Thursday, December 1, 2016

Thursday, December 1, Morning Global Market Roundup: Oil Hits Six-Week High After OPEC Deal, Sterling Jumps

By Jamie McGeever
December 1, 2016

Oil swept to a six-week high on Thursday after OPEC agreed to cut crude output to help clear a glut, while sterling hit a three-month peak after traders interpreted comments from a senior UK official as a crack in the government's "hard Brexit" line.

Global bond yields rose on prospects that resulting inflationary pressures from oil's surge will lead to higher interest rates, with the benchmark 10-year U.S. Treasury yield matching November's 16-month high.

European stocks dived, shrugging off the bounce in Asian shares and following the S&P 500's fall the previous day instead. U.S. futures pointed to another slight decline at the open on Wall Street ESc1.

The Organization of the Petroleum Exporting Countries on Wednesday agreed to its first output cut since 2008, finally taking action after global oil prices fell by more than half in the last two years.

Non-OPEC Russia will also join output reductions for the first time in 15 years.

U.S. crude oil CLc1 added to overnight gains of 9 percent to reach $50.00 a barrel for the first time since October. Brent crude LCOc1, which soared $4 overnight, touched a six-week peak of $52.73 a barrel.

The jump in oil prices added to inflation expectations in the United States, which were already rising on prospects that President-elect Donald Trump would adopt reflationary policies using a large fiscal stimulus.

"We've had a spike in oil prices plus better data, so we're seeing the reflation trade come back," said Martin van Vliet, senior rates strategist at ING.

As a result the rout in U.S. Treasuries resumed, with yields pushing higher, especially on longer-dated bonds. The yield on 10-year and 30-year bonds

Sterling Effort

The 30-year yield has climbed more than 40 basis points since the Nov. 8 presidential election, heading back toward a 14-month peak of 3.09 percent marked last week.

The 10-year yield had its biggest monthly rise in November since 2009. Bonds across the world have lost about $2 trillion in market value since the Nov. 8 U.S. election, according to Bank of America Merrill Lynch .MERGBMI data.

Sterling grabbed the limelight in currencies, jumping to a three-month high against the euro and on a trade-weighted basis after Britain's Brexit minister David Davis said London would consider paying into the EU budget for market access.

The pound had slumped to historic lows following June's vote to leave the European Union on fears of a "hard Brexit", which would see Britain give up full access to the single market and the EU customs union in favor of retaining full control over its borders.

"These headlines suggesting Britain may be able to access the single market are generating substantial sterling demand from traders and investors looking to reduce their short positions and unwind hedges," said Neil Jones, head of FX hedge fund sales at Mizuho.

The Bank of England's trade-weighted broader measure of sterling rose to 78.8 =GBP and the pound was at its strongest against the euro for three months at 83.96 pence per euro EURGBP=. It hit a three-week high of $1.2650 GBP=D4 against the dollar after Davis' comments.

The dollar advanced to a 9-1/2-month high of 114.83 yen before pulling back to 114.30 and the euro recovered from the previous day's slide to trade back above $1.06 EUR= after shedding 0.6 percent the previous day.

Europe's index of leading 300 shares .FTEU3 was down 0.8 percent at 1,340 points, Germany's DAX was down 1 percent .GDAXI and sterling's strength drove Britain's FTSE 100 down 1.3 percent .FTSE.

Energy and resources stocks in Europe shares outperformed the broader indices, which snapped a two-day winning run. The STOXX Europe 600 Oil and Gas index .SXEP was up 1.5 percent, while the basic resources index .SXPP was up 2.1 percent.

MSCI's index of Asian shares ex-Japan .MIAPJ0000PUS rose 0.4 percent, lifted by stronger-than-expected Chinese manufacturing data, and Japan's Nikkei 225 .N225 rose 1.1 percent after the yen fell to its lowest since February close to 115 per dollar JPY=.

Spot gold XAU= touched a 10-month low of $1,163.45. Bullion fell 8 percent in November, its worst month in three years.

