Thursday 30th October 2014
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THURSDAY TICKER: OCTOBER 30TH 2014: - In ConvergEx’s survey of financial market professional, released today, uust 17% of respondents say they approve of the job Barack Obama is doing as president, while 73% said they disapprove. (This compares with a 41% approval/54% disapproval rating for the President in the RealClearPolitics average, 10/8-10/23/2014) Half (50%) of those surveyed give the President a “D” or “F” grade on handling issues of concern to the financial services industry. Opinions of Congress are even lower, with just 8% approving of the job being done by Congress and 81% disapproving. (This compares with a 13% approval/79% disapproval rating for Congress in the RealClearPolitics average, 10/3-10/20/2014. Almost half (46%) give Congress a “D” or “F” grade on handling issues of concern to the financial services industry. 69% of respondents say they would like Republicans to be in control of the Senate following the elections, a figure above even the 65% who say they plan to vote Republican in their own House districts. By 61% to 14%, Republicans are trusted over Democrats on issues impacting the financial services industry. For 8 of 9 market sectors, a higher percentage of respondents said equities would respond positively to a GOP win than to a Democratic win. Only for the Heath Care sector do more investors expect a positive outcome in response to Democrats holding the Senate - The Commercial Bank of Qatar (CBQ) posted a net profit (before deducting minority interest) of QAR503m in 3Q2014, flat QoQ, but 79% higher than a particularly weak 3Q2013. CBQ’s operating income in 3Q2014 increased 16% YoY but dropped 10% QoQ, driven by lower-than-expected results at subsidiary ABank. ABank’s operating income tumbled around 23% QoQ as non-interest income plummeted. For CBQ excluding ABank, operating income stood at around QR 764 million in 3Q2014, up 12% YoY, down 6% QoQ - Moody's has today assigned a provisional (P)B1 corporate family rating (CFR) to Kompania Weglowa SA, the parent company of the group. This provisional rating is subject to the successful completion of the issuance of new notes as currently contemplated by management. Concurrently, Moody's has assigned a provisional (P)B1 rating with a loss-given default (LGD) assessment of 3 (46%) to the senior unsecured notes to be issued by Kompania Weglowa Finance AB (publ), a financing vehicle owned by the company. The outlook on all ratings is stable - ING Group will release its 3Q 2014 results on Wednesday November 5th around 7:00 am CET - AIMCo, Allianz Capital Partners, EDF Invest andHastings have closed its buy of Porterbrook, a UK-based rolling stock leasing company. orterbrook is one of three main rolling stock companies (ROSCOs) in the UK that owns and leases a fleet of passenger and freight rolling stock to Train Operating Companies and Freight Operating Companies under long term contracts. It owns 32 per cent of total passenger rolling stock in the UK. No financial terms were disclosed - Fixed-income markets remain volatile: Europe is challenged, Brazil might struggle, and China is dealing with a potential property bubble. Opportunities nonetheless remain rife for savvy investors, particularly in the high-yield markets. Western Asset believes high-yield should be a key component of any successfully diversified bond portfolio. "We are pretty bullish on credit in general, and high-yield in particular," says Michael Buchanan, head of Global Credit at Western Asset. "Credit is less about the overall economic environment and more about strong corporate fundamentals. Corporations can do well in a mediocre economy, and that seems to be what's happening. Three factors are important right now: the overall economic environment is supportive; strong active management allows us to identify the right opportunities; and valuations are as compelling as they have been in months. This is a good time to take a fresh look at high-yield." Western Asset also believes high-yield products will offer price appreciation as spreads should tighten. On the global economic environment, Mr. Buchanan echoed Western Asset views that interest rates are poised to rise – albeit slowly, and via a process that will be carefully measured. Rates will not be meaningfully higher in the near future, or at least the moves will be gradual – According to Moody’s while the US government's current fiscal position remains relatively healthy, mandatory social spending will begin weakening the current fiscal profile of the US government at the end of the decade. For the next few years, barring another shock like the global financial crisis, the US budget deficit is expected to remain well within historical norms with Federal government debt ratios stable. However, the fiscal implications of the US government's healthcare-related programs likely will put pressure on its credit profile before the end of the decade, absent unexpected and sustained growth in revenue due to higher than expected GDP growth, additional tax increases, or reductions in planned expenditures, says Moody’s.

