China: Russian president arrives for state visit

 (Xinhua) -- Russian President Vladimir Putin arrived in Shanghai early Tuesday to start his state visit to China and attend the upcoming Asian security summit.

Putin will attend the fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia scheduled for Tuesday and Wednesday in Shanghai.

According to the Chinese Foreign Ministry, Chinese President Xi Jinping and Putin will hold talks on Tuesday and make a "substantial" statement, and also witness the signing of a series of important bilateral cooperation agreements.

It will be Putin's first China tour since Xi took office and the second meeting between the two presidents this year.

Alibaba to promote French brands in China under new deal

The world's leading e-commerce company Alibaba will promote French brands to Chinese consumers through its online platforms, under a new deal with the French government signed Friday.

Alibaba will help French businesses expand sales in China by providing them with express enrollment, brand promotion and marketing support on its online retail platform Tmall.com, according to the three-year cooperation deal.

The deal was reached Friday night at Alibaba's headquarters in Hangzhou, capital of east China's Zhejiang Province, pursuant to a Memorandum of Understanding signed between the company's founder and chairman Jack Ma and French Foreign Minister Laurent Fabius.

"This agreement is a wonderful opportunity to allow more and more Chinese customers to discover new French brands through a modern system of distribution," said Fabius during his visit to Alibaba Friday.

"We are confident it will significantly widen the choice of French products available for Chinese consumers who will enjoy their well-deserved reputation of high quality and security," said Fabius.

Jack Ma said the deal embodied the company's mission to "help make it easy to do business anywhere."

Ma first discussed the possibility of the deal with Fabius during a visit to Paris in March.

"This MOU is an example of how Alibaba Group can work hand-in-hand with foreign trade entities to expand global cross-border trade in order to benefit both global businesses and Chinese consumers through our marketplaces," said Ma.

Under the agreement, Alibaba Group's related company Alipay and its affiliated company China Smart Logistics are committed to support Alibaba Group's endeavors with their remittance and logistic functions.

Following Friday's signing of the agreement, Tmall.com will launch a French brands promotion campaign participated by more than 30 online flagship stores.

The week-long "Elegance of France" campaign, beginning on May 19, will highlight exclusive product launches and specialty limited-edition items from the featured French brands.

The 15-year-old Alibaba is the world's largest online and mobile commerce company. It had a gross merchandise volume of 248 billion U.S. dollars in 2013 on its three major trading platforms.

Source: Xinhua

WHat AT&T deal with Direct TV means to you.

If AT&T’s acquisition of DirecTV is approved by regulators and Time Warner Cable’s deal with Comcast goes through, roughly half of U.S. households could end up getting their Internet access and television service from two giant companies.

On Sunday, AT&T Inc. T -0.11%   announced that it will buy satellite-television provider DirecTV DTV +0.37%   for $67.1 billion in a stock-and-cash deal, including the latter’s debt. The new, combined company will offer consumers bundles that include video, high-speed broadband and mobile services, AT&T said in a statement.

“This is just the beginning of the next wave of industry consolidation of television and Internet,” says technology consultant Jeff Kagan.

Indeed, according to Dan Rayburn, a principal analyst with business consulting firm Frost & Sullivan: “If AT&T can convert DirecTV’s customers into high-speed Internet subscribers, they could have 25% of all pay TV subscribers and then two companies would control 55% to 60% of all Internet subscriptions in the U.S.”

And nearly 50% of U.S. households would get their television service from one of these merged companies if both deals go through, says Michael Hodel, equity strategist at Morningstar.

As bigger companies bundle services, Kagan says cable bills will continue to climb. The average bill for cable hovers at around $90 a month and will hit $200 a month in 2020, according to The NPD Group. The cost of cable television doubles roughly every 10 years, Kagan says.

Fewer cable companies would mean fewer choices for consumers. “The whole idea of a la carte television and Internet is never going to happen,” Rayburn says. And consolidation is unlikely to stop the rise in cable bills every year. “The industry needs more competition, not more mergers,” says John Bergmayer, senior staff attorney at consumer-advocacy group Public Knowledge.

Ultimately, consumers will have fewer choices when it comes to Internet and TV services. Two giant mergers could also give the Federal Communications Commissiona “bargaining chip” to push Internet service providers and cable companies to preserve net neutrality, Hodel adds. “This (merger) activity is negative for consumers, but adequate regulatory oversight can offset this,” Hodel says. Net neutrality suffered a blow last week, however, when the FCC voted to propose “net neutrality” rules that could allow Internet service providers to charge content providers like Netflix  , YouTube   and Hulu for faster and higher delivery of their traffic to users.

