The Financial Daily : 2020-08-21

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Friday, August 21, 2020 Hedge fund looks for bottom in Turkish lira The lira gained for a second day on Wednesday as the central bank took further steps to tighten liquidity in the banking sector. The currency has declined 19% this year, hitting a record of 7.4084 per dollar last week. Before its most recent bout of weakness, the currency was held in a tight range below 7 per dollar for more than two months through dollar sales by state banks. "I suspect they are going to try to re- peg again at a new, higher rate, but is that rate 7.5 or is it 8?," Kisler said. "If they have actually taken the decision to let it go, you could see it weaken to 8, if not more, and all the carry will be gone. There is a lot of uncertaint­y." ISTANBUL: Hedge fund manager Peter Kisler is looking to this week's Turkish central- bank meeting for a signal to start buying the lira. The question is whether Turkey will let its currency weaken further or hike rates to defend it, said North Asset Management's Kisler. The London- based investor sold all its Turkish assets before capital outflows started accelerati­ng in March, fueling the lira's decline to a record against the dollar. The lira one- month deposit rate of 16.25% is the highest in emerging markets, and lucrative compared with peers such as Russia's 4.35% and South Africa's 4.25%. But those returns would dissipate if the lira continues weakening and inflation remains in double digits. So far, policy makers have resisted raising borrowing costs even as the currency slumps, and they're expected t o leave the benchmark rate unchanged at 8.25% on Thursday. "If the central bank meaningful­ly hikes rates and says they are willing to hike further, that would definitely make Turkish assets more attractive," Kisler said. "If they do hike, the first step would be to see the market reaction and how the government outside the central bank would react, but I would at least start looking for buying options on the lira." Kisler's North Emerging Markets Fund returned 51% in the first six months of this year by shorting emerging- market debt before t he selloff, according t o a monthly report seen by Bloomberg. Similar macro funds are up an average of 2.7% this year. The easiest way to profit from lira appreciati­on is to buy the currency cash, Kisler said, because of scarce liquidity in the debt market, a result of restrictio­ns on the flow of capital designed to stifle foreign investors' ability to bet against the Turkish currency. Kisler said he wasn't targeting any specific exchange- rate level to buy, and would look out for measures aimed at stabilizin­g the lira. BHP and Rio show the swings and arrows of China commodity exposure Dollar gains as federal reserve shows reluctance to change Premier Oil lays out plan to extend debt facilities, posts first- half loss LONDON: Premier Oil ( PMO. L) has agreed terms for a long- term refinancin­g of its debt facilities, it said on Thursday, including $ 300 million of new equity and an extension to its credit maturities, after swinging into a first- half loss due to weak crude prices. The British company has been struggling with debt since the oil slump of 2014. The recent plunge in crude prices due to the COVID- 19 pandemic forced the firm to secure all possible finances and delay repayments. Premier's shares were down 20% by 0852 GMT, the lowest since May 15. The company said $ 2.9 billion of gross debt facilities would be refinanced with non- amortising facilities, extending the maturities from May 2021 to March 2025. All interest rates on its debt would be set at 8.34%. Premier's net debt had shrunk to $ 1.97 billion by the end of June from $ 1.99 billion at the end of December, the company said. Premier's market capitaliza­tion stood at around $ 414 million on Thursday. The company confirmed it would raise $ 230 million to fund the proposed purchase of some of BP's ( BP. L) North Sea fields. It said it would also raise a further $ 300 million of new equity to reduce debt, of which $ 205 million will be underwritt­en by creditors who will convert debt to shares. The new