Gold outlook remains tied to political risks

Wednesday, 08 February 2012
Gold outlook remains tied to political risks If 2011 was all about a strong investment case for gold, the sell-off at the very end of last year heralded a more cautious approach to the yellow metal. Most analysts believe gold will continue to rise in the first half of 2012, possibly by as much as $300 to $500 a troy ounce. However, they also warn that prices are likely to start falling in the second half of this year and continue on a downward path into 2013, while platinum and palladium could climb steadily. By Vanya Dragomanovich. http://www.ftseglobalmarkets.com/media/k2/items/cache/5214bdb529ff52c2bc08d9b03f97b94e_XL.jpg

If 2011 was all about a strong investment case for gold, the sell-off at the very end of last year heralded a more cautious approach to the yellow metal. Most analysts believe gold will continue to rise in the first half of 2012, possibly by as much as $300 to $500 a troy ounce. However, they also warn that prices are likely to start falling in the second half of this year and continue on a downward path into 2013, while platinum and palladium could climb steadily. By Vanya Dragomanovich.

The vast strategic allocations—not only from speculators but also from private banking and high net worth individuals—which have shaped the precious metals market over the past two and a half years have now subsided, according to Nick Moore, a commodity analyst at RBS. “To us this had always seemed inevitable. Investment demand could not expand perpetually,” he says.
Even so, this is no grounds to become bearish because the arguments in favour of investing in gold remain solid, adds Moore. Last year, it has to be said, was busier than most, dotted with events that inevitably propelled investors towards gold as a safe haven. In case you’ve forgotten, here’s the well-worn list: the Arab Spring; the Japan earthquake; the conflict in Libya; the downgrading of the US sovereign debt; the Greek debt crisis. Equally inevitably, gold prices shot up from $1,370 a troy ounce in January 2011 to a high of more than $1,900/oz in September. The subsequent drop to $1,670/oz by year end was as much about cashing in on the year's rally as it was about deleveraging while the debt crisis exerted its wasting grip on Europe.
It is patently clear already that a lot of the uncertainty of 2011 will overhang across the market, at least for the first half of 2012. The list of reasons is again very obvious: the chronic European debt problem; fragile growth in the global economy; and unsettling political stresses emanating from Iran and the US, even potentially Syria. All of these elements will continue to inject volatility into the gold market.
With this amount of uncertainty it would be foolish to write off gold as an investment. Despite the sell-off in December, a large proportion of investors across the board—be they retail, central banks, large institutions or speculators––continue to look at gold either as an alternative currency or a diversification asset designed to protect against losses from other investments.
In the past two months investors have been divided in their approach to gold. While short-term speculators liquidated large positions in December, cashing in on a rally that happened over the course of 2011, long-term investors, particularly ETF investors, stuck faithfully to their positions. Speculative positions in Comex gold are at their lowest levels since 2009 but physical gold ETF holdings reached record levels of 2,300 tonnes in December.
Since the beginning of this year “fresh money has been put to work and the energy sector and precious metals have so far been the main recipients,” particularly gold and silver, says Ole Sloth Hansen, senior commodity manager at Saxo Bank. One of the key factors working in favour of gold is the low interest rate environment which currently exists in over half of G20 countries, he adds.
Further monetary easing in Europe, China and potentially a round of QE3 in the US will increase liquidity and drive the gold price to new records, possibly as early as the first half of 2012. “Liquidity will be a stronger influence on market performance than macroeconomic turbulence,” says Bjarne Schieldrop, chief commodities analyst at SEB bank.
The European sovereign debt crisis will also be supportive at the retail level because at times of crisis retail investors tend to buy gold bars and coins. While at first glance this type of demand may seem like a small driver of the market, industry consultancy Thomson Reuters GFMS says that last year bar and coin buying rivalled that of ETF investment flows.
“Private investors in Europe and the US are the biggest buyers of bars and coins; they buy it for safety because they are worried about the purchasing power of paper currencies,” says Carsten Fritsch, an analyst at Commerzbank.
