Copper underpinned as Fed relaxes on rate rise timing

London copper was underpinned on Thursday by indications that the U.S. Federal Reserve is not hurrying to raise interest rates, even as the world's top economy logged robust second quarter growth that brightened the outlook for demand.

The U.S. economy rebounded sharply in the second quarter as consumers stepped up spending and businesses restocked, putting it on course to close out the year on a solid footing. 

But the Federal Reserve on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target.[ID:nW1N0Q4007]

This has all helped to burnish the outlook for metals - at least for the near term.

"It's really the metals where people have a little higher confidence, and we share that," said analyst Dominic Schnider of UBS Wealth Management in Singapore.

"Maybe we already have 75 percent behind us and we're looking at the last 25 percent. The (positive) Chinese economy story might carry into the next quarter. But the game is structural deceleration, so bad news is waiting to come around again," he added.

Three-month copper on the London Metal Exchange edged down by 0.2 percent to $7,128.75 a tonne by 0053 GMT after gaining around half a percent in the previous session. Prices are creeping back up towards $7,212, the peak from July 8 that was the loftiest since February

The most-traded October copper contract on the Shanghai Futures Exchange rose 0.6 percent in overnight trade.

Activity in China's vast factory sector likely expanded at the fastest pace in eight months in July, a Reuters poll showed on Wednesday, adding to evidence that the economy is regaining momentum after a burst of government stimulus measures.
However the International Monetary Fund said that China should lower its growth targets for next year, as part of a push towards safer and more sustainable growth. It also flagged the country's property slowdown as a cause for concern. [ID:nB9N0OL01V]

China's construction sector consumes a large portion of China's copper needs. China accounts for around 40 percent of refined copper demand.

In other upbeat news for the global economy, Euro zone economic sentiment unexpectedly improved in July despite the deepening crisis between the West and Russia over Ukraine, data showed on Wednesday. 


LME aluminium slipped by 0.2 percent after gaining 2 percent on Wednesday, while LME zinc and lead were mixed after profit-taking on a rally the session before.

Aluminium's gains came as exchange stocks looked to be locked up for a while.

The London Metal Exchange's attempts to cut backlogs at warehouses with new rules are likely to be delayed again for several months after judges declined to make an immediate ruling on a case holding up the reforms.

The news also helped propel cash prices to the highest against benchmark prices since Dec. 2012. 

Newmont Mining Corp will stick to a "parallel path" of arbitration and negotiation with the government of Indonesia in an attempt to resolve an impasse over copper concentrate exports, the company's chief executive said on Wednesday. 
Source: Reuters

Crude Oil falls under $100, set for deepest monthly fall since Oct

U.S. crude oil futures fell under $100 in early Thursday trade, putting the contract on course for its steepest monthly slide in nine months, as concerns over weak demand rose while fears over supply shortages in the Middle East and North Africa waned.

FUNDAMENTALS

* U.S. crude futures for September delivery <CLc1> fell 80 cents to $99.47 a barrel by 0007 GMT, putting the contract on course for a 5.6 percent fall for the month - its deepest since October.

* The contract finished 70 cents lower on Wednesday. 

* U.S. crude stockpiles fell more than forecast last week, while gasoline and distillate inventories rose less than expected, the Energy Information Administration reported on Wednesday. [EIA/S]

* OPEC's oil production rose in July from June, a Reuters survey found on Wednesday, as a fragile recovery in Libyan supply outweighed fighting in Iraq and reduced output from Angola.

* The Federal Reserve on Wednesday reaffirmed it was in no rush to raise interest rates, even as it upgraded its assessment of the U.S. economy and expressed some comfort that inflation was moving up toward its target. 

* U.S. crude oil exports reached 288,000 barrels per day in May, the highest levels since April 1999, data from the U.S. Energy Information Administration showed on Wednesday. 

* Iraqi Kurdistan's attempts to export oil independently of Baghdad hit another obstacle on Wednesday, as a Turkish energy official and industry sources said the autonomous region's pipeline to the Mediterranean has been shut for the past week. 

MARKETS NEWS

* The U.S. dollar held below a 10-month peak against a basket of major currencies early on Thursday, having soared at first on upbeat growth data only to have a dovish Federal Reserve take some steam out of the rally. 

* The S&P 500 and Nasdaq ended higher on Wednesday after the Federal Reserve gave a rosier assessment of the U.S. economy while reaffirming that it is in no hurry to raise interest rates. 

Source: Reuters

WSJ:Argentina Teeters on Default as Talks Collapse

         The WSJ reports,"Argentina teetered on the brink of its second default in 13 years after talks with bondholders collapsed late Wednesday.

The setback, after glimmers of hope in recent days that a last-minute agreement could be reached, immediately sent Argentine stocks plunging in after-hours trading.

Still, there remained the possibility that talks could resume and a deal could eventually be reached.