Article Link To Reuters:

In A Battle Over Brexit, Court Challenger Fears Britain's Demons Have Been Unleashed

By Guy Faulconbridge and Michael Holden 
December 1, 2016

When Gina Miller took the British government to court over triggering Brexit, she didn't expect death threats or the need to bring in security so that her children could get to school safely.

A successful London investment manager, Miller was assigned by a judge to be the lead claimant in a court case brought by members of the public, which challenged Prime Minister Theresa May's authority to start talks to pull Britain out of the European Union without first asking parliament.

Since a panel of three High Court judges ruled in her favor last month, she has received relentless racist and sexist intimidation, including e-mails warning she would be gang raped and calling for her to be run down on the street.

The government has appealed the case, which goes before Britain's Supreme Court next week.

Miller, 51, has reported the threats to the police who she said were likely to speak to or arrest five people any day. She has spent 60,000 pounds for her own protection including dealing with attacks on the website of her business.

The experience of what she describes as a "poisoned chalice" legal challenge has revealed how divided Britain has become since the EU referendum campaign in which one lawmaker, Jo Cox, was killed on the street by a Nazi-obsessed loner.

"This division was always there but Brexit perhaps has been irresponsible: Those who were talking about leaving in particular have emboldened people to think such behavior is acceptable," Miller told Reuters at a temporary office which she has leased for security reasons. "It's revealed a side to society which is extremely worrying."

She was born in what was then Britain's South American colony British Guiana, now the independent state Guyana, and sent to school in Britain by her parents. A selection of the threatening emails she has received, which she showed to Reuters, was littered with racist slurs as well as sexist obscenities.

"The levels of sexual and racial violence have been quite extraordinary, to the level that because I'm a 'colored woman' I don't have any place outside of a kitchen."

Some of the hatred, she says, arises from right wing media focusing on her biography to discredit her.

Britain's most widely-read newspaper, The Sun, called her a "foreign-born millionaire", an epithet that, she notes, the paper doesn't use to describe its own Australian owner Rupert Murdoch, or Britain's New York-born foreign secretary.

"You don't see Boris Johnson described as 'foreign-born'," she said. "I am British. I went to a British school, I pay British taxes and my children are British."

"Born Fighter"

The Brexit campaign is not her first foray into public policy. Previously, Miller, who founded investment manager SCM Private with her hedge fund manger husband Alan, advocated for more transparency around fund management fees and financial product charges. That galled some asset managers in London, but produced nothing like the anger of Brexit.

While supporters feted Miller for her legal action against the government, opponents have cast her as a wealthy pawn of an establishment which wants to soften or slow Brexit in defiance of the wishes of the people.

In the June 23 referendum, 51.9 percent, or 17.4 million people, voted to leave the EU while 48.1 percent, or 16.1 million people, voted to stay.

If Miller's victory is upheld in the Supreme Court, the government would be forced to accept a vote in parliament over starting the formal EU divorce talks which are triggered by invoking Article 50 of the Lisbon Treaty. That could delay Brexit and increase scrutiny of May's negotiation.

Miller, who describes herself as a "born fighter" and "a failed lawyer", felt physically sick when she heard the referendum result, but says her goal is not to block Britain's exit from the European Union.

She says prime ministers should not be allowed to undermine 400 years of parliamentary sovereignty. She also dismisses the idea that she is a representative of an out of touch elite.

"My principles have been exactly the same from when I slept three weeks in a car because I had no money, to being a single parent doing four jobs to pay for myself through university, having no food, I have had both extremes," she said.

"What is wrong with me now using my money that I have worked very, very hard for to do what I think is right?" said Miller. She is being represented by London law firm Mishcon de Reya, which agreed not to charge legal fees.

The case was brought on behalf of a group of campaigners but Miller became its face when she was assigned the role of lead claimant by one of Britain's top judges. The second named claimant is Deir Tozetti Dos Santos, a Brazil-born hairdresser. Both are British citizens.

Before the High Court hearing, May suggested that people bringing such cases were attempting to subvert democracy. After three of England's top judges ruled against the government at the High Court, the Daily Mail newspaper cast the bewigged justices as out of touch "enemies of the people".