Here’s a tally of their subscriptions: AT&T has around 11.3 million broadband connections: 5.7 million for U-verse pay-TV service and the rest for high-speed Internet access; DirecTV has more than 20 million pay-TV customers in the U.S. (and over 18 million customers in Latin America); DirecTV doesn’t offer an Internet service. Time Warner Cable    has approximately 11 million video subscribers and Comcast   has 22.6 million video customers. Because many consumers purchase cable “bundles,” most of the Time Warner and Comcast video subscribers also are Internet subscribers.

“We don’t have a choice with pay TV providers. People can either choose a low bundle, middle bundle or high bundle,” Rayburn says. Despite having nearly 200 channels to choose from, the average American watches only 17 , according to Nielsen. That’s still a good deal for most people, he says. If you only paid $3 a month for each of those 17 channels, the monthly bill would be $51. “Consumers love to complain, but if they really hated their cable and Internet access so much they would cut the cord,” Rayburn says.

Source: Marketwatch

WSJ: AT&T to Buy DirecTV in $49 Billion Deal, Creating Pay-TV Giant AT&T's and DirecTV's Boards Approve Acquisition Agreement

         The WSJ reports "AT&T Inc.  agreed to acquire DirecTV  for $49 billion, a deal that would make it a major player in pay television and increase its clout with media companies at a time when video consumption is moving online.

The agreement, which the companies' boards approved on Sunday, comes just three months after Comcast Corp.'s  $45 billion agreement to buy Time Warner Cable Inc". 

The deals show how the biggest companies in television and telecommunications are bulking up to face a changing media landscape. Growth is slowing in some markets, like pay TV and wireless subscriptions, and is exploding in others, like streaming video. The companies are betting that bigger scale will give them the resources to invest in new capabilities and the leverage to hammer out commercial arrangements in the media world.

The combination would create a company with 26 million pay-TV subscribers in the U.S. That is second only to Comcast and Time Warner Cable, which would have about 30 million combined subscribers if regulators approve their deal and pending divestitures are completed.

"There would not be many people who could put together something with a nationwide mobile platform, nationwide video platform and a 70 million household broadband build," AT&T Chief Executive Randall Stephenson said in an interview.

AT&T said it would pay $95 per DirecTV share, about $66.50 a share in the form of its own shares and $28.50 in cash.

The companies have considered a combination for years and the CEOs came to the basic outline of the deal two weeks ago, Mr. Stephenson said. DirecTV CEO Mike White gave him a tour of the DirecTV offices in Los Angeles, and the final terms were sealed between the two over the phone, he said.

The deal is Mr. Stephenson's biggest bet so far and is AT&T's largest acquisition since its 2006 purchase of BellSouth for $85 billion. Mr. Stephenson became CEO in 2007 after his predecessor, Ed Whitacre, took a regional phone company and turned it into a national giant.

Mr. Stephenson has struggled to pull off a big-ticket transaction. He attempted to buyT-Mobile US Inc.  in 2011, but was shot down amid regulatory concerns. He said on Sunday the Comcast deal didn't factor into his decision on DirecTV, saying that the two deals aren't similar in nature and highlighting the mobile-video aspect of the combination.

For DirecTV, the combination ends a period of uncertainty during which the company has struggled to chart a road map for growth in a stagnating U.S. pay-TV industry. Unlike cable providers, the satellite company doesn't have a piece of the burgeoning broadband-access market.

CICA summit to help Asian countries strengthen mutual trust, address

e

An upcoming Asian security summit will strengthen dialogue, build mutual trust and broaden cooperation among Asian countries and help the region address some hotspot issues, foreign leaders and experts said. The fourth summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA), scheduled for Tuesday and Wednesday in the eastern Chinese metropolis of Shanghai, will draw delegations from nearly 40 countries and international organizations.

Paintings Exhibition Peruvian Artist Denisse Mulanovich "Venus" Oil In Canvas

Russia Close to $400 Billion Gas Pipeline Deal in Pivot to China

Russia is close to signing a decades-long contract to supply natural gas to China at a price that would value the deal at about $400 billion, according to Prime MinisterDmitry Medvedev.

Medvedev’s boss Vladimir Putin arrives in Shanghai today to try and complete an agreement after more than 10 years of talks. The stumbling block has been price, but with Putin facing trade and financial sanctions from the U.S. and European Union after he annexed Crimea from Ukraine, a deal is seen as probable.

