Brent holds above $112 as China data draws focus back to demand

 Brent futures held above $112 a barrel on Tuesday as investor attention shifted back to demand after China's factory growth rose to a six-month high, adding to signs the economy of the world's second-biggest oil consumer is regaining strength.

Oil markets have for weeks been rattled by supply concerns due to the Ukraine crisis and as a takeover of large areas of Iraq by Sunni militants stoked fears of disruption in exports from OPEC's second-biggest producer amid unsteady shipments from Libya and others. As those fears recede somewhat, investors are looking for fresh clues to gauge the direction of the market.

Brent crude gained 7 cents to $112.43 a barrel by 0238 GMT, after ending down 94 cents at its lowest settlement since the rally spurred by the Iraqi crisis started on June 12. U.S. oil rose 17 cents to $105.54 a barrel.

"Markets are looking for a catalyst to see where prices are headed from here," said Ben Le Brun, a markets analyst at OptionsXpress in Sydney.

"We certainly need to keep an eye on Iraq and see what is happening in Ukraine. But overall economic data, including those from the United States, seems to suggest the global economy is improving."

China's official Purchasing Managers' Index (PMI) stood at 51 in June, the National Bureau of Statistics said, quickening from May's reading of 50.8 and in line with market expectations on improving domestic and foreign demand.

Oil, particularly the U.S. benchmark, drew additional support from forecasts U.S. commercial crude inventories dropped 2.3 million barrels in the week to June 27, while product stockpiles rose, a preliminary Reuters poll showed. It also estimated distillate stockpiles rose 600,000 barrels, while gasoline inventories increased 800,000 barrels.

Source: Reuters

China pushes Asia's Iranian oil imports above U.S. ceiling

China's Iranian crude imports rose by more than a third in May to the second highest on record, helping keep overall Asian buying above the level allowed under a deal that eases some Western sanctions, government and tanker-tracking data showed.

China, Tehran's largest oil client, has since late 2013 been stepping up purchases after a landmark November nuclear deal eased some sanctions on Iran and has been making up the main portion of stronger Asian imports since then. 

With fighting engulfing swathes of Iraq and worries about potential disruption in shipments from OPEC's second-largest producer, some Asian buyers are starting to see Iran as a more stable supplier.

"If there was an overthrow of the government in Baghdad this could bring the administration of the Iraqi oil industry to a standstill and remove 3 million bpd (barrels per day) from global oil supplies," said Tom O'Sullivan, founder of independent energy consultancy Mathyos Japan. "About half of Iraq's oil goes to China, so Iran could potentially fill the gap."

Iran's biggest buyers - China, India, Japan and South Korea

- together took in 1.26 million barrels per day of the Islamic republic's crude last month, up 8 percent from the same period a year ago, government and tanker-tracking data showed.

For the first five months of 2014, their imports averaged 1.25 million bpd, up 25.3 percent from a year ago, keeping Tehran's exports above the 1 million bpd cap that it agreed under a deal with the West for six months to July 20.

There are no indications that Washington will loosen up on the cap until a full nuclear deal with Tehran is reached, but there have been some signs of improving ties, including on how to respond to an Islamist militant insurgency in northern Iraq.

An oil industry expert in Asia, who declined to be identified, said concerns about unrest in Iraq disrupting oil supplies meant that some importers were also viewing Iranian supplies as more stable than Iraqi crude.

Tough western sanctions since 2012 have slashed Iran's oil exports and crippled its economy by choking the flow of foreign exchange, but some of those measures were relaxed in November's diplomatic deal in return for Tehran curbing its nuclear activities and shipments have been up from last year.

With less than four weeks left until a late-July deadline to strike an accord, Westen officials have said Iran and six world powers have made very little progress towards striking a deal that could end years of hostility. [ID:nL6N0P75H0

Asian buying volumes have held consistently above 1.1 million bpd since January - excluding oil going to other destinations such as Turkey and Syria - indicating the six-month export target will be missed.

Iran's crude loading also seems to have rebounded in May back up to about 1.38 million bpd, for arrival to destinations mostly in June, according to sources who track tanker loadings.