Another big contributor to a high gold price in 2011 was the fact that central banks bought some 450 tonnes of the metal. Analysts expect the trend to subside this year but not to stop. “Central banks in emerging markets are still heavily under-invested in gold,” says Fritsch. “In 2011 Mexico for instance bought 100 tonnes of gold and Russia, Turkey and South Korea were all major buyers. We don't expect to see the same amount of central bank buying this year but we do expect central banks to buy smaller amounts, for instance Russia,” he says. Fritsch argues that if Russia does come back as a buyer it will most likely absorb some of the domestic gold production but this will mean that less gold will make it onto the global market.
One of the two key risk factors for gold is the strength of the dollar, particularly when it weakens the currency of a big gold buyer such as India. When the rupee plunged against the US currency in late 2011, domestic gold buying as good as dried up. The other potential threat to gold is a recovery in equity markets which annuls the reasons for safe-haven buying.
Looking at other precious metals such as silver, platinum and palladium, there is an interesting investment case to be made—particularly for palladium. All three were sold off heavily at the end of last year to the point that they are now considered relatively cheap.
“Within the precious metals group we see palladium as the better pick given its bias to the US and China,” says Deutsche Bank's Michael Lewis. The palladium price depends heavily on demands from the car industry which uses it to make catalytic converters, to cut CO2 emissions. In November 2011, US car sales rose by 14% and Chrysler said recently that its US sales rose 37% in December, the fastest of the top three US car manufacturers.
On the other hand, Chinese car sales slowed considerably in 2011 because of the phasing out of tax subsidies and car scrappage incentives. Yet even with that, China's sales of 18.5m cars in 2011 still outstripped the estimated 12.8m light vehicles sold in the US. This comes at a time investors in palladium futures cut their net long positions by 77% from August 2011 highs and when ETF investors reduced their exposure by 23% for the same period.
An important question this year is whether Russia will stick to current export volumes for palladium. The answer is actually a political one.  Although Russia's nickel miner Norilsk Nickel is the world's biggest palladium producer, stocks of palladium are ­state-controlled and sold through a government agency that never reveals how much stock it holds or plans to sell. For years analysts in the West have speculated that those stockpiles are about to come to an end, this year being no exception, but there is so far no material evidence to support this. The speculation may prove yet again to be a case of wishful thinking rather than actual fact.
Even so, Commerzbank expects palladium prices to recover noticeably over the course of this year and to hit $850 by the end of 2012, up from the current $680/oz.
There is a similar case to be argued for platinum, which is also used by the car industry and in jewellery. Platinum has traditionally traded at a higher price than gold, but with gold now the more expensive metal, jewellers, particularly in Asia, are switching to platinum as an alternative.
On the supply side, South Africa, the biggest platinum producing country, is facing problems with electricity supplies which could hamper platinum mining over coming months. However, at current prices, platinum miners are under pressure and on an all-in cost basis many are making losses. “We believe this is unsustainable in the long run and something has to give—the price has to recover or production growth will slow,” says RBS's Moore. He sees the $1,400/oz level as the floor and expects that any dips in prices below that figure will prove short-lived. In similar vein, Commerzbank forecasts platinum prices to rise to $1,850/oz by year end from the current $1,550/oz.
Silver is probably the most volatile of the three and not a market for the faint-hearted. “Silver has always been a volatile metal, but 2011 was a vintage year. The euphoria of the 89% February-April rally to a $50/oz peak was followed by the revulsion of a 35% collapse, the latter over just two weeks. A few months later, in September, an even more dramatic drop saw silver shed 40% of its value,” says Moore. This serves as a painful reminder for investors to tread cautiously, or at least not to leave their silver positions unchecked for lengthy periods.
This year the demand from the electrical and electronics industry, the key consumer of silver, will continue to support prices although consumption from solar cell makers is likely to slow after several years of fast growth.
RBS's Moore expects silver to rally from current levels to a peak of $34/oz in the third quarter, in line with gold, but to trend lower afterwards.

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