Oil Rigs

European Equity Gauges Head South Amid Mixed Earnings, Falling Oil Prices

5:00 AM, Feb 24, 2017 — European equity gauges were lower on Friday morning as financials and auto-makers edged south against a backdrop of mixed earnings reports and a slide in oil prices.

In economic news, Spain posted its highest annual rate of change in industrial prices in more than five years as surging energy prices pushed its index higher. The nation’s annual industrial price index rose by 4.6 points to 7.5 in January, according to the national statistics agency INE. The index reading was 1.9% higher when compared to the previous months.

In Germany, economic data was more rosy; a 0.5% increase was registered in price-adjusted new orders in the nation’s construction industry in December when compared to the previous month, according to German federal statistics office, Destatis.

Oil prices were edging lower in recent trade after data published on Thursday showed that US stockpiles of crude oil rose for a seventh consecutive week last week. West Texas Intermediate (WTI) crude oil, the main US oil benchmark, was 0.6% lower at $54.13 per barrel while Brent crude, the main international oil gauge, was 0.7% lower at $56.21 per barrel.

US inventories of oil rose by 0.6 million barrels to 518.7 million barrels in the week ended February 17, according to the Energy Information Administration’s (EIA) weekly oil report. This compared to a 9.5 million barrel weekly increase registered the previous week and an 884,000 barrel weekly contraction which had been projected by the American Petroleum Institute (API) on Wednesday.

In equities, Royal Bank of Scotland was among the biggest decliners on London’s FTSE 100 Index, down by 2.2% after posting a loss of 6.96 billion pounds ($8.73 billion) in 2016, compared to a loss of 1.98 billion pounds in the prior year. The bulk of the loss included litigation and conduct costs, worth 5.87 billion pounds, as well as restructuring costs. Software company Micro Focus International was 1.8% lower, Ashtead Group, an equipment rental company, was down by 1.8% and CRH, a manufacturer of construction materials, was 1.7% lower.

On Frankfurt’s DAX, media company ProSiebenSat1Media was 3.0% lower, followed by BASF, a chemical company, down by 2.2% and Commerzbank, 1.2% lower. Kidney dialysis company Fresenius and Fresenius Medical Care were 1.0% and 0.7% lower, respectively. And, on Paris’ CAC-40, Vivendi, which is engaged in media and content businesses, was 4.3% lower, Compagnie de Saint Gobain, a producer of materials and packaging, was down by 1.5% and car-maker Peugeot was also down by the same amount.

The pan-European Stoxx 600 Index was 0.14% lower, London’s FTSE 100 Index was down by 0.09%, Frankfurt’s DAX was 0.27% lower and Paris’ CAC-40 was down by 0.26% at the time of writing.

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BAE Systems Profit Jumps in 2016

BAE Systems Profit Jumps in 2016, Further Growth Seen on Brighter Outlook for Defense Budgets

7:32 AM, Feb 23, 2017 — British defense company BAE Systems (BA.L) has projected that its underlying earnings will increase by up to 10% in 2017 amid improved outlooks for defense budgets in several markets after posting a gain in its operating profit last year which was buoyed by higher order intakes.

The company, which employs more than 80,000 people in 40 countries, generated sales of 19 billion pounds ($23.70 billion) in 2016, up from 17.90 billion pounds in the prior year, according to preliminary results published on Thursday. Underlying earnings per share were worth 40.3 pence, 7% higher than the adjusted underlying earnings per share of 37.8 pence in 2015 and in line with the company’s guidance. Underlying earnings before interest, tax, depreciation and amortization (EBITDA) rose to 1.91 billion pounds from 1.68 billion pounds in the previous year.

Operating profit as defined by the International Financial Reporting Standards (IFRS) measure increased to 1.74 billion pounds year-on-year, up 10% on a constant currency basis. The company’s order intake rose to 22.44 billion pounds from 14.92 billion pounds in the prior year while the order backlog advanced to 42 billion pounds from 36.8 billion pounds over the same time frame.

