Archives for February 2015

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange. (Reuters/Pawel Kopczynski)

Germany has sold €3.28 billion in five-year bonds with a negative yield for the first time in its history, just days before the eurozone’s monthly €60 billion ‘easy money’ program starts.

The average yield for bonds due in April 2020 auctioned Wednesday was minus 0.08 percent. This was the lowest rate for five-year bonds ever placed by a eurozone country. Earlier this month, Finland placed a similar bond with a yield of negative 0.02 percent.

Negative yield means that investors who buy bonds effectively pay the German state for holding its debt.

Investors pay to lend money for 5yrs to #Germany. Berlin sold €3.3bn 5Yr bond at -0.08%, negative yield for 1st time. pic.twitter.com/5aMBofO3hA

— Holger Zschaepitz (@Schuldensuehner) February 25, 2015

Bonds are being traded at a negative yield due to deflation in the eurozone and the €60 billion a month program of quantitative easing (QE) recently launched by the European Central Bank.

READ MORE: ECB announces milestone €1.14trn ‘easy money’ program

Bond prices, which climb when yields drop, are in turn expected to rise after the ECB launches QE measures in March. That means investors could potentially sell their bonds at a profit.

“Hence, the negative yield is not scaring investors away,” said Jens Peter Sorensen, chief analyst at Danske Bank as quoted by the Wall Street Journal.

As the interest rates of the eurozone are likely to remain low for some time, investors might become interested in purchasing five-year German debt and selling shorter-term German bonds where yields are even more negative, said David Tan, global head of rates at J.P. Morgan Asset Management.

“We see no prospect of the ECB tightening in the near term,” Mr. Tan told Reuters.

The five-year yield of Dutch, Austrian and German bonds are now all below zero, as well as five-year securities issued by the European Financial Stability Facility, one of the bloc’s rescue funds. The bonds of Denmark and Switzerland also show negative performance.

In January, ECB President Mario Draghi said maturities of sovereign bonds purchased will range between two and 30 years, including bonds with a negative yield.

Article source: http://rt.com/business/235419-germany-bonds-record-low/

Reuters/Stringer

A preliminary estimate of China’s purchasing managers’ index (PMI) that reflects business conditions in manufacturing, shows the sector started to grow after four months of contraction, with exports remaining sluggish.

The HSBC China February flash manufacturing PMI jumped to 50.1, a level well above the expected 49.5 and up from January’s final 49.7. However, exports shrank at the fastest rate in 20 months to 47.1, according to the survey, issued Wednesday.

While Chinese manufacturing showed signs of expansion, exports from the world’s second largest economy remain slack. Weak foreign demand and deepening deflationary pressure mean considerable risks for manufacturers.

“Today’s data points to a marginal improvement in the Chinese manufacturing sector going into the Chinese New Year period in February,” Qu Hongbin, chief China economist at HSBC in Hong Kong said, commenting on the survey. “However, domestic economic activity is likely to remain sluggish and external demand looks uncertain. We believe more policy easing is still warranted at the current stage to support growth.”

Output and new orders also fell, though they showed a faster rate of increase than the previous month.

The Australian dollar advanced after the report, as better demand outlook in China is positive for the Australian economy and currency since Australia’s major share of export revenue comes from commodities shipments to China. Shares in China and Hong Kong remained slightly lower on Wednesday.

The Flash PMI report is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

READ MORE: Lowest Chinese economic growth in 24 years

Article source: http://rt.com/business/235359-china-pmi-hsbc-economy/

Reuters/Eduard Korniyenko

Ukrainian supermarkets have imposed rationing of basic products after the drastic fall in the value of the hryvnia. The currency has lost 70 percent of its value causing people to stockpile food and buy electronics as a hedge.

Restrictions apply for goods such as cooking oil, flour and sugar, Ukraine’s news agency UNN reports Wednesday. Retailers may sell no more than two bottles of sunflower oil, and two packs of buckwheat per customer and, depending on the store, from 3 to 5 kilograms of flour and sugar.

Bread, rice, potatoes, meat and milk are not yet rationed, but are not so plentiful on supermarket shelves.

Stores have also see higher demand for household appliances, as people consider consumer electronics an investment as prices increase on a daily basis, RIA reports. Inflation in Ukraine is expected to reach 27 percent by the end of 2015.

