Author: admin

Investors had long grown used to records in the great stock bull market that ended last week. Longest. Calmest. Highest. It was almost inevitable that the finish would be dramatic.

The saying on Wall Street is shares take an escalator up and an elevator down, but the elevator went in both directions last week. By Friday’s close, stocks in the U.S. notched the biggest one-day rally and rout since the financial crisis. In the end, more than $2 trillion got wiped from American stocks, and global equities saw $6.3 trillion get zapped.

It wasn’t just stocks. Treasuries were up one day, down the next as liquidity worries brewed. Currency volatility — a beast that’s been dormant for years — awakened. Gold’s haven status crumbled.

This is the story of a Wall Street week for the history books.

Sunday: Oil Shock

It’s not even dark in New York when the trading week begins in earnest in New Zealand, 9,000 miles and 17 hours away. It will be a long day.

Over the weekend, Saudi Arabia has effectively declared an oil-price war after the cartel it dominates, OPEC+, failed to reach agreement with Russia. Already in the Middle East, where most exchanges operate on a Sunday-to-Thursday basis, equities have tumbled.

Currencies of energy exporters are the next to react. If the price of their key export collapses it puts immediate pressure on their economies and government finances. The Norwegian krone falls to its lowest since at least 1985 versus the dollar. The Mexican peso drops to a more than three-year low.

Seconds into trading, oil prices have already cratered. Brent crude opens 20% lower and extends losses to as much as 31%, the biggest drop since the first Gulf War in 1991.

The declines won’t stop there. Oil shocks ripple through markets because the commodity has a key role in the global economy. For the countries and companies that produce, it’s a generator of wealth. Oil’s an expensive industry, so small firms in the business tend to have high debts. And it’s an input into many costs in the economy.

What makes this oil shock worse is the timing: Thanks to the coronavirus, global markets are already on edge.

The yield on 10-year U.S. Treasuries, effectively the global benchmark, drops through 0.5% for the first time as investors clamor for safe assets. Futures on the S&P 500 join the sell-off sweeping Asian equities, and before long hit the trading curbs designed to limit the most dramatic moves while cash markets are closed.

All this has occurred before midnight in New York.

Monday: Circuit Breaker

The die is cast before most traders on Wall Street have started out for work, never mind reached their desks. Selling is sweeping Asian stocks, Treasury yields — already at a record low — are extending declines and European equities are down the most since 2016.

With U.S. futures pinned at their lower limit, investors have no way to tell exactly how bad losses will be when the cash market for stocks opens in New York. They get a clue when pre-market trading begins. The exchange-traded funds that track the main American benchmarks aren’t subject to the same limits as futures, and they point to even steeper losses.

When the bell does sound on Wall Street, the rout begins. Losses reach 7% four minutes in, triggering NYSE circuit breakers that halt trading for 15 minutes.

Meanwhile, the oil crash ripples through related products, roiling highly levered exchange-traded notes that play the price of crude.

With the S&P 500 destined for a 7.6% drop and crude set to close down around 25%, investors rush to the safest assets. The dash into Treasuries is so ferocious that the entire U.S. yield curve drops below 1% for the first time in history.

In the swaps market, inflation bets collapse. Policy makers were already struggling to spur price growth; the market believes an oil collapse and deadly epidemic will make it impossible.

The level of doubt is so high they’ll accept less than 1% to lend to the U.S. for 30 years. The decline in the yield of long-dated Treasuries is the biggest on record.

Anxiety is mounting across the markets, exacerbating strains that were already showing up in credit as investors worried about companies’ ability to service debts during the virus outbreak. The cost to protect against default on North American corporate debt surges the most since Lehman Brothers collapsed. An index of leveraged loans drops the most since 2008.

The oil crash throws a spotlight in particular on those companies in the industry with heavy debt loads, many of which fall into the riskier high-yield category.

Sensing the rising risk of a credit crunch — in which investors are no longer willing to lend to the companies and institutions that need it — the Federal Reserve lifts the amount of temporary cash it’s willing to provide markets.

Tuesday: Limits

There is optimism in the air. U.S. stocks just suffered the biggest rout since the crisis, a gift for any investor looking to buy the dip. President Donald Trump has pledged “major” economic announcements later in the day. Despite a brief dalliance in bear market territory overnight, S&P 500 futures are rising. Fast.

Remarkably, a day after the contracts hit their lower trading limit, they hit the upper bound. European shares join the rebound, and while none of the moves come close to erasing the Monday rout, the mood is upbeat on hopes Trump will deliver significant measures to fight both the coronavirus and its economic impact. Even oil bounces back.