CHINA'S IMPORTS NEAR RECORD

Iranian crude imports by China expanded 36 percent in May from a year ago to the second highest on record of 757,900 bpd, pushing up its average imports for January-May higher to nearly 50 percent on a year earlier. 

"Iran and China are in an alliance and because China has to work with every nation on natural resources, as its demand is on the rise, so China may be strategically increasing imports," said Ken Hasegawa, a Tokyo-based commodity sales manager at Newedge Japan.

India's imports fell 0.6 percent to 255,200 bpd in May from a year ago, but its intake in the first-five months of the year still was up 37.7 percent at 310,500 bpd. 
South Korea's imports fell 43.3 percent from a year ago to 66,500 bpd of Iranian crude for the month. Shipments to Japan - the last of the four to report its oil intake - fell by 23.7 percent to 181,892 bpd last month, trade ministry data showed on Monday.
Source: Reuters

OPEC oil output slips in June on Iraq

OPEC's oil output has fallen in June from May's three-month high, a Reuters survey found on Monday, as fighting in Iraq closed its largest oil refinery and technical problems slowed its southern exports.

The slight decline underlines how unrest and outages in the Middle East and Africa are taking their toll on OPEC supply, just as the International Energy Agency is highlighting a greater need for OPEC oil in the rest of the year. [D:nL5N0OU1KF]

Supply from the Organization of the Petroleum Exporting Countries has averaged 29.93 million barrels per day (bpd), down from 30.00 million bpd in May, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants.

The decline puts OPEC output back below the group's nominal target of 30 million bpd, which oil ministers decided at a June 11 meeting in Vienna to maintain for the rest of 2014.

OPEC pumps a third of the world's oil. In June, output has declined in Iraq and Iran, offsetting a modest increase in top exporter Saudi Arabia and smaller rises elsewhere in the group.

The largest decline came from Iraq, where production declined by 170,000 bpd according to the survey. Domestic crude use fell because of the closure of the Baiji refinery, which was attacked by militants.

Also, Iraq's southern exports fell. Shipments in the first three weeks of June were steady, but slowed to 2.43 million bpd over the whole month because of technical issues, from May's 2.58 million bpd. 
At Iraq's southern terminals, one single point mooring is undergoing repairs to fix a broken mooring chain, while a berth at the Basra oil terminal is also undergoing maintenance, according to shipping sources.

The sale of three cargoes of crude by Kurdistan, in defiance of the central government, limited the decline in Iraqi exports, which in February had reached a record high of 2.8 million bpd.

Iranian crude exports also edged lower in June from May's elevated levels, the survey found. Higher exports since late 2013 following a softening of Western sanctions on Iran over its nuclear work have boosted OPEC supplies.

Nigerian supply declined slightly. Export schedules initially pointed to little change, but Royal Dutch Shell Plc declared force majeure at its EA field for repairs.

Of the countries which have boosted output, Saudi Arabia raised supply modestly, in part because of a higher need for crude in domestic power plants, industry sources said. Output also edged up in the United Arab Emirates.

Libyan supply rose by 30,000 bpd to a monthly average of 220,000 bpd, the survey found. Strikes and protests are still keeping output at a fraction of the country's potential.

Source: Reuters

North Dakota's Latest Fracking Problem

       The WSJ reports,"because North Dakota lacks adequate infrastructure,hydraulic drillers and horizontal drillers for oil in the Bakken Shale,are forced to burn off whatever gas(as a byproduct of shale oil) they can't capture and ship to market. In April alone, such wells burned 10.3 billion cubic feet of natural gas, according to the state, valued at nearly $50 million.
As flaring wells spread like a prairie fire, North Dakota's regulations have struggled to keep pace. Beyond being an eyesore, burning off natural gas degrades air quality. Critics also say producers aren't paying all the royalties and taxes owed on the gas that is flared. Energy companies lose out on gas revenue, too, but that is offset by what they generate from Bakken crude oil.

"It's a failure of regulation. There was an opportunity to do this the right way, but you can't unring the bell," said Matt J. Kelly, a lawyer at a Bozeman, Mont., law firm representing Bakken mineral-rights owners claiming unpaid royalties for flared gas".

