Hitachi (TYO: 6501) is investing £700m to co-build two nuclear plants in Britain with Rolls-Royce and Babcock International, the engineering support services firm. This will be a "hundred year commitment". One of the sites is the Isle of Anglesey, in North West Wales. Hitachi stock gained about 10 Yen in the days following the announcement.
Tuesday, 30 October 2012
Wednesday, 17 October 2012
Commodities Guaranteed Supply Contracts Protected from High Frequency Traders
Will high-frequency trading (oft-termed "HFT" amongst journalistic heavies) take the commodities world by storm, is a question which some would say has already been answered.
Whilst HFT may have gripped the exchange traded commodities gladiatorial arena (and earned permanent recognition in financial literature such as The Quants), one area where it has not penetrated is the specialized realm of OTC commodities derivatives contracts.
The OTC arena is one of specialized vocabulary and distinctive concepts, shrouded in mystical terms presently unbeknownst to the HFT community.
To start, we will look at the contracts known as take-or-pay, variable base-load factor or swing contracts, commonplace in the natural gas market. However, these are relatively unknown outside of commodities (specifically natural gas and soon-to-be electricity markets). Just ask a money market trader what a swing contract is and chances you will get an answer that does not correlate with the natural gas definition. Mention "variable base-load" and confusion and annoyance will undoubtedly result, or puzzled nods of approbation as images of music systems are conjured up.
The simple explanation of a swing contract is one in which one of two parties is guaranteed a supply of a particular commodity at fixed times in the futures for a certain price, called the strike, K. The holder is thus protected from fluctuations in the commodity during the period until expiration. The holder gets complete price protection if K is fixed at the start, and part-protection if K depends on spot price at the start of each period - making it like a strip of forward contracts.
Qatar mulls Morgan Stanley's Commodities Business
Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani (Prime Minister since April 2007) is contemplating a potential stake in Morgan Stanley's Commodities Business, which could benefit both parties in terms of information sharing.The business is run by Colin Bryce (who started his career at the British National Oil Corporation, bought by BP in 1988) and Simon Greenshields (who has specialized in gas and power).
Qatar Holding LLC is an investment arm of the QIA, which has an interest in investing in commodities (which owned 12% of Xstrata, run by CEO Mick Davis, as of end August 2012). Mick honed his financial and board-leading skills as CFO of Billiton PLC.
Qatar Holding LLC is an investment arm of the QIA, which has an interest in investing in commodities (which owned 12% of Xstrata, run by CEO Mick Davis, as of end August 2012). Mick honed his financial and board-leading skills as CFO of Billiton PLC.
Sunday, 14 October 2012
Soft Red Winter Wheat's Outperformance Boosts Interest in the Grain Trade
CBOT wheat has surged in price in 2012 mainly owing to drought concerns impacting yield. The price is driven somewhat by US Department of Agriculture reports and the US Drought Monitor readings. The default wheat type is something called "Soft Red Winter". A variant called "Hard Red Winter" trades mainly on the Kansas City Board of Trade.
The main contracts are Z (December), U (September), N (July), K (May), H (March). The contract size if for 5,000 bushels (roughly 136 metric tons). The bushel is used for volumes of dry commodities.
The CME group provides literally masses of historical technical analysis indicators for wheat, ranging from Bollinger bands to EWMA techniques.
The origin of futures trading is the commodities markets - and includes the trading of grain by elevators and processors. To understand the wheat food chain requires some understanding of the underlying technologies of grain.
The main contracts are Z (December), U (September), N (July), K (May), H (March). The contract size if for 5,000 bushels (roughly 136 metric tons). The bushel is used for volumes of dry commodities.
The CME group provides literally masses of historical technical analysis indicators for wheat, ranging from Bollinger bands to EWMA techniques.
The origin of futures trading is the commodities markets - and includes the trading of grain by elevators and processors. To understand the wheat food chain requires some understanding of the underlying technologies of grain.
Saturday, 13 October 2012
Deutsche Bank Hails Offshore RMB Market
Deutsche Bank has hailed the three markets for Chinese currency: onshore CNY (restricted for foreigners), offshore CNH which is fully deliverable (H=helpful for offshore traders), and the USD-denominated NDF market. Offshore daily trading volumes in CNH are now equivalent to USD 2bn. Hong Kong's CNH deposit base stands at 576bn as of January 2012 (HKMA, established 1993).
