OmanObserver_30-06-13

SUNDAY, JUNE 30, 2013
Wall Street
Wall St Week ahead: Fed fears may
be gone but brace for volatility
A trader points at the New York Stock Exchange shortly after the start of trading in New York. — Reuters
NEW YORK — Panic selling on
fears of an early exit of the US Federal
Reserve's stimulus efforts may
be over, but the stock market may
still face wild intra-day swings
as investors scramble to position
themselves for Friday's payrolls
report. Trading volume is likely to
be thin, with a half-day session on
Wednesday and markets closed for
the Independence Day holiday on
Thursday. Both the Labour Department's
weekly jobless claims and
employment report for June will be
released at 8:30 am.
"Non-farm payrolls generally
cause more volatility in the market,
but how many times do you see
weekly claims and payrolls coming
out the same day on a shortened
trading week? That will certainly
cause a lot of volatility," said Randy
Frederick, Managing Director of
Trading and Derivatives at Charles
Schwab & Co Austin, Texas.
In the options market, traders
were active in the put weekly options
on the S&P 500. These shortterm
options have a week-long life
How Gazprom’s $1 trillion
dream has fallen apart
MOSCOW — Zoya Danilina, who owns some
700 shares in Gazprom, says investors don't
have to look far to understand that Russia's
most powerful company has lost its way.
Danilina remembers when her shares were
worth over 300 roubles each. Now they fetch
about 100 roubles.
"There have been much better days, when
tables were served with black and red caviar,"
she said on the sidelines of Gazprom's annual
general meeting in Moscow on Friday, looking
at a plate of boiled buckwheat, a popular staple
food in Russia.
In the caviar era, Gazprom head Alexei Miller,
a close ally of President Vladimir Putin, was
overseeing a company with the world's thirdlargest
market value at $360 billion. In 2007, he
promised to boost it to $1 billion.
Fast forward several years and Gazprom, still
the world's largest gas producer and holder of
15 per cent of global gas reserves, is worth $77
billion and could fall further as it faces a series
span and expire on July 5. Put options
are generally viewed as bearish
bets against the market.
"We've seen some buying pop up
in the weeklies for next week. The
most active ones are the 1,600 puts
on the SPX," said JJ Kinahan, chief
strategist at online brokerage irm
TD Ameritrade in Chicago.
"We will probably see more
hedging activity early next week
and perhaps higher intra-day
swings as people try to igure out
their option positions going into
the holiday with the employment
report due the next day."
June's employment report could
offer clues on the timing of the
Fed's eventual tapering of its bond
purchases. Non-farm payrolls are
expected at 170,000, below the
194,000 six-month moving average.
The unemployment rate is seen
dipping to 7.5 per cent from 7.6 per
cent.
Manufacturing will also be in
the spotlight next week. The Institute
for Supply Management is
expected to report tomorrow that
Russia's gas giant Gazprom CEO, Alexei Miller, attends the world biggest gas company's
annual meeting in Moscow yesterday. — AFP
factory activity expanded in June
after a surprise contraction in May.
While US markets are closed
on Thursday, the Bank of England
monetary policy meets for the irst
time under the chairmanship Governor
Mark Carney.
The European Central Bank,
which also holds its monetary
meeting on Thursday, is not expected
to change rates, but President
Mario Draghi may discuss just
how much longer the ECB will stick
with extraordinary policy settings.
The S&P 500 on Friday posted
the best irst half of the year since
1998, rising more than 13 per cent
in the irst six months of 2013,
fueled by US monetary stimulus.
"I think that the market's pretty
fairly valued, so we would be surprised
if you saw the same kind of
rally like you saw in the irst half of
the year, but it doesn't seem to be
a catastrophic environment, like
you're going off the cliff either,"
said Steven Bafico, Chief Executive
Oficer at Four Wood Capital Partners
in New York.
of setbacks. The biggest blow came from a shale
gas revolution that has unlocked vast reserves
in the United States.
US prices have crashed, closing America as
a prospective market for Gazprom, diverting
cheaper liqueied natural gas (LNG) cargoes not
needed in the United States to Europe, undermining
Gazprom's position in its core market.
Europe, tied to Gazprom by a Soviet-built
pipeline network, has balked at its contracts
that tie gas prices to more expensive oil.
Last year, Miller was forced to offer billions
of dollars in what Gazprom described as "rebates"
to European buyers.
On Thursday, Germany's RWE said it won an
arbitration case against Gazprom, which further
loosened the price link to oil and raised the
prospect of more price concessions.
Gazprom expects its 2013 earnings to fall by
10 per cent, marking a second yearly decline.