“It’s time we reached an agreement with the Chinese on this issue,” Medvedev said in a Bloomberg Television interview in Moscow yesterday. “It is very likely that there will be a contract, which means long-term contracts.”

OAO Gazprom (OGZD), the world’s largest natural gas producer, aims to sign a contract with China National Petroleum Corp. during the visit, Russian executives and officials have said. China, Russia’s largest trading partner with $94.5 billion of business last year, was the only country in the United Nations Security Council not to censure Putin’s actions in Ukraine.

“We are just one digit away,” Chief Executive Officer Alexey Miller said on Russian state television before flying to Beijing for a meeting with CNPC Chairman Zhou Jiping on May 17. “There’s just one issue, which is the so-called P-zero, or basic starting price in the formula.”

False Starts

Gazprom plans to build a $22 billion pipeline to China able to carry as much as 38 billion cubic meters (1.34 trillion cubic feet) annually after years of false starts. The company may begin supplying China in 2019 to 2020, Russia Energy Minister Alexander Novak said in March.

That amount of gas is almost a quarter of China’s current consumption and about 10 percent of its estimated demand by 2020, said Gordon Kwan, head of oil and gas research at Nomura InternationalHong Kong Ltd.

For Gazprom, it is about 20 percent of gas sales in Europe, the company’s largest export market.

The deal has been delayed because Russia wanted to use sales contracts in the EU as a benchmark price, while China proposed a lower price, based on its imports from central Asia.

“‘I believe that in the long-run the price will be fair and totally comparable to the price of European supplies,’’ Russia’s Medvedev said yesterday.

Gazprom’s average price in Europe was $380.5 per thousand cubic meters last year. CLSA forecasts a price for Russia’s gas of $9.50 to $10 per thousand cubic feet ($335 to $350 per thousand cubic meters) delivered to the Chinese border.

That target, worth almost $400 billion over a 30-year contract, compares with the $10 per thousand cubic feet China pays for imports from Turkmenistan and is substantially lower than liquefied natural gas at about $15, Powell said.

‘‘Better to sign a contract at a relatively low price now, than not to sign it all,” said Ekaterina Rodina, an oil and gas analyst at VTB Bank (VTBR) in Moscow. “Especially if China agrees to provide prepayments or loans, which Gazprom could use in pipeline construction and field development.”

The crisis in Ukraine will make Russia’s government want to do a deal to persuade Europe and the U.S. that sanctions won’t hold back Russia’s economy, said Chris Weafer, a founder of Macro Advisory in Moscow.

“The Kremlin is keen to show both the European Union politicians, western companies and the domestic audience that it is not restrained by the the threat of sanctions and has plenty of energy and trade partnership options with China,” Weafer said.

“If the Russia-China gas deal isn’t signed in the near-term, the window of opportunity may be closing fast as other supply sources enter the market,” said Xizhou Zhou, director of China Energy at IHS Inc., a consultant.

LNG projects in Australia will begin operations next year, making global gas supply “much more abundant,” according to Zhou. Gazprom’s proposed pipeline exports to China may well have to compete with LNG terminals being built in Russia.

Iranian President Hassan Rouhani and United Nations Secretary-General Ban Ki-moon will be in China at the same time as Putin. All will attend the Conference on Interaction and Confidence Building Measures in Asia in Shanghai, said Qin Gang, a spokesman for the Foreign Affairs Ministry.

Source:  Bloomberg

Reuters: With price elusive, China/Russia gas talks hit by payment debate

While an agreement on price is still elusive, Moscow and Beijing have come up against another hurdle in their more than 10 year talks to secure a gas deal - they cannot agree on whether China should pay up front.

Sources close to Russia's Gazprom and in the gas industry said the state-controlled company wanted China to pay $25 billion now to secure future gas supplies, which should start in 2018 at a yearly rate of 38 billion cubic metres.

China has so far been reticent, concerned that other gas suppliers, namely former Soviet Turkmenistan, would also want pre-payment and the standoff may scupper a deal Moscow hopes to hold up to the West as proof that it does not need its custom.

"We are pinning our hopes on Putin's May visit," a source at Gazprom said.

"There are some problems with finances. They are thinking

(in Gazprom), what is more beneficial, a loan from China or an advance payment? That's why they can't reach the final agreement on the pricing."

A Gazprom spokesman declined to comment.

Gazprom needs to raise a lot of money to build the infrastructure to take the gas to China.