Since the High Court ruling, May has said she values the independence of the judiciary and the freedom of the press. But critics have faulted the government for failing to defend the judges more vociferously.

Miller said Britain's political leaders, including in the opposition Labour Party, were too afraid to confront the emotion unleashed by the referendum.

"They're being silent because everything to do with Brexit is so emotionally charged that they're hiding and they're quite happy for me to take the blame and be in the headlines and take the threats while they sit around and figure out what they do."

Even more anger will be unleashed if Brexit turns out not to improve the lives of those who supported it, she added.

"You've woken up an element in society and promised them their lives are going to get better. And when their lives don't get better they are going to be even more angry than they are now," she said. "The politicians are setting themselves up for a really, really dangerous future."

The Brexit case is based on legal arguments about Britain's constitution that go back centuries. The government argued that it could invoke Article 50 without lawmakers' approval using "royal prerogative", the power of ministers to act on behalf of the monarch, especially when making or withdrawing from foreign treaties.

Miller's lawyers argued that quitting the EU would deprive people of rights, which is prohibited without parliament's approval under 17th century court rulings and the 1688 Bill of Rights. The High Court agreed.

The BBC has reported that the government has prepared a brief bill of just three lines to send to parliament, in case the Supreme Court upholds the ruling. Miller said that she would want to see a full and properly drafted act.

"There needs to be more than two paragraphs, it needs to be a properly drafted act," Miller said. "If you are going to take away people's rights, inevitably by triggering Article 50, there has to be a discussion about the direction of travel."

The Supreme Court, which agreed to hear the appeal, has added another constitutional wrinkle to the case: it will allow lawyers for Scotland to argue that the Scottish legislature should also have a say before Brexit.

"They're allowing quite a number of cans of worms to be opened by doing this appeal," said Miller. "Here we are with Brexit -- leaving -- and we have not answered the fundamental questions."

Article Link To Reuters:

Yuan To Fall Further On Outflows, USD Rally, After Hitting Eight-Year Low

By Sumanta Dey 
December 1, 2016

The Chinese yuan will plumb its lowest level in nearly a decade next year on sustained capital outflows and as the dollar rallies on expectations that U.S. interest rates will rise faster than previously thought, a Reuters poll found.

The closely-managed yuan CNY=CFXS fell to its lowest since early June 2008 last week, tracking a wider sell-off in emerging markets on a dollar surge following the shock election earlier this month of Donald Trump as the next U.S. President.

While Beijing has clamped down on outbound investments and used its foreign exchange reserves to keep the yuan from falling too rapidly, the poll of over 50 foreign exchange analysts this week showed further losses were possible in the coming year.

The yuan, also known as the renminbi, has already weakened some 6 percent against the dollar this year, including over 1 percent since Trump's surprise victory. That has led to a stark shift in analysts' calls compared with last month's survey taken before the U.S. Presidential election.

Over three-quarters of respondents in the latest poll who made a 12-month forecast expect the yuan to reach or weaken beyond 7.00 to the dollar by then, compared to one-quarter in last month's survey.

By the end of this month, the yuan will likely trade at 6.90 to a dollar, not far from Thursday's 6.89, the poll showed. But it is then expected to depreciate steadily to 7.14 in a year, marking its lowest level in nearly a decade, if reached.

"With...previous rhetoric from U.S. President-elect Donald Trump labelling China as a currency manipulator, fears of a disorderly depreciation have risen," analysts at Lloyds Bank wrote in a recent note.

"While concerns over the latter may be premature, the recent spike higher in U.S. term interest rates could easily re-exert capital outflow pressures in China in coming months."

The U.S. Federal Reserve is widely expected to raise interest rate later this month, and investors will be watching for any signal that the Fed is eyeing a steeper path for rates increases in the coming year.

The People's Bank of China has tried to curb speculation of one-way depreciation by setting both higher and lower mid-points recently.

Also taking its toll on the yuan is the uncertain outlook for China's economy, with conflicting signs on whether Beijing's attempts to re-engineer the economy - to derive future growth from consumption rather than exports - is working.

Data on Thursday showed activity in China's vast factory sector expanded at its strongest pace in more than two years in November.