China Warns of Inflationary Risks of Global QE
Across Asia central banks, including PBOC Governor Zhou Xiaochuan, are expressing concerns of the inflationary risks of QE3. China has cut rates twice (June and July 2012) as growth has slowed. The RRR has been cut thrice since late 2011. To decipher the economic comments on inflation we need to be au fait with the following terms and concepts.
Core versus Headline
Headline inflation measures total inflation in the economy. Core inflation removes factors like food and energy which can experience price spikes and may thus be perceived as a more robust measure of inflation.
Relationship between Inflation and Credit
The book "An Inflation Primer" by Melchior Palyi is an interesting one with respect to bond markets. It describes the difference between inflationary and non-inflationary credit.
Investing in Inflation
It is possible to "invest" in UK inflation via the vehicle known as "index-linked gilts". These differ from "conventional" gilts in that the principal and S/A coupon payments are adjusted in line with the RPI (Retail Price Index). Gilts issued before July 2002 have their coupons calculated by the Bank of England, from July 2002 they are calculated by the UK DMO. RPI was 2.9% in August 2012.
Core versus Headline
Headline inflation measures total inflation in the economy. Core inflation removes factors like food and energy which can experience price spikes and may thus be perceived as a more robust measure of inflation.
Relationship between Inflation and Credit
The book "An Inflation Primer" by Melchior Palyi is an interesting one with respect to bond markets. It describes the difference between inflationary and non-inflationary credit.
Investing in Inflation
It is possible to "invest" in UK inflation via the vehicle known as "index-linked gilts". These differ from "conventional" gilts in that the principal and S/A coupon payments are adjusted in line with the RPI (Retail Price Index). Gilts issued before July 2002 have their coupons calculated by the Bank of England, from July 2002 they are calculated by the UK DMO. RPI was 2.9% in August 2012.
How 3Rs Impact the Global Currency Markets
Statutory versus Voluntary Reserve Ratios
Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.
Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.
Variation by Country
The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.
Relationship between Reserve Ratio and Inflation
The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.
All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.
Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation
Reserve Ratios for Inflation Control
The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.
Central Bank Slang: Near Money or Quasi Money
Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,
They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.
The IMF and World Bank do surveys of money and quasi-money in the world financial system.
Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).
Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.
Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.
Variation by Country
The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.
Relationship between Reserve Ratio and Inflation
The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.
All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.
Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation
Reserve Ratios for Inflation Control
The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.
Central Bank Slang: Near Money or Quasi Money
Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,
They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.
The IMF and World Bank do surveys of money and quasi-money in the world financial system.
Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).
Monday, 8 October 2012
59 orders wipe out $58bn of market value from Nifty
One Broker Broke the Market
Friday's debacle on the Nifty (aka Nifty 50, India's benchmark free-float market cap index) resulted in a brief erasure of $58bn from the National Stock Exchange (drop of 16% in the index value). The culprits, Emkay Global Financial Services Ltd., admitted $126m volume-worth of orders triggered the problem, which fired off circuit breakers on the National Stock Exchange (wrong data entry on a basket sell order).
Protected by the Circuit Breakers
The NSX (whose corporate HQ is in Bandra, Mumbai) triggers circuit breakers when there is a 10% or larger move (check out this guide to Asia circuit breakers).
Whose in the Nifty Fifty
Stocks in the "Nifty 50" include Tata Steel, GAIL (India) Ltd, Axis Bank Ltd., ICICI Bank Ltd and Jaiprakash Associates.
Many of these stocks (Tata Steel, for example) are also part of the Sensex (or BSE 30) which are the 30 largest stocks on the Bombay Stock Exchange.
Friday's debacle on the Nifty (aka Nifty 50, India's benchmark free-float market cap index) resulted in a brief erasure of $58bn from the National Stock Exchange (drop of 16% in the index value). The culprits, Emkay Global Financial Services Ltd., admitted $126m volume-worth of orders triggered the problem, which fired off circuit breakers on the National Stock Exchange (wrong data entry on a basket sell order).
Protected by the Circuit Breakers
The NSX (whose corporate HQ is in Bandra, Mumbai) triggers circuit breakers when there is a 10% or larger move (check out this guide to Asia circuit breakers).
Whose in the Nifty Fifty
Stocks in the "Nifty 50" include Tata Steel, GAIL (India) Ltd, Axis Bank Ltd., ICICI Bank Ltd and Jaiprakash Associates.
Many of these stocks (Tata Steel, for example) are also part of the Sensex (or BSE 30) which are the 30 largest stocks on the Bombay Stock Exchange.
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