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Russia’s Gazprom Neft & LukOil Team Up To Develop Iranian Oil Fields

August 31, 2017 Tsvetana Paraskova 0

Russian oil companies Gazprom Neft and Lukoil have filed plans to develop oil fields in Iran, the National Iranian Oil Company (NIOC) said in two separate statements this week. Lukoil, together with Indonesia’s state firm Pertamina, are proposing to develop the Mansouri oil field in southwestern Iran, NIOC said on Wednesday. Back in February this year, Pertamina was proposing to develop two oil fields in Ab Teymour and Mansouri, which the Indonesian company had estimated at containing 1.5 billion barrels of oil reserves. Gazprom Neft, for…

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About That Debt Ceiling Crisis…

August 31, 2017 Tyler Durden 0

With just one month left until the “X Date”, better known as the first day on which Treasury has exhausted its borrowing authority and no longer has sufficient funds to pay all of its bills in full and on time, and also known as the date the US is technically in default on its debt obligations and would be forced to prioritize debt payments according to that infamous 2011 Fed transcript

… traders were hoping if not for resolution, then at least a modest dose of optimism in the days ahead: after all with Houston reeling, the last thing the US needs is a full government shutdown in addition to the emergency crisis in Texas.

Alas, that’s precisely the opposite of what is taking place in the market, where the September/October Bill Spread has again blown out to record levels…

… making the October T-Bill “hump” the worst it has been yet.

One potential catalyst for the spike in odds of an adverse outcome is that earlier today, the chairman of the conservative House Freedom Caucus said aid for victims of Hurricane Harvey should not be part of a vehicle to raise the debt ceiling.

Quoted by The Hill, Rep. Mark Meadows (R-N.C.), a Trump ally who leads the conservative caucus, said disaster aid should pass on its own, apart from separate measures the government must pick up in September to raise the nation’s borrowing limit and fund the government.

“The Harvey relief would pass on its own, and to use that as a vehicle to get people to vote for a debt ceiling is not appropriate,” he said an interview with The Washington Post, signaling agreement with Trump on the approach. It would “send the wrong message” to add $15 to $20 billion of spending while increasing the debt ceiling, Meadows added.

Ironically, it was precisely the Harvey disaster that prompted Goldman yesterday to lower its odds of a debt ceiling crisis from 50% to 33%, on the assumption that it would make conseratives more agreeable to a compromise, when in fact precisely the opposite appears to have happened, and the new dynamic is now playing out in the market where the odds of a government shutdown have never been greater.

So what does it mean for the US if the T-Bill market is correct and a debt ceiling deal is not reached in time over the next 30 or so days? For an unpleasant perspective on what may happen next, here is Deutsche Bank’s preview of what a debt ceiling crisis would look like:

Guide to a Debt Ceiling Crisis

 

If Congress doesn’t act in time and the above fallbacks are deemed untenable, the Treasuries with affected principal or coupon payments would likely be handled in two ways, according to scenarios considered by SIFMA. The first option would extend maturity and coupon payments, where payment decisions are explicitly announced by Treasury one day at a time, and both coupon and principal payments are ultimately made in full once the debt limit is raised. These securities would be able to be transferred normally, and a market for them would develop. While the security is not “defaulted” as its maturity date has been extended in systems, the extension would likely constitute a change in terms that triggers CDS.

 

The other outcome would a failure pay , where Treasury does not set a date for future payment, and there is no pre-announcement (or it comes last minute). A failure to pay would mean the affected securities drop off the Fed system and cannot be transferred normally. A market would eventually develop, but once there is a failure to pay and the securities are not extended in systems, they cannot be “unmatured” and maturity extended.

 

Regardless of whether it is a payment extension or a failure to pay, the longer Treasury remains in default, the worse the situation for financial markets. Market reactions and market functioning might be comparatively stable at first, but the concern is of widespread panic and systemic market disruptions.