Article Link To Reuters:

Global Factories Had Bumper November But Growth May Have Peaked

By Jonathan Cable and Saikat Chatterjee 
December 1, 2016

Manufacturers around the globe performed strongly in November, but concerns about the protectionist leanings of U.S. President-elect Donald Trump and an OPEC-induced oil price rally could curtail future growth.

Factories across Asia and Europe ramped up activity and data due later on Thursday from the United States are expected to show manufacturers in the world's largest economy also pushed harder on the accelerator.

But some analysts cautioned November might be as good as it gets as the effects of vast monetary stimulus from central banks wear off.

"The strength in PMI numbers is unlikely to be sustained as much of it can be explained by previous stimulus measures," said Julian Evans-Pritchard at Capital Economics.

Policymakers at the European Central Bank are expected to announce an extension to their asset purchase program when they meet next week even after euro zone manufacturers enjoyed their best month in November since the start of 2014 and inflationary pressures, while still mild, picked up. [ECILT/EU]

IHS Markit's final manufacturing Purchasing Managers' Index for the euro zone chalked up its highest reading since January 2014 in November, registering 53.7, in line with an earlier flash estimate and ahead of October's 53.5. Anything above 50 indicates growth. [EUR/PMIM]

But British manufacturing growth cooled unexpectedly as factories grappled with soaring costs caused by the slump in sterling after Britain voted to leave the European Union. The weaker pound also failed to boost export orders as much as in previous months.

The Markit/CIPS UK PMI fell to 53.4 from 54.2, confounding expectations for a rise to 54.5 in a Reuters poll of economists.

James Smith at ING noted the British PMI figure was still higher than the immediate post-Brexit dip, but forecast a tougher environment ahead.

"We expect domestic demand to slow quite considerably next year as consumer spending gets hit by falling real wages and investment slows in response to post-Brexit uncertainty," he said.

Britain's economy has performed much better than expected since the vote to quit the EU. But a bigger test will come next year when inflation is predicted to rise sharply, eating into households' spending power that had just started to recover.

Also consuming cash will be more expensive oil. Crude prices bubbled to a six-week high on Thursday after the Organisation of Petroleum Exporting Countries agreed on Wednesday to cut output for the first time since 2008. [MKTS/GLOB]

Asian Tigers Purring

There were stronger PMIs in China, Taiwan and Vietnam, and while activity in Japan's factories was still growing in November, the pace was slower. However, an uncertain outlook for global trade is worrying for Asia's export-driven economies.

"We are still waiting very much to see what the Trump presidency will mean for things like trade policies and trade restrictions," Louis Kuijs, head of Asia economics at Oxford Economics, said.

Trump has declared his intention to withdraw from an Asia-Pacific free trade agreement once he is inaugurated on Jan. 20, and his protectionist comments while campaigning for the presidency could herald problems for Asia.

China's official PMI rose to 51.7 in November from 51.2. The index was stronger than economists polled by Reuters had expected and matched a level last seen in July 2014.

But analysts noted a worrying lack of expansion in new export orders for Chinese factories, suggesting the stronger headline number was a consequence of demand coming from its frothy property sector, which authorities are trying to cool.

The unofficial Caixin survey showed a more modest increase in activity, perhaps because it focuses on smaller firms which benefit less from government support for the economy.

While growth in activity was slower in Japan, a sub-index for new orders, which measures both domestic and external demand, rose to a 10-month high.

Elsewhere in Asia, the pace of growth in India's factory activity slowed, resulting in the biggest month-on-month decline in its PMI since March 2013.

Analysts said the slowdown was probably due to a slump in demand after Prime Minister Narendra Modi ordered 500 and 1,000 rupee banknotes to be removed from circulation.

South Korean factories showed a fourth consecutive month of slowdown underlying a fragile recovery for Asia's fourth-biggest economy.

In Malaysia, where the ringgit currency MYR= has fallen sharply due to capital outflows, the PMI fell to a five month low, hurt by falls in production and new orders.

And in Australia, lower business investment has opened the possibility that the economy shrank last quarter for the first time in almost six years.