At a press conference after talks with a court-appointed mediator ended Wednesday, Argentine Economy Minister Axel Kicillof, who had led the country's delegation to New York, said "we won't sign an agreement that would compromise Argentina's future." A spokeswoman later said negotiations would continue, without giving a timetable.

"Default is not a mere 'technical' condition, but rather a real and painful event that will hurt real people," said Daniel Pollack, the mediator, in a statement late Wednesday. He added, "The full consequences of default are not predictable, but they certainly are not positive."

The development is the latest turn in a years long battle between Argentina and a small group of hedge funds that have demanded full payment for bonds the country defaulted on in 2001. Argentina has refused to pay, despite an order by a U.S. District Court judge requiring it to pay the hedge funds. The issue came to a head Wednesday as Argentina missed a deadline to make a payment it owed to other bondholders, because the court order had prevented such a move.

Mr. Pollack, who had been trying to broker a deal between the two sides, said the country would "imminently" be in default. Standard & Poor's Ratings Services had earlier Wednesday declared Argentina in default on some of its bonds.

A default would pressure an economy already mired in recession, potentially leading to higher inflation and a weaker currency. The breakdown of negotiations also complicates President Cristina Kirchner's efforts to stabilize the economy ahead of elections next year.

Wednesday marked the end of a 30-day grace period for Argentina to make a $539 million interest payment to the holders of $29 billion of the country's restructured bonds that was due on June 30. A ruling by U.S. District Judge Thomas Griesa prevents Argentina from paying its restructured bondholders until the hedge funds, also known as the holdout creditors, are compensated. The holdout creditors are owed about $1.5 billion.

Mr. Kicillof hinted on Wednesday that a private-sector solution was a possibility, apparently referring to a proposal by a group of Argentine banks to offer a $250 million guarantee to the holdouts. The idea would be to give the hedge funds a financial incentive to ask Judge Griesa to suspend his ruling until the end of the year and allow payment of holders of the other bonds.

A default could shave as much as one percentage point off growth this year, said Martin Redrado, former governor of Argentina's central bank. Analysts said it would also fuel inflation, which some economists already estimate to be close to 40%, and deepen the country's recession. It could roil the country's financial markets, ending a period of relative calm in the peso's exchange rate and Argentine bond prices.

The immediate impact to debt markets outside Argentina is expected to be limited. Argentina has been relatively isolated from global financial markets since its default in 2001, and the country's legal battles with its creditors are unprecedented and have dragged on in U.S. courts for years. In 2001, the country's bonds made up 20% of J.P. Morgan Chase & Co.'s widely followed emerging-market debt index. Now, they are only 1.3% of the index, signaling little chance that another default would rattle the global economy.

However, the case has raised questions about the power of U.S. courts to adjudicate cases involving sovereign nations and their creditors.

The concerns stem from the controversial 2012 ruling made by Judge Griesa, who has presided over disputes between Argentina and its creditors for more than a decade. He ruled that Argentina isn't allowed to pay the bondholders who accepted the country's restructuring offers since its 2001 default, unless it also pays the holdouts, who have refused those offers.

Lawyers said the ruling marked the first time a U.S. judge had issued such an injunction on the so-called "pari passu" clause, which states that all bondholders must be treated equally.

The U.S. government has called Judge Griesa's ruling "impermissibly broad" and said it could undermine U.S. foreign relations. The International Monetary Fund warned that Judge Griesa's ruling could make it easier for a handful of creditors to disrupt other debt restructurings. "There is a cost to the world," IMF Chief Economist Olivier Blanchard said last week.

Analysts say Wednesday's developments will likely rock Argentine markets on Thursday, as the country's stocks and bonds had rallied this week on hopes that the two sides would reach a deal and avert default. Investors said they had been encouraged by marathon talks on Tuesday and Wednesday between Argentine officials and a court-appointed mediator, as well as a proposal by Argentine banks to pay the holdout creditors.

"The market reaction won't be positive," said Brian Joseph, head trader at local brokerage Puente. "There were big expectations of a deal. This isn't good news.""

Lead falls as investors book profits after rally

Lead prices fell on Wednesday as investors took profits after a rally this month, but a brighter global economic outlook is seen providing support to industrial metals.

Investors have bought beaten down assets like lead, zinc and aluminium on prospects that the economy is slowly improving and that supply will diminish as demand increases.

Fund buying helped push aluminium and zinc prices to the highest levels in nearly 18 months and three years respectively in July, while lead hit a 17-month top on Tuesday.

"The main reason why these metals prices have moved higher has not been a change in fundamental conditions, it's been a change in investment behaviour. Part of that is driven by improving macro sentiment," said commodity analyst Ivan Szpakowski of Citi in Shanghai.

Three-month lead on the London Metal Exchange, closed 0.3 percent lower at $2,260 a tonne, extending a 1.4 percent loss in the previous session.

