OPEC Limits and Impact on Oil Prices

Oil prices are on the rise. One driver is the OPEC limits agreed in 2016 to kick in at the start of 2017. The OPEC basket of 14 crudes is trading at $60.49 (22/11/2017). Note that the OPEC basket excludes US and UK crudes (WTI and Brent) and includes Middle Eastern, North African, Southern African and South American crudes (example: Merey, Venezuela). Angolan Girassol (extracted by BP, ExxonMobil and other partners) is part of the basket. The OPEC basket is also known as the ORB (OPEC reference basket).

The Carry Trade Concretised - Uridashi Bonds

Uridashi bonds are bonds sold to Japanese household investors, giving returns in a high-yielding currency such as NZD or AUD, which offers a premium over the historically low domestic interest rates in Japan.

This has the follow risks
- credit risk of the issuer
- FX risk, as the foreign currency coupon payments have to exchanged into JPY

They became popular in the 2000s.

2015- market size was USD 33bn.

23/11/2017 - Bank of Japan benchmark rate, -0.1%
23/11/2017 - Reserve Bank of New Zealand benchmark rate 1.75%
23/11/2017 - Reserve Bank of Australia benchmark rate 1.5%
23/11/2017 - Swiss National Bank benchmark rate -0.75%  (Banque Nationale Suisse)

The official benchmark rate in Switzerland is the "3m LIBOR CHF".

Sidebar - Real Assets

The Carlyle Group has $40bn of real assets under management ($17bn, or 42%, of which is real estate) as well as energy, including renewable energy, assets. The US real estate team is spread across many metropolitan areas including Los Angeles.

The Fed has a New Future Boss - Jerome Powell

Jerome Powell has been chosen by President Trump to head up the Federal Reserve, replacing Janet Yellen from February 2018 or thereabouts.

The Fed conducts American monetary policy and promotes a stable financial system.

Jerome Powell is a former partner in the Carlyle Group. He is currently a member of the Federal Reserve Board of Governors. His undergraduate degree was in Politics at Princeton. He also has a JD from Georgetown, the second largest law school in the United States.

Chinese Backed Canyon Bridge buys UK Chip Designer Imagination for £550m

Chinese-backed private equity firm Canyon Bridge has bought UK tech manufacturer Imagination, maker of graphics chips for smartphones. (The US previously blocked the acquisition of Lattice by Canyon Bridge at $1.3bn citing security, or more precisely, "supply-chain integrity" concerns). In the case of Imagination, the MIPS business will be sold to Tallwood MIPS (based in Palo Alto and Jiangsu province in China) for $65m to avoid US regulatory scrutiny. MIPS is a RISC architecture for microprocessors.

Standard Chartered in New Commodities Trading Push

Oil options are hot again as Standard Chartered looks to move into the US market following years of cutbacks in the sector. Matthew Hastings, a former PetroChina trader, is set to head the London desk. Tougher regulations under Dodd-Frank in 2010 has impacted profits of all banks leading to pull-outs.

2010 - RBS Sempra exits Commodities
2013 - Deutsche Pulls global commodities trading
2013 - UBS restructures focusing on precious metals and index
2014 - Barclays exits Commodities, rolls precious into FX

In 2015 Standard Chartered had to lay on extra provisions due to losses on commodities loans.

Cheapest Tesla Yet - Elon Musk Rolls out the Model 3

The Model 3, Tesla's cheapest car yet, starts off at $35K, still higher than the Nissan Leaf, at just over $30K. The electric battery will run for 354 km before needing a recharge.

Oil Industry Focuses on Shorter Cycle Projects as Oil Prices Remain Low

The IEA has reported investment in the oil and gas sector has been falling owing to lower oil prices. Turkish economist Fatih Birol at the IEA urged policymakers to be mindful of the "long term adequacy of supply" in light of lower longer term investments in the sector. Energy efficiency investment, however, is on the rise.

A 75 Million Dollar Upvote for Cyber in the Form of Darktrace as Europe's VC Scene Hots Up

Cyber Story

UK cybersecurity startup has raised $75m in a Series D round, valuing the company at $825m (double the valuation from its capital raise in the previous year, 2016). Darktrace was founded in Cambridge and is a mere four years old. Insight Venture Partners, a new funder for Darktrace, stepped in alongside existing investors Summit Partners, KKR and cybersecurity specialist investor TenEleven Ventures (based in Boston and Silicon Valley). Darktrace has 500 staff and $200m of contracts including customers like British Land and Metro Bank.

Wider VC World and IoT Still Strong

In the wider VC world, funding in Europe hit 6.4 billion euros in 2016, the highest level since 2007. Invest Europe (formerly known as the EVCA) reports that 10% of the funding comes from US institutional investor. Furthermore the size of venture capital funds is increasing, with 13 funds raising more than 100m euros in 2016. Samsung NEXT is also coming to Europe with a promise of 150mm USD focused on AI, IoT, AR and VR. Berlin-based Felix Petersen is the MD in Europe.