It has earmarked over 770 billion roubles ($22.2 billion) for the Sila Sibiri (Power of Siberia) gas pipeline to China from the Eastern Siberia's Chayanda deposit. In addition, 430 billion roubles are needed for the field development.

The company may want to emulate state-controlled oil company Rosneft , which secured large advances on its exports to China, receiving at least $12 billion late last year as part of a deal to ramp up supplies, according to industry sources.

At 38 bcm per year, Russian gas supplies would be equal to nearly a quarter of current consumption and make up nearly a 10th of China's estimated total gas demand by 2020.

Putin is scheduled to visit China on Tuesday and Wednesday and is expected to sign a number of deals. [ID:L3N0NW05M]

However, the gas deal is key for Moscow's attempt to forge closer ties with Asia amid the deepest East-West rift since the end of the Cold war over Ukraine.

Gazprom's average gas sale price to Europe last year was $10.60 per million British thermal units - the pricing standard used in the global gas trade. That works out at $380 per 1,000 cubic metres according to the pricing convention used in Russia.

Industry sources have said Gazprom was hoping for $10-$11 per mmBtu from China. China is understood to pay $9 per mmBtu to Turkmenistan, the former Soviet state in Central Asia that beat Gazprom to the Chinese market.

"The key sphere of bilateral practical cooperation is energy," the Kremlin said on Monday it its fact sheet before Putin's visit to China.

"The talks over pipeline gas supplies (to China) via the

"Eastern route" are in the final stage."

Source: Reuters

Russia-China gas deal preparations in 'final phase' says Putin: Xinhua

Preparations for an agreement on long-awaited Russian natural gas exports to China have entered "the final phase", China's state-run Xinhua news agency on Monday quoted Russian President Vladimir Putin as saying ahead of a two-day visit to Shanghai.

"For Russia, implementing these agreements means diversifying gas supply destinations, while for our Chinese partners ... it could be a remedy for energy shortages and helps ecological security," Xinhua quoted Putin as saying in an interview with Chinese media ahead of the May 20-21 visit.

A deal after nearly two decades of talks would secure the world's top energy user a key chunk of supply as demand for the cleaner burning fuel is set to surge.

For Russia, the deal to supply China with 38 billion cubic meters (bcm) of gas a year would help cut its dependence on Europe as the major market for its gas and create a strategic shift to Asia, as political pressure piles up over Ukraine.

Russian state-run Gazprom  said at the weekend it was still "one digit" away from finalizing a 30-year gas supply deal with Beijing which is expected to crown Putin's visit to China next week.

Earlier this month, state China National Petroleum Corp (CNPC) CNPET.UL said that it and Gazprom had reached an agreement to sign a contract during Putin's visit but that the two sides had yet to iron out price differences.

At 38 bcm per year, Russian supplies would be equal to nearly a quarter of current consumption and make up nearly a tenth of China's estimated total gas demand by 2020.

China is fast-tracking gas use, which is set to grow about 2.5 fold between 2014 and 2020, to curb use of the dominant but dirtier coal.

The country's state planning agency forecast last month that China would raise its tota lnatural gas supply capacity to 400 billion cubic meters (bcm) per year by 2020.

Source: Reuters

Pravda: Putin Believes Russia and China can reach agreement on gas exports

19.05.2014
Russian President Vladimir Putin believes that the agreement on the export of Russian natural gas to China was almost ready.

"In a high degree of readiness are the agreements on exports of Russian natural gas to China. Their implementation will mean the diversification of gas pipeline routes for Russia, and our Chinese partners will be able to reduce the severity of the problems of energy shortage and environmental safety through the use of "clean fuels," said Putin in an interview with China's leading media.

Putin said that Russia and China were currently implementing large-scale projects worth more than $60 billion for the supply of crude oil to China through Skovorodino-Mohe pipeline. This is a very important moment in collaboration of the two countries, Putin said, as "in the turbulence of global economy, strengthening mutually beneficial economic and trade relations and increasing investment flows between Russia and China was becoming of paramount importance. This is a significant factor not only for the socio-economic development of our countries, but also a contribution to the stabilization of the global market."

WSJ: Macro Horizons: Global Economic Growth Shows Its Inconsistencies

"The uneven state of world growth is again on display. Whereas Japan produced surprisingly strong economic data in the form of machinery orders, the picture out of Europe is less rosy. The Bundesbank foresees a slowdown in Germany, the region’s biggest economy, and the share markets across Europe continued a weeklong swoonMonday as nerves about upcoming European elections combined with evidence of an economic slowdown to sour investors’ mood. The global economy is growing, but the inconsistency in the performance from country to country doesn’t afford investors much confidence in the long-term sustainability of that growth". 