 

As for immediate ramifications, noted that CDS would likely triggered either default scenario , as sovereign CDS is triggered by either a failure to pay, repudiation/moratorium, or a restructuring. A failure to pay occurs when a sovereign doesn’t pay principal or interest when due, with a 3 day grace period applying to that due date in the case of the US. In our view, a CDS trigger would apply to all debt obligations backed by the full faith and credit of the US government (including GNMA, FHA securities, etc.). A CDS event is unlikely to have much direct market impact, however, as net CDS exposure is a modest $1bn as of the end of July, down from about $4bn in 2013 and its peak near $6bn in 2011. As long there is no one particular bank that is overly short protection, we do not expect any knock-on CDS event. 5y CDS is currently suggesting no real concern, sitting at the bottom end of its 19-24bp ytd range. While the supply of deliverable securities is more than adequate to satisfy the outstanding contracts, demand deliverable bonds may cause distortions . The 2.25% Aug 2046 bonds are currently the cheapest-to-deliver into the CDS, and would likely trade upward in price towards recovery value.

 

Among Treasury market investors, money market funds are a key group possible propagation risk . Even after money fund reform, government funds continue to be quoted at a stable $1 NAV, leaving them vulnerable to perceptions around “breaking the buck,” and therefore large scale investor redemptions in an extreme scenario. Treasuries accounted for $678bn of money funds $2.7tn AUM as of the end of July, while Treasury repo makes up another $595bn (with about $150bn of that made up by RRP’s with the Fed). Money funds’ Treasury holdings tend to be concentrated in securities maturing in the first month – more than 40% of their Treasuries held at the end of July matured in August. This suggests that the bias will be for money funds to accumulate more securities maturing around the debt ceiling, though they may be cautious around specific issues. However, it’s worth noting that they then owned over $40bn combined in the October 5 bills, October 12 bills, and October 15 coupon maturities – more than 20% of the amount  outstanding. Of the $1.3tn of Treasuries (bills and coupons) that mature between October and mid-January, money funds own about 19% – potentially an important factor in the event that a default drags out. Also note that maturing notes and bill holdings are concentrated in a relatively few fund families.

 

Potential outflows from money funds has implications repo market . Possible forced selling of Treasuries, money funds would likely cut back on their provision of financing to banks through repo. While reforms have reduced banks’ reliance on short term funding and put them in a place to better withstand a significant reduction in availability of things like repo funding, a sharp contraction in overall repo financing would likely have ramifications for market functioning and liquidity.

 

In terms of market plumbing, given the reliance Treasuries managing credit risk derivatives , a default event could spread quickly to derivatives market via a sudden drop in the valuation of UST collateral. This loss in value would trigger calls for additional collateral, and given the widespread use of UST’s, it is possible that a number of market participants fail to post sufficient collateral; this would constitute a default in a centrally cleared trade. The requirement that the surviving counterparty replace the risk of that trade could subsequently result in a major revaluation of all related trades, triggering new collateral calls, and potentially create a vicious cycle.

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Russia’s Comeback In The LNG Race

August 31, 2017 Viktor Katona 0

In a little more than a month’s time, Russia will formalize its claim for a bigger role in the ever-expanding global LNG market. Early October, when the Yamal LNG will see its commissioning and first cargo delivered, expect to hear “Russia” and “LNG” in the same sentence in increasing frequency. Yet in Yamal LNG, Russia’s bid to consolidate its claim as a gas stronghold and to garner at least 10% of the global LNG market, one can discern a quite unconventional project for Russia. Although led by NOVATEK, a non-state-owned…

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Made In The USA (By Robots): China Opens ‘Sewbot’ Factory In Arkansas, Producing Shirts For 33c

August 31, 2017 Tyler Durden 0

Authored by Mike Shedlock via MishTalk.com,
A Chinese T-shirt company is setting up shop in Arkansas, lured by U.S. sewbots and lower production costs. It will cost about 33 cents to produce a shirt.