LME zinc rebounded from earlier falls to close 0.6 percent higher at $2,380 a tonne. It posted a 1.8 percent fall in the previous session when it snapped a six-day winning streak.

Zinc has risen on forecasts that falling mine supply will lead to a shortage of metal.

"The moves look technically driven, with no change in fundamental issues to speak of," ANZ Research said in a note to clients.

"While sell-offs like this will not be uncommon, the macro environment remains accommodative for further gains in base metals prices over the coming weeks."

Manufacturing growth in top metals consumer China expanded at its fastest clip in 18 months in July, an initial survey showed.

In the United States, economic growth accelerated more than expected in the second quarter and the decline in output in the prior period was less steep than previously reported, bolstering views for a stronger performance in the last six months of the year.


The U.S. Federal Reserve will issue a policy statement on Wednesday after a two-day meeting. The central bank looks certain to press forward with its plan to wind down its bond-buying stimulus, and could offer some vague clues on how much nearer it might be to finally raising interest rates.

"A positive outlook by the Fed could help sentiment among the traders which could help industrial metals recover some of their losses," Naeem Aslam, chief market analyst at Ava Trade, said.

In other metals, copper closed 0.6 percent higher at $7,125 a tonne, aluminium ended 2 percent higher at $2,022, tin was almost flat at $22,890 and nickel closed 1.7 percent higher at $18,960 a tonne.

Lead springs back to life, with some Chinese help

The lead market has sprung back into life after months of slumber, with London Metal Exchange

(LME) three-month metal <CMPB3> touching a 16-month high of $2,307 per tonne on Tuesday.

The price action has helped lead close a widening gap with zinc, a divergence that was attracting increasing analyst attention.

It just remains to be seen whether lead can maintain this level of activity. The London market seemed unimpressed, knocking the price back to $2,230 on Wednesday morning.

But then it wasn't the London market that kicked lead into life in the first place.

DIVERGENCE

Trading zinc and lead as a relative value pair has long been a favourite pastime on the LME, partly because of the supply overlap between the two metals. More often than not, they co-exist in the same deposits in the ground and are extracted from the same mines.

It's perhaps surprising, therefore, that lead has been unaffected by zinc's bull narrative of pending mine closures and shift to supply shortfall. After all, every zinc mine that closes removes some lead supply as well.

But while zinc has been the second-best performer in the LME base metals pack after nickel this year, lead has done little more than shuffle sideways, only moving into positive territory over the last few days.

This divergence has been manifest in zinc's widening premium over its sister metal, an inversion of the normal relationship in recent years.

     
    At one stage last week, that premium stood at close to $160 
per tonne, the widest since April 2010. By yesterday's close it 
had contracted to $99, a level that is still highly unusual by 
the standards of the last few years. 

    UNLOVED 
    This divergence is odd, given that both markets are expected 
to be in supply deficit this year. The International Lead and 
Zinc Study Group (ILZSG) at its April meeting forecast a 49,000 
tonne deficit for lead and a 117,000 tonne deficit for zinc.  
    Moreover, lead has less inventory overhang to act as a 
cushion against supply shortfall, in theory offering an even 
more bullish narrative than that of zinc.  
    "Stocks measured as weeks of consumption are likely to fall 
to very low levels, amongst the lowest in the LME complex", over 
2015-2016, according to Leon Westgate, an analyst at Standard 
Bank London, writing in the bank's quarterly commodities review. 
    Yet while zinc has soared, lead has sagged. Why? 
    Its underlying supply-demand dynamics may be as bullish as 
those of zinc, but there has been an absence of signals to 
corroborate the bull narrative.  
    LME lead stocks, for example, have been largely static over 
recent weeks, with minimal activity either in or out. Contrast 
that with LME zinc stocks, which have been trending steadily 
lower, with each daily exchange report providing a reminder of 
the apparent market deficit.  
    Then there is China. The country's imports of zinc rose by 
38 percent to 375,000 tonnes over the first half of this year. 
When it comes to lead, though, China has been a net exporter. 
The volumes may not be huge, just 15,000 tonnes or so over the 
first six months of 2014, but this is metal that is coming out 
despite a prohibitive 10 percent export tax.  
    No matter that LME zinc stocks may be going no further than 
off-market storage or that the zinc entering China is going no 
further than a bonded warehouse to act as collateral for the 
shadow credit market.  
    In terms of bull perception, zinc is generating the "right" 
signals and lead the "wrong" signals.  
    Hence the collective lack of investor interest in the LME 
lead market so far this year, "mild indifference" verging on 
"outright neglect", to quote Standard Bank's Westgate. LME 
volumes have been humdrum, and open interest dropped to a 
two-year low last month.  
    The divergence between the two metals seems to be largely 
down to the simple fact that lead is unloved.  