 Japan's Core machinery orders surged to a six-year high in March, suggesting the April 1tax increase won’t be a crippling blow to the economy. Orders rose 19.1% in March from February, far outstripping expectations for a 6.2% rise.

Core machinery orders are considered a leading indicator of capital expenditure six months or so down the line, and the strong showing in March suggests the sales-tax increase (to 8% from 5%) hasn’t extinguished optimism about the prospects for Abenomics. Still, policy makers will want to see how domestic consumption is faring after the tax before they can breathe easier".

 "The German economy will grow at a slower tempo in coming months, the country’s central bank said in its monthly bulletin, citing the prospect for payback from the positive impact of a mild winter in the first quarter. The Bundesbank also warned that concerns about emerging markets and political turmoil in Eastern Europe also could weigh on the German economy.

All up, it was a moderate appraisal from the Deutsche Bundesbank.  However, with risks biased to the downside, the report will support the expectation that the influential German central bank will back the European Central Bank’s plans to cut rates into negative territory or take other stimulus measures. When insiders at the Bundesbank told The Wall Street Journal last week that they would support such moves to fight deflation risks, it drove the euro lower. The Bundesbank has a reputation for resisting moves to easier money, so the comments were taken as a strong signal that a policy shift is coming"". 

 Thailand’s economy shrank sharply in the first quarter, with a six-month old political standoff weighing heavily on growth. Gross domestic product contracted 0.6% on-year and 2.1% on-quarter in the first quarter, worse than expected.

The weakness was broad-based, with consumption, investment and even exports all contracting. No end to the standoff is in sight after the Election Commission ruled that the situation is too chaotic for July 20 polls to go forward as scheduled.  The National Economic and Social Development Board also cut its growth outlook for the year, to 1.5%-2.5%, from 3%-4% previously. Look for the central bank, which has already cut rates twice in recent months (50 basis points total), to cut further as the year goes on – though its scope is limited as its peers elsewhere in Asia are moving toward tightening; cutting too much could spark capital flight. In short, as long as Thailand’s leaders and public remain so deeply divided, the chances that the economy will improve are pretty slim.

China's economic planning agency outlines key reform tasks

 China's National Development and Reform Commission (NDRC) on Saturday vowed to deepen fiscal and market reforms this year to facilitate investment, trade and provide extra momentum for urbanization, environmental protection and social reforms.

In a "to-do list"-like report posted on the commission's website following a two-day meeting that focused on China's economic reforms, the NDRC outlined nine major reform priorities the country would undertake this year.

The NDRC will deepen reform in its investment system by simplifying and delegating the approval process, and open more investment projects to social capital.

It will also push forward price reform for resource products by letting the market play the major role in price setting, and will deepen reform in the fiscal and financial sector.

The latter includes building a fully-regulated and transparent budget system and a government debt financing system, promoting reform in taxation and in the marketization of interest rates and exchange rates, and developing a multi-layer capital market.

Meanwhile, reform of state-owned enterprises should also be promoted, and rules must be laid down to build a just, open and transparent market, the NDRC said, highlighting the establishment of a negative list system on market access, a social credit system and market oversight.

The commission also urged for efforts to deepen reforms concerning China's urbanization drive and to facilitate investment and trade by opening the country's service sector to the foreign capital.

Reforms in sectors such as education, health, culture, social insurance, housing security and income distribution should be reinforced to ensure that all Chinese citizens could better share the fruit of the country's development more fairly, the NDRC said, adding that a resource conservation and an environmental protection system should also be set up.

Source: Chiadaily USA

China's forex reserve to hit US$4 trillion in 2014

China, the world's second-largest economy will have more than $4 trillion in foreign exchange reserve by the end of 2014, said a People's Daily report on Monday.

China used to be short of foreign exchange before the nation adopted the reform and opening-up policy in 1978, while the country's foreign exchange reserve exceeded the $10 billion, $100 billion and $1 trillion marks in 1990, 1996 and 2006, respectively.

According to the latest statistics from the People's Bank of China, the central bank, as of the first quarter of this year, the foreign exchange reserve balance of China reached $3.95 billion, ranking first globally and accounting for one third of the world's total.

China will see foreign exchange reserve increase if the Chinese economy runs smoothly and foreign capital continues inflowing due to the interest rate margin between China and other countries, the report said, citing experts.