Please consider China Snaps Up America’s Chea…

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Gulf Coast struggles to get gasoline flowing as refineries remain shut, starving pipelines of fuel

August 31, 2017 crude oil 0

Some Texas refineries were starting back up, but continued outages in the area made it hard for pipelines to move fuel.

crude oilThe post Gulf Coast struggles to get gasoline flowing as refineries remain shut, starving pipelines of fuel appeared first…

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Trump Admin Orders Russia To Shutter Consulate, Annexes In The U.S.

August 31, 2017 Tyler Durden 0

Update: Russia’s response was quick:

LAVROV TELLS TILLERSON HE REGRETS ESCALATION OF TENSIONS
LAVROV: RUSSIA TO STUDY U.S. MEASURES AGAINST CONSULATES: RIA

* * *
Tit for tat.
Exactly one month after Vladimir Putin ordered the expulsion of 755 US di…

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“Rapidly Intensifying” Hurricane Irma Barreling Straight Toward The East Coast

August 31, 2017 Tyler Durden 0

The National Hurricane Center (NHC) has just updated its forecast for what it is now referring to as a “rapidly intensifying” Category 2 hurricane in the Eastern Atlantic ocean and the results look disastrous for a large swath of the Caribbean and Southeastern United States.  Here is a brief summary of Hurricane Irma from the National Hurricane Center released at 11AM EST:

Satellite images indicate that Irma is rapidly intensifying. Very deep convection has formed in the central dense overcast, which is now displaying a small and clearing eye.  Dvorak estimates were up to 77 kt at 1200 UTC, and since the cloud pattern continues to quickly become more organized, the initial wind speed is set to 85 kt.

 

At 1100 AM AST (1500 UTC), the center of Hurricane Irma was located near latitude 16.9 North, longitude 33.8 West. Irma is moving toward the west-northwest near 10 mph (17 km/h).  This general motion is forecast through early Friday, followed by a generally westward motion on Saturday.

 

Maximum sustained winds have increased to near 100 mph (155 km/h) with higher gusts.  Irma is forecast to become a major hurricane by tonight and is expected to be an extremely dangerous hurricane for the next several days.

 

Hurricane-force winds extend outward up to 15 miles (30 km) from the center and tropical-storm-force winds extend outward up to 80 miles (130 km).

A 50% chance that the northern Antilles experiences a Hurricane landfall next week; topography may cause models some issues with intensity. pic.twitter.com/ux1YzICbMD

— Michael Ventrice (@MJVentrice) August 31, 2017

Irma is expected to grow into a “major hurricane” within the next 24 hours with maximum sustained winds of 120 mph before growing even stronger throughout the weekend and eventually becoming a Category 4 storm.

Irma

The storm is moving west at roughly 10 mph and isn’t expected to pose its first threat to land until next week.

Irma

 

That said, longer term models suggest that Irma could make a turn to the northwest towards the middle of next week and head straight for Florida.

 

Meanwhile, other computer models predict that Hurricane Irma will move through the Gulf of Mexico and make its U.S. landfall in Texas just 2 weeks after Hurricane Harvey devastated the state.

Major development: The best ECMWF EPS members via initialization score are west of ensemble mean track, taking #Irma into the Gulf of Mexico pic.twitter.com/qT3RQTbZsy

— Michael Ventrice (@MJVentrice) August 31, 2017

That said, a lot could obviously change over the next week and, as the NHC notes, Irma is currently tracking further south than models predicted as of yesterday.

Irma has moved somewhat south of and slower than all of the model guidance since yesterday.  Consequently, it stayed longer over the warmer ocean temperatures away from the drier air to the north, possibly allowing the rapid strengthening.  Irma should move over cooler waters tomorrow with some increase in mid-level dry air, so hopefully the hurricane’s intensity will level off by then.  In a few days, the hurricane will be moving over warmer waters with light shear shown by all of the model guidance.  This should promote further strengthening of Irma, and the NHC forecast shows an extremely dangerous category 4 hurricane next week, similar to the solutions provided by the HWRF and the ECMWF models. The intensity forecast is raised considerably from the previous one due to initial trends, and is on the high end of the guidance at long range.

Of course, with FEMA resources already stretched thin by Hurricane Harvey, another U.S. landfall of a Cat 4 hurricane could be devastating blow.

