Tuesday, February 9, 2016
Global banking fears hit shares; Oil glut threatens price recovery; India rupee free-fall to continue
1 Global banking fears hit shares (Jill Treanor in The Guardian) Growing anxiety about whether banks can withstand continued low interest rates and fears of a re-run of the 2008 financial crisis continued to stalk markets when shares fell to a three-year low and bank shares remained volatile.
As shares in Deutsche Bank plumbed new depths on Tuesday and the bank’s chief executive had to reassure its 100,000 staff that it was “rock solid”, concerns mounted about the health of the global banking sector. “Many are asking ‘crisis’ questions: ‘Is there risk of a financial crisis re-run’ and ‘can a large European bank face a liquidity event’?” said analysts at Goldman Sachs.
The Goldman analysts reckon the alarm bells are ringing too loudly. They recognise that market confidence is “fast deteriorating” but point to the €800bn (£625bn) of capital that European banks have raised since the 2008 crisis as evidence that the fears are overdone – together with the fact that customers are continuing to make deposits and there are no signs of strain in the crucial money markets.
The collapse in confidence in the banking sector since the start of the year has been dramatic. Shares in Deutsche Bank have slumped by almost 40%, UniCredit of Italy is down more than 40% while Credit Suisse is down 37%. The Europe-wide Stoxx 600 banking index is down 27%.
In the UK, Standard Chartered and Barclays bothfell more than 25% while Goldman Sachs and Morgan Stanley in the US were also caught up in the rout, down 17% and 25% respectively.
When the US banks reported their results last month, they barely met market expectations. Major European banks such as Deutsche and Credit Suisse have recorded their first losses since the 2008 crisis.
The last financial crisis was exacerbated by little-understood investment vehicles such as CDOs (collaterialised debt obligations), synthetic CDOs and monoline insurers. But this time the issues are more straightforward: they centre on concerns about economic growth and the impact of low oil prices. It is proving harder for banks to generate profits and is calling into question the business models of some banks – Deutsche and Barclays among them.
2 Oil glut threatens price recovery (BBC) A recent rise in oil prices is a "false dawn" and the oversupply of crude is set to worsen, according to the International Energy Agency (IEA). The IEA expects oil stocks to grow by two million barrels a day in the first quarter and 1.5 million barrels a day in the following three months.
In January, Brent crude hit a 13-year low of $27.67. It recovered a bit, but on Tuesday was down 7.2% at $30.50. But that is still a long way from the $112 level reached in June 2014.
The IEA forecast that stock building could continue in the second half of 2016 at a rate of 300 million barrels a day. It said: "If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term."
Meanwhile demand for oil is expected to weaken. The IEA forecasts that demand growth will fall to 1.2 million barrels a day this year, from the 1.6 million barrels a day seen in 2015, the IEA said. The think tank also questioned whether the recent rise in prices was a "false dawn" and concluded that a number of conditions increased the risk of weak oil prices.
These included doubts that Opec, the oil cartel, was in talks with other oil producing nations to reduce supply. It also quashed speculation that Opec nations would cut output this year, stating that output from Iraq reached a new record in January. Iran has increased production ahead of sanctions being removed and preliminary data suggested that Saudi Arabia's shipments had increased.
3 India rupee free-fall to continue (Abdul Basit in Khaleej Times) The free-fall of the Indian rupee against the US dollar is expected to continue for a couple of months for numerous reasons, according to an industry specialist. On Monday, the rupee closed at 67.93 versus a dollar while its exchange rate jumped from Rs17.96 on January 1 to Rs18.49 against the UAE dirham. The rupee opened this year at 66.17 against the greenback.
A weaker rupee will boost remittances in rupee terms from the UAE and other Gulf countries and at the same it will also help Indian exporters to remain competitive in international market where the greenback is strong against all currencies, UAE Exchange president Y. Sudhir Kumar Shetty said.
The global economic scenario is not good as large economies in Europe are not doing well in addition to China problem, Shetty said, adding that there is no point for a stronger Indian currency when other currencies are weak. He pointed out that it's ideal if the rupee will remain weak, so Indian exporters will become competitive with other exporters in the international market.
Shetty explained that dollar strength was one of the causes of the rupee being very weak. Another reason is stock markets in India are going lower and lower so foreign investors have taken their money out of India resulting in strong demand for dollar, he added.
"None of the factors are helping the rupee to strengthen. It's a fact that historically, the rupee gets weaker on average five per cent per annum. The trend will continue but it could be four per cent or three per cent."