    CHINA BULLS 
    That may be changing, or at least in China it may be 
changing.  
    As the graphic below shows, open interest on the Shanghai 
Futures Exchange (SHFE) lead contract has exploded over the last 
few days. It ended last week at 24,080 lots. As of Tuesday's 
close that figure had risen to over 51,000 lots. Volumes have 
gone equally supernova over the same time frame.  
    
    This surge in interest echoes a similar phenomenon in the 
SHFE zinc contract last month as Chinese investors collectively 
picked up the bull baton from London.  
    In lead, though, it looks very much as if it is China that 
is leading a still reluctant LME market higher.  
    This raises several interesting questions.  
    Is it another sign of the growing power of China's fund 
players to influence global markets? Back in March a bear attack 
on the copper market by Chinese funds sent both SHFE and LME 
prices tumbling.  
    Is the Shanghai metals market now evolving from follower to 
leader of the London market?  
    And what do Chinese lead bulls know that the rest of us 
apparently don't? Are they also just playing a relative trade 
against zinc? Or are they taking a more strategic view of the 
metal's prospects in China?  
    The country's de-stocking cycle this year has been one of 
the main reasons for the lack of investment interest in the lead 
market. If that cycle is about to turn, it makes sense that 
Chinese investors might be the first to notice and to place 
their bets.  



Source: Reuters

U.S. crude inventories fall more than forecast - EIA

U.S. crude stocks fell more than forecast last week, while gasoline and distillate inventories rose less than expected, the Energy Information Administration reported on Wednesday.

Crude inventories fell 3.7 million barrels in the last week, compared with analysts' expectations for a decrease of 1.5 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub fell 924,000 barrels to 17.9 million barrels, EIA said.

"That number to some is disturbing," said Phil Flynn, an analyst at the Price Futures Group in Chicago. "Some people believe it’s pretty close to minimum operating capacity. Obviously it’s one factor that would be supportive for WTI over Brent."

Refinery crude runs fell 47,000 barrels per day, EIA data showed.

Gasoline stocks rose 365,000 barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel gain and a 1 percent fall in demand from a year ago, suggesting products exports out of the U.S. Gulf continued to be strong.

"The export number has potential to be a point of support for U.S. crude oil prices," said Richard Hastings, macro strategist at Global Hunter Securities in Charlotte, North Carolina.

Distillate stockpiles , which include diesel and heating oil, rose 789,000 barrels, vs. expectations for a 1.5 million-barrel increase, the EIA data showed.

U.S. crude imports last week rose 315,000 barrels per day.

Following the report, both Brent and U.S. crude oil prices fell after briefly spiking higher.

Source: Reuters

U.S. economy bounces back strongly in second quarter

U.S. economic growth accelerated more than expected in the second quarter and the decline in output in the prior period was less steep than previously reported, bolstering views for a stronger performance in the last six months of the year.

Gross domestic product expanded at a 4.0 percent annual rate as activity picked up broadly after shrinking at a revised 2.1 percent pace in the first quarter, the Commerce Department said on Wednesday.

That pushed GDP above the economy's potential growth trend, which analysts put somewhere between a 2 percent and 2.5 percent pace. Economists had forecast the economy growing at a 3.0 percent rate in the second quarter after a previously reported 2.9 percent contraction.

A separate report showing private employers added 218,000 jobs to their payrolls last month, a decline from June's hefty gain of 281,000, did little to change perceptions the economy was strengthening. 

U.S. stock futures added to gains and yields on U.S. Treasuries rose after the data. The U.S. dollar hit a seven-week high against the yen and an eight-month high against the euro.

The economy grew 0.9 percent in the first half of this year and growth for 2014 as a whole could average above 2 percent. The first quarter contraction, which was mostly weather-related, was the largest in five years.

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year.

The government also published revisions to prior GDP data going back to 1999, which showed the economy performing much stronger in the second half of 2013 and for that year as a whole than previously reported. 


EYES ON THE FED

The GDP data, which was released only hours before Federal Reserve officials conclude a two-day policy meeting, could fuel debate on whether the central bank may need to raise interest rates a bit sooner than had been anticipated.

Growth in the second quarter was driven mainly by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services.

Consumer spending had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending.

Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which bodes well for future spending.

Inventories contributed 1.66 percentage points to GDP growth after chopping off 1.16 points in the first quarter.

The economy also received a boost from business investment, government spending and investment in home building.

Trade, however, was a drag for a second consecutive quarter as some of the increase in domestic demand was met by a surge in imports. Domestic demand rose at a 2.8 percent pace, the fastest since the third quarter of 2011. It increased at a 0.7 percent pace in the first quarter.

Solid demand, which underscores the economy's firming fundamentals, led to some pick-up in price pressures in the second quarter, a welcome development for Fed officials who have long worried about inflation being too low.

A price index in the report rose at a 2.3 percent rate in the second quarter, the quickest in three years, after advancing at a 1.4 percent pace in the prior period.