arrangemen­t "puts us in a strong position for long- term refinancin­g and to reset the balance sheet," Premier Oil Chief Executive Tony Durrant told Reuters. "We are simultaneo­usly increasing production and cash flow and reducing debt," he added. The company, which produced 67,300 barrels of oil equivalent per day in the first half of 2020 against 84,100 boed a year earlier, is planned to lift output to 100,000 boed by mid 2020 thanks to field start- ups and the BP acquisitio­n, Durrant added. Premier reported a net loss of $ 672 million in the first half following $ 632 million in non- cash write downs, against a profit of $ 121 million in the first half of 2019. The company also reaffirmed its expectatio­n that it would be free cash flow positive for full- year 2020. LONDON: The dollar edged higher in early European trade Thursday, helped by the Federal Reserve offering few clues that it intends to take a more dovish approach to help the U. S. economic recovery in the near future. At 3 AM ET ( 0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 93.067. USD/ JPY was flat at 106.11, GBP/ USD dropped 0.2% to 1.3072 while EUR/ USD was fla t at 1.1841. The path to economic recovery for the U. S. economy from the Covid- 19 outbreak remains highl y uncertain, t he Federal Reserve warned, according to minutes from its latest meeting, released on Wednesday. However, the Fed did not appear to be prepared to change its monetary policy objectives at the forthcomin­g September meeting, suggesting that the introducti­on of yield curve controls or average inflation targets are still some way away. Speculatio­n has been rife the Fed will adopt an average inflation target, and seek to push inflation above 2% to make up for years it has run below, as part of a broader policy review. In the emerging markets sphere, Turkey's central bank is scheduled to meet later Thursday, with most analysts expecting it to leave its benchmark one- week repo interest rate unchanged at 8.25%. The Turkish lira has fallen to record lows against the U. S. dollar in recent times on concerns that low interest rates, depleting FX reserves and a flood of easy credit could pave the way to a second currency crisis in as many years. President Recep Tayyip Erdogan has repeatedly called for lower borrowing costs, putting pressure on policy makers led by Governor Murat Uysal not to raise interest rates to support the currency. The central bank's approach is now effectivel­y to tweak the cost of funding on a daily basis, varying the amount of liquidity available to lenders. Turkey's central bank "will likely attempt more backdoor tightening before eventually being forced to hike rates outright later this year," said Win Thin, global head of currency strateg y at Brown Brother s Harriman & Co., in a Bloomberg report. At 3: 00 AM ET, USD/ TRY traded 0.3% higher at 7.3094. LAUNCESTON: Australia It may be a bit of an oversimpli­fication, but in the current situation of the global coronaviru­s pandemic the world of commoditie­s is effectivel­y split between China and the rest. Nowhere is this more clearly illustrate­d than in the results of top global miners BHP Group and Rio Tinto. BHP, the world's biggest miner with a broad portfolio of quality assets, missed analysts' estimates in reporting a 4% drop in annual profits on Aug. 18. BHP reported underlying profit attributab­le from continuing operations for the year ended June 30 of $ 9.06 billion - below estimates of $ 9.42 billion, according to Refinitiv IBES data. "With the exception of China, the world's major economies will contract during the 2020 calendar year as a result of t he COVID- 19 pandemic," Chief Executive Mike Henry said in a statement. Looking at the details of BHP's results shows that the standout performer was iron ore, providing 64% of the earnings before interest, taxes, depreciati­on and amortizati­on ( EBITDA) for the world's third- largest producer of the steel- making ingredient. China buys more than two- thirds of the global seaborne trade in iron ore, making it the major commodity most exposed to the Chinese economy. It's also worth noting that BHP's return on capital employed was 56% for iron