All these moves are stirring another asset class, however. Volatility has been climbing in every corner. The Bank of America Merrill Lynch GFSI Market Risk indicator, a measure of expectations for turbulence in stocks, rates, currencies and commodities worldwide, hasn’t risen this fast since the collapse of Lehman Brothers.

Developed-market shares are now more volatile than their peers in emerging nations, which are usually seen as less stable and higher risk. Bets for more oil price swings are the highest on record. But most notably, currency volatility has returned.

Foreign-exchange moves are a huge factor in international capital markets and economies, because they influence the terms of trade between nations, companies and investors everywhere. For years, implied currency volatility has been in retreat amid globalization and coordinated central bank activity, not to mention an era of perpetually low rates and quantitative easing.

Now it’s surging as policy makers rush to tackle the coronavirus impact in different ways, and as investors move their money round the world amid the market turmoil.

The dollar jumps by the most since 2016, a move some attribute to the anticipated American stimulus measures that may give a jolt to the economy. But are there other forces at work? Across global markets the cost of converting other currencies to dollars in the market for so-called cross-currency basis swaps has been creeping up.

In other words, there has been a small but steady increase in the cost of dollar funding — putting participants on high alert for stress in the system, because the greenback is the ultimate global funding currency.

Perhaps these sorts of wrinkles would have gone away if not for events today. Trump doesn’t appear at a White House briefing on the outbreak, and as the day wears on it becomes clear the promised major announcement is not coming. As Wednesday trading begins in Asia — evening in New York — futures for the S&P 500 decline again.

Wednesday: A Bull Dies

Another day, another volte face in major assets. With no stimulus details in sight in the world’s biggest economy, headlines about the virus roll in thick and fast. Italy will close all stores aside from grocery shops and pharmacies. A top U.S. infectious-disease specialist tells lawmakers the pathogen is 10 times more deadly than the seasonal flu.

The bad news culminates when the World Health Organization calls the virus spread a pandemic. In a sense, the designation was a formality in a world where governments were already taking extreme measures to fight its spread. But it crystallizes the crisis for investors; stocks are plunging around the world, oil falling again and the stress in U.S. credit markets worsening.

Gloom descends all across markets. This will be the day the Dow Jones industrial average sinks into a bear market, ending the longest bull run in the history of American equities.

In a bitter twist, for once bonds offer no protection: Investors want to ditch assets that are easy to sell, and despite mounting liquidity worries Treasuries remain among the most tradable.

Away from the virus headlines and price action, a trend is beginning. There are signs that companies in the industries hit hardest by the coronavirus are drawing down credit lines. Shares of Boeing Co. plunge 18% after it says it plans to draw down all of a $13.8 billion loan. Hilton Worldwide Holdings Inc. loses 10% when it announces it will draw some of its credit line. Private equity titan Blackstone Group Inc. asks companies it controls to tap bank facilities to help prevent any liquidity shortfalls.

By the end of the day, policy makers announce plans to ramp up cash injections in the coming weeks to as much as $505 billion in a bid to keep short-term financing markets functioning smoothly through quarter-end.

Details of U.S. fiscal action to cushion the economy from the impact of the pandemic remain sorely lacking, and all hopes are pinned on an address from the president scheduled for that evening.

The bull market in the Dow Jones index has already ended; Trump’s speech winds up sealing the fate of both the S&P 500 and the Nasdaq.

Thursday: Liquidity

Fatalities in Italy rise by a third, France closes all schools, the EU warns the outbreak could overwhelm the bloc’s health-care system and New York City declares a state of emergency.

But it’s largely background noise at this point; the selling has become self-reinforcing after an error-laden speech from Trump containing only small-bore measures to fight the virus. When the European Central Bank decides to keep rates on hold, it seems to confirm to investors that officials aren’t doing enough.

Fears for the economic outlook batter commodities anew. Oil resumes its decline and palladium tumbles more than 20%.

More dislocations appear between major assets, as gold falls along with everything else. Gold usually gains in risk-off episodes because investors consider it a safe haven, but once again it looks like traders may be selling whatever is easy to sell. Bitcoin plunges too as cryptocurrencies implode.

In the U.S., shares are routed. For the second time in a week, the S&P 500’s drop triggers a 15-minute trading halt shortly after the open. The benchmark will close down 9.5% in the biggest one-day decline since Black Monday in 1987.

The potential fiscal hit of the coronavirus suddenly shatters the appeal of the municipal bond market as a refuge, and it experiences the worst day on record.