A core price measure that strips out food and energy costs increased at a 2.0 percent pace, the fastest since the first quarter of 2012. It had increased at a 1.2 percent rate in the first quarter.

Source: Reuters

GLOBAL MARKETS-Asian shares sluggish, dollar holds firm before Fed

Asian shares were subdued while the dollar held steady near an eight-month high against the euro on Wednesday, as investors awaited key U.S. data as well as a U.S. Federal Reserve meeting that some believe might result in a more hawkish policy outlook.

The Fed's two-day policy meeting will conclude later in the session with central bank officials issuing the policy statement at 2 p.m. (18:00 GMT). The Fed will not be updating its economic forecasts and Chair Janet Yellen will not hold a press conference, keeping investors' focus squarely on the statement. 
The U.S. central bank is expected to cut its monthly bond-buying program by another $10 billion. With U.S. unemployment dropping over the last few months and inflation firming, some believe the Fed could adjust its wording to suggest its willingness to hike interest rates sooner rather than later as the bank approaches its "full employment" mandate.

"If they decide to tweak their assessment of the labour market, it would accelerate the gains for the dollar," Kathy Lien, managing director of FX strategy for BK Asset Management, wrote in a note to clients.

Also later in the session, the Commerce Department is expected to report that the economy grew at a 3.2 percent annual pace in the second quarter, after it shrank 2.9 percent in the previous quarter.

On Friday, the Labor Department's nonfarm payrolls are expected to rise by 231,000 in July after an increase of 288,000 in June. The jobless rate is expected to hold steady at 6.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan  was slightly lower in early trade, while Japan's Nikkei stock average  edged down about 0.1 percent.

Data released early on Wednesday showed Japan's industrial output fell 3.3 percent in June as companies curbed production due to a pile-up in inventories, but manufacturers expect output to rise in the coming months. 

On Wall Street overnight, a weak outlook from courier company United Parcel Service triggered a broad selloff, pushing the S&P 500 <.SPX> below its 14-day moving average for a second straight day.

Still, almost 70 percent of the S&P 500 companies that have reported already have topped earnings expectations, according to Thomson Reuters data, which is well above the long-term average of 63 percent. More than half of companies have reported results, and over 63 percent of them have topped revenue forecasts, above the long-term average of 61 percent.

The yield on the benchmark 10-year U.S. Treasury note stood at 2.460 percent in Asia, not far from its U.S. close of 2.462 percent on Tuesday, when it got support from German, Italian and Spanish government debt yields all hitting record lows.

Ten-year German government bond yields, the benchmark for euro zone borrowing costs, sunk as low as 1.12 percent .

That helped the dollar hit an eight-month high against the euro, which dropped as low as $1.3404 and was treading water at $1.3410 in early Asian trade.

Against the yen, the dollar was steady on the day at 102.09 after it broke above the 102 level on Tuesday for the first time since early July.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, was last at 80.206 <.DXY>, after touching a six-month high of 81.245 on Tuesday as the euro cratered.

U.S. crude was steady on the day at $100.98 a barrel after touching an intraday low of $100.37 on Tuesday, its lowest since mid-July.
Source: Reuters

Fitch Ratings has affirmed OAO Gazprom Long-Term debt at 'BBB'

Chinese Stocks Take Off

       The WSJ reports,"China's stocks are soaring as people scoop up investments in one of the world's cheapest markets, encouraged by signs Asia's biggest economy has turned the corner and is starting to motor again.

The Shanghai Composite Index jumped for a sixth day to the highest in nine months on Tuesday, bringing the gain to 6.6% so far in July and leaving the market in position to record its best month since December 2012. The index is catching up with a rally in Hong Kong that sent the city's main stock index to a three-year high last week.

An index of mainland companies traded in Hong Kong entered a bull market Monday, rising more than 20% from a low in March.

"People have given up on expecting China to collapse," said Arnout van Rijn, Asia-Pacific chief investment officer at Robeco Group in Hong Kong, which manages assets worth $290 billion. Mr. van Rijn increased his exposure to Chinese stocks this year.

Because of a slowing growth on the Chinese economy in the first quarter and H1,"for most of the year, Chinese stocks put in lackluster performances, missing out on a rally that swept through the U.S., Europe and most of Asia, as markets encountered a variety of bumps. In March, the country experienced its first default on a corporate bond, adding to fear that widespread credit problems could emerge as companies dealt with slowing economic growth.

Now, sentiment has turned around. Government measures unveiled in the past month are spurring optimism the economy will rebound, aided by overhauls aimed at debt-laden state-run enterprises. Banks are raising cash to help with bad loans.

Property prices are showing signs of stabilizing, and large developers are among the leaders of the stock rally.

Investors have moved in to take advantage of valuations driven lower by the downturn, leaving China's market among the cheapest in the world.

