Who is John Boehner?

John Boehner is the Republican speak of the House of Representatives, one of the two houses of the United States Congress, the other being the Senate. The House of Representatives is roughly evenly divided between Republicans and Democrats.

Shape of the Futures Curve

For the given commodity, as of December 2012, is the curve in contango, backwardation or BOTH (contango AND backwardation)?

WTI Crude Oil Futures: currently trading around $88 a barrel. (Each contract is for 1,000 barrels of crude, so notional value of 1 future is ...wait for it... $88,000). The minimum fluctuation is one cent per barrel. WTI is in CONTANGO out to December 2013 (a one-year contango) when it reaches about $91 and 40 or 50 cents (roughly $3.50 premium for oil in one year versus oil now). After Z13 it's all backwardated and the curve looks like an inverted quadratic function.

The natural follow-on question..what about Brent?

Brent Futures is around $108 a barrel and the curve is simple - PURE backwardation. One future here is also for a thousand barrels, so the notional of a Brent future is rougly $108,000 (or about 1.1x the value of the TI notional).

There are interesting contract differences between Brent and TI futures. For example, Brent futures come with the option to cash-settle, whereas the TI always results in physical delivery (delivered "Free-On-Board" at Cushing, Oklahoma). TI futures are traded on CME Globex. Brent can be traded on WebICE.

George Osborne Extends Austerity Program

The UK Chancellor (tantamount to a Minister of Finance) George Osborne has extended Britain's "Austerity Program" through to 2018 with a series of cuts to government spending and stated "Britain is on the Right Track". What will be the likely impact on Fixed Income markets, specifically on UK debt?

If Britain's credit rating suffers (currently AAA), credit default swaps on UK debt will get more expensive.

As a historical note, the Exchequer, as used in the appellation "Chancellor of the Exchequer", was a government department responsible for collecting taxes and other income, a kind of "ancient" Inland Revenue service which collected revenues on behalf of the King.

David Cameron is the current leader of the Coalition government (made up of Conservatives and Liberal Democrats) that came to power in May 2010 following the resignation of Gordon Brown (the former Chancellor who "could not fail").

BP Temporarily Banned from new US Contracts

The Environmental Protection Agency (EPA) has temporarily banned BP from new contracts with the US government. The decision is linked to BP's handling of the 2010 oil spill in Gulf of Mexico caused by problems on the Deepwater Horizon drilling rig, (this mainly affected the coastline of Louisiana, Mississippi and Alabama - the NY Times has an interactive map). BP has kindly agreed to pay $4.5bn in fines.

Citigroup Beefs up Commodities Trading

Citigroup is importing new commodities executives from BNP Paribas and Barclays - Jose Cogulludo becomes global head of Corporate Sales. This comes at a time when some banks are purportedly considering selling commodities operations as limits on proprietary trading have squeezed profitability.

Essar Oil Increases Processing of Ultra Heavy Crudes by Factor of Four

Who is Essar Oil?

Essar Oil is India's second largest private refiner. It is also known as "EOL" (Essar Oil Limited).

It has quadrupled processing (Q3,2012 vs. Q3,2011) of ultra heavy crudes (which are cheaper and offer higher margins than "regular" crude or "light" crude) at its Vadinar plant in Jamnagar district, Gujarat, which started commercial production in May 2008 (Here we take Q3 to equal July-September period, which is sometimes called Q2 in reports). Vadinar boasts Asia's largest crude column at 97m tall - this means enhanced separation of petroleum products.

How much did Essar Oil make per barrel of oil turned into petroleum product in the quarter? 

Answer: USD 7.86 per barrel vs. GRM of USD 5.07 per barrel in the same period a year ago. GRM is the difference in dollars between the petroleum product output and the input (cost of crude oil plus any purchased additives like butane). Basic refinery economics, bro.

The company believes there will be "healthy" refining margins for Asian refiners due to "continuous, strong diesel demand in India, China and the Middle East".

Japan Invests £700m in Building UK Power Plants

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.

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.

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.

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.

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).

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.

RBS Plans Complete Exit from Commodities, JPM Charges In

Eighty percent of the precious metals trading at RBS is in gold, and now RBS wants to disband this business too (in 2010, non-US assets of RBS Sempra Commodities were sold to JP Morgan for $1.7bn). RBS is one of the banks marred in the interest rate rigging scandal.

In contrast, JP Morgan, a licensed depositary for precious metals, has asked the CME for approval for additional vault space and applied to be a weight master for silver. Value chain optimisation - here we come!

Tracking Gold Volatility via Gold Volatility Indexes

The CME Group has a series of volatility indexes based on the methodology of the "classic" VIX index.

Here's a quick revision of the VIX.

VIX is the TICKER SYMBOL for the Chicago Board Options Exchange Market Volatility Index and is also known as the "fear index" or the "investor's fear guage". It measures implied volatility of short-dated S&P 500 index options. Trading in futures on the VIX began in March 2004. From February 2006, trading on VIX options became possible.

