Daily Agenda: Oil Resurgent

Brent breaks $50 per barrel; Qatar bond auction larger than expected; Puerto Rico bailout bill heads to House floor for vote.


Oil prices surged in early trading on Thursday with futures contracts for front-month delivery of Brent crude rising above $50 per barrel for the first time since late 2015, bringing the North Sea benchmark to a level 80 percent higher than the low for the year in January. A combination of shrinking inventories in the U.S. and sluggish output among some members of the Organization of Petroleum Exporting Countries contributed to the rally, which also helped to boost energy-centric currencies, including the Norwegian krona. With an official meeting of OPEC scheduled for next week, many traders appear willing to wager that cash-strapped producing states will be willing to curtail production further in order to support higher margins.

Denmark to take state-energy firm public. On Thursday, Denmark’s Dong Energy announced a public floatation that could result in a market capitalization of more than $16 billion. The firm, which focuses on renewable energy as well as oil and gas, is majority owned by the Danish government and counts Goldman Sachs among its other large shareholders. The initial public offering will still leave the government of Denmark with voting control with a stake greater than 50 percent.

Qatar holds massive bond auction. An auction for sovereign debt issued by the Qatar was larger than anticipated by market analysts, with three Eurobond tranches exceeding $9 billion in combined value. The sale, the largest in the region ever, may postpone offerings slated by Kuwait and Saudi Arabia until demand among Middle Eastern institutional investors rebounds.

Lenovo earnings miss analyst targets. In a filing made on Thursday, Beijing headquartered Lenovo Group announced fiscal fourth-quarter results that fell short of consensus estimates. Net income for the period was $180 million versus an anticipated $185 million, with executives at the company citing ongoing problems with the smartphone franchise acquired from Motorola in 2014 because of mounting domestic competition in China. Lenovo’s full-year results included a loss of $128 million versus a profit of more than $800 million in the prior fiscal year.

House committee approves Puerto Rico bailout bill. On Wednesday, the House Natural Resources Committee voted to approve legislation that would allow a restructuring of debt issued by Puerto Rico’s utilities. The bill, which was accepted with a vote of 29 to 10, hinged on the priority of creditors’ rights versus pension obligations. The legislation will now face a vote on the House floor before heading to the Senate if passed.

Offering sinks Banco Popular share price. Shares of Spanish bank Banco Popular Espanol traded sharply lower in Madrid after the lender announced a rights issue totaling more than $2.8 billion in notional value. The bank has struggled to shore up capital after suffering massive real estate losses. Executive at Popular have indicated that the bank will continue to divest high-risk real estate loans at a brisk pace in coming quarters.


Portfolio Perspective: What matters more US productivity or China jobs?

The market is waiting for information on the balancing act of a Federal Open Market Committee rate hike against the fears from emerging markets. The U.S. dollar is weaker today as many see the rise in oil and the gradualism of the Federal Reserve as a recipe for inflation — but bonds are still stable as foreign demand outstrips domestic doubts. This leaves inflation swaps as one guide and the U.S. dollar as the other to express doubts about U.S. investments. U.S. productivity is set to be negative for the first time in 30 years. This isn’t good for those looking for U.S. outperformance.

Against that we have the ongoing clash of Chinese reform and the G7’s focus on it. The CNY [China yuan renminbi] has been stable enough to keep markets boring but nervous. The lack of faith in Chinese statistics on the economy aggravates the doubts that the leveraged growth in 1Q sustains into 2Q. The Financial Times published a chart that suggest there will be more reactions from the government to stabilize the economy in the summer — jobs are the central data point to measure success and they are clearly moving in the opposite direction. The two points about U.S. productivity leading to inflation fears and China jobs leading to more leverage makes the backdrop of the FOMC June/July decisions that much more difficult.

Robert Savage is the chief executive officer of CCTrack Solutions, a hedge fund firm in New York.