As sentiment sours, investors and analysts start to contemplate what a sudden surge in demand will do to Treasury bills. The Libor-OIS spread, a measure of how the market is viewing credit conditions, expands to the widest level since 2009. The dollar jumps to the strongest since 2017.

With funding stresses still on display, the Federal Reserve Bank of New York injects almost $200 billion into the system and dramatically increases the amount it’s prepared to inject over the next month, promising a cumulative total above $5 trillion.

U.S. stocks initially pare losses after the surprise announcement, but the seriousness of the situation hits home. Investors now face a growing likelihood that the coronavirus will plunge the global economy into recession.

Friday: Action

The bleakest day in most markets for more than three decades seems to have awakened both policy and law makers.

The Bank of Japan follows the Fed’s liquidity move. Germany pledges to spend whatever’s necessary to protect its economy and the European Commission says it’s ready to green-light widespread fiscal stimulus for euro nations. The ECB signals it’s ready to buy more debt and regulators announce a temporary ban on short-selling stocks.

All told, it helps to distract from yet more bad virus headlines, like the European economy forecast to shrink by 1%, or Spain declaring a state of emergency.

The news of a potential fiscal response in Europe hammers the region’s bonds, but S&P 500 futures once again hit their upper limit. The Stoxx Europe 600 Index surges. Treasuries are down and oil gains, though the moves are small with investors awaiting more comments from Trump.

And then the coda: The S&P 500 powers higher by 9.3% for its biggest rally since October 2008, Treasuries plunge and oil surges after Trump declares a national emergency, signaling a stepped-up response to the crisis.

Almost 6 percentage points of the stock rally come in the final 30 minutes of trading, cutting the weekly rout that at one point reached 16.5% to less than 9%. The 10-year yield almost hits 1%. Oil, boosted by Trump’s pledge to top off the strategic supply, jumps 4.1%.

Outrageous moves to finish an outrageous week, and a fitting end to the longest ever bull market.

Bloomberg, Sam Potter (March 15, 2020)

Europe’s largest biorefinery is located in the heart of the Port of Rotterdam. Alco Energy Rotterdam converts corn into bioethanol fuel in a production process that generates zero waste. The CO₂ released during the process is transported to greenhouses in Westland and the remaining corn pulp is suitable for use as animal feed. ‘We aim to become the most sustainable biorefinery in Europe. Perhaps even in the world. Logistically, Rotterdam is the ideal place for us.’

Ethanol is produced during the fermentation and distillation of certain crops. Alco Energy – a relaunch of Abengoa – uses animal feed quality corn for this. The sugars in the corn are converted into almost pure alcohol, which can be mixed easily with petrol. European legislation specifies that in order to reduce greenhouse gas emissions from traffic, in 2020 at least ten percent of fuel for the transport sector must originate from renewable energy sources. In line with this, Dutch petrol stations have been obliged since last October to mix some ten percent of bioethanol in Euro95 petrol. ‘If you fill up with Euro95, you’ll see E10 mentioned at the petrol pump. This refers to the ten percent added bioethanol,’ stated Robine Koning, Alco Energy Rotterdam Plant Manager. Greenhouse gas emissions from ethanol are considerably lower than petrol. In Alco’s case, emissions are almost 95 percent lower.

Every thousand kilos of corn produces 330 kilos of ethanol. Almost the same amount of mass remains after the corn sugars have been converted into alcohol. The high protein level of this DDGS (Distiller’s Dried Grain with Solubles) makes it a very much sought-after product in the animal feed industry. ‘Research shows that DDGS reduces methane production in livestock,’ explained Koning. ‘And as our corn only comes from European countries and has a GMP++ certificate for animal feed safety, it is guaranteed to be GMO-free. It can partially replace imported soybean meal in animal feed.’

Alco Energy transports the CO₂ released during fermentation in the production process via underground pipelines to the horticulture industry in Westland, so that the greenhouses there do not need to generate CO₂ from fossil fuels. ‘This summer we will start using a second compressor so that we can transport even more CO₂ to the horticulturalists,’ stated Rob Vierhout, Alco Energy’s Public Affairs Advisor. ‘This is in line with our ambition to become Europe’s most sustainable, efficient and modern biorefinery. We are currently number two, I think, just losing out to a Swedish company. We are also investigating the possibilities of reducing CO₂ emissions by reducing the use of natural gas and by using other raw materials than corn, such as residual waste.’