The GOLD VIX is a similar product from the CME Group (which includes the COMEX). If you see the acronym GVF on the COMEX website - that means Gold Volatility Futures. There's not much volume on that yet, though.

Is Pearl GTL ready for full production?

Shell's Pearl GTL project, situated 80km north of Doha, was due to reach full production in mid 2012, but is late and experiencing cost overruns. It is a gas-to-liquids project aiming to convert gas into valuable liquid products like gasoil and liquid ethane (used to produce ethylene). The raw gas is coming from the North Field, roughly the size of Qatar itself.

Shell is into Qatar in a big way, but an even bigger investor is Exxon Mobil, who have invested $30bn over 10 years (Forbes) to build the world's largest collection of LNG export terminals. An export terminal is where gas is liquefied, stored and shipped to other destinations.

BP goes Kangaroo

Kangaroo bonds are AUD bonds sold by international (non-Ozzie) issuers. BP's first issue takes place now with an A$500m issue at a coupon of 4.5% and is issued by BP Capital Markets (largest kangaroo issue this year, according to UBS, who are the joint "promoters" for the bond aka "bookrunners", together with ANZ). 75% allocation goes to asset managers and insurance funds. Part of the enthusiasm for issuing Kangaroos is the shift in the cross-currency basis swap.

Gazprom latest to Axe Large Capital-Intensive Projects

First it was BHP Billiton's announcement that they were downsizing the Olympic Dam project. Now Gazprom is the latest firm to cut capital spending as it dumps it Shtokman gas field project in the Arctic due to excessive costs. Shtokman contains nearly four trillion cubic metres of gas making it one of the world's largest natural gas fields. The head of Gazprom's production, Mr Cherepanov, said the project was too expensive "for the time being". Total and Statoil were partners in the project (Gazprom had selected them as partners), with 25% and 24% stakes respectively. The oversupply from the US shale gas boom has changed the dynamics of gas exploration across the industry. Gazprom trades on a number of exchanges including the Moscow Exchange, LSE and Berlin and Frankfurt Stock Exchanges and is Russia's largest listed company. The news comes just as Shell has gained permission to drill for oil in the Arctic off the cost of Alaska.

Japan - World's Largest LNG Consumer - Reduces its Bid Price for Asian Cargoes

Asia:
Asian LNG has slipped below $13 per mmBtu as the stockpiling from Japan and Korea and mild weather (reducing air conditioning demand) has given East Asia more bargaining power in the market for seaborne cargoes. According to Reuters, Kogas is not paying more than $12.50 with Indian importers paying up to $2 less per mmBtu owing to lower transport costs.

Europe:
In the UK the price of wholesale gas went up due to summer maintenance schedules at North Sea fields.

US (Henry Hub):
Henry Hub spot is around $2.74 and future at $2.80. Another US benchmark is New York City Gate spot (the diff between Henry Hub price and another hub being known as "location differential"). Major pricing locations include "citygates" which are places where distribution companies receive gas from a pipeline. NYC Gate spot is commonly used for pricing gas in the north-eastern US. Other city gate locations include Boston, Baltimore, Pittsburgh and Buffalo (second most populous city in the State of New York, originally the "Village of Buffalo" with 25 residents).

Citygate prices include the premium paid for delivery to the "citygate" from the main market centre (Henry Hub in Louisiana, adjacent to Texas and Mississippi). The Henry Hub is where gas is channelled to smaller distribution lines.

What factors do you think influence the city gate prices most? Henry Hub spot, weather patterns or inventory levels?

Serco Drop in H1 Profit

British outsourcing firm Serco that runs air traffic control centres, Britain's DLR and the Dubai Metro are bullish despite the 17% drop in H1 profit. 46% of its income is made outside of the UK. Serco is particularly strong in public sector outsourcing. The National Physical Laboratory in  (Richmond upon Thames, London) is also run by Serco.

Miner BHP Billiton postpones Olympic Dam Mega-Project

The Olympic Dam was supposed to be a $30bn project. The idea was to create the world's largest copper and uranium mine, in the heart of the Outback in South Australia. Now this has been put on the back-burner and what's more, no new projects are supposed to be approved till June 2013. This decision has already led to a cut in BHP's workforce in Adelaide, a coastal town in South Australia. Part of this aversion to capital spending is the 35% drop in profits this year although some news channels suggest mining taxes may have played a factor.

It is worthwhile considering the Board of Directors of BHP Billiton. Among them is Lebanese-born Jacques Nasser, the former Chief Executive of Ford Motor Company from 1998 to 2001, who received a $17m golden handshake when he left in October 2001. Marius Kloppers is the Chief Executive of BHP and holds a PhD from MIT in Materials Science and an MBA from INSEAD. Before becoming CEO, Marius circulated through various roles at BHP including Chief Marketing Officer and Chief Commercial Officer.