The group said that in the US there had been signs of a return to growth in defense budgets, with it saying that the new administration is “expected to further increase defense and security spending”. The group said that it is targeting growth of 5-to-10% in its underlying earnings per share this year and said that it has recommended a final dividend of 12.7 pence per share making a total of 21.3 pence per share for the year, an increase of 2% compared to 2015.

Ian King, chief executive of BAE Systems, said: “2016 was a good year for BAE Systems. Our strategy is well defined; we have a large order backlog, long-term program positions, strong program execution and a well-balanced portfolio. With an improved outlook for defense budgets in a number of our markets, we are well placed to continue to generate attractive returns for shareholders.”

More US, Canada, Russia Heavy Crude Finds a Home In China as OPEC Cuts Hit

4:05 AM, Feb 21, 2017 — Heavy crude shipments from the U.S., Canada and Russia to China have picked up for April delivery as OPEC cartel members dial back on supplies to meet requirements to trim sales under a coordinated oil pact with non-OPEC nations led by Russia, shipping sources said on Tuesday in Asia.

Another 1 million barrels of Mars heavy crude pumped offshore of the U.S. Gulf Coast is heading to China in April, shippers said, building on supplies that started making their way in January at about 600,000 barrels as small refiners in China favor the heavy grades for lower cost and resulting higher margins on export shipments.

As well, China has deals with Venezuela for heavy supplies that have been short recently as the country struggles to maintain production during an economic crisis and Saudi Arabia has reduced its offerings as part of the oil curb back to trim nearly 1.8 million barrels per day of crude overall from global markets.

Demand has grown for heavy grades in Asia, which has seen higher refinery output as planned maintenance at several key refineries in the region gets completed ahead of increased summer demand expectations. Russia, which is part of the production pact, has seen better prices for its heavy grades on the Saudi and Venezuela reductions, making shipments possible.

British Defense Group Cobham Lowers Profit Forecast for 2016

British Defense Group Cobham Lowers Profit Forecast for 2016, Signals Tough Year Ahead

8:15 AM, Feb 16, 2017 — British aerospace and defense group Cobham (COB.L) has lowered its forecast for group underlying trading profit in the full year 2016 after an internal review revealed negative adjustments arising from bad debt charges, additional amortization on amounts capitalized in prior years and expenditure on IT security compliance.

The group, which employs 11,000 people, said that it expects its group underlying trading profit to be 225 million pounds ($281 million) for the 2016 year, 20 million pounds lower than its last forecast, which was given in January, according to a trading update published on Thursday. January’s projection also marked a revision, from a previous range of 250 million pounds to 275 million pounds that had been predicted by management in October.

The 20 million pound reduction from its January forecast included 6 million pounds of additional amortization on amounts capitalized in prior years, 4 million pounds relating to expenditure on IT security compliance, 2 million pounds being the sum of several year end accruals not booked in the draft management accounts and 8 million pounds of bad debt charges and other sundry items, according to the update.

The group added that there would be further amounts that would be recognized as exceptional items and excluded from underlying trading profit, saying that it would recognize a total non-cash impairment of goodwill and other intangible fixed assets of 574 million pounds. It said that a charge of 33 million pounds had also been taken against other assets in the balance sheet following a revision of the carrying value of these assets. It will also absorb a charge of 179 million taken against certain contracts reflecting increased estimates of costs to complete and, in some cases, lower recovery from customers. This includes a 150 million-pound charge taken on work related to Boeing’s KC-46 tanker program, the update stated.

“2016 was an incredibly turbulent and disappointing year for Cobham,” David Lockwood, Cobham’s chief executive, said in the statement. “Execution failure in many businesses led us to miss expectations badly and provides a poor entry point into 2017.”

The group said it has difficulty forecasting performance for 2017. “Whilst market uncertainties undoubtedly exist, the ability of the group to forecast performance is also not as strong as it should be,” the group said. “The group has many operational issues which require attention in addition to reversing the current negative performance trajectory.” It signaled that delivering a similar performance this year to that of 2016 “may be challenging.”

Shares in the group were 15% lower in London at the time of writing.

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Industrial Production

UK Industrial Production, Construction Output Beats Forecasts as Economy Holds up Following Brexit Vote

7:33 AM, Feb 10, 2017 — Monthly UK industrial production and construction output rose by more than expected in December as Britain’s economy proved to be more robust than projected following the nation’s surprise vote to leave the European Union (EU) last year.

Industrial production rose by 1.1% in December from November, according to data published by the Office for National Statistics (ONS) on Friday. This beat expectations for a 0.2% monthly gain from economists in an investing.com survey but was below the 2% monthly gain reported in November, which was the fastest monthly increase since April 2016.

The increase, which includes oil and gas extraction, was attributed to gains in manufacturing, especially pharmaceuticals which increased by 8.3% from the previous month, and basic metals, where output rose by 4.5%, the ONS said. The statistics office added that output by drugmakers is “highly erratic”.

Manufacturing production, which strips out oil and gas production, increased by 2.1%, beating the average estimate of economists for a 0.5% increase, according to investing.com. It was also up from a 1.4% monthly increase in November.

From a year earlier, industrial output was up by 4.3% while manufacturing was 4% higher, the ONS data showed.

The UK economy has held up better than anticipated by most economists since the nation’s June vote to withdraw from the EU. The Bank of England (BOE) had expected gross domestic product to barely grow in the second half of last year when it cut rates to a record low 0.25% in August. In fact, the UK economy expanded by 0.6% in the final quarter of last year, the same pace as in the previous two quarters, data from the ONS subsequently showed.

The BOE left its monetary policy and benchmark interest rate unchanged earlier in the month while sharply upgrading its forecast for economic growth in 2017, raising it to 2% from a previous projection made in November for 1.4%.

In a separate report, the ONS said on Friday that construction output in the UK rose by 1.8% in December from November, when it gained 0.4% on the month. Economists in an investing.com survey predicted a 1% increase. From a year earlier construction work increased 0.6%, beating economists’ expectations for a 0.5% decline.

Stock market trading

Strong Earnings Results Propel European Equities Higher, Oil Advances

4:48 AM, Feb 9, 2017 — European equity benchmarks were trading higher on Thursday morning as oil prices advanced and financial services stocks rallied on on the heels of better-than-expected earnings for several companies.

West Texas Intermediate (WTI) crude oil futures, the main US oil benchmark, was 0.9% higher at $52.80 per barrel while Brent crude, the international gauge, was up by the same amount at $55.61 per barrel at the time of writing. These extended Wednesday’s gains of 0.3% and 0.1% for WTI and Brent crude, respectively, and came despite government data showing on Wednesday that US stockpiles of oil rose for the fifth consecutive week last week.

In equities, financial services providers Hargreaves Lansdown, Schroders and Barclays were 1.3%, 0.8% and 0.6% higher, respectively, on London’s FTSE 100 Index while British Land,a real estate company, was up by 1.2%. On Frankfurt’s DAX, pharmaceutical and chemical company Bayer was 2.2% higher, followed by exchange organization Deutsche Boerse, up by 0.9% and Henkel, a consumer goods and chemical company, 0.7% higher.

And, on Paris’ CAC-40, financial services companies Societe Generale and AXA were up by 2.0% and 0.3%, respectively, while health care company Sanofi was 1.4% higher. Societe Generale’s share price movement came after it posted better-than-expected results for its fourth quarter, with net banking income worth 6.13 billion euros ($6.56 billion), up 1.3% from the prior-year period and also ahead of the mean estimate of analysts polled by Capital IQ for 6.09 billion euros.

The pan-European Stoxx 600 Index was 0.26% higher, London’s FTSE 100 Index was up by 0.10%, Frankfurt’s DAX was up by 0.21% and Paris’ CAC-40 was 0.43% higher at the time of writing.

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Oil Prices Hold Onto Early Gains

Oil Prices Hold Onto Early Gains Despite Bigger-Than-Expected Build in US Stockpiles

12:13 PM, Feb 1, 2017 — Oil prices remained in positive territory on Wednesday afternoon despite government data showing that US inventories of crude oil had risen for a fourth consecutive week.

West Texas Intermediate (WTI) crude oil, the main US oil benchmark, was trading 0.6% higher at $53.10 per barrel recently while Brent crude, the international oil gauge, was 0.7% higher at $55.94 per barrel.

US inventories of oil rose by 6.5 million barrels to 494.8 million barrels in the week ended January 27, according to the Energy Information Administration’s (EIA) weekly oil report. This was more than the 5.8 million barrel weekly increase projected by the American Petroleum Institute (API) on Tuesday.

Total motor gasoline inventories increased by 3.9 million barrels, down from a 6.8 million barrel weekly gain in the previous week. Distillate fuel inventories increased by 1.6 million barrels compared to having been virtually unchanged in the prior week. Propane/propylene inventories fell by 5.6 million barrels, a bigger drop than the 4 million barrel fall registered in the prior week and commercial petroleum inventories increased by 5.3 million barrels, compared to an increase of 8.9 million barrels a week earlier.

Also feeding into oil pricing sentiment on Wednesday was a higher greenback. As a dollar denominated commodity, a higher US currency tends to make oil less affordable to international buyers. The Dollar Index, which tracks the value of the US currency, was 0.29% higher at the time of writing.

Price: 7.91 Price Change: +0.05 Percent Change: +0.64

Destination Tax on Crude May Benefit US Oil Companies

Heard on Bloomberg Chat: Destination Tax on Crude May Benefit US Oil Companies, Raise Prices at the Pump, Goldman Says

8:16 AM, Jan 24, 2017 — A so-called destination-based tax on oil, if implemented by the Trump administration, likely would be a boon for US oil producers while costing consumers more at the pump, Goldman Sachs said in a report on Tuesday.

Tax reform appears to be near the top of Trump’s to-do list, but a scenario of “border adjustment” in which taxes on income from imports are raised while those on exports are lowered may push West Texas Intermediate, the US benchmark, to a $10-a-barrel premium to Brent futures, the global standard, Goldman said.

That, in turn, would bump US gasoline prices by about 30 cents a gallon at the pump upon implementation, the bank said. The global LNG market also would be negatively affected. Still, there’s only a 20% chance that the Trump administration will implement a destination-based tax, but if it happens it will have an immediate impact, Goldman said.

“The medium-term impact to absolute oil prices would depend on how quickly US production reacts to higher prices vs. how quickly the rest of the world reacts to make space for higher US production,” the bank said.

If 2017-18 WTI oil prices move to $68 a barrel, a $13 premium to 2018 forecasts, the resulting investment could mean another 1.5 million barrels a day in 2018 growth. Unless the Organization of the Petroleum Exporting Countries cut output further than it already has, the action could result in oversupply and another boom-bust cycle, Goldman said.

Rite Aid's Inability to Spin Off Stores to Fred's in Timely Manner Hurts Stock

Heard on Bloomberg Chat: Rite Aid’s Inability to Spin Off Stores to Fred’s in Timely Manner Hurts Stock

1:22 PM, Jan 20, 2017 — Investors had expected a deal to spin off 865 Rite Aid (RAD) stores to Fred’s by Walgreens Boots Alliance (WBA) to be completed by Inauguration Day, but that didn’t happen, and now investors are worried.

Rite Aid shares dropped more than 10% Friday as investors were disappointed no deal was complete amid concerns that the Federal Trade Commission will not approve the deal, Evercore said in a note to clients, citing a report from Bloomberg.

“Overall, if the deal were not completed, we would expect a massive downside for RAD (likely to trade to $3.50 or below) given its size versus CVS and WBA and the recent degradation in operating performance,” Evercore said. “For WBA, the transaction is a more modest negative given the synergy potential and time committed to deal closure (being one of the more obvious transactions for WBA), however we would not expect WBA to sit on the capital for very long and would look for a combination of share repurchases and additional M&A in the not-too-distant future.”

A lack of a deal would be good for McKesson Corp. (MCK) as it would keep its largest client that provides about $12 billion revenue. It would be negative to AmeriSource Bergen (ABC) that would see estimates lowered due to a lack of additional volume, Evercore said.