The stock market now values Gazprom —
the world's third-biggest company by earnings
For the quarter, the S&P 500
was up 2.3 per cent but for the
month, the S&P 500 fell 1.5 per
cent on concerns of an early exit by
the Fed's supportive measures.
A Reuters survey of 53 investors
across the United States, Europe
and Japan released on Friday found
that funds had already cut their average
equity holdings in June to a
nine-month low due to the recent
volatility and had held more cash.
The equities market took a hit
last week after Fed Chairman Ben
Bernanke signaled the central bank
would begin to slow the pace of
its bond buying later this year if
the economy improves as forecast.
Since then, a number of Fed speakers
have sought to calm markets,
giving assurances the stimulus efforts
are going to be in place for
awhile.
Federal Reserve Bank of New
York President William Dudley,
who said markets are "quite out of
sync" with the Fed, will speak on
economic conditions on Tuesday.
"I think the panic selling from
the Fed is pretty much over. Now
they (Fed oficials) are coming out
and saying unanimously that 'we
haven't changed at all, and we are
possibly tapering in the fall depending
on the data,'" Frederick
said.
"I think the market is believing
that now, and I don't expect anything
surprisingly different from
the Fed speaker next week."
Hugh Johnson of Hugh Johnson
Advisors said the slight rise in the
inal week of June could be described
as “the restoration of sanity”
after several rocky weeks.
IPO industry expert Renaissance
Capital said there was still
enough strength in the markets to
support more new issues, after the
second quarter’s 61 companies going
public, the most active quarter
in nearly six years.
“Though the Fed’s hints at a retreat
from stimulus efforts brought
a dose of renewed volatility to
the markets last week, investors
showed a willingness to continue
putting money to work in IPOs,
as long as valuations were adjusted.”—
AFP
behind ExxonMobil and Apple — at only two
times its 2012 earnings of $38 billion. That
makes it the cheapest large-cap stock on an already
cheap Russian market.
Investors could possibly forgive those setbacks
if they were conident Gazprom could
expand in the fast growing global LNG markets,
while charging rising prices at home.
"Our goal is to control around 15 per cent
of the global market for liqueied natural gas,"
Miller, 51, told the annual general meeting on
Friday. But such hopes were dealt heavy blows
over the past month.
Putin signalled last week the gradual end of
Gazprom's monopoly on exports of LNG and
opened the way for rivals Novatek and Rosneft
to compete for huge new Asian markets.
"We offer to lower restrictions gradually on
liqueied natural gas exports," Putin said in a
speech at an economic forum in St Petersburg,
both his and Miller's hometown.
Putin also said that monopolies would be
able to raise prices only in line with inlation,
reducing hopes for much higher returns on the
domestic market.
Gazprom's domestic industrial customers
pay $114 per 1,000 cubic metres — little more
than half of the $201 it receives for exports after
being adjusted for transportation and duties.
"Investors are structurally underweight
Gazprom as they do not believe in signiicant
change at the company," said Kingsmill Bond,
chief strategist at Sberbank Investment Research
in Moscow.
Under Miller, hired by Putin in 2001,
Gazprom often served as a Kremlin political
tool, as described by EU oficials.
"The Kremlin has decided that Gazprom is
part of Russia's national security and geopolitics
— not a commercial company," said Chris
Weafer, founder of Macro Advisory, a Russiafocused
consultancy. — Reuters
Internet
INTERNATIONAL
19
China banking system
‘stable’ despite
fund squeeze
SHANGHAI — China's bank regulator said
yesterday that a recent liquidity squeeze
would not hurt the stability of the banking
system, in the latest government effort to
soothe concerns over the funding shortage.
For three weeks, funds have been in
short supply on China's interbank market,
and the interest rates banks charge to lend
to each other have surged to record highs.
Head of the China Banking Regulatory
Commission, Shang Fulin, said the overall
banking system had adequate liquidity,
echoing comments by the central bank
earlier in the week.
"These days the issue with tight liquidity
in the interbank market has started
to ease," Shang told a inancial forum in
Shanghai.
"This situation will not affect the overall
pattern of stable operations in the domestic
banking sector," he said, adding
domestic inancial institutions had excess
reserves of 1.5 trillion yuan ($244 billion)
on Friday.
China's central bank chief Zhou Xiaochuan,
speaking a day earlier, offered assurances
that the People's Bank of China
would use multiple tools to "ensure the
overall stability of the market".
There are worries tight liquidity among
banks could prompt them to tighten lending,
which threatens to carry over into the
real economy.
State media has reported that banks
are struggling to meet their payment obligations
as around 1.5 trillion yuan worth
of wealth management products mature
at the end of June.