BHP is involved in onshore gas development of shale resources in the United States and affected by gas prices. In 2012 it has spent just over $3bn developing these resources. Over half its drilling activity takes place in Eagle Ford. In 2013 it expects to spend $4bn further developing these assets. Chesapeake (NYSE:CHK) is especially active in Eagle Ford with 550,000 acres (although most of the production is oil rather than gas). Exxon, ConocoPhilips and Occidental Petroleum have also entered Eagle Ford.

BHP is also undertaking appraisal drilling in the 440,000 acres of the Permian basin (part of Western Texas and South Eastern New Mexico) to evaluate its potential for producing shale liquids. Estimated output is currently around 100Mboe.

This gives us some idea of costs, but what about cash flow? Here are some findings from Graham Kerr's presentation for FY2012. EBIT margin was 39% - this means roughly 39% of revenues weren't consumed in expenses. H2 net operating cash flow was $12bn, slightly lower than in H1.

The history of BHP is a fascinating one. It was formed from the merger of BHP (Broken Hill Proprietary) and Billiton, originally a tin mine on the Indonesian island of Beilitung. Later Billiton expanded into bauxite, first on Bintan and then later in Suriname, leading a largely independent life until its acquisition by Royal Dutch Shell in 1970. When BHP and Billiton merged in 2001 it was dual-listed on both the LSE (BLT) and Australian stock exchanges (BHP) including ETOs.

What is the market capitalisation of BHP? That depends on what exchange you are looking at. Its UK listing is worth about £38bn (Aug 2012).

What about ADV of BHP? On the LSE, it's about 10,000, which means monthly will be roughly 300k.

Deutschland retains S&P AAA Rating

Rating for long-term debt, maintained thanks to "highly diversified and competitive economy". Merkel says German economy is "very sound". Debt is currently 80% of GDP. The German economy is the world's third largest exporter (includes exports to the EU). This includes exports of automobiles from Volkswagen, Daimler and BMW, which constitute around 9% of exports by value.

LME Copper and the Eurozone

How can what happens in the Euro "zone" affect what happens to the copper price? Well, on Friday 29 June  2012, it did just that - with the biggest daily rise posted since April - up 2.2% on the 3 month contract at around half seven AM (GMT) . The traded price was $7,545 per tonne.

Copper trades on the Shanghai (SHFE), LME and COMEX exchanges. (COMEX also offers trading on e-Mini copper futures). In India, copper trades on the NMCE and the MCX.

GM, Enjoying the Escalade?

From total disaster in 2008, GM climbed to number 5 in the Fortune 500 in 2011. In the words of Fortune Magazine: "Detroit has staged a comeback". Profits were up 49% from 2010. Around March 2012, GM had around $40bn of market cap.

General Motors owns the classic American brands like Chevrolet, Buick, Cadillac as well as the European brand Vauxhall. Vauxhall is a British brand that was acquired by GM as early as 1925 and originally started as a marine engine manufacturer. It is headquartered in Luton, Bedfordshire, 30 miles North of London.

GM have a new luxury SUV for 2012, the Cadillac Escalade.

UK Property Owner Crowned with New Profits

Super-prime properties performed really well for the owner of Regent Street (and promote of Regent's Quadrant 3 Scheme in which £300m was invested) as the value of the Crown Estate's property portfolio surged to £8bn for the first time. Net profit was up 4% from the previous year and the Treasury (by which, of course, one refers to Her Majesty's Treasury) gave a sign of glee. The Crown's Marine Estate that owns most of the UK coastline also profited from investment in wind farms (generating 1.5% of the UK's electricity!!!).

TI-Brent Spreads Stable Despite Destruction in Brent

The Eurozone crisis had its part to play in the fall in energy prices in May 2012 (over 4% drop) which are, to some extent, reflective of the global macro-economy.

Nevertheless, the spread of TI-Brent, around 12.55 has not changed as visibly, although it was wide at 20.8 on April 4, 2012, but this extremity was short-lived, and the spread narrowed fairly rapidly after that. The previous major widening was Oct 2011, when the spread was 26.

Facebook - America's Biggest (but not Best) Tech IPO

Facebook has become the biggest technology IPO in US history. The flotation was done on Nasdaq - with 80 million shares being traded in 30 seconds. It's opening price at $38 a share resulted in a valuation of $100bn. On Monday, it's first day of trading, the stock closed almost $4 below the IPO price, and fell again Tuesday.

Pre-IPO Facebook paid over $1bn for photo-sharing program Instagram.

Facebook was a loss-making business until 2009, when revenues reached $229m mainly from advertising.

Project "GX" - The Glencore-Xstrata Mega-Merger

Glencore and Xstrata, commodities giants extra-ordinaire, desire to merge in a $90bn merger. Glencore would own 55% of the new entity which would be headed by Xstrata CEO, Mick Davis. Xstrata is 1.5% owned by Fidelity Investments, who believe (amongst others in the market e.g. Standard Life, Schroders) that Glencore should offer more than it has for its share in the new concern. Glencore already own 34% of Xstrata.

One of Xstrata's goals is cost-reduction initiatives in an inflationary environment.