Logistically, Rotterdam is the ideal location for the biorefinery. Corn is unloaded from sea-going vessels that can berth at the plant’s quay. And the inland shipping, rail and road transport connections are also good. ‘Annually, we supply 550 million litres to the petrol market. We transport this ethanol by train or vessel to oil companies, mainly in Northwest Europe,’ stated Koning. ‘This combination of transport flows makes us incredibly flexible.’

Reported by Port of Rotterdam (19 February 2020)

U.S. sanctions on Russian Rosneft’s trading arm will disrupt a slice of global crude flows and may prompt refineries in Europe, India and the United States to shift purchases to other crude suppliers, traders said.

The United States on Tuesday redoubled efforts to oust Venezuelan President Nicolas Maduro by barring U.S. dealings with Rosneft Trading S.A., a subsidiary of Russia’s state oil major Rosneft, which Washington said provides him a financial lifeline. Russia has called the sanctions illegal and said it plans to consider options in reaction.

The ban will likely hit some U.S. direct purchases of Urals, typically a medium sour blend, from Rosneft Trading and could make it more difficult for refiners in Asia and Europe to buy from the firm. Washington advised non-U.S. firms to seek guidance should they be unable to wind down dealings with the trading firm within 90 days.

European refiners could look to source replacement crudes from West Africa, Brazil and the U.S. Gulf Coast, if Urals become expensive, traders said. Urals is the most common export grade from Russia and a benchmark for medium sour crudes in Europe. It could create new demand or support prices for alternatives such as Colombia’s Vasconia and Castilla and Basrah heavy, they said.

Phillips 66 has been one of the biggest buyers of Urals on the Gulf Coast from suppliers including Rosneft Oil, according to U.S. Customs data on Refinitiv Eikon. Companies that have imported Urals from Rosneft Trading in recent years included PBF Energy and Swiss trader Trafigura .

Phillips 66’s imports through the U.S. Gulf Coast and some Italian refiners in Trieste are likely to be affected, one market source said.

Phillips 66 and PBF Energy spokespeople declined to comment. A spokeswoman for Trafigura said it would comply with the sanctions.

U.S. crude flows to Europe are set to increase as demand from Asia has plummeted due to the coronavirus outbreak, sources said.

In India, refiner Reliance Industries said it was assessing the impact of the sanction. Nayara Energy, part-owned by Rosneft, said it complies with all relevant and applicable U.S. sanctions.

The sanctions do not target other Russian traders including Litasco, an arm of Lukoil. But past sanctions have tended to prompt some companies to do more than required. Traders on Wednesday said Rosneft’s oil sales, excluding the trading arm, were not affected.

Rosneft Trading acts as a counterparty on behalf of Rosneft in some global deals and plays a role in an informal oil trading alliance Rosneft has with Trafigura, traders said. It is unclear what impact the sanctions will have on that alliance.

Reporter: Devika Krishna Kumar from Reuters

Commodity trading major Vitol said it expected oil prices to recover later this year once the effect of the coronavirus epidemic wanes, Bloomberg reported, citing the company’s chief executive.

Before that, however, the oil market will suffer a 200-million-barrel negative impact on demand during the first quarter, Russell Hardy said, with loss of demand in China at 4 million bpd at the moment, on the back of travel bans and lower economic activity.

While this is undoubtedly negative for prices, Vitol’s CEO also said there is a positive effect to counter the impact of the coronavirus, and this is lower production in Libya and Venezuela, along with OPEC plans to deepen their production cuts.

“All of those factors are going to help re-balance the 200 million barrels, which will leave the market in a better position for the second half of the year,” Hardy told Bloomberg in an interview. “There’s an OPEC meeting to come in a couple of weeks time and the market’s anticipating some kind of supply response from OPEC.”

OPEC officials earlier this month recommended additional cuts of 600,000 bpd to prop up oil prices, but Russia has been reluctant to agree, asking for more time to consult on the recommendation.

This opposition is hardly surprising: Russia has consistently budgeted for lower oil prices than the actual ones since the 2014 price collapse, and as a result is much more resilient to price drops than Saudi Arabia. It has also signaled repeatedly it is making a compromise with its oil industry in supporting the cuts as they are.

The next meeting of OPEC and its partners in the cuts is scheduled for early March and if history is any indication, Moscow will agree to an extension or deepening of the cuts, but it may not stick to them.

Meanwhile, the EIA, the IEA, and OPEC itself have revised down their global oil demand outlooks, with the EIA the most pessimistic, expecting demand to take a hit of 378,000 bpd for this year. OPEC revised down its outlook by 230,000 bpd earlier this month, while the IEA’s downward revision was for 365,000 bpd.