A top oficial of one of China's big four
banks, the Agricultural Bank of China, said
Internet overlords close to
opening new online domains
SAN FRANCISCO — The agency in-charge
of website addresses passed a major milestone
on Friday on the path to broadening
the world of domain names by the end of
this year.
The board of US-based Internet Corporation
for Assigned Names and Numbers
(ICANN) touted freshly-approved beneits
and responsibilities for registrars that essentially
act as domain name wholesalers.
Changes to contractually enforceable
rules include requiring registrars to
conirm phone numbers or addresses of
those buying domain names within 15
days.
"People who have stolen an identity
or have criminal backgrounds obviously
don't want to give you their name and address
if their intentions are not kosher,"
said Cyrus Namazi, ICANN's Vice-President
of industry engagement. "The intent
here is to weed out bad actors."
Prior to new rules outlined in the Registrar
Accreditation Agreement, there
were "loose checks and balances" to make
sure aliases weren't being used by people
buying domain names, according to
Namazi.
"It is a very serious and signiicant
milestone in moving towards new gTLDs
(generic Top-Level domains)," he said.
ICANN is considering more than 1,800
requests for new web address endings,
ranging from the general such as ".shop"
to the highly specialised like ".motorcycles."
Many of the requests are from large
companies such as Apple, Mitsubishi and
IBM — with Internet giant Google alone
applying for more than 100, including
.google, .YouTube, and .lol — Internet
slang for "laugh out loud."
Cyprus ratings downgraded over debt swap
NICOSIA — Cyprus's bond ratings have
been downgraded by Standard & Poors
Ratings Services and Fitch following Nicosia's
announcement that it would swap
one billion euros in local bonds for longer
maturities.
On Thursday, the inance ministry said
that government bonds maturing in 2013
through the irst quarter of 2016 would
be replaced with ive new issues holding
the same coupon rate and at ive-10 year
maturities.
The move was required under the
terms of a bailout deal with the European
Tight liquidity among
banks could prompt
them to tighten lending,
which threatens to
carry over into the real
economy
on Friday that lenders should step up risk
control and allocate inancial resources to
the right places.
"The recent liquidity shortage in the
market to some extent has something to
do with overly high inancial leverage and
rapid expansion of shadow banking," Agricultural
Bank Deputy Chairman Zhang
Yun told the forum.
Shang, the banking regulator, also called
for more attention by domestic banks for
risk control and liquidity management.
But he played down risks from local
government debts, another issue which
has sparked worries over China's economy.
"Recently some foreign institutions
and industry players showed concern
about risk in areas including local government
debts," Shang said.
"As long as we apply the right risk-management
measures, these risks are controllable,"
he said.
China's top auditor recently put outstanding
debts held by 18 of the country's
31 provinces and major municipalities
at 3.85 trillion yuan in 2012, the oficial
Xinhua news agency reported on Thursday.
— AFP
California-based ICANN says the huge
expansion of the Internet, with some two
billion users around the world, half of
them in Asia, means new names are essential.
There are currently just 22 gTLDs,
of which .com and .net comprise the lion's
share of online addresses.
"We spent a long time negotiating very
thorny issues," Akram Atallah, ICANN's
generic domains division head, said in an
online video.
"The new agreement achieves everything
we wished for in order to roll out
the new gTLD programme."
The irst new website address endings
should be available in the inal quarter of
this year, according to Namazi.
The revamped agreement will affect
more than 1,000 domain name registrars
around the world.
ICANN has been negotiating with domain
handlers for more than two years
on agreement revisions, with interests of
governments and law enforcement agencies
among those factored into changes,
according to Namazi. "Law enforcement
agencies played a big role in it, because
Internet crime is one of the biggest factors
out there," he said.
"Governments are actively involved because
the Internet is one thing that connects
all the governments of the world
and some want to control it."
The agreement doesn't require domain
operators to go beyond legal limits
regarding information that must be supplied
to law enforcement oficials, according
to ICANN. "This agreement is probably
going to be somewhat invisible to
consumers but it provides a mechanism
to protect privacy and prevent crime,"
Namazi said. — AFP
Union and the International Monetary
Fund. But S&P said on Friday that the "exchange
materially changes the terms of
the affected debt and constitutes what we
consider a distressed exchange".
"We view the extension of maturities
without what we ind to be adequate offsetting
compensation as the exchange of
new debt on less favourable terms to the
existing debt."
After the exchange, which is expected
on July 1, S&P said liquidity strains on the
government should be alleviated, and that
the rating is expected to rise to CCC+.