Article Link To Reuters:

Don't Ignore This Jobs Report, Even Though A Rate Hike Is Certain

By Mohamed A. El-Erian
The Bloomberg View
December 1, 2016

The monthly U.S. jobs report for November that will be released on Friday is unlikely to be so bad that the Federal Open Market Committee would upset market expectations and refrain from hiking interest rates in mid-December. Instead, the data are likely to validate what fixed-income markets have already priced in when it comes to short-term interest rates.

The report, however, could contain insights that help shed light on the subsequent path of policy interest rates.

Since the FOMC last met in early November, the balance of risks to the U.S. economy has shifted to the upside, for both growth and inflation. This has been accompanied by signs of further strength in the labor market, which is getting a lot closer to “full employment,” and from stock markets that are trading at (or very close to) record highs. In addition, the economic and financial headwinds from abroad have significantly abated.

It is not surprising then that markets have taken the probability of a December rate hike to a virtual certainty, despite the cloud associated with the Dec. 4 Italian referendum. Indeed, short of a huge European dislocation, the November employment snapshot would have to be truly awful to dissuade the Fed from hiking for the second time in 10 years.

By "awful" I mean some combination of low monthly job creation (50,000 or less), large downward revisions to the employment data of previous months, a deceleration in annual wage growth to below 2 percent, and a participation rate that, by increasing by 0.3 percentage points or more, signals significant remaining slack in the labor market.

That combination is very unlikely, particularly given the information about the economy from other recently released indicators, including this week's data on consumer sentiment, third-quarter gross domestic product, the Chicago Purchasing Managers' Index and the ADP numbers). What's much more likely is a jobs report that validates strong and widespread expectations that the Fed will move on rates in a couple of weeks.

This does not mean, however, that the monthly jobs report has lost its ability to influence policy and market prices. Although the timing of the next rate hike holds little mystery, what comes after remains uncertain.

Despite the recent widening in yields, markets continue to expect a path of higher rates that is slower than the pace implied by the Fed's “blue dots,” which represent the expectations of individual members of the Open Market Committee. Whether convergence occurs (as well as when and at what level) will be determined by inflationary expectations. And these will be heavily influenced by the tightness of the labor market, particularly when it comes to wage growth.

At least for now, some of the anticipation and excitement has been taken away from the highly watched data release on the first Friday of the month. Don’t let that fool you. The employment report remains an important input for assessing the future of monetary policy.

Article Link To The Bloomberg View:

Nokia Brand-Phones Poised For comeback As HMD Takes Charge

By Eric Auchard and Jussi Rosendahl
December 1, 2016

Nokia-branded mobile phones are about to make a comeback via a new venture that will reunite the Nokia brand with veteran Nokia executives who aim to move into smartphones capitalizing on an existing operation that sells low-cost basic phones.

HMD Global, a new Finnish company set up to revive the Nokia phone brand, on Thursday took over the basic phone business which Nokia Corp (NOKIA.HE) sold to Microsoft (MSFT.O) in 2014. Nokia the company now largely makes telecom network equipment.

HMD, officially founded six months ago, opens for business this month. It has several advantages over other start-ups, including Nokia's strong global brand, experienced management and Foxconn (2354.TW) as a manufacturing partner.

But it also has hurdles to overcome if it is to break into a crowded smartphone market dominated by models from scores of different players using Google's (GOOGL.O) Android platform.

"The barriers to entry for the Android phone space are low," mobile phone analyst Ben Wood of CCS Insight said. "What HMD has is the Nokia brand and management experience. The key to its success will be driving scale."

HMD has a licensing deal with Nokia giving it the sole use of the Nokia brand on mobile phones and tablets for the next decade and key cellular patent licenses, for which it will pay royalties to Nokia, which otherwise has no investment in HMD.

As part of the plan, HMD has agreed to rely on Foxconn, the world's largest contract manufacturer, to manufacture all its Nokia devices.

HMD said it plans to introduce new Nokia Android smartphones in the first half of 2017.