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As Babies are Prescribed Pharmaceuticals, Have We Reached Dystopia?

August 31, 2017 TDB 0

Via The Daily Bell

Would you let a five-year-old smoke a joint? I certainly hope not. Yet that would probably be less harmful than loading kids up on pharmaceuticals.

Currently, over a million American children UNDER SIX YEARS OLD are taking psychiatric drugs. Babies are literally being doped up by the pharmaceutical industry. Over 274,000 babies UNDER ONE-YEAR-OLD are given drugs, mostly for anxiety.

Anxiety drugs for babies. Have they tried motherly love? Or is that just an old fashioned, outdated concept?

You know, I like to mention society’s similarity to Orwell’s 1984. And surely the growing police state, war on drugs, and endless military campaigns–where the enemy seems to change daily–are reminiscent of the fictional dictatorship of Big Brother.

But it seems the powers that be are working tirelessly to blend together the dystopia of 1984, with that of Aldous Huxley’s Brave New World.

In that dystopia, there is no police state or war. Society has been perfectly designed by scientists, inspired by Ford’s assembly line. Babies are grown in the lab, cloned to all look alike, depending on their class. Parents are an embarrassing relic of the past. How silly to think a child needs family when they have the state!

The lower castes are deprived of oxygen as embryos to stunt their mental development. In America, they use fluoride in the drinking water instead.

In Brave New World, children listen to 24-hour propaganda in their cribs. Betas hear:

Alpha children wear grey. They work much harder than we do, because they’re so frightfully clever. I’m really awfully glad I’m a Beta, because I don’t work so hard. And then we are much better than the Gammas and Deltas. Gammas are stupid. They all wear green, and Delta children wear khaki. Oh no, I don’t want to play with Delta children. And Epsilons are still worse.

White pride, black pride, gay pride, national pride. Pride is not meant for accidents of birth. You should be proud of accomplishments and achievements, not genetics and geography. Perhaps someone has been whispering in these radicalized children’s ears.

And how jealous the Department of Education must be of the incubators of Brave New World! They have to sometimes wait years to indoctrinate children. But at least the government gets to drug them up at a young age! And if the TV is left on, most of the programming is done for them.

Of course, the adults are drugged up in Brave New World as well, just like in America. If anyone feels the least bit anxious, nervous, sad–or any other troublesome emotion–they get “soma.” It’s the perfect mix of drugs with only pleasant feelings and no ill side effects.

The 1 in 6 Americans on antidepressants, antipsychotics, and anti-anxiety medication still have to put up with side effects.

The 50 million plus Americans on psychiatric medication sometimes kill themselves, or go mad and kill others. I guess the government is still working out the kinks. Or it’s just another creative blending of 1984 and Brave New World. In the former, the proles must be properly terrified.

And there is one more thing I can remember from Brave New World that strikes eerily similar to modern America.

At what age does the public education system start teaching sex ed? Kindergarteners in some states receive “age appropriate”–according to the government–sexual education. Some studies suggest teen pregnancies rise in areas where sex ed is taught at younger ages.

How young is too young for a sex change? Kids can now choose between 43 genders, or make up a new one! It’s like Mr. Potato head, but with their own bodies. And they will be given corresponding drugs to enhance the “natural” changes.

In the classrooms of Brave New World:

“We had Elementary Sex for the first forty minutes,” she answered. “But now it’s switched over to Elementary Class Consciousness.”

The Director walked slowly down the long line of cots. Rosy and relaxed with sleep, eighty little boys and girls lay softly breathing…

He let out the amazing truth. For a very long period before the time of Our Ford, and even for some generations afterwards, erotic play between children had been regarded as abnormal (there was a roar of laughter); and not only abnormal, actually immoral (no!): and had therefore been rigorously suppressed.

Drugging the population, programming citizens with propaganda, sexualizing children, creating class divisions.

These dystopian novels were meant to be warnings, not instruction manuals.

Aldous Huxley explores how his fictional predictions progressed in his 2006 nonfiction work, Brave New World Revisited.

