocates the withdrawal of France from the Euro and from the European Union.
#Commodities
U.S. output of urea, a key nitrogen-based fertilizer, surged by around 10% last year, boosted by a number of new and expanded plants in states from Iowa to Louisiana that helped increase total capacity by 24%. Meanwhile, output in China, the world’s №1 fertilizer producer, slumped by 7% in 2016, and its exports dropped by more than a third.
These shifting fortunes aren’t due to government intervention such as higher import tariffs or entreaties to “buy American.” Instead, they are largely due to trends in global energy markets.
U.S. fertilizer producers are benefiting from the long-brewing shale revolution. The combination of hydraulic fracturing and horizontal drilling has significantly boosted production, bringing down the cost of gas.
Meanwhile, their rivals in China have suffered from a sharp rise in the price of coal following Beijing’s decision to limit production last year, restricting normally ample supplies of the fuel. Roughly three-quarters of China’s urea is produced by first turning coal into gas.
Economist at IHS Global Insight’s Rajiv Biswas:
“Low-cost shale gas in the U.S. has transformed the competitiveness of a number of industries for which energy accounts for a high share of input costs. One of the biggest winners has been the U.S. chemicals industry.”
Growth of fertilizer production in the country is likely to continue this year as we begin operation of several new factories, the construction of which usually takes about four years.
The surge in U.S. fertilizer production will likely continue this year, as a number of long-planned new plants — which typically take around four years to build — come online.
As more fertilizer output moved to the U.S., urea imports in 2016 slumped, dropping by 34% last year. Although China remains the largest exporter, its share of global urea production fell to 39% in 2016 from 43% a year earlier, according to CRU Group, a commodities consultancy.
The U.S.’s cost advantage is crucial. Producing a metric ton of urea using gas in the U.S. costs $130 on average, CRU estimates. That same trailer load costs between $180 and $210 a metric ton using anthracite coal in China. Gas makes up about 60% to 80% of production costs, depending on the efficiency of a plant and the price of gas, according to producer OCI Americas Inc.
Cheap energy costs have enticed foreign companies like Australia’s Incitec Pivot Ltd., which decided in 2013 to set up an $850 million ammonia plant in Waggaman, La. The plant, which has a capacity of 800,000 metric tons, started operating in October and will ramp up this year.
Incitec Pivot Chief Executive James Fazzino:
“Because of the energy advantage through the shale gas revolution, U.S. fertilizer producers are globally among the most competitive.”
#INTERESTING
Top 5 corporate frauds of recent years:
- Deutsche Bank
Who: In December 2015, the Central Bank of Russia has counted Deutsche Bank a victim of the illegal scheme and fined 300 thousand rubles for violation of rules of internal control, approved by the Moscow office.
How: According to Reuters, fraudulent mirror transactions were carried out in 2011–2015. Traders bought shares of Russian companies for rubles in Moscow, and then sold through the London branch of Deutsche Bank in pounds sterling or dollars. Part of the operation passed through new York. The amount of each transaction was 2–3 million dollars. Representatives of Deutsche Bank argued that it was impossible to determine the true purpose of the transaction, but does not deny that the probable purpose of the scheme was “tax evasion and other illegal purposes”.
Results: In February 2017, the German Deutsche Bank paid a fine in the amount of 425 million dollars for the mirror transaction banking regulator of the state of new York. Another 200 million dollars the British financial Supervisory authority intends to recover for the same violations. In total, up to $10 billion was withdrawn from Russia.
- Societe Generale
Who: In January 2008, Societe Generale reported a loss of almost 5 billion euros as a result of the fraud of its employee J. Kerviel.
How: The Bank’s Management argued that trader Jerome Kerviel, tricking the security system, opened positions on futures on European stock indices which exceeded limits in late 2007 and early 2008. As a result, he lost 4.9 billion euros (7.2 billion dollars).
Kerviel admitted to investigators that he wanted to move up the career ladder and to receive an annual bonus of 600 thousand euros. According to him, he held the risky deals since 2005. Likewise did his colleagues. The management allegedly was aware, but looked at the machinations of his subordinates through its fingers, while the Bank was in the win.
Results: the Ministry of Finance of France after the audit has stated: internal control system at “Societe Generale” is far from perfect.
- JPMorgan, Citigroup, Barclays, Royal Bank of Scotland and UBS
Who: In may 2015, JPMorgan, Citigroup, Barclays, Royal Bank of Scotland and UBS were found guilty on charges of manipulating the foreign exchange market rates.
How: The Investigation into suspected manipulation of LIBOR was conducted since 2011, after it was revealed that the Swiss UBS traders, in collusion with other banks, in the period from 2005 to 2010 made more than 2 thousand requests to change the rates of the currency market with the aim of increasing their profits.