Hryvnia’s fall

The rush to buy was triggered by the dramatic depreciation of Ukraine’s hryvnia which lost 70 percent of its value against other currencies in just a year. The conflict in Eastern Ukraine and international reserves only enough to last for two months, are among the key reasons for the hryvnia’s fall.

The devaluation accelerated after the National Bank of Ukraine (NBU) let the hryvnia free float in early February.

READ MORE: Ukrainian hryvnia in free fall after Central Bank scraps currency support

incredible fall of ukr hryvnia #Ukraine thanks to #euromaidanpic.twitter.com/HPWtP3bHkY

— Nadia Nadia (@NadezhdaAle) February 24, 2015

Ukraine is currently in a deep political crisis reflected in its economy and budget. The country is balancing on the brink of default. Prime Minister Arseny Yatsenyuk says Ukraine’s task for 2015 is “to survive” and that all people would face tough challenges no matter what their place in society. According to the NBU the country’s GDP plunged by 7.5 percent in 2014.

The minimum weekly wage in Ukraine is less than $43 (1,218 hryvnia) which is lower than in Bangladesh, Ghana and Zambia ($46.6)

The official exchange rate set by the National Bank for February 24 is 28.29 hryvnia to the dollar and 31.96 to the euro. Exchange offices sell the dollar at more than 40 hryvnia and the euro at about 50.

In an attempt to stop the currency’s free fall the National Bank of Ukraine stepped up its currency controls Wednesday, preventing banks from buying any foreign currency for clients this week and limiting what they could buy for themselves.

Prime Minister Arseny Yatsenyuk criticized the decision saying it doesn’t add stability to the Ukrainian economy.

“This morning I learned that the NBU on its own, without consultation, decided to close the interbank market that surely doesn’t add stability to hryvnia,” he said talking at Wednesday’s Cabinet meeting.

Meanwhile Ukrainian President Petro Poroshenko called for the head of the NBU Valeriya Gontareva to “stop messing with the exchange rate” and gave her a week to solve the issue, Ukrainian media reported Wednesday.

Article source: http://rt.com/business/235375-ukraine-hryvnia-currency-crisis/

Reuters/Marat Gurt

The European Union has decided to turn to alternative gas suppliers such as Azerbaijan, Turkmenistan, Algeria and Turkey following recent “political challenges” including the Ukraine crisis and the cancellation of the Russia-led South Stream gas pipeline.

On Wednesday, the European Commission published a new Union Energy Package that focuses on ways to diversify future supplies as well as to boost energy efficiency and security.

“To reach our goal, we have to move away from an economy driven by fossil fuels, an economy where energy is based on a centralized, supply-side approach and which relies on old technologies and outdated business models,” the report said.

“As part of a revitalized European energy and climate diplomacy, the EU will use all its foreign policy instruments to establish strategic energy partnerships with increasingly important producing and transit countries or regions such as Algeria and Turkey; Azerbaijan and Turkmenistan; the Middle East; Africa and other potential suppliers,” it said, adding that the block will reconsider its energy relations with Russia, “when the conditions are right.”

The EU now intends to intensify efforts on the ‘Southern Gas Corridor’, that’ll enable Central Asian countries to export gas to Europe. The creation of liquid gas hubs with multiple suppliers will be a solution for Northern Europe, which should be followed in Central and Eastern Europe, and in the Mediterranean area.

Since taking office in 2014, Sefcovic has called the $45 billion ‘Southern Corridor’ project a priority. The gas pipelines will be laid to southeastern Europe from the Caspian region and potentially the Middle East. The Trans-Adriatic Pipeline (TAP) via Italy, partly owned by BP, will become the final part of the project and is expected to provide Europe with 10 billion cubic meters of Azeri gas by 2020.

Europe renewed its interest in deliveries through the ‘Southern Corridor’ after Russia suspended the $50 billion South Stream gas pipeline, which would have had an annual capacity of 63 billion cubic meters. In order to reduce dependence on Russian gas, the EU intends to analyze the long-term demand for gas among all member countries, to examine all contracts with suppliers for compliance with European law.