Reporter: Irina Slav from Oilprice.com (21 February 2020)

JPMorgan Chase & Co, long a target of public scrutiny for its relationship with the fossil-fuel industry, is getting more serious about the impacts of the climate crisis.

The bank’s annual regulatory report on Tuesday added “climate change” as a risk factor, saying it could hurt operations and customers. Risks including prolonged droughts or flooding, increased frequency of wildfires, rising sea levels and altered rainfall could “prompt changes in regulations or consumer preferences, which in turn could have negative consequences for the business models of JPMorgan Chase’s clients,” the company wrote in the filing.

The added disclosure came a day after JPMorgan vowed to stop financing coal-fired power plants unless they’re using technology to capture and sequester carbon. The bank also won’t provide project financing for new oil and gas developments in the Arctic.

The climate crisis and its potential impact on society, markets and the global economy is gaining more attention from the business community. This month, Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. also added to their regulatory filings stronger warnings about the toll it could take on their businesses.

Environmental activists have been pressuring JPMorgan, the biggest U.S. bank, to divest from the fossil-fuel industry, and have called on shareholders to remove Lee Raymond, the longtime climate skeptic who previously ran Exxon Mobil Corp., from the lender’s board.

Chief Executive Officer Jamie Dimon, another target of environmentalists, has said climate change can be solved only through government policies.

“I’ve always thought it was a problem,” Dimon said at the bank’s investor day Tuesday. “We should acknowledge the problem and start working on it.”

Financial firms often include dozens of disclaimers about potential risks in their annual 10-K filings, but JPMorgan has typically focused on those more directly related to the economy, regulation and competition. Economists at the firm have been warning clients about the potential for climate change to threaten the global economy and even the human race.

Reporter: Michelle F. Davis by Bloomberg (26 February 2020)

In the wake of IMO 2020, the Chinese New Year and the coronavirus, the more than usual uncertainty has generated rough sailing throughout all sectors of shipping.

IMO 2020 seems to have vanished from the news but was the first topic covered Capitallink organised a webinar showcasing the “navigation” strategies of four listed companies- with participation by company ceos, moderated by Jefferies equity analyst Randy Giveans.

Panel participant Kim Ullman, the ceo of Concordia Maritime, noted “the industry said that they would fix it…and they have.” He said that price spreads between low sulphur and high sulphur were actually lower than many industry participants had expected – presently in the range of $150 – $175 per tonne, depending on geography.

On the cargo demand side, he added that there had been an uptick in oil cargoes moving “out to the East” to be refined in line with expectations of market participants.

Panelist Valentios “Eddie” Valentis, the top man at Pyxis Tankers, explained that, in 2019 Q4, movements of low sulphur fuel cargoes helped fuel the hires for MR tankers up to levels as high as $35k per day. He explained further that delays as supply organized bunker stocks brought about some delays- all sorted out now, which also contributed to the Q4 strength.

“Things are settling down,” he said, explaining that Pyxis, operating five smaller tankers, had not experienced any difficulties with arranging for low sulphur fuel supplies, in various ports.

Dry bulk webinar participant, Stamatis Tsantanis, the chairman/ ceo of capesize owner Seanergy Maritime, offered a similar view, noting that, for Seanergy vessels not equipped with scrubbers, “we have found that the supply of low sulphur fuel is abundant.”

The contraction of the price spreads have impacted the firms in different ways. Tsantanis described arrangements where his company’s scrubber fitted vessels had been entered into three – five year deals with major charterers. In these schemes, the charterers paid the capital costs, installation and offhires for scrubber retrofits; Tsantanis described a “profit sharing plan” where the repayment to the time charterer comes from fuel savings. The shipowner participates in the sharing if the spread widens.

Concordia Maritime’s Ullman acknowledged that his firm, where the vessels are consuming low sulphur fuel, had entered into forward hedges to protect against increases in the price differential, at the time that a decision was taken not to invest in scrubbers. He told the webinar listeners: “The prices today are lower than the hedge, but fleet enjoying lower MGO prices.”

Looking towards the future, beyond IMO2020, Panelist Marco Fiori, the ceo of Premuda, said “There are a lot of question marks…it’s very difficult to operate longer term in a capital intensive industry,” when there are such great uncertainties about future fuels suitability. The silver lining in all this is that fuel uncertainties “have not been very encouraging for ordering”.

Reporter: Barry Parker from Seatrade Maritime News (24 February 2020)