"Stung by criticism that it has allowed oil producers to flare wells indefinitely, the North Dakota Industrial Commission on June 1 adopted rules requiring that gas-capture plans be submitted for companies to get a new drilling permits. The rules require producers to identify gas-processing plants and proposed connection points for gas lines but don't affect permits that already had been issued.

The commission, which promotes as well as regulates the drilling industry, on Tuesday is expected to announce measures to limit flaring of existing wells. The federal government also is considering new limits on flaring".

"In the past five years, North Dakota has climbed from the country's sixth-largest oil producer to the only state after Texas to produce more than a million barrels of oil a day. That has brought investment and job growth to a state economy once largely dependent on agriculture.

But while Texas captures all but 1% of the natural gas produced, North Dakota burns 30% of its output. Oil companies can ship crude, which fetches 20 times more than gas per barrel of oil equivalent, in tanker trucks to pipelines or rail terminals. Transporting natural gas requires a pipeline connection at the source, however, and North Dakota has far fewer of such pipes and less processing capacity than other oil-producing states".

"Government and industry officials say they have moved as fast as possible to limit gas burn offs.

"The only problem is the rate of [oil] production is growing faster" than companies' ability to capture gas, North Dakota Gov. Jack Dalrymple said in an interview. "We have been madly building processing plants and pipelines," he said.

The industry has said it can cut back flaring to 5% of production volume over the next six years as gas infrastructure is built, responding to public pressure and the prospect of perhaps tougher rules from the state or federal governments".

Iraq lawmakers convene to form new government in battle with "caliphate"

Newly elected Iraqi lawmakers convene on Tuesday, under pressure to name a unity government to keep the country from splitting apart after an onslaught by Sunni Islamists who have declared a "caliphate" to rule over all the world's Muslims.

The meeting of the new legislature in Baghdad's fortified

"green zone" could spell the end of the eight-year rule of Shi'ite Islamist Prime Minister Nuri al-Maliki, with foes determined to unseat him and even some allies saying he may need to be replaced by a less polarising figure.

Iraqi troops have been battling for three weeks against fighters led by the group formerly known as the Islamic State in Iraq and the Levant (ISIL). Fighting has raged in recent days in former dictator Saddam Hussein's home city, Tikrit.

ISIL, which rules swathes of territory in an arc from Aleppo in Syria to near the western edge of Baghdad in Iraq, has renamed itself simply the Islamic State. It declared its leader, secretive guerrilla fighter Abu Bakr al-Baghdadi, to be the

"caliph", the historic title of the ruler of the whole Muslim world.

Its insurgency in Iraq is backed by other Sunni armed groups who resent what they see as persecution under Maliki.

The new parliament is meeting for the first time since it was elected in April, when results initially suggested it would easily confirm Maliki in power for a third term.

But with lawmakers now finally taking their seats only after the sudden collapse of the army in the north, politicians face a more fundamental task of staving off the collapse of the state, and the prime minister's days in power could be numbered.

Maliki's foes blame him for the rapid advance of the Sunni insurgents who seized the biggest northern city, Mosul, on June 10 and have since taken nearly all the Sunni areas of the country.

Although Maliki's State of Law coalition won the most seats, it still needs allies to govern. Sunnis and Kurds demand he go, arguing he reneged on power-sharing deals and favoured his own sect, inflaming the resentment that fuels the insurgency.

Washington has not publicly called for Maliki to leave power but has demanded a more inclusive government in Baghdad as the price for more aggressive help.

In another move to beef up its military presence in Iraq, the United States said on Monday it was sending 300 more troops to Iraq.

U.S. Defense Department spokesman Rear Admiral John Kirby said about 200 forces arrived in the country on Sunday to reinforce security at the U.S. Embassy, its support facilities and Baghdad International Airport. A further 100 personnel were also due to move to Baghdad to "provide security and logistics support." 
"These forces are separate and apart from the up to 300 personnel the president authorized to establish two joint operations centers and conduct an assessment of how the U.S. can provide additional support to Iraq's security forces," Kirby said in a statement.