"We want to be one of the key competitive players in the smartphone business," chief executive Arto Nummela told Reuters. Samsung (005930.KS) and Apple (AAPL.O) are now big players, although Chinese brands like Huawei [HWT.UL] are closing the gap.

Rather than building its own system, the company is working in close partnership with Android's creator's, Google (GOOGL.O).

Nummela said he believed his team's extensive industry relationships with carriers and retailers, powered by the Nokia brand, could help them quickly capture smartphone share by convincing entry-level buyers of its feature phones to upgrade in markets like India, Indonesia and Russia.

"We really see the opportunity to create some space for ourselves on the (store) shelves," Nummela said. "Consumers may be carrying different smartphones now, but are they really in love and loyalty to those brands?"

Nummela is a long-time Nokia sales and product development executive, who moved to Microsoft when the phone business was sold.

HMD President Florian Seiche is a mobile phone industry veteran who previously worked at Siemens (SIEGn.DE), Orange, HTC and Nokia. Chief Marketing Officer Pekka Rantala is a former CEO of Angry Birds game maker Rovio, as well as a Nokia veteran.

"We are not going to skip any markets, in the long term," Seiche said of its global game-plan, adding that HMD has already set up offices in 40 locations around the world.

Article Link To Reuters:

Oil Prices Hold Gains After Surge On OPEC Output Deal

By Christopher Johnson 
December 1, 2016

Crude oil prices rose more than 1 percent on Thursday, building on big gains made after OPEC and Russia agreed to restrict production, even as analysts warned other producers were likely to top up supply.

The Organization of the Petroleum Exporting Countries agreed on Wednesday its first oil output reduction since 2008 after de-facto leader Saudi Arabia accepted "a big hit" and dropped a demand that arch-rival Iran also slash output.

The deal also included the group's first coordinated action with non-OPEC member Russia in 15 years. On Thursday, Azerbaijan said it was also willing to engage in talks on cuts.

"OPEC, it seems, has gone for the most bullish option," said Tamas Varga, analyst at London brokerage PVM Oil Associates.

"OPEC has done its best to stabilize the market in the $50-$60 price range, but if they fail to deliver in the coming months, make no mistake, oil prices will fall well below the $40 mark again."

Benchmark Brent crude for February was up 70 cents at $52.54 a barrel by 1140 GMT (6:40 a.m. ET). On Wednesday, the expired January Brent contract ended up $4.09 or 8.8 percent at $50.47.

U.S. light crude oil rose above $50, trading at $50.04, up 60 cents 10 cents on the day.

The OPEC deal triggered frenzied trading, with Brent futures trading volumes for February and March, when the supply cut will start to be visible in the market, hitting record volumes.

The March 2017 Brent futures contract traded a record 783,000 lots of 1,000 barrels each on Wednesday, worth $39 billion and beating a previous record of just over 600,000 reached in September.

Despite the agreed deal, doubts were widespread.

"Scepticism remains on individual countries' follow-through, which is keeping prices below year-to-date highs (of $53.73 per barrel in October) for now," Morgan Stanley analysts said.

Oil prices are still only at September-October levels - when plans for a cut were first announced - and crude prices are less than half mid-2014 levels, when the oil price began to collapse.

OPEC produces a third of global oil, or around 33.6 million bpd, and the deal aims to reduce output by 1.2 million bpd from January 2017, similar to January 2016 levels.

Analysts said the cuts could leave the field open for other producers, especially U.S. shale drillers.

"We do not believe that oil prices can sustainably remain above $55 per barrel, with global production responding first and foremost in the U.S.," Goldman Sachs said.

Article Link To Reuters:

Oil Price Rally Likely Short-Lived As OPEC Deal Not Enough To Reduce Glut

By Florence Tan
December 1, 2016

The oil price rally sparked by an OPEC-Russia deal to cut output is likely to be short-lived, say traders in Asia, because the agreement may only draw more supplies from storage tanks and more crude shipments from the United States.

And even without increased supplies from elsewhere, if the Organization of the Petroleum Exporting Countries (OPEC) and Russia do reduce production by 1.5 million barrels per day (bpd) as pledged, the cuts would not be deep enough to shrink a glut that began to build in mid-2014, traders said.