Results: Banks were fined by a total of 5.7 billion dollars.
- Wells Fargo
Who: Bankers have opened two million new accounts for five years without the knowledge of customers, to whom a credit card was attached. They transferred funds from old accounts to the credit cards. Wells Fargo charged a Commission from clients for these transactions. The damage, according to the regulator, amounted to approximately $ 2.5 million.
How: It turned out, that Bank clerks created a fake email addresses to register on them customers not using the services of online banking. All of this was for the bogus execution of sales plans, to get the bonuses.
Results: The management of Wells Fargo, fulfilling the requirement of the Federal office for consumer protection, fired more than five thousand employees involved in fraud. The Bank paid a fine of $ 185 million.
In addition, the Federal office for consumer protection has come to the conclusion that Wells Fargo system of rewards and incentives motivated the staff to use the fraudulent scheme.
- Moldindconbank
Who: money laundering involved 100 Russian by-night firms, 19 offshore companies, Individuals and legal entities from 59 countries and 21 Russian Bank, including “Rublev”, Intercapital Bank, Smartbank, “Baltika”, “Strategy”, “European Express”, Russian Land Bank , Tempbank, “Okskiy”. All these credit institutions had accounts in Moldindconbank.
How: Foreign companies concluded fictitious contracts of loans for which the Russian companies allegedly received loans in the amount from 100 to 875 million dollars. Citizens of Moldova were the guarantors. After the debtors had not fulfilled their obligations, the creditors appealed to the Moldovan courts, which have adopted decisions on forced collection that occurred after the money of the companies-debtors was in Moldindconbank. Eventually, the funds was transferred to the accounts of 19 companies registered in the UK, New Zealand and Belize.
Results: Over 2010–2014 from Russia through Moldova 696,6 billion rubles (18.5 billion dollars) was transfered abroad.
Apple posted an open casting call for the show “Planet of the Apps” in July 2016, looking for developers from San Francisco, Austin, New York, and Los Angeles to participate, and it began selecting developers around November. Over 100,000 apps applied to be on the show, and only 100 were selected for filming, a person familiar with the matter said.
The developers selected to appear on the show met with and received direct mentorship from four influencers and entrepreneurs, namely Gary Vaynerchuk, Gwyneth Paltrow, Jessica Alba, and will.i.am. The influencers were “brilliant” and “provided a lot of value to the apps that they advised”.
Graviky Labs is an MIT Media Lab spin-off based in India and it has come up with one ingenious solution to air pollution problems in Asia: convert polluted air into high-quality printing ink.
The current process to produce Air Ink is very labor intensive, and can only be done on a small scale, so the company has turned to Kickstarter for crowdfunding, and is offering four different sizes of refillable Air Ink markers, as well as a screen printing ink, to backers.
A device developed by Graviky, called Kaalink, can capture 95% of particulate matter from tailpipes and other air pollution sources, without inducing back-pressure (which can harm the operation of those sources), which is then refined and detoxified and turned into a high-quality black ink called Air Ink.
According to Graviky, 45 minutes worth of vehicular emissions captured by the Kaalink device can produce 1 fluid ounce of Air Ink, and in essence, the device and its products could help to mitigate some of the world’s most harmful emissions.
In the Netherlands, the local company PAL-V has begun accepting orders for the flying car Liberty serial, the supply of which is planned at the end of next year. The publication notes that the value of these cars is very impressive — the first copies will be sold for half a million euros. In the future the company also intends to release a budget version of the car, the cost of which will amount to 300 thousand euros.
The Liberty is technically a gyroplane and more closely resembles a helicopter than a plane. Unlike a helicopter, it cannot take off or land vertically but does only requite a small run up before it goes airborne.
Flying cars will be able to rise to a height of 3.5 thousand meters, and their maximum speed is 180 kilometers per hour. Without landing Liberty will be able to cover distances up to 500 kilometers. It takes approximately 5–10 minutes to convert the Liberty from a gyroplane to a car and when in car form, is able to reach 100 mph (160 km/h).
All owners of flying cars will have to pre-obtain a pilot’s license, and then additional training on driving in the company-manufacturer.
Only then the owners will be able to control their cars themselves.
#OPINION [dti in the media]
Managing partner at DTI Alexander Butmanov on Kommersant on 17.02.2016:
“At the moment there’s no good reason to believe that someone is playing in the direction of the ruble for the sake of making profit. It’s hard to believe. When we talk about the ruble and its movement to the point 57, it is a question of three factors: weakening due to lower yields, game in the Russian ruble, the political concerns and perhaps sufficient liquidity for the payment of current taxes. On February 27 there will be the peak: the dollar may be the most weak. But it is obvious that it will return to the level above 60 rubles per dollar.”
Read more: Kommersant (in Russian)