FIGHTING IN TIKRIT

Maliki's government, with the help of Shi'ite sectarian militias, has managed to stop the militants short of the capital but has been unable to take back cities its forces abandoned.

The army attempted last week to take back Tikrit but could not recapture the city, 160 km (100 miles) north of Baghdad, where ISIL fighters machine-gunned scores of soldiers in shallow graves after capturing it on June 12. Residents said fighting raged on the city's southern outskirts on Monday.

Whether Iraq can survive as a state most likely depends on whether politicians can sustain the governing system put in place after the U.S. invasion that toppled Saddam in 2003, under which the prime minister has always been a Shi'ite, the largely symbolic president a Kurd and the speaker of parliament a Sunni.

On Friday, in an unusual political intervention, Grand Ayatollah Ali al-Sistani, Iraq's most senior Shi'ite cleric and a figure long known for his caution, called on political blocs to fill those three posts before parliament meets on Tuesday.

That deadline looks futile, with the blocs having met in recent days without naming the country's leaders.

Two senior members of Maliki's State of Law coalition have told Reuters that an alternative to Maliki from within his party was being discussed: "He understands it might come to that," one senior Maliki ally told Reuters last week. Maliki's own former chief of staff Tareq Najem is seen as a possible successor, according to diplomats.

The Sunni parties say they will not put forward their candidate for speaker until they see who the Shi'ites want for prime minister. The Kurds have yet to choose a president.

"It will take a couple of weeks to agree on a package," said Muhannad Hussam, a politician and aide to senior Sunni lawmaker Saleh al-Mutlaq.

Many worry that a drawn-out process will waste precious time in confronting the militants, who have vowed to advance on Baghdad. A Shi'ite lawmaker, speaking on condition of anonymity, warned: "Things are bad. The political process is not commensurate with the speed of military developments."
Source: Reuters

Japan poised to ease constitution's limits on military in landmark shift

Japan's cabinet was poised on Tuesday to end a ban that has kept the military from fighting abroad since World War Two, a major shift away from post-war pacifism and a victory for Prime Minister Shinzo Abe, but a move that will rile China.

The move, seen by some as the biggest shift in defense policy since Japan set up its post-war armed forces exactly 60 years ago, would end a ban on exercising "collective self-defense" or aiding a friendly country under attack.

It would also relax limits on activities in U.N.-led peace-keeping operations and "grey zone" incidents that fall short of full-scale war, according to a draft cabinet resolution.

Long constrained by the pacifist post-war constitution, Japan's armed forces will gain an expanded range of military options, although the government would likely remain wary of putting boots on the ground in multilateral operations such as the 2003 U.S.-led invasion of Iraq.

Abe has pushed for the change since taking office 18 months ago despite wariness among many Japanese voters worried about entanglement in foreign wars and angry at what some see as a gutting of the constitution's war-renouncing Article 9 by ignoring formal amendment procedures. The charter has never been revised since it was adopted after Japan's 1945 defeat.

Hundreds of protesters, including pensioners and labour union members, marched near the premier's office on Tuesday carrying banners and shouting, "Don't destroy Article 9" and

"We're against war".

"I'm against the right of collective-self defence, but more importantly, I'm against the way Abe is pushing this change through," said 21-year-old university student Misa Machimura.

On Sunday, a man set himself on fire near a busy Tokyo intersection - a rare form of protest in Japan - after speaking out against Abe's re-interpretation of Article 9.

The change will also likely rile an increasingly assertive China, whose ties with Japan have frayed due to a maritime row, mistrust and the legacy of Japan's past military aggression.

It will, however, be welcomed by Washington which has long urged Tokyo to become a more equal partner in their alliance.

Officials in Abe's ruling coalition parties agreed on Tuesday morning to the proposed lifting of the ban on collective self-defense, paving the way for cabinet later in the day to adopt a resolution revising a long-standing interpretation of the U.S.-drafted constitution.

Legal revisions to implement the change must be approved by parliament and restrictions could be imposed in the process.