Carillion Shares Drop 30%

Construction giant Carillion saw its shares drop 30% following a profit warning on Monday morning stating the company was losing money on its construction contracts. Balfour Beatty's stock also dropped but only by 50bps. Analysts decried Carillion's woes as largely company-specific. In particular, analysts pointed to a stretched balance sheet where debt used to fund acquisitions weighed heavily on thin margins in Carillion's day to day business.

Republicans Push for Simplified Dodd-Frank, Democrats say "No Thanks"

The bill in question is the Financial CHOICE Act, a simplification of the post crisis Dodd Frank Act.

Macron Elected as French Pres - Mayor of Le Havre new PM

Emmanuel Macron, the new President of France, has picked Edouard Philippe as the country's new PM as of 15 May 2017. He studied at the ENA, a school designed to democratise access to the country's senior civil service.

Let's Get Physical - Trading The Cal Emissions Market on the CME

From February 27th 2017 -

The CME is offering up the chance to go long the California Emissions Market through futures and options. The product name is CA ETS (California Emissions Trading Scheme).

One future represents physical delivery of a thousand Co2 California Carbon Allowances.

Each allowance is an entitlement to emit one metric ton of carbon dioxide equivalent gas. Settlement takes place on a T+2 basis on the California Market Tracking System (MTS).

One future, one thousand metric tons of Co2.

Options are European, and settle into a single future (or one thousand allowances).

Ten Years Later - Troll added to Dated Brent

Platt's Brent assessment (already diluted by Forties, Oseberg and Ekofisk crudes) will have a new crude added to its Dated Brent assessment - Norway's Troll crude - which will start deliveries in 2018. This is due to the expected fall in supply in the North Sea - resulting in thin volumes and potential market manipulation. The last modification to the benchmark came in 2007 when Ekofisk was added. Statoil operates the Troll A, B and C platforms.

No more Tequila - Mexico acts on Trump Slump

The volatility mollification strategy has been dubbed the biggest change in Mexican central banking since the "Tequila Crisis", in which a devaluation of the peso led to a banking crisis.

For those unfamiliar with the "Tequila Crisis" the devaluation occurred in December 1994, which caused half the country's foreign exchange reserves to leave the country.

The peso's fall has been largely due to threats to impose trade barriers on Mexican goods headed to the United States by the Trump administration, which has also sparked currency volatility. It has been dubbed by the media as the "Trump Slump".

Mexico's foreign exchange commission announced the volatility was "not consistent with the country's economic fundamentals".

Mexico has responded to the fall by hiking interest rates over the course of a year. In January 2017, the central bank also reportedly sold around a billion USD to support the peso.

Repeal and Replace the Dodd Frank Act Message from Trump is a Boon for Banking Stocks (especially Goldmann Sachs)

"Dodd Frank is a disaster" said President Trump, on the law Obama signed into law in 2010, named partly after Connecticut native, and Democrat, Chris Dodd, and Barney Frank, a Harvard Law School alumnus and also a Democrat.

Swap Execution Facilities (or SEFs) came about as a direct result of the Dodd-Frank Act.

The market response has been positive.

Goldman stock rose 4.2% (NYSE:GS) and Bank of America 2.5% (NYSE:BAC). This is despite the stocks having very similar betas of 1.5 and 1.47 respectively.

Gary Cohn, formerly Chief Operating Officer of Goldman Sachs, former options dealer and now chief economic advisor to Donald Trump, waxed lyrical to the Wall Street Journal regarding the move.

UK Cautious on Onshore Fracking

The UK Government (Department for Business, Energy and Industrial Strategy) has provided guidance on hydraulic fracturing, or fracking (13 January 2017).

This technique was already used in the UK in the late 1970s for North Sea offshore projects but recent interest has focused on onshore applications. It involves fracturing rock by applying liquid at high pressure into a wellbore, creating cracks that help natural gas and petroleum to flow more freely.

As background to UK gas demand - and the potential benefits of onshore fracking - consider the UK's sources if energy in 2015.

One third of supply came from natural gas, one third from oil and the rest from other sources (coal, nuclear and renewables). Natural gas is imported via pipelines and ships (from Qatar, Algeria, Nigeria and Trinidad and Tobago).

The prediction is that most of the UK's natural gas will have to be imported come 2030. Fracking could therefore provide a valuable source of domestic supply. The British Geologic Survey estimates 1300 t.c.f. of gas in shale formations in Northern England.

The Royal Society also has published guidance on fracking.

Commercially, Cuadrilla has been involved in attempts to start fracking in the UK. They are partly funded by Riverstone Holdings LLC, founded by former staffers in Goldman's Energy and Power Group.

Donald Trump Becomes 45th US President

Donald Trump has become the 45th US President, the first President without prior military or government service. He has returned the Winston Churchill bust to the Oval Office. The White House has been the residence of American presidents since John Adams (second President of the United States after George Washington) in 1800. One of the first changes made was to change Obama's crimson curtains for gold ones. The Resolute desk in the Oval Office is built from the timbers of HMS Resolute which was trapped in the Arctic. The desk plans are kept in the National Maritime Museum in Greenwich, UK.