READ MORE: Russia and Turkey agree on new gas route

The crisis in Ukraine has threatened gas transit to Europe, as the country more than once violated the terms of supply agreements with Russia.

READ MORE: Kiev cash-for-gas fail could cost EU its supply – Gazprom

Ahead of the document’s release Maros Sefcovic, the Vice President of the European Commission in charge of Europe’s energy agenda, told the Financial Times that the EU should diversify its energy sources, loosening its dependence on Gazprom, Russia’s gas export monopoly.

“I think that Europe has really got tired of each summer having a discussion of how to make it through the next winter. The world’s biggest economy should not have such concerns in the 21st century,” he said. According to Sefcovic, Russia would remain a “very important supplier” for the EU but its influence would lessen.

Sefcovic said the EU had made mistakes in attempting to build a southern corridor for fuel supplies, in particular, the Nabucco gas pipeline.

“We have learnt the lessons from Nabucco. This project failed because there was not enough political support. We simply believed that this project would happen just because of the business interests,” he said.

The EU would throw all its political weight behind TAP to ensure work was completed by the end of 2019, Sefcovic said.

The Trans-Adriatic Pipeline is expected to supply roughly two percent of European gas demand. However, the project’s executives say capacity can be lifted to 20 billion cubic meters after 2020.

In 2014, the EU imported 53 percent of its consumed energy, which cost about €400 billion, according to the European Commission. Six of the 28 EU member states are 100 percent dependent on Russian gas which makes up 27 percent of gas consumed by the EU.

Article source: http://rt.com/business/235319-eu-gas-caspian-algeria/

Nigeria’s Petroleum Minister and OPEC’s alternate president Diezani Alison-Madueke (Reuters / Rick Wilking)

The OPEC member states are discussing the possibility of an emergency meeting should oil prices continue to fall, said Nigerian Oil Minister, and OPEC President Diezani Alison-Madueke. Prices have dropped by than half since their peak last summer.

If the price “slips any further it is highly likely that I will have to call an extraordinary meeting of OPEC in the next six weeks or so,” said Alison-Madueke, as quoted by the Financial Times, adding that discussions are already underway.

“Almost all OPEC countries, except perhaps the Arab bloc, are very uncomfortable,” she said. As the cartel’s president, she is responsible for maintaining communication with member countries and Secretary-General El-Badri in case of an emergency meeting.

READ MORE: $20 oil wouldn’t force production cut – Saudi oil minister

Alison-Madueke expects prices will stabilize at least at the current level, because otherwise it would be difficult or even impossible for some cartel members to implement their planned budgets.

At a time of publication Tuesday, Brent crude was trading at $59.95 dollars per barrel, with the price for WTI crude at $49.89 per barrel.

Despite the president’s willingness to hold an emergency meeting, OPEC’s de facto leader Saudi Arabia is unlikely to participate, say market analysts. Alison-Madueke stressed that OPEC cannot stabilize the oil market alone, that’s why the cartel should consult other key oil producers such as the United States, Russia, as well as global groups like the International Energy Agency and G20.

“It cannot only be OPEC that is responsible for stability in the market,” she said. “The world has moved on from the days that OPEC was the be all and end all.”

The last OPEC meeting was held in November 2014. The members of the cartel then decided to leave oil output unchanged at 30 million barrels per day.

READ MORE: Oil slumps into tailspin as OPEC leaves output unchanged

Many experts consider it an attempt to protect OPEC members’ share of the global energy market.

Oil prices reached their six-year low in January, losing more that 50 percent since summer 2014. However, in February the price of Brent crude stabilized at around $60 per barrel.

Article source: http://rt.com/business/235055-oil-opec-emergency-meeting/

Cyprus’ President Nicos Anastasiades (Reuters / Yves Herman)

EU sanctions against Russia over the Ukraine crisis have neither proved effective, nor met the expectations of those who imposed them, but brought huge losses, said Cyprus President Nikos Anastasiadis ahead of a visit to Moscow.

The sanctions have not only complicated the economic situation in many European countries, but brought no prospects of peace for the Ukrainian people, said Anastasiadis in an interview to TASS.

“We have openly said in the Council of Europe that sanctions will not solve the problem. Sanctions will only create wider problems for the whole European Union. It turns out that these sanctions will be paid for by the people from the smallest of the countries,” he said, adding that Cyprus is very closely connected with Russia.

“Our economy and defense are highly dependent on our relations with Russia. Thousands of Russian companies work in Cyprus, we have large investments made by the citizens of Russia,” he said. “Our tourism also strongly depends on Russians.”

The heads of other EU countries such as Greece, and Hungary have repeatedly said the sanctions primarily hurt the ones who impose them.

READ MORE: EU sanctions like ‘shooting oneself in the foot’ – Hungary PM

READ MORE: Putin: France, Germany genuinely want to find compromise over E. Ukraine

Long-time friends

Anastasiadis said when he took office the country’s foreign policy would be reoriented towards strengthening ties with the US, however, it didn’t mean giving up political ties with other countries.

“I then explained that it would no way happen at the expense of relations with our traditional friends, such as Russia,” he said recalling Moscow’s support in the question of the republic’s existence back in 1974.

The trust of Russian businessmen in Cyprus and its public authorities when the crisis hit in 2013 has become one of the most important factors in the country’s recovery, said Anastasiadis.

“We were on the road to disaster. Indeed, we were on the threshold of a catastrophic collapse on the verge of default,” he said, adding that the support and the trust of the Russian companies enabled them to gradually capitalize the banking system and at the same time rationalize it.

READ MORE: Cyprus banks reopen: LIVE UPDATES

“We re-entered the world market just half a year after the crisis. We have updated our ratings from international rating agencies – all this has allowed us to establish order in the framework of the activities carried out in order to modernize our public administration,” he said.

Cyprus is still experiencing difficulties, but Anastasiadis hopes there will soon be more interest in investment and more jobs will be created, even with unemployment at a high level of 16 percent.

Cyprus has suffered serious damage from the Russian response to EU sanctions and expects a severe downturn in the tourism industry in 2015, said Georgios Kasoulides, Ambassador of the Republic of Cyprus to Russia.

Most important foreign trip

Nikos Anastasiadis sees his visit to Russia from February 24 to 27 as “one of his most important trips abroad,” saying his country is very grateful for the trust shown by the Russians to the Republic of Cyprus, especially during the banking crisis of 2013.

“We show deep gratitude to the Russians,” said Anastasiadis. “This is the feeling that makes us stand in the Council of Europe against the measures that might hurt friends who had shown confidence and gave us hope for a rapid recovery and a way out of the crisis.”

READ MORE: Cyprus warns economic sanctions against Russia will destroy its economy

Article source: http://rt.com/business/234959-cyprus-eu-russia-sanctions/

Reuters / Yves Herman

Greece’s eurozone creditors have approved the reform plan it put forward, which paves the way for the country’s €172 billion bailout to be extended until June.

“National procedures for extension of the Greek programme can begin,” EU Euro Commissioner Valdis Dombrovskis said on Twitter after a conference call Tuesday.

Final approval will come from the parliaments of several eurozone countries, the Eurogroup said .

#Eurozone backs Greece bailout extension: commissioner. http://t.co/Hx47SMB8uV pic.twitter.com/t6u2UcG3eK

— Peninsula Newspaper (@PeninsulaQatar) February 24, 2015

Greece sent a list of economic reform plans to European institutions and the International Monetary Fund around midnight. “This list is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review,”the European Commissionsaid earlier on Tuesday.

“We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions,” the Eurogroup said in a statement.

READ MORE: Greece, eurozone officials agree to extend bailout by 4 months

Jeroen Dijsselbloem, the head of the Eurogroup, said ahead of the announcement he hoped developments Tuesday will “contribute to restoring trust between all parties and help to get the recovery in Greece back on track.”

“It’s crucial to stabilize the situation in Greece, allowing us time to work on future cooperation with Greece and bridging this period,” Dijsselbloem told EU legislators.

READ MORE: Grexit: Win for both EU and Greece?

The Athens Stock Exchange was up 7.2 percent in early trading Tuesday, as investors anticipated a positive outcome. It was its highest level in two and a half months on opening, according to Reuters. At a time of publication it was up 6.19 percent standing at 907.03.

Athens Stock Exchange #GREECE#ASE#FTASE#STOCKS#TRADING#MARKETS#ADEX#AGORESpic.twitter.com/J5ZE4dkXS2

— Chartist Trader (@ApoManth) February 24, 2015

Greek bond yields have also rallied. The yield on Greece’s three-year bond has fallen 155 basis points to 13.52 per cent, while the yield on the 10-year bond has fallen below 9 per cent to 8.98 per cent.

Greek plan

The Greek government “is committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery,” reads a six-page letter sent by Greece’s Finance Minister Yanis Varoufakis on Monday and published in the Greek Ekathimerini newspaper.

Among other issues, the plan focuses on fighting corruption and tax evasion. It also suggests compromises in such issues as labor reforms and social spending. Greece has promised not to stop any ongoing social expenditure or completed privatizations and ensures that any state spending to address a “humanitarian crisis”does not hurt its budget. Prime Minister Alexis Tsipras said the Greek government would raise minimum wages over time, despite earlier promises to raise them immediately.

The public sector wage system will be reviewed, and there will be not substantial increases, earlier Athens asked for no further pay reductions.

The Greece government wants to make savings through the consolidation of pension funds and the end of loopholes and incentives for early retirement. It previously wanted to make sure there would be no further pension cuts.

Article source: http://rt.com/business/235003-greece-stock-market-rescue/

Aleksei Miller, Chief Executive Officer, Gazprom (RIA Novosti / Sergey Guneev)

Russia will completely cut Ukraine off gas supplies in two days if Kiev fails to pay for deliveries, which will create transit risks for Europe, Gazprom has said.

Ukraine has not paid for March deliveries and is extracting all it can from the current paid supply, seriously risking an early termination of the advance settlement and a supply cutoff, Gazprom’s CEO Alexey Miller told journalists. The prepaid gas volumes now stand at 219 million cubic meters.

“It takes about two days to get payment from Naftogaz deposited to a Gazprom account. That’s why a delivery to Ukraine of 114 million cubic meters will lead to a complete termination of Russian gas supplies as early as in two days, which creates serious risks for the transit to Europe,” Miller said.

Earlier this month, Russian Energy Minister Aleksandr Novak estimated Ukraine’s debt to Russian energy giant Gazprom at $2.3 billion.

In the end of 2014, Kiev’s massive gas debt that stood above $5 billion, forced Moscow to suspend gas deliveries to Ukraine for nearly six months. On December 9, Russia resumed its supplies under the so-called winter package deal, which expires on April 1, 2015.

READ MORE: Russia resumes gas deliveries to Ukraine after six-month hiatus

Naftogaz refusal

Naftogaz said it would not make advance payments for Russian gas without knowing Gazprom will implement its side of the contract, and the EU – brokered ‘winter plan.’

“Europe currently is the main source of gas supplied to Ukraine, that’s why the flawless implementation of our liabilities to transport gas to the EU is our major strategy,” the head of Naftogaz, Andrey Kobolev said.

On Monday, Ukrainian state energy company Naftogaz accused Gazprom of failing to deliver gas that Kiev had paid for in advance. Naftogaz says Russia has broken an agreement to deliver 114 million of cubic meters of natural gas to Ukraine by delivering only 47 million cubic meters.

During a meeting with President Vladimir Putin on February 20, Russian Prime Minister Dmitry Medvedev expressed concern about an increase in daily applications by Ukraine for the supply of gas, TASS reports.

READ MORE: PM Medvedev orders commencement of gas deliveries to embattled Donbass

He noted that “Ukraine’s consumers have requested a larger supply; the volume has increased by 2.5 times. This means that the prepaid volumes left are enough for no more than two to three days.”

Last week, Medvedev ordered the energy minister and the head of Gazprom to prepare proposals on fuel deliveries to the self-proclaimed Republics of Donetsk and Lugansk (DPR and LPR) after Kiev had cut off the delivery pipeline into the southeastern regions. Ukraine’s Naftogaz said it had halted gas supplies to eastern regions due to broken pipelines.

Prime Minister Arseny Yatsenyuk said earlier that Ukraine was looking forward to increasing its domestic oil and gas exploration and more supplies from Europe allowing it to completely cut imports of Russian gas.

READ MORE: Ukraine to ditch Russian gas completely – prime minister

Article source: http://rt.com/business/234963-gazprom-naftogaz-trasit-gas/