Since its defeat in 1945, Japan's military has not engaged in combat. While successive governments have stretched the limits of the pacifist charter to develop a military now on par with that of France and to permit non-combat missions abroad, its armed forces remain far more constrained legally than those of other nations.


"NORMAL NATION"

Conservatives say the constitution's Article 9 has excessively restricted Japan's ability to defend itself and that a changing regional power balance, including a rising China, means Japan's security policies must be more flexible.

China, however, will likely argue Japan is raising regional tensions and support its case by pointing to Abe's efforts to cast Tokyo's wartime past with a less apologetic tone.

"It makes it easier for competitors to paint Japan as a wolf in sheep's clothing," said Richard Samuels, director of the Center for International Studies at the Massachusetts Institute of Technology. But he added: "Just because Japan is strong does not mean that it will be aggressive."

According to the latest draft cabinet resolution, Japan could exercise force to the minimum degree necessary in cases where a country with which it has close ties is attacked and the following conditions are met: there is a threat to the existence of the Japanese state, there is a clear danger that the people's right to life, liberty and the pursuit of happiness could be subverted, and there is no appropriate alternative.

Precisely how the change might work in practice remains unclear. Junior coalition partner New Komeito is stressing that the scope of revision is limited, and Japanese voters are still wary of entanglements in conflicts far from home.
Source: Reuters

GLOBAL MARKETS-Asian shares off to cautious start, dollar soft

 Asian shares were off to a cautious start near a three-year high on Tuesday while the U.S. dollar was listless as investors took new bets that U.S. monetary policy will stay loose for some time.

MSCI's broadest index of Asia-Pacific shares outside Japan  ticked down 0.1 percent, though it was still within 0.3 percent from a three-year high hit three weeks ago. Japan's Nikkei  gained 1.0 percent.

A string of fairly upbeat but relatively minor U.S. economic data published on Monday did little to weaken expectations, rekindled after surprisingly weak first quarter growth data, that the U.S. Federal Reserve will keep an easy monetary policy for some time.

A leading indicator of U.S. home sales jumped to an eight-month high in May while a gauge of factory activity in the Midwest eased slightly.
That perception could quickly change if Thursday's U.S. employment report shows strong job growth.

San Francisco Fed President John Williams said on Monday the U.S. central bank will probably need to keep interest rates near zero for at least another year, even as he expressed optimism the economy is on a recovery path. 
The civil war in Iraq could be undermining risk appetite as investors scratched their heads to grasp the ramifications after a Sunni military leader was declared as caliph of a new Islamic state in lands seized across a swath of Iraq and Syria.
"The U.S. employment growth has been pretty strong in the past several months so it makes me wonder why markets focused on such an old GDP data. I suspect that geopolitical concerns are also making investors cautious," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.


DOLLAR UNDER PRESSURE

As investors expect the Fed to keep interest rates near zero

- thus undermining the currency's yield attraction - the dollar was broadly weak.

The dollar index hit a six-week low of 79.759 on Monday and last stood at 79.801.

As the dollar wilted, the euro rose to six-week high of $1.3698 on Monday and last traded at $1.3693, though the common currency is facing resistance at $1.37.

The yen rose to 101.235 yen to the dollar the previous day and last traded at 101.31 yen , showing no reaction to mixed readings in the Bank of Japan's tankan corporate survey.

The British pound stood at $1.7106 , having risen to $1.7115 on Monday, the highest level since October 2008.

Among Asian currencies, the Korean won held firm near six-year high.


The Australian dollar, which is often used as a proxy for trade with China because of Australia's resource exports there, moved little at $0.9434 , not far from its year-to-date peak of $0.9461 hit in April.

The Aussie awaits a monetary policy statement from the Reserve Bank of Australia at 0430 GMT, though no change is expected.

Gold hit a 2 1/2-month high of $1,329.10 dollar per ounce on Monday and last stood at $1,326.30 , helped by the dollar's weakness as well as heightened geopolitical tensions.