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Companies: Rite Aid Corporation
Price: 7.67 Price Change: -0.94 Percent Change: -10.87

Orderly Brexit Would Support US Monetary Policy Decisions

MT Newswires Exclusive: Orderly Brexit Would Support US Monetary Policy Decisions, Economic Growth – Stifel

6:28 AM, Jan 19, 2017 — An orderly exit of Britain from the European Union’s single market could have a supportive effect on US monetary policy decisions and economic growth going forwards, brokerage firm Stifel Nicolaus & Co has predicted.

In an exclusive telephone interview held on Wednesday, Lindsey Piegza, chief economist at Stifel Nicolaus & Co, told MT Newswires that the trickle-back effect of a smooth withdrawal of Britain from the world’s largest trading bloc could be beneficial to the US.

“Should the Brexit be smooth and systematic and the UK economy begin to gain momentum, it’s very likely that the Bank of England would eventually join ranks with the Fed toward a further removal of accommodation which in turn would make it easier for the Fed to also engage in a higher interest rate policy if there are other central banks around the world that are also engaging in that type of activity,” Piegza said. “It would help [to] perpetuate a more positive, more normal monetary policy environment if we did see a steady Brexit lead to a pick-up in UK economic activity.”

Acknowledging that the US currency’s relative strength against the euro has been a competitive disadvantage to the US’ exporting sector of late, Piegza said that a further weakening of the euro could yet occur in the event that financial woes among other EU member states were to escalate.

“The biggest reaction that we’re expecting to see from the euro over the near term even as these [Brexit] negotiations are going on, is [to] any indications or further clarity regarding the underlying health of member countries that potentially could be next in line for an exit strategy; so what’s happening with Greece, what’s happening with Italy, Spain,” she said.

“Regardless of the reason, any further currency weakening, be that of the pound or the euro, certainly will serve to only exacerbate the fact that we cannot compete on a global stage from an export standpoint. And weak exports, [a] strong dollar, [and a] hard-hit manufacturing sector – these are three points that very clearly kept the Fed, or at least helped to keep the Fed, on the sidelines through 2016.”

Greece was rescued from the brink bankruptcy in 2015 with a third bailout, worth approximately 85 billion euros ($90.66 billion at current currency rates) from the International Monetary Fund, European Central Bank and European Commission. Since then, the Greek government has faced the challenging task of implementing a series of harsh austerity measures and economic reforms which were required in return for the three-year loan.

Spain, currently in the midst of an economic recovery and continuously grappling with secessionist movements in regions such as the Basque country and Catalonia, endured almost a year without a proper government following two inconclusive elections in December 2015. Political deadlock was only broken last October with Prime Minister Mariano Rajoy being elected for a second-term. Italy’s banking sector is in a vulnerable state and the nation also faces the prospect of an early election. Paolo Gentiloni was appointed as Italy’s new prime minister by Italian President Sergio Mattarella last December following former premier Matteo Renzi’s resignation after Italians voted against constitutional reform in a nationwide referendum the same month.

In the long-term though, Piegza projected that the euro could rally even following changes to the composition of the EU: “It’s a very real scenario that some of these countries [in the EU] facing extreme fiscal difficulties will have to resort to going back to their own domestic currencies in order to inflate the debt away,” she said.

“Near-term, you could see continued weakening of the euro, but I think longer term, if we did see some of these weaker links actually exit and drop out of the euro area, and we see the stronger economies banding together like France, Germany, the Benelux countries, I think ultimately that would be a net benefit for Europe. And once we see a more stable composition, I think the euro would rally through that longer term.”

On Tuesday, British Prime Minister Theresa May confirmed plans for Britain to leave the single market and pursue a new free trade agreement. In a speech delivered before diplomats more than six months after Britons voted to leave the shared currency union in a nationwide referendum, May outlined objectives for what she described as a “phased approach, delivering a smooth and orderly Brexit”.

“I want to be clear. What I am proposing cannot mean membership of the Single Market,” May said. “We seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU. Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out.”

May’s comments triggered a rally in the value of the pound although the nation’s key benchmark index, the FTSE 100 finished the day lower.