ore, but only 12% for metallurgi­cal coal, 7% for copper and 6% for petroleum. While China has been boosting imports of most major commoditie­s as its economy recovers from the coronaviru­s shutdowns of the first quarter, it's iron ore that has been the biggest beneficiar­y. Spot 62% iron ore for delivery to north China, as assessed by commodity price reporting agency Argus, rose to a 6 1/ 2year hi gh of $ 128.20 a to nne on Wednesday. It is now up 62% from its low so far this year of $ 79.60 on March 23, and 41% from the end of last year. This makes iron ore the best performing major commodity, leaving behind even the market darling gold, which had gained 27% from the end of last year to it s cl ose of $ 1,929.54 an ounce on Wednesday. It's therefore little surprise that Rio Tinto, which is poised to overtake Brazil's Vale as the world's top iron ore miner, performed so strongly it its first- half results, announced on July 29. The Anglo- Australian miner reported underlying half- year earnings of $ 4.75 billion, beating the analysts' consensus forecast of $ 4.36 billion. Bulls move deeper on most Asian currencies on recovery hopes Gold crashes in ‘ Deja Vu’ selloff, as dollar defies Fed BENGALURU: Long positions across most Asian currencies were comfortabl­y raised, a Reuters poll found, as investors t ur n i ncr eas i ngly opti mis t i c of t he region's economic rebound with confidence in the U. S. dollar waning and China primed for a recovery. Long bets on the Chinese yuan , for example, shot up to their highest since early 2018, a fortnightl­y poll of 15 r espondents s howed, wit h i nves t ors consistent­ly raising wagers since t urning bullish in July. With unpreceden­ted amounts of liquidity pumped i nt o markets by the U. S. Federa l Re ser ve and ot her centr al banks, investment­s that would have otherwise been considered risky at a ti me of an economical­ly- devastatin­g pandemic have turned attractive. The dollar, often viewed as a safehaven, i s set for i ts f ourt h strai ght monthly decline, trading at a more than two- year l ow. "The U. S. dollar is likely to weaken over t he next 12 months as gl obal growth accelerate­s and t he narrowing in real interest rate differenti­als continues to thwart the greenback," BCA Research strategist­s wrote in a note at t he end of last week. Though fragile, recent economic data from China, the world's second- largest economy, has pointed t o a nas cent r ecov ery. Long bets on both South Korea's won and the Malaysian ringgit climbed to more than two- year highs. Despite many Asian economies suffer- ing double- digit contractio­ns in the last quarter due t o l ockdown measures, many investors say the worst is probably over. "The recovery is now being seen as something more sustainabl­e, which i s driving inflows back into Asia and supporting Asian currencies against the dolla r," said Wei Liang Chang, a macro strategist at DBS. Long positions on t he Philippine peso , the region's top performer so far t his year, were also sharply raised to their highest since early 2013. One currency t hat i nves t ors have remained bearish about is Indonesia's rupi ah , an int erest rate carry t rade favourite, on expectatio­ns of furt her monetary easing this year. While rates were kept on hold on Wednesday after the vast majority of poll responses came in, analysts are still factoring in further cuts this year over other fiscal and monetary measures. "Markets are concerned about the fiscal bur den shar i ng with BI ( Bank Indonesia), possible fiscal slippage, as well as the diminished yield attractive­ness of the rupiah," DBS' Chang said. The Asian currency positionin­g poll i s focused on what analyst s and fund managers believe are the current market positions in nine Asian emerging market curr encies: the Chinese yuan, South Kore an won, Singa pore doll a r, I n dones i an r upia h, Taiwan doll a r, I n dian r upee, Phili ppine pes o, Malaysian ringgit and the Thai baht. LONDON: Gold prices crashed anew on Wednesday as the dollar jumped, defying the logic of the Federal Reserve's latest meeting minutes to send the yellow metal below $ 1,950 an ounce. Benchmark December gold futures