The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, is currently trading at 7.2 times forward earnings, a common valuation measure, compared to an average 11.9 over the past 10 years and the current 16.6 for the S&P 500.

The recent rally has been led by widely-traded behemoths like PetroChina Co., China's largest listed oil company by capacity, which is up 23% year to date in Hong Kong."

The buying in China has been widespread. According to HSBC Holdings PLC, mutual funds now hold record amounts of Chinese equities. EPFR, a data provider, says Chinese equity funds recorded net inflows of cash in both June and July, reversing four months of outflows.

Local investors have bought as well as alternatives such as the property market have stagnated. Yields on wealth-management products, once popular as a source of high returns, have fallen sharply in recent months.

The optimism has spread to other markets as well. China's currency hit a three-month high this week, rebounding from a first-half tumble. The bond market, too, has rallied: Yields on top-rated corporate bonds were at 5.39% on Monday, down from 6.31% at the start of the year.

Not all investors are convinced. Paul Chan, Invesco's chief investment officer for Asia, excluding Japan, cut his allocation to Chinese equities to "underweight" from "overweight" for the first time in more than four years this month. Invesco has $802.4 billion in assets under management.

Mr. Chan says economic growth and increases in earnings per share in mainland China are likely to lag behind those in the rest of the Asian-Pacific region.

Other investors say a rapid accumulation of debt by China in recent years is still an overhang for the economy. Standard Chartered  PLC estimates that total debt amounted to 251% of gross domestic product hit at the end of June. An additional concern is that China's recent efforts to stimulate the economy aren't sustainable, and that effects will only be temporary.

For now, though, investors are welcoming Chinese efforts to overhaul state-run companies. The government has allowed six to introduce pilot programs aimed at introducing more private investors and improving management".

Argentina: Country's Stocks and Bonds Sell Off Ahead of Wednesday's Default Deadline

       The WSJ reports,"Investor confidence that Argentina would reach a deal with holdout creditors is falling as a default deadline draws closer, sparking a selloff in the country's stocks and bonds.

Argentina and its holdout creditors have until Wednesday to agree to a deal to avert what would be a second default in 13 years. Analysts and investors in the past few weeks have been relatively upbeat on the prospects for an agreement, expecting Argentina to agree to pay the holdouts at the last minute.

But those prospects seemed to dim following the news that Monday would come and go without further talks. On Monday, the court-appointed mediator said Argentina had arranged for a meeting on Tuesday, but wouldn't meet face to face with the holdouts.

"The market has been optimistic, expecting that Argentina will do what they think Argentina should do" and come to an agreement, said Siobhan Morden, head of Latin America strategy at Jefferies LLC. "The market is starting to crack. I think we're still heading lower."

Argentina's dollar bonds due 2033 fell as low as 81.375 cents on the dollar, a five-week low and down from as high as 90 cents on the dollar as recently as Thursday. They later rebounded to about 84 cents in very thin, choppy trading, traders said. The bonds closed at about 85.5 cents late Friday.

Ms. Morden said 57% of investors polled by Jefferies now expect an Argentine default. Should that happen, those investors expect Argentina's benchmark bonds to fall to an average of 68 cents, she said.

The price on Argentine credit-default swaps, contracts designed to pay out when a country defaults on its debt, on Monday implied an 80% chance of default in the next five years, according to research firm Capital Economics.

Argentina's benchmark Merval stock index hit a one-month low before trimming its losses to end the day down 1%. The index is down 11.3% in the last 10 trading sessions.

U.S. District Judge Thomas Griesa blocked interest payments for $539 million due on Argentina's 2033 bonds in June after the country deposited the money. Judge Griesa has ruled that Argentina must pay hedge funds led by Elliott Management Corp. affiliate NML Capital Ltd. and Aurelius Capital Management LP when it pays investors who own bonds the country issued after its 2001 default.

Argentina has until Wednesday to get that money to bondholders or run the risk of being declared in default.

Argentine officials met twice last week with their court-appointed mediator, Daniel Pollack, but declined to hold face-to-face talks with representatives for the hedge funds, which are suing to collect on debt Argentina stopped paying 13 years ago.

Argentina's finance secretary and a set of other officials are set to travel to New York on Monday and meet with Mr. Pollack at 11 a.m. on Tuesday.

"I again urged direct, face-to-face conversations with the bondholders," Mr. Pollack said about the call with Argentina's representatives on Monday. "But that will not happen tomorrow."

Jim Craige, a portfolio manager with Stone Harbor Investment Partners LP in New York, said it was looking less likely that Argentina would reach a deal, particularly after the country's negotiators flew back to Buenos Aires on Friday, to return to New York late Monday.

"They could have gotten on an airplane earlier," Mr. Craige said. "They should have never left [Friday], and probably should be here for an early Monday meeting if they were really interested in getting this done. In order to negotiate, you have to actually sit down at the table and hammer out a deal."