"The cut by OPEC will be largely offset by increases in U.S. production where the rig count has already increased," said India Oil Corp's Director of Finance A K Sharma.

"So surplus (oil) will stay in the market. If there is any impact, it will be short term."

Higher oil prices and lower production costs are encouraging U.S. shale operators to increase output, while Kazakhstan started production at the Kashagan field in October. [O/R]

Traders said the extent of the impact of the output deal will also depend on how it affects exports from Saudi Arabia and other OPEC members.

Cuts in export supply from producers could come from changes in operational tolerance, a contractual clause that allows either the buyer or seller to increase or reduce volumes by up to 10 percent, trade sources said.

The OPEC deal "will provide some price momentum but it cannot be compared with the cut seen back in 2008," a Singapore-based trader said, referring to the last OPEC production cut at 4.2 million bpd.

Production cuts early in the year are also a normal response to a low-demand season in February and March when Asian refiners typically shut for maintenance, he said.

Stronger prompt prices have also narrowed oil contango market structures, potentially prompting the release of oil from storage that could add to supplies, traders said.

Oil is more expensive in future months in a contango market, encouraging traders to store the commodity, but supplies are backed out when spreads start to weaken.

Strength in Middle East crude benchmark Dubai may also further narrow its price gap against Brent, leading Asia refiners to buy more oil from the Atlantic Basin and the Americas, traders said.

Impact On Oil Demand, Margins

Asian refiners are more concerned about the impact of higher oil prices on demand and profitability rather than the OPEC supply cuts as most have other crude sources to turn to.

China's independent refiners - also known as teapots - usually take more crude from South America and West Africa, for example.

The OPEC cuts will come mostly from Saudi Arabia and its Middle Eastern allies United Arab Emirates and Kuwait, from whom teapots barely import, so the impact will be minimal, said Zhang Liucheng, vice president of Dongming Petrochemical Group, the country's largest independent refiner.

As for any broad increase in oil prices, "whether it would affect teapots' crude demand, we'll need to watch out for domestic demand for refined fuel, which has not been great as even gasoline demand is growing less fast," Zhang said.

A spokesman at South Korea's second-largest refiner GS Caltex [GSCAL.UL] said: "What's more important to us is the product crack spread rather than the rising crude oil price ... We have to watch how the OPEC decision will affect oil demand."

Article Link To Reuters:

Trump's Business Is Not Too Big To Sell

By Timothy L. O'Brien
The Bloomberg View
December 1, 2016

Donald Trump took to Twitter on Wednesday to hint at how he will avoid conflicts of interest after he trades in his hat as the Trump Organization’s chief deal-maker for that of the U.S. commander in chief.

Trump said he recognizes that it’s “visually important, as president, to in no way have a conflict of interest.” To that end, he said, “legal documents are being crafted which take me completely out of business operations.” He plans to unveil how he'll go about this at a press conference on December 15.

This shouldn’t be too difficult. Trump can either appoint an independent third party to oversee the Trump Organization’s business portfolio, or simply sell all the company’s holdings.

Trump’s supporters have argued that his business is too complex and sprawling to be sold or managed by others. Journalists have helped this argument along by routinely referring to Trump’s “vast real-estate empire.” In reality, though, the Trump Organization is neither vast nor an empire. It is lucrative, certainly, and Trump has longstanding personal attachments to the properties he’s bought and built. But his business is hardly a global conglomerate on the order of Apple, General Electric or Berkshire Hathaway, or a real estate giant akin to Brookfield Asset Management, the Blackstone Group or Cushman & Wakefield.

(I wrote about Trump’s personal, political and business histories for the biography “TrumpNation.” He sued me for libel, claiming the book had damaged his reputation and business prospects. He lost the case in 2011.)

Since Trump’s brush with personal bankruptcy decades ago, and in the wake of a series of corporate bankruptcies, he has favored licensing deals over outright ownership in a significant number of his ventures. The Trump Organization today has three main components: a licensing operation that attaches Trump’s name to other people’s buildings, as well as products like clothing and mattresses; a handful of golf courses and resorts; and certain domestic real estate and retail holdings.

