Category: Stock Markets

From Irina Slav:

Iran has introduced a discount on the June contract for its heavy crude going to Asia, just a few days after Saudi Arabia announced a price increase for its own June contract for the continent. With the discount, Iranian oil will be noticeably cheaper for Asian clients than both Saudi and Iraqi crude.

The motivation behind Iran’s move is easy to see. The country is starving for oil revenues. It has a lot of work to do on its oil production and transport infrastructure to boost production, and it has just begun to recover from years of harsh sanctions.

Asia is a priority destination for its crude, so Iran has been lowering prices in parallel with pumping more oil. In March, for example, its exports to Asia marked a 50 percent increase on the year. Even factoring in the sanctions that were in effect last March, a 50 percent increase is a substantial achievement.

Competition between Iran and the Saudis for Asian orders is likely to increase downward pressure on crude prices.

Light crude shows no signs of easing, with June futures at $47/barrel. Expect resistance between $48 and $52/barrel. Penetration of the rising trendline would warn of a correction to test primary support at $32 but earlier penetration of the long-term descending trendline suggests that a bottom is forming and primary support is likely to hold.

Source: Iran Hits Saudis Where It Hurts, Offers Discounts On Asian Crude | OilPrice.com

Apocalyptic views of the next few decades are coming thick and fast. Tyler Durden summarizes an interview here with MB Advisors founder and CEO Milton Berg:

Here is the reason why Berg believes you can invest in the market today, go to sleep, wake up thirty years later and have made no money…

“Well, it is not unheard of in history. As you know there was a bear market in bonds lasting maybe forty years that began in the mid-40’s and ended in 1980. We’ve had a twenty, twenty five year bear market in Japan going back to 1989. We’re the most overvalued market in history, there’s more leverage throughout the world than there’s ever been in history, central banks have lost all their ammunition, basically because there is so much credit outstanding throughout the world. It’s not unheard of to have a long-term bear market. There will be a lot of money to be made both on the downside and the upside within the bear market.”

…..When asked what would happen if central bankers were to follow through on their whatever it takes promises, Berg gave the most rational response….

“If whatever it takes means Zimbabwe, or hyperinflation Germany, stocks will do well, but not relative to the inflation rate.”

Not sure that I agree with the 30-year bear market conclusion, though it is a risk.

We had a three decade easy-money credit binge, which saw debt rise to extreme levels, followed by a (2008) violent heave in which markets attempted to purge themselves of the excess debt. But central banks intervened to prevent the purge out of fear that the contraction would (as in the 1930s) cause long-term damage to the global economy.

The accepted wisdom is, or at least was, that rather than allow debt to contract and cause a deflationary spiral that would damage the financial system, instead suppress the contraction and wait for economic growth to gradually restore debt to more acceptable norms over time. There is just one problem: the economy is becoming even more bloated with debt and has stopped growing…..

The only solution is a managed contraction over the next decade, with central banks winding down their balance sheets and an unavoidable market purge. If combined with a coordinated program of government/private investment in productive infrastructure, we could see a recovery within 10 years.

Source: Milton Berg: “We Are On The Cusp Of A 30 Year Bear Market” | Zero Hedge

Good article from James Eyers at The Age:

1) Bank margins are under pressure

Over the first half, bank net interest margins expanded by two basis points, but “this was weaker than anticipated as front book competition offset much of the mortgage repricing benefit,” said UBS analyst Jonathan Mott…..

2) Bad debts are rising, but off a low base and in isolated areas

It would seem that asset quality has gone past its low trough; most analysts are expecting banks to report higher impairment expenses in the second half after large ‘single name exposures’ led to increases in impaired assets and provisions in the first half…..

3) Dividends are under pressure

Apart from ANZ, which surprised the market on Thursday when it cut its interim dividend 7 per cent…. payout ratios continued to creep higher. Analysts think NAB is the most likely bank to follow ANZ and to cut its dividend…..

4) Stock prices will remain volatile

Despite the week of disclosures and presentations for the banks, there are still a lot of mixed messages and issues that remain uncertain for the banks, which will compound volatility as investors shift positions on the sector.

The analysts took different core messages from each bank during last week. Mr Martin says ANZ’s was the best result for costs, NAB’s was the best for revenue growth, while Westpac was the best result for provisioning by taking more upfront. While the results showed consumer banking earnings to be strong, institutional banking earnings were very weak.

“The sector outlook will remain difficult in the second half,” says Goldman’s Mr Lyons.

Australian banks face three major headwinds. Personal credit is shrinking, reflecting consumer caution, while credit to business and housing has been buoyed by low interest rates.

But this is likely to slow as capital ratios increase.

And pressure on interest margins continues.

Source: Four key takeaways for investors from the big four bank earnings season