The huge amount of China's foreign exchange reserve, which is mainly driven by trade surplus, has become a burden to the country, added the report.

Source: ChinaDaily USA

Chinese oil paintings on display in Beijing

After a trial operation of seven months, the Dadu Museum of Art, China's first private oil painting museum, officially opened to the public on May 18.

The opening exhibition, entitled Experience China: Exhibition of Chinese Contemporary Oil Painting, features 61 paintings by about 30 Chinese artists, demonstrating China's oil painting development over the past century.

The works on display included paintings by Jin Shangyi, Zhan Jianjun, Shang Yang and Yang Feiyun, depicting aspects of Chinese society in styles including realism, abstract art and genre painting.

The exhibition was also shown in Paris in March as an exchange with the art world of France.

"Compared to the West, we still have a distance to go in terms of painting technique, but in terms of concepts and ideas, we have kept pace with them," said Jin Shangyi, director of the Dadu Museum of Art.

Source: Chinadaily

Any ECB bond-buying could halt slide in euro zone debt yields

 Any European Central Bank move to print money could raise investors' expectations for euro zone inflation and growth, pushing German Bund yields higher and potentially halting a two-year-old rally in peripheral debt.

Euro zone bonds have gained in recent weeks on growing expectations the ECB will eventually start buying government debt with new money to help bring inflation back to its target of just under 2 percent from 0.7 percent in April.

The central bank would have to pay a high price for those bonds and investors are buying them now with a view to selling them to the ECB for a profit later.

But if the ECB embarked on a programme of quantitative easing, or QE, investors would then have to consider that it was intended to boost longer-term inflation and growth and yields on benchmark 10-year bonds would have to adjust higher.

"If you start credible QE the market has to price a non-zero probability it would work, and that means Bund yields would rise," said Laurence Mutkin, global head of G10 rates strategy at BNP Paribas.

He said any QE would also raise the floor for yields on debt issued by fragile euro zone economies. While the gap between Bund yields and peripheral yields could narrow, outright peripheral yields "had less scope to fall".

Marco Brancolini, rates analyst at RBS, said bond yields also rise when central banks launch bond-buying programmes because investors tend to see it as the final act in a monetary policy easing cycle.

"Once the easing cycle bottoms down, the market has no more easing information to price in and starts looking forward to the hiking cycle," he said.

ECB policymakers have said QE is a possibility but that any programme remains far off and could be tricky to design given the peculiarities of the currency union.

Reuters reported last week that the ECB is preparing a package of policy options for its June 5 meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.

Whether markets perceive an ECB QE programme to be credible or not mainly relates to its size. Analysts at major banks work with scenarios ranging from the ECB spending a few hundred billion euros to more than 1 trillion euros on government bonds and other assets.

Taking the third U.S. QE programme as a benchmark and adjusting it for the smaller euro zone economy, the Bruegel think-tank proposes the ECB should start with a 35 billion euro a month programme, which should be revised every three months.

Anything smaller may be seen as "too timid" by the market, Bruegel said in a research paper.

Michael Krautzberger, who heads the euro fixed income team at BlackRock, also said size matters.

"The stronger the stimulus is and the more credible the ECB is viewed by market, the higher the chance that longer dated inflation expectations pick up and Bund yields rise modestly."

Source:  Reuters

ECB's Weidmann - mustn't take one-sided view of euro strength

There were increasing signs on Monday that the European Central Bank will add more stimulus to the euro zone economy at its June policy meeting as inflation remains stuck at very low levels.

ECB Executive Board member Yves Mersch said the likelihood of policy action at the bank's next meeting had grown substantially, warning about the risks of inflation staying very low for too long, even though there were no signs of deflation.

President Mario Draghi said after the ECB's May meeting that the Governing Council was "comfortable with acting next time" - its June 5 policy meeting - but wanted to see updated economic projections from the bank's staff first.

Since then, data has confirmed a slight increase in euro zone inflation in April to 0.7 percent, from 0.5 percent the previous month, but also shown that the economy grew much less than expected at the start of the year.

"The likelihood that the Governing Council will already act at its next monetary policy meeting in June has grown substantially," Mersch said in the text of a speech for delivery in Munich.

He said the Governing Council was unanimous in its willingness to deploy both conventional and unconventional measures to effectively counter the risks of very low inflation over a longer period of time.

A too-long period of very low inflation risked unanchoring long-term inflation expectations, Mersch said.