Apart from the three golf courses he owns in Scotland and Ireland, Trump’s overseas operations consist of licensing deals that pay him a fee for the use of his name.

The domestic real estate business that Trump controls independently consists of one office building at 40 Wall Street in New York, two hotels in Chicago and Washington, several golf courses, and his Mar-a-Lago resort in Palm Beach. He has minority stakes in two buildings in California and New York that are owned by Vornado Realty Trust, and he has three hotel partnerships in Las Vegas and New York.

As for his signature property, Trump Tower, the president-elect doesn’t own the land it stands on. (The same is true of 40 Wall Street.) And most of Trump Tower’s residential space is controlled by the individual condominium owners. (Trump still owns some valuable commercial and retail space in and around the tower, as well as the triplex in which he lives.) The other residential buildings in New York that bear Trump’s name have also been largely sold to individual condominium owners, though the Trumps have stayed on as building managers.

The Trump Organization, in other words, is basically a family-owned, boutique business.

Conflicts surrounding the Trump Organization could be addressed by 1) turning over the company’s licensing deals to a third party (or selling them) and 2) selling 12 golf courses, two hotels, one commercial building, one resort, some retail and commercial space, and liquidating a handful of hotel and real estate partnerships.

As I’ve noted on multiple occasions since June, Trump’s children are likely to remain in regular contact with him while he’s president, and that stands to perpetuate his conflicts problem. The three eldest children are also involved in policy discussions as part of Trump's White House transition team, and Trump is considering awarding his daughter Ivanka’s husband, Jared Kushner, a senior policy or advisory role in the White House.

Examples have already surfaced of Trump appearing to trade the celebrity of the presidency for financial advantages -- at his Washington hotel, in his dealings with overseas business partners, and in showcasing various Trump properties during recent media events, for example. Selling the Trump Organization’s holdings or turning them over to an independent operator would effectively isolate Trump, his children and his son-in-law from the inevitable and more consequential financial conflicts awaiting the family.

Trump repeatedly insists that he did not seek the presidency to enrich himself; making America great again is more important to him than making money. He can demonstrate that he’s serious about those pledges by severing his own and his children’s ties with the Trump Organization.

Article Link To The Bloomberg View:

Global Bonds Suffer Worst Monthly Meltdown As $1.7 Trillion Lost

Index’s market value fell $2.8 trillion over past two months; Yield has climbed 52 basis points from July’s record-low 1.07%.

By Garfield Clinton Reynolds and Wes Goodman
December 1, 2016

The 30-year-old bull market in bonds looks to be ending with a bang.

The Bloomberg Barclays Global Aggregate Total Return Index lost 4 percent in November, the deepest slump since the gauge’s inception in 1990. Gathering U.S. economic momentum and Donald Trump’s election win -- with promises of tax cuts and $1 trillion in infrastructure spending -- spurred investors to dump debt that was offering near-record-low yields and pile into stocks.

Calling an end to the three-decade bond bull market is no longer looking like a fool’s errand: the Federal Reserve is expected to start raising interest rates -- and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may be buying fewer sovereign securities going forward. Investors pulled $10.7 billion from U.S. bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to record highs.

“A lot of people are beginning to think that it is the end of the bull rally,” said Roger Bridges, the chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management’s Australia unit, which oversees $14 billion. U.S. 10-year yields may rise to 2.7 percent in January, Bridges said. “The trend is your friend.”

The rout wiped $1.7 trillion from the global index’s value in November, also a record, in a month that saw world equity markets’ capitalization climb $635 billion.

The yield on 10-year U.S. notes rose 56 basis points in November, the biggest jump since 2009, and was at 2.38 percent as of 7:03 a.m. in London on Thursday. The average yield on the Bloomberg Barclays Global gauge climbed to 1.61 percent on Nov. 23, after touching a record low of 1.07 percent on July 5.

The rise in yields shows the limitations of the quantitative easing policies at the biggest central banks, Bridges said. Bonds will be especially vulnerable if the European Central Bank discusses reducing its debt-purchase program at its Dec. 8 meeting, he said.

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