 

 

I like to use Audible to listen to books while doing mindless tasks like weeding the garden. Try Audible and Get Two Free Audiobooks.

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Same Day FX Wars? Dollar Tumbles After Mnuchin Says “Weaker Dollar Better”, Undoing Euro Losses

August 31, 2017 Tyler Durden 0

The smell of currency war is rising in the air.

Less than six hours after the ECB lobbed the first trial balloon of the day, when Reuters reported that ECB policymakers were “growing worried” about the recent rapid gains in the Euro, sending the EURUSD sharply, if briefly lower, the entire move is now a distant memory following jawboning from US Treasury Secretary Steven Mnuchin, who moments ago said on CNBC that “having a weaker dollar is somewhat better for trade“, a statement which immediately spooked algos into dumping the USD…

… selling the USDJPY by 30 pips to 109.90…

… and sending the EURUSD right back to 1.19, where it was before the ECB’s Reuters “intervention.”

And while Mnuchin also added that a strong USD in the long-term “reflects confidence”, algos decided to ignore that. His key statement below:

As it relates to trade, having a weaker dollar is somewhat better for us. What I’ve said consistently is: Where the dollar is in the short-term is less of a concern for me. I do think over long periods of time, the dollar strength is an indication of the reserve currency and the confidence that people have in the U.S. economy.”

Then again, when asked by Liesman if a strong dollar is good for the U.S., he responded “it’s not a question of whether it’s better or not, it’s somewhat inevitable given the strength of the U.S. economy and the confidence that people have.”

While not nearly as FX moving, Mnuchin also said that the Administration’s aim is to get a 15% tax rate, explicitly said he was working with Gary Cohn and other lawmakers on the tax plan. Mnuchin also said that he meets with Yellen on a weekly basis and has a “constructive dialog” with the Fed chair, although he refused to comment on her future, and said Trump would decide the next Fed chair.

More amusingly, on the topic of the tax package he vowed that “there absolutely is a tax package”, that revenue neutrality remains under discussion, and promised that the tax reform package will pacy for itself with US “growth.”

Finally, he said that while more money is needed for Harvey, he wouldn’t say how much, while on the topic of the debt ceiling he did note that “nobody would let the US default.”

His key comments courtesy of Bloomberg:

  • MNUCHIN: HAVING A WEAKER USD IS SOMEWHAT BETTER FOR U.S. TRADE
  • MNUCHIN: THERE ABSOLUTELY IS A TAX PACKAGE
  • MNUCHIN: TAX PACKAGE SHOULD BE PAID FOR WITH ECONOMIC GROWTH
  • MNUCHIN HE’S BEEN WORKING WITH COHN, LAWMAKERS ON TAX PLAN
  • MNUCHIN SAYS BLUEPRINT TO BE RELEASED FOR CONGRESSIONAL REVIEW
  • MNUCHIN SAYS REVENUE NEUTRALITY IS UNDER DISCUSSION
  • MNUCHIN: PLAN INCLUDES MIDDLE-CLASS TAX CUT, SIMPLIFICATION
  • MNUCHIN SAYS OBJECTIVE IS TO GET CORPORATE TAX RATE TO 15%
  • MNUCHIN: TAX PACKAGE SHOULD BE PAID FOR WITH ECONOMIC GROWTH
  • MNUCHIN: SEPT. 29 DEBT CEILING DATE COULD MOVE A LITTLE
  • MNUCHIN SAYS WE’RE ON TRACK TO GET TAX PLAN BY YEAR END
  • MNUCHIN SAYS NEXT BIG CASH DATE IS SEPT. 15 W/ CORPORATE TAXES

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MARKET WATCH: NYMEX gasoline climbing, crude price for October settles below $46/bbl

August 31, 2017 Latest News 0

The light, sweet crude oil price for October delivery fell to settle below $46/bbl while gasoline futures jumped for a third consecutive day Aug. 30 in the aftermath of Tropical Storm Harvey’s flooding, prompting multiple refinery closing along the Gulf of Mexico coast.

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