Friday 1st August 2014
slib33
THURSDAY TICKER: 31ST JULY 2014 - Standard & Poor's says Argentina is in selective default on foreign-currency-denominated debt, after the government failed to make a $539m payment on $13bn in restructured bonds. Argentina had transferred the money to the paying agent, but a US judge would not allow its release unless hedge funds holding bonds not included in a restructuring also were paid. The latest default is expected to exacerbate problems in Argentina's recession-hit economy, analysts say. This is the second time Argentina has defaulted on its debt in the last thirteen years, after last-minute talks in New York with a group of bond-holders ended in failure. Vulture fund" investors were demanding a full pay-out of $1.3bn (£766m) on bonds they hold. Argentina has said it cannot afford to do so, and has accused them of using its debt problems to make profits - In a regulatory filing made public earlier this week, and US press reports, BlackRock has begun the process of establishing a Wholly Foreign-Owned Enterprise (WFOE) in Shanghai. The firm is reportedly creating an investment advisory WFOE which will give it significantly greater flexibility and speed in executing its Greater China strategies – Shares in Chinese footwear manufacturer Feike AG have been listed on the General Standard of the Frankfurt Stock Exchange. Ten million shares have been listed at an initial price of €7.50. ACON Aktienbank AG is supporting the issue. Scheich & Partner Börsenmakler GmbH is the specialist. This is the third Chinese company to list on the exchange according to managing director Michael Krogmann. “With the IPO we have achieved an important strategic milestone. This helps us to expand our competitive position and our brand awareness in the booming Chinese market for children’s footwear as well as to realise future growth plans”, says Andy Hock Sim Liew, CFO of Feike AG - Funding pressures stemming from reduced central government capital grants and the persistence of tightened long-term bank lending are likely to fuel the English housing association sector's continued use of capital markets over the next two years, says Moody's Investors Service in a new report published today. The new report English Housing Associations: Financial Disintermediation- A One Way Trip, is the third in a series on European sub-sovereigns' financing needs and access to market funding.

Bunking the myth of oil price hikes and speculation

Monday, 05 March 2012
Bunking the myth of oil price hikes and speculation The question of whether speculators are responsible for the recent spikes in the price of oil has been one of the most hotly debated topics in the oil market in the last few years. Most recently it has prompted US regulators to put limits on some speculative positions and re-define what they consider to be speculative positions. Vanja Dragomanovich met up with Rita D'Eclessia, professor at the Department of Economic Theory and Quantitative Methods for Political Choices at the University of Rome and a visiting lecturer at Birkbeck University in London, who has run these theories through a set of mathematical tests and has produced some slightly surprising results. http://www.ftseglobalmarkets.com/

The question of whether speculators are responsible for the recent spikes in the price of oil has been one of the most hotly debated topics in the oil market in the last few years. Most recently it has prompted US regulators to put limits on some speculative positions and re-define what they consider to be speculative positions. Vanja Dragomanovich met up with Rita D'Eclessia, professor at the Department of Economic Theory and Quantitative Methods for Political Choices at the University of Rome and a visiting lecturer at Birkbeck University in London, who has run these theories through a set of mathematical tests and has produced some slightly surprising results.

Vanja Dragomanovich (VD): Why has the issue of oil prices attracted so much attention outside the actual oil market?
Rita D'Eclessia (RD’A): Analysis and empirical evidence shows that four out of the last five global recessions were preceded by oil shocks. In the case of the 2007-2008 crisis oil prices cannot be ignored as a culprit of what happened: the oil price increased over 300% and this caused the annual fuel bill of OECD countries to increase dramatically. Exceptional oil price volatility affects many economic variables and their related markets. Oil price fluctuations affect consumers, producers and marketers, especially in terms of costs, incentives to invest in technology and trading strategies. The importance of oil prices is further increased by the fact that other forms of energy such as coal, gas, and, to a lesser extent, electricity are sometimes priced in order to compete with oil, so that oil price fluctuations become reflected in broader energy price changes.

VD: As part of your research you looked into the link between the volatility in oil prices and the involvement of speculators in the market. Can you talk us through your findings?
RD’A: Economists and financial experts are divided over who they think was responsible for driving crude oil prices to their peaks in the first half of 2008. Basically trend-following speculation and institutional commodity index-buying have reinforced the output pressure on prices. In my research I tried to identify which economic and financial variables provide insights into understanding oil price dynamics. Our proposition was that the changes in the oil price are an example of an economic variable which is largely unpredictable. In such a context the role of futures markets, considered as a measure of the speculative component in the market, is also investigated. However, our conclusion was that using the data we had, we could not find any evidence that the oil price depends on speculative activity in the market.

VD: What data did you base your research on? For instance, how did you define speculators and how did you distinguish between speculative and non-speculative activity? Was your research based on information from several commodity exchanges?
RD’A: I set up an econometric model to capture possible long run equilibrium between some macroeconomic variables and some financial variables. The data used to measure speculation is the number of the benchmark US futures oil contracts, the West Texas Intermediate (WTI) spot crude oil held by speculators; this is data published by the US Commodities Futures Trading Commission (CFTC).
I used monthly West Texas Intermediate spot oil prices between 1993 and 2011 and assumed that speculators are participants who trade oil as an investment and not to hedge.

VD: Once you established that the link between speculative activity and oil price volatility was weak which other factors proved most influential in the oil market?
RD’A: Surprisingly, by far the strongest influence is the price of gold, followed by the strength of the euro against the dollar. For instance we found that for any one basis point move in the euro/dollar exchange rate the oil price moved by $2.8 dollars. Given that the euro was only introduced in 2000 we ran the analysis using the Deutschmark from 1993 till the introduction of the euro.
In all, we tried six different variables to try and find some meaningful correlation. We tried open interest, US interest rates, imports of WTI and WTI oil futures, all of which proved not to have a strong impact on the oil market.

VD: Your analysis was primarily statistical. However, in that period of time oil would have also moved for other reasons such as geopolitical crises, conflicts in the Middle East, economic crises, and political changes in Europe. How do those factors feature in your analysis?
RD’A: That is correct, but we can infer the influence of political events through the fluctuations of the dollar exchange rate and the price of gold. In any case the debate continues; oil price changes certainly cannot be explained solely by looking at the supply and demand dynamics.

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP

Related News

Related Articles

Related Blogs