Mr. Craige said his firm owned some Argentine bonds governed by local law, and not subject to the U.S. court ruling, but that he'd consider selling those if conditions in the country worsen after a potential default.

The Argentine government has argued that it can't default because it deposited the money, which is now the property of bondholders. The government has asked the judge to suspend his ruling to give it more time to negotiate".

Argentina's long-running legal battle with hedge funds stems from its default on some $100 billion in public debt in 2001 amid a deep economic crisis. The country offered holders of the defaulted bonds new securities valued at about 33 cents on the dollar in 2005 and 2010. Between the two swaps, investors agreed to exchange almost 93% of defaulted bonds eligible for restructuring.

However, the hedge funds decided not to tender their bonds and instead sued for full repayment. Those so-called holdout creditors have won about $1.6 billion after years of litigation in U.S. courts.

Argentina has largely run out of legal options after the U.S. Supreme Court on June 16declined to hear its appeal in the case, leaving in place Judge Griesa's decision that Argentina must treat its different groups of creditors equally".

EU agrees economic sanctions on Russia

The European Union reached agreement on Tuesday on the bloc's first broad economic sanctions on Russia over its role in Ukraine, diplomats said, marking a new phase in the biggest confrontation between Moscow and the West since the Cold War.

The measures will shut major state-owned Russian banks out of European capital markets and target the defence sector and sensitive technologies, including oil, but exclude the vital gas sector, on which Europe is heavily dependent.

In contrast to the United States, the 28-nation EU, with bigger economic interests at stake, hesitated for months to take decisive action against Moscow.

But the mood changed radically after the downing of a civilian flight in an area of Ukraine controlled by pro-Russian separatists earlier this month, killing all 298 people on board, including 194 Dutch citizens.

Washington believes flight MH17 was shot down in error by the separatists with a missile supplied by Russia. Moscow has denied any involvement and sought to deflect the blame to Kiev.

The president of the European Commission, Jose Manuel Barroso, and European Council President Herman Van Rompuy said the sanctions were means as a "strong warning" that Russia's actions in Crimea were not unacceptable and would bring "heavy costs" to its economy.

"The European Union will fulfil its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbours and partners," the EU's top two officials said in statement.

Several European diplomats, speaking on condition of anonymity, said sanctions could be ratcheted up further if necessary.

EU ambassadors clinched their agreement as intense fighting between Ukrainian troops and pro-Russian rebels in eastern Ukraine killed dozens of civilians, soldiers and rebels.

It is expected to be finalised on Wednesday and the measures published in the bloc's Official Journal. [ID:nL6N0Q42JK]

Dutch Foreign Minister Frans Timmermans, whose call for justice swayed EU peers last week, said the capital market restrictions "will have a far-reaching and immediate effect".

The sanctions will initially last a year but will be reviewed after three months on Oct. 31 to determine their impact on Moscow's behaviour, diplomats said.

"We have to keep a consistent review of the political aspect and provide legal certainty," one senior EU diplomat said.

The deal, which does not require endorsement at a special EU summit, followed an agreement to widen sanctions on Moscow between U.S. President Barack Obama and the leaders of Britain, France, Germany and Italy in a telephone conference on Monday.

Previously, Washington and Brussels have imposed sanctions on specific individuals over Moscow's actions towards Ukraine, but the EU in particular had shied away from measures designed to hurt vital sectors of the Russian economy, not least because of the threat to EU economies.

The EU does more than 10 times as much trade with Russia as the United States does, relying in particular on Russian natural gas to fuel its industry and power its cities.


BALANCE

Some member states are nervous about the risk to their own economies, and EU leaders struggled to strike a balance between inflicting pain on Russia and preventing fragile EU nations from sliding back into recession.

In a letter to EU leaders last week, European Council President Herman Van Rompuy said the proposed sanctions package

"should have a strong impact on Russia's economy while keeping a moderate effect on EU economies".

There was a consensus on only targeting future contracts, he said, which would leave France free to go ahead with the delivery of helicopter carrier warships is it building for Russia.

Another principle was that EU measures targeting energy technology could hit Russia's oil sector but not its natural gas. Russia is the world's biggest exporter of gas and second biggest exporter of oil; Europe depends on it far more for gas, which arrives mainly by pipeline and is harder to source from elsewhere than oil that arrives mostly by ship.

Probably the most high-impact measure will ban Europeans from buying new bonds or shares issued by banks owned 50 percent or more by the Russian state, which analysts say will affect their ability to finance the economy.

Syndicated loans were not included "at this stage", one senior EU diplomat said, adding that European banks will not be able to purchase targeted debt anywhere in the world.

"It applies to primary markets and to secondary markets, bonds and shares of targeted, well-defined, state-owned Russian banks," he said.