He described various deflationary risks, and added: "We see no sign at the moment that such a deflationary scenario will materialise in the euro zone."

ONE-DIMENSIONAL VIEW

Jens Weidmann, head of the German Bundesbank and who leads the hawkish camp on the ECB Governing Council, said inflation would stay low for some time and policymakers would pay close attention to the euro's exchange rate in this context when taking policy decisions.

But he warned against taking too one-dimensional a view of the euro's strength, stressing the importance of the stimulative effect of lower sovereign bond yields in the euro zone.

Investors' renewed appetite for euro zone sovereign bonds could contribute to an appreciation of the euro but the lower yields should have an expansionary effect on financing over the medium term, Weidmann said in a speech in Frankfurt.

"It would therefore be too short-sighted only to take a one-dimensional view of the exchange rate and to leave out the stimulating effects of lower sovereign bond yields," he said.

Last week, Reuters reported that the ECB is preparing a package of policy options for the June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.

The ECB has faced pressure from the French government to change monetary policy course to weaken the euro, whose strength poses risks to euro zone exports.

Weidmann, referring to demands for the ECB to tackle the euro's exchange rate, said: "In order to strengthen growth and employment in the euro zone over time, member states must deliver competitive economic structures."

Greek opposition declares anti-austerity triumph in local vote

Greece's main opposition party Syriza declared a victory for its anti-austerity message on Monday after its candidates fared strongly in big local election races in Athens and the surrounding region.

In what may have been a foretaste of the upcoming European Parliament vote, a candidate for the radical leftist party got most votes on Sunday in the race to govern the wider Athens region and another made the runoff for Athens mayor, knocking out Prime Minister Antonis Samaras's mayoral candidate.

Both candidates will be in runoffs against more mainstream leftist-backed incumbents, who now have Samaras's support.

"This is an omen for political change because Greeks are extremely frustrated, disappointed and desperate because of austerity policies and are trying to find a way to express this frustration," Syriza leader Alexis Tsipras told La Repubblica newspaper in Italy where he was campaigning on Monday.

Tsipras is the radial European Left's candidate to become the next European Commission president.

"The polls show that Syriza will win the EU (Parliament) elections next Sunday and this will probably trigger political developments in the country but also send a strong message to Europe against austerity."

Syriza, which is against Greece's European Union/International Monetary Fund bailout, has sought to cast the local and EU elections next week as a referendum on the ruling coalition's pro-bailout, austerity policies.

Samaras's government, however, played down Sunday's results as inconclusive, pointing to a string of first-round victories by the two ruling coalition parties in the remaining 12 regions as well as in most other big cities.

"This result does not give anybody a reason to celebrate," government spokesman Simos Kedikoglou told Greek television, denying the government's stability was at stake.

"The key issue is stability. The government must conclude its mission. We are at a decisive phase. We have covered a big part of the journey but we still have work to do."

Financial markets also took the results in their stride.

The Athens stock market <.ATG> was up 0.9 percent in afternoon trade after rising as much as 3.4 percent earlier on Monday, with traders saying the results were not a knock-out blow to the government as feared.

"It's not as disappointing as the market had discounted at the end of last week," said Takis Zamanis, a trader at Athens-based brokerage Beta Securities. "This result doesn't seem to be threatening the government's stability."

Yields on 10-year Greek government bonds were down 10 basis points to 6.68 percent.

Investors are closely watching the outcome of next week's EU vote to see if it ushers in a new bout of political instability in Greece that dashes a feeble recovery taking root in the country after six years of recession.

Polls have largely shown Syriza with a narrow lead over Samaras's conservative New Democracy party for the EU vote, though one poll published on Sunday by Kapa Research showed Syriza with a nearly 5 point lead over the ruling party.

Source: Reuters

Gunmen loyal to ex-general storm Libyan parliament, demand suspension

Heavily armed gunmen stormed Libya's parliament on Sunday demanding its suspension and claiming loyalty to a renegade army general who has vowed to purge the country of Islamist militants.

Smoke rose over parliament after gunmen attacked and then withdrew, and gunfire erupted across Tripoli, where rival militias clashed in some of the worst violence in the city since the end the 2011 war against Muammar Gaddafi.

Details of who was involved Sunday's chaotic attack were unclear, but loyalists of retired General Khalifa Haftar said his forces and militia allies had planned the parliament assault in a campaign to rid Libya of Islamist hardliners.

Any alliance of militias lining up against Islamist groups threatens to deepen chaos in the OPEC oil producer where a fragile government already struggles to gain legitimacy and impose authority over brigades of former fighters.

"We announce the freezing of the GNC," said Colonel Mukhtar Fernana, a former military police officer from the Zintan region, reading out a statement on al-Ahrar TV.

Haftar's spokesman Mohamed al-Hejazi said Fernana's group was allied to the former general.

Fernana said their movement was not a coup, but said the parliament had no legitimacy and should hand over power to a 60-member body that was recently elected to rewrite Libya's constitution.

Justice Minister Saleh al-Mergani condemned the assault on parliament and rejected the group's demands.

"The government demands an immediate stop to military action and use of force to express political opinion," he told a news conference calling for dialogue. Witnesses said armed local residents were blocking roads to the parliament building after the attack, but their identities and affiliation were not clear.

The attackers kidnapped about 10 employees from the GNC, an official said. At least two people were killed and another 55 wounded in the violence, officials said.

Haftar, once a Gaddafi ally who turned against him over a 1980s war in Chad, fueled rumours of a coup in February when he appeared on television in uniform calling for a caretaker government to end Libya's crisis.

Since the end of Gaddafi's one-man rule, militias of ex-rebels have become de-facto powerbrokers in the vacuum of Libya's political chaos, carving out fiefdoms and exercising their military muscle to make demands on the state.

But the most powerful, heavily armed brigades are rivals - the Zintans and the Misratans - loosely allied with competing political factions battling to define what kind of state Libyashould become three years after Gaddafi's fall.

Compounding the chaos, another former rebel commander, Ibrahim Jathran, who occupied eastern oil ports last summer, said he supported suspending parliament and handing over legislative power to the constitutional-drafting body.

His protest to demand more federal autonomy and a greater share of oil wealth for his eastern region has helped cut Libya's crude output to around 200,000 barrels per day from 1.4 million bpd before the summer.

Source: Reuters

No deal yet on gas dispute between Russia and Ukraine

WSJ: Putin has ordered its troops in Ukraine to return to their bases

Bloomberg: Putin’s Shanghai Expedition Stokes Gazprom Deal Talk

President Vladimir Putin’s planned China visit this week is helping spark the longest rally in OAO Gazprom since 2006 as speculation mounts the Russian leader will return with a long-sought gas supply agreement.

Gazprom, the world’s largest natural-gas producer, has climbed for nine days, rallying 16 percent over the period to 147.29 rubles ($4.26) in Moscow. The stock has gained 14 percent this month, compared with a 1.1 percent advance in the Stoxx 600 Oil & Gas index and the MSCI Emerging Markets Energy index’s 7.1 percent increase.

The stock is surging as traders interpret the president’s visit as a sign Russia is on the verge of getting the long-term gas supply contract it has sought for a decade. Putin is turning to Asia as the West expands sanctions tied to the incursion in Ukraine. After failing to agree on financial terms in previous talks, rising demand for fuel in China has pushed prices to a level that will probably be acceptable to both sides, Bank of America Corp. said in a May 16 report.

“Russia and China are closer to a deal than they’ve ever been before,” Karen Kostanian, an analyst at Bank of America, said by phone from Moscow last week. “While Russia seeks to diversify its natural gas exports away from Europe, China wants to diversify its fuel imports.”

Gazprom will have to spend about $56 billion through 2019 to build a new pipeline to China and develop the Kovykta and Chayanda gas fields in eastern Siberia to supply the gas, Kostanian said.

China Gas Holdings Ltd., which supplies natural gas to the city of Harbin in Heilongjiang province that shares a border with Russia, gained as much as 7.3 percent in Hong Kong today.

Gazprom’s stock trades in Moscow, London and New York and it is seeking a listing in Singapore, spokesman Sergei Kupriyanov said on May 15 in Moscow. He didn’t respond to a message seeking comment on the company’s plans in Asia left outside of normal business hours in Moscow on May 16.

Gazprom’s American depositary receipts rose 6.5 percent to $8.40 last week. It was the best performer on the Bloomberg index of the most-traded Russian shares in the U.S, which gained 2 percent.

“Investors are waiting for positive news from the China visit,” Oleg Popov, who helps oversee $1 billion at Allianz Investments, the asset-management arm of Europe’s biggest insurer, said by e-mail in Moscow on May 16. “Speculators are expecting a gas supply agreement with the Chinese partners.”

Allianz’s Popov said he will consider selling Gazprom shares when the price reaches 160 rubles.

Source: Bloomberg