on Comex settled down $ 42.80, or 2.1%, at $ 1,970.30. It sank further, to as low as $ 1,941, or more than 3%, after the release of the Fed minutes for July. Just a day earlier, December gold soared to a one- week high of $ 2,023.90. The selloff revived memories of the "Black Tuesday" crash from a week ago, when December gold lost $ 93 on the day. In Wednesday's session, the spot price of gold, which reflects trades in bullion, slumped $ 58.79, or 1.1%, to $ 1,943.27 by 2: 51 PM ET ( 18: 51 GMT). The Dollar Index, the antithesis of the precious metals and safe- havens trade, jumped to above 93, or nearly 1%, at one point. Traders and analysts fumbled to explain the dollar's resurgence amid the contents of the Fed minutes, which all but had a dire warning for the U. S. economy in the face of the coronaviru­s pandemic. It was advice that should have hammered the currency, rather than sent it rallying "There seemed to be some uncertaint­y on forward guidance and that has helped to push up rates and the USD in the process," said Greg Michalowsk­i, commenting on the minutes in a post on Forexlive. "Lack of support for yield curve targeting may also be a reason for the backup in yields and the USD." The Fed said banks and others could be under stress in bad outcomes, as well as concerns that an increase in Treasury debt could have implicatio­ns for market function. "Risks included additional waves of virus spread that could cause credit markets to tighten again, as well as the loss of fiscal support for households, businesses, and local government," the central bank said in its July minutes. Yields on the U. S. 10- Year Treasury note were up 0.9% after the release of the Fed minutes. They were down as much as 2.8% earlier in the session, after sliding 3% over two previous days. Daily opening & closing rates Metals, Energy, COTS/ FX and US Indices On Tuesday at Pakistan Mercantile Exchange Limited, PMEX Commodity Index closed at 5,067. The traded value of Metals, Energy, COTS/ FX and Indices was recorded at PKR 16.685 billion and the number of lots traded was 16,552. Major business was contribute­d by Gold amounting to PKR 12.772 billion, follow ed by Sil ver ( PKR 1.513 bill i on), Currencies through COTS ( PKR 626.210 mill io n), Plati num ( PKR 423.909 mil li on), Copper ( PKR 408.660 million), NSDQ 100 ( PKR 396.605 million), DJ ( PKR 279.909 million), Natural Gas ( PKR 131.787 million), Crude Oil ( PKR 110.857 million) and SP500 ( PKR 21.031 million). In agricultur­e commoditie­s, 4 lots of Wheat amounting to PKR 2.120 million were traded. PMEX Index 5,067 Total Volume ( Lots): 16,552 Traded Value ( Rs): 16,685,463,298 Commodity Price Quotation Open Close Commodity Price Quotation Open Close GOLDEURJPY ( COTS) GOLDGBPJPY ( COTS) GOLDCHFJPY ( COTS) GOLDAUDJPY ( COTS) GOLDEURCAD ( COTS) GOLDEURAUD ( COTS) GOLDEURCHF ( COTS) GOLDGBPCHF ( COTS) GOLDAUDCAD ( COTS) DJ NSDQ100 SP500 JPYEQTY ICOTTON ICORN IWHEAT ISOYBEAN JPY ¥ JPY ¥ JPY ¥ JPY ¥ CAD$ AUD$ CHF CHF CAD$ Index Value Index Value Index Value Index Value US Cents per pound US Cents per bushel US Cents per bushel US Cents per bushel 125.859 138.920 116.952 76.504 1.5678 1.6452 1.0762 1.1878 0.9532 27776 11,288.00 3380.25 23160 63.41 343 515.25 914 125.802 139.587 116.709 76.353 1.5714 1.6476 1.0769 1.1960 0.9538 27723 11,412.75 3387.25 23060 62.88 341.00 506.25 912.25 WTI CRUDE OIL BRENT CRUDE OIL NATURAL GAS SILVER GOLD GOLD MTOLAGOLD TOLAGOLD PLATINUM COPPER PALLADIUM GOLDEURUSD ( COTS) GOLDGBPUSD ( COTS) GOLDUSDJPY ( COTS) GOLDAUDUSD ( COTS) GOLDUSDCAD ( COTS) GOLDUSDCHF ( COTS) GOLDEURGBP ( COTS) $ Per Barrel $ Per Barrel US $ Per mmbtu $ Per Ounce $ Per Ounce Rs Per 10 gms Rs Per Tola Rs Per Tola $ Per Ounce US $ per pound $ Per Ounce US$ US$ JPY ¥ US$ CAD$ CHF GBP 42.84 45.35 2.343 27.618 1,993.4 107,190 118,682 118,682 969.3 2.909 2,227.8 1.1874 1.3107 105.997 0.7218 1.3204 0.9063 0.9060 42.52 45.03 2.411 27.770 2,010.5 108,328 121,789 121,789 975.4 2.971 2,225.1 1.1935 1.3243 105.400 0.7244 1.3167 0.9032 0.9013 PRINTED AND DISTRIBUTE­D BY PRESSREADE­R PressReade­r. com + 1 604 278 4604 O R I G I N A L C O P Y . 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