Apart from agreeing on the economic measures, ambassadors also signed off on a new list of Putin's associates and companies that will face asset freezes and visa bans under previous measures, the criteria for which were toughened the day before the plane crash.

The list is expected to be made public on Wednesday, adding to the 87 people and 20 organisations already hit with asset freezes for playing a role in threatening Ukraine. 
Source: Reuters

U.S. natgas futures end up 1.6 pct on contract expiration

U.S. natural gas futures ended up 1.6 percent on Tuesday as some short traders closed out their positions ahead of the expiration of the August contract.

After falling for seven of the last eight trading days, the front-month August futures on the CME NYMEX closed up 6.1 cents, or 1.6 percent, at $3.808 per mmBtu.

August traded between $3.72, which was a fresh eight-month low, and $3.83 on Tuesday, moving out of oversold territory for the first time in 17 days. That was the longest the front month had remained in oversold territory in more than four years.

The Relative Strength Index, climbed to 33.1 from 22.1 on Monday. An RSI under 30 is considered oversold.

The September contract, which becomes the front month on Wednesday, ended up six cents at $3.82.

The front month has lost more than 20 percent since hitting a four-month high of $4.71 in mid June owing to record production and stock builds, and to a lack of hot summer weather and lower-than-normal air conditioning demand.

After falling for six straight weeks last week, the longest stretch of weekly declines in more than four years, the front month was up 1 percent so far this week, down 15 percent for the month and off 10 percent for the year.

In early estimates, analysts forecast utilities added about 93 billion cubic feet of gas to storage last week. [EIA/GAS]

MDA Weather Services forecast cool weather will linger over the eastern two-thirds of the United States over the next 15 days.

That is in line with U.S. weather models predicting cooler-than-normal temperatures over the next two weeks, with 184 cooling degree days, versus a normal of 199 for this time of year, according to Thomson Reuters Analytics.

On the NYMEX, the premium of front-month gas over spot Appalachian coal edged up to $1.29 from $1.23 on Monday. A gas premium over $2 makes it economic for utilities to burn coal.

On the IntercontinentalExchange, next-day gas at the Henry Hub , the benchmark supply point in Louisiana, lost seven cents to average $3.75, a fresh eight-month low.

Next-day New York gas lost about 23 cents to $2.31, while Chicago citygates lost eight cents to a new eight-month low of $3.79, and the Southern California Border lost three cents to $4.12.

In power markets, next-day Mid Columbia in the Pacific Northwest held steady at $46 per megawatt hour, while PJM West in the Mid-Atlantic lost about $4 to a nine-month low of $34.
Source: Reuters

Chinese Huawei’s Smartphone Shipment Soars 62%YOY to 34M in 2014 H1

Huawei has shipped 34.27 million smartphones globally in the first half of this year, surging 62% as compared with the same period of last year, according to stats released by Huawei  Consumer Business Group. Of which, more than 20.56 million smartphones were sold out in the second quarter of this year globally, up 85% YOY.

The telecom gear and smartphone maker said its total shipment for handsets, mobile broadband and other gadgets has reached 64.21 million during the reporting period.

Huawei attributes this growth to the popularity of its flagship products like Ascend P7 and Mate 2 (4G), as well as the robust sales surge in emerging overseas markets. In Q2 2014, Huawei recorded rapid growth in Middle East and Africa, Latin America, Asia-Pacific regions, with smartphone shipment in these areas rocketed 550%, 275% and 180% in YOY growth respectively, according to the firm.

The company’s annual smartphone shipment for 2013 stood at 50 million. The group generated a revenue of more than 135.8 billion yuan (around US$22 billion) in the first half of this year, rising 19% YOY, citing its latest fiscal report.

As more Chinese handset makers like Xiaomi, Meizu are making efforts to develop feature-rich smartphones at lower prices, Huawei is trying to tap the premium handset market, where Apple and Samsung have continued to dominate.

Source: TechNode

Chinese Android Phone Maker Meizu Raises more than US$300 million

Source: TechNode

Meizu, the Chinese smartphone maker, disclosed today that the company had raised more than RMB2 billion (more than US$300 million) at a valuation of more than RMB20 billion (more than US$3 billion).

The very first round of funding had been closed by the end of the June, according to the company, which began in early this year, although for years the founder of the company, Huang Zhang (aka J.W.) rejected the idea.

The company disclosed it today must have something to do with that Xiaomi, whom Meizu founder publicly hates, launched its latest flagship phone today. Meizu Mr. Huang accused Xiaomi stealing its business secrets. Though it’s unknown to what extent Mr. Huang’s story was accurate or objective, Xiaomi’s way of doing the Android phone business, from hardware design to custom operating system development, was similar to Meizu’s.

Meizu and Xiaomi would launch their third-gen Android phones in September 2013. While Xiaomi has launched its flagship phone and a fitness band, Meizu said today that the company would launch four 4G phones, both high-end and low-end, in the second half of this year.

Source: