Re: Saudi blend leading the way?


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Thanks, who would have thought the Saudi blend would lead the way…

>   
>   On Thu, Feb 12, 2009 at 12:09 PM, David wrote:
>   
>   U.S. CASH CRUDE MARS SOUR RISES
>   $1.00 TO RECORD $8.00 ABOVE WTI – TRADER
>   
>   I believe this is the Saudi sour equivalent here in
>   US.
>   


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Trichet says rising deficits are ‘problem’


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Agreed!

They are risking the solvency of the national governments.

The national governments are beyond the point where they can write the check should any of their major banks be declared insolvent.

Trichet Says Rising Deficits are ‘Problem,’ Osnabruecker Reports

by Matthew Brockett

Feb 12 (Bloomberg) &#8212 European Central Bank President Jean-Claude Trichet said rising budget deficits in the euro region are an “important problem” and urged governments to respect the Stability and Growth Pact, the Neue Osnabruecker Zeitung reported, citing an interview.

Trichet also said the situation in the banking sector remains “difficult” and should be monitored closely by governments and central banks, the newspaper reported on its Web site today. Measures such as so-called bad banks should be competition neutral, Trichet said, according to Neue Osnabruecker.


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Re: China’s new loans rise by record on stimulus efforts


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(email exchange)

Yes, they use lending from their state owned banks as a fiscal adjustment, by lending with little concern about getting paid back.

The question is how much is going to domestic demand and how much is going to subsidize exports. Probably mainly the latter.

>   
>   On Wed, Feb 11, 2009 at 11:48 PM, EDWARD wrote:
>   
>   The government mandates the lending, hence the concerns about loan
>   quality and writedowns…but the government is also providing money and
>   the rules are not necessarily the same as in the West…they may be
>   effective to a point as the net aggregate demand lost from failure in the
>   export sector needs to be replaced.
>   

China’s New Loans Rise by Record on Stimulus Efforts (Update 1)

by Kevin Hamlin and Luo Jin

Feb 12 (Bloomberg) — China’s new loans rose by a record in January and money supply expanded more quickly as the government implemented a 4 trillion yuan ($585 billion) stimulus package to revive the world’s third-largest economy.


Banks extended 1.62 trillion yuan ($237 billion) of new local-currency loans and M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier, the fastest pace in more than a year, the People’s Bank of China said today on its Web site.

China’s government has put pressure on banks to boost lending as the government rolls out a stimulus package to reverse the nation’s economic slide. Loan default risk is the biggest single threat to Chinese lenders, which face “a choppy 2009” because the potential for credit losses is rising, Fitch Ratings said last month.


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RBOB moving up


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Even as spot crude prices remain low, and the front contango extreme, RBOB (unleaded gasoline) has been steadily moving up, and the crack spread widening substantially.

This fits with anecdotal reports of gasoline consumption remaining reasonably firm with year over year declines under 4%.

It’s not going to take much of a recovery to give the Saudis cover to get crude prices back up to whatever price they want them to be.


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FRA/OIS Update


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The 18m into 1yr FRA-OIS is now 51 bps mid vs 40 in January

The FRA-OIS curve has steepened since January

Mar 09 1) 90.00

Jun 09 2) 83.38

Sep 09 3) 78.50

Dec 09 4) 81.50

Mar 10 5) 63.00

Jun 10 6) 55.00

Sep 10 7) 47.00

Dec 10 8) 47.00

Mar 11 9) 35.00

Jun 11 10) 28.00

Sep 11 11) 26.00

Dec 11 12) 32.00

Mar 12 13) 34.00

Jun 12 14) 29.00

Sep 12 15) 29.00

Dec 12 16) 28.00

Mar 13 17) 30.00

Jun 13 18) 28.00

Sep 13 19) 28.00

The Jun11 and Sept11 FRA-OIS is pricing in virtually zero term premium for 3mLIBOR

Meanwhile front end OIS spreads have widened by 9 making the “roll-up” more attractive

3mLIBOR did find a floor in the 1% area as we expected (at least so far…):

Option on continued financial distress and/or a new paradigm for FF-LIBOR spreads.

From a fundamental standpoint the forward timing of these spreads coincides with termination of TLGP guarantee issuance and other Fed/Trsy financial support programs.

Mar09 (Front)

Jun11 (sweet spot)

Fed Funds effective rate currently 9bps:

But where will 3m LIBOR be? Currently 1.3975%.

Thus current spot setting is 130bps.

Front rolling OIS-LIBOR:

5th rolling OIS-LIBOR:

9th rolling OIS-LIBOR:

The long term floor for FF-LIBOR has been 12-15bps:

1y FF-LIBOR basis swap:

Banks are still not lending to each other unsecured for term.

The term premium for funding will remain steep as long as financials want to keep flexibility in their cash holdings.

The premium for term LIBOR is further supported by the level of financial CDS:

It is hard to imagine banks lending to each other at levels below those implied by CDS (unless Government or FDIC guaranteed):

Bank 5yr CDS

BANK 5yr CDS
American Express 245.6
BBVA 81.1
BNP 59.1
Banco Santander 82.2
Bank of America 110.1
Barclays 140.5
Citigroup 164.5
Commerzbank 73.1
Credit Agricole 69.2
Credit Suisse 165
Deutsche Bank 119.600
Goldman 246.3
HSBC 90.1
ING 113.2
JPMorgan 110.1
Opec Country Jan Est.
Lloyds TSB 93
Merrill Lynch 112.5
Morgan Stanley 357.4
RBS 112.8
Soc Gen 95.3
UBS 194.7
UniCredit 104.7
Wachovia 111.4
Wells Fargo 110.1
Average 131.7333


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2009-02-12 USER


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Advance Retail Sales MoM (Jan)

Survey -0.8%
Actual 1.0%
Prior -2.7%
Revised -3.0%

 
Karim writes:

  • Retail sales rise 1% in January for first rise in 7mths.
  • December revised to down 3% from down 2.7%.
  • 3mth annualized rate of change improves from -25.5% to -24.3%.

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Advance Retail Sales YoY (Jan)

Survey n/a
Actual -9.7%
Prior -10.5%
Revised n/a

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Retail Sales Less Autos MoM (Jan)

Survey -0.4%
Actual 0.9%
Prior -3.1%
Revised -3.2%

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Initial Jobless Claims (Feb 7)

Survey 610K
Actual 623K
Prior 626K
Revised 631K

 
Karim writes:

  • Initial claims drop 8k to 623k
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    Continuing Claims (Jan 31)

    Survey 4800K
    Actual 4810K
    Prior 4788K
    Revised 4799K

     
    Karim writes:

    • Continuing claims rise 11k to new cycle high
    • Chicago Fed Prez Evans yesterday that further policy accommodation was needed

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    Jobless Claims ALLX (Jan 31)

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    Business Inventories MoM (Dec)

    Survey -0.9%
    Actual -1.3%
    Prior -0.7%
    Revised -1.1%

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    Business Inventories YoY (Dec)

    Survey n/a
    Actual 0.9%
    Prior 2.9%
    Revised n/a


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    China crude drop only 8%


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    Not nearly enough to dislodge the Saudis from being the swing producer and price setter now that the Great Mike Masters Inventory Liquidation has run its course.

    Beware an even modest recovery that increased crude consumption.

    China’s Net Crude Imports Decline to Lowest in a Year

    by Wang Ying

    Feb 11 (Bloomberg) — Crude-oil imports dropped by 8 percent to 12.82 million tons from a year earlier while overseas shipments of the fuel more than doubled, rising 156 percent to 450,000 tons, the customs said today.


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    Clinton to China


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    This should be an interesting exchange:

    China Needs US Guarantees for Treasuries, Yu Says

    by Belinda Cao and Judy Chen

    Feb 11 (Bloomberg) — In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.


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    Obama, the FDIC, and private capital


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    The FDIC claims the banks are solvent, and valuing their portfolios as required by law, or they could close them down as they are charged to do, also by law.

    If Obama believes his FDIC officers and bank examiners are liars, he should take action against them at once.

    If he believes the FDIC to be capable and truthful, then what is this about:

    Obama Says US Has ‘No Easy Out’ of Banking Crisis

    by Edwin Chen

    Feb 10 (Bloomberg) — Some banks haven’t been transparent about assets on their books, Obama said. Now they must “just be clear about some of the losses that have been made, because until we do that we’re not going to be able to attract private capital into the marketplace.”

    And the emphasis now seems to be on attracting private capital, hence with this claimed reason banks aren’t raising private capital.


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