Ukrainian President Petro Poroshenko said on Tuesday government forces would renew offensive operations against pro-Russian rebels and "free our lands", hours after a ceasefire to make way for peace talks with the rebels had expired.
Oil prices eased from nine-month highs hit last month on easing concerns about supply disruption in Iraq as the government forces appeared to be staving off Sunni militants from major refineries in the countries.

U.S. crude futures traded at $105.51 per barrel, off high of $107.73 hit less than two weeks ago.

Source: Reuters

China June manufacturing shows first expansion in 6 months as demand jumps

Activity in China's factory sector expanded in June for the first time in six months as new orders jumped, a private survey showed on Tuesday, reinforcing signs of stabilisation in the economy as the government steps up policy support.

The final reading of the HSBC/Markit purchasing managers' index (PMI) for June rose to 50.7 from May's 49.4, surging past the 50-point level that separates growth in activity from contraction for the first time since December.

The PMI was slightly weaker than the flash reading of 50.8, but was the highest since November, when it was also 50.8.

The sub-index for new orders, a gauge of demand at home and abroad, hit a 15-month high of 51.8 in June. Stronger domestic demand likely accounted for the jump, as the sub-index for new export orders fell.

"The economy continues to show more signs of recovery, and this momentum will likely continue over the next few months, supported by stronger infrastructure investments," said Qu Hongbin, chief economist for China at HSBC.

"However, there are still downside risks from a slowdown in the property market, which will continue to put pressure on growth in the second half of the year. We expect both fiscal and monetary policy to remain accommodative until the recovery is sustained."

Asian shares firmed slightly on the factory activity report.

Beijing has unveiled a series of modest stimulus measures in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter.

Such measures have included targeted reserve requirement cuts for some banks to encourage more lending, quicker fiscal disbursements and hastening construction of railways and public housing projects.

But the recovery looks patchy given a downturn in the property sector, which could spill-over into a wide range of industries, analysts say.

The HSBC/Markit survey also showed manuafacturing-sector jobs were still being shed in June, albeit at a slower pace.

The official manufacturing PMI rose to a six-month high of 51 in June from May's 50.8, the National Bureau of Statistics said earlier on Tuesday, in line with market expectations.
The official PMI is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than the HSBC/Markit survey, which focuses more on smaller private firms.

A recent Reuters poll shows analysts expect annual GDP growth to slow to 7.3 percent in the second quarter from an 18-month low of 7.4 percent in the first quarter. They expect full-year growth of 7.3 percent in 2014, the weakest in 24 years.

The statistical bureau is due to release data on GDP growth for the second quarter on July 16, long with factory output, retail sales and investment figures.

Source: Reuters

Alibaba e-commerce Giant trying to boost transactions on mobile devices

 Chinese e-commerce giant Alibaba Group Holding Ltd [IPO-ALIB.N] may have dominated online retail on personal computers, but is some way from replicating that leadership in shopping by smartphone and other mobile devices.

Alibaba, which is heading towards a bumper New York IPO later this year, is throwing billions of dollars at figuring out how to thrive as half a billion people, 80 percent of China's 618 million internet users, go online via mobile.

The Hangzhou-based firm said last month that mobile has become an increasing source of transactions, now accounting for more than a quarter of the value of goods sold across its online marketplaces. But Alibaba's shift to wireless commerce is a double-edged sword: mobile commerce brings in significantly less revenue than traditional e-commerce.

The quick-hit impulse buys commonly seen on mobile generate less money for merchants, and advertising on smartphones is a challenge few internet companies have overcome. Both problems threaten to squeeze future profitability.

Making life tougher, rival Tencent Holdings Ltd <0700.HK> has already planted its flag on smartphone screens with WeChat, the nearly ubiquitous app that has gone from a mobile messaging tool to a digital Swiss Army knife.

"They're not just competing with other e-commerce companies, they're going against messaging apps. It completely changes how competitive they can be," said Sameer Singh, an analyst who writes about technology at Tech-Thoughts.net. "I don't think the same margins are realistic."

Alibaba has spent more than $3 billion this year on mobile-focused investments. In its latest initial public offering prospectus, filed in the United States last month,

"mobile" was mentioned 304 times - well ahead of "online" (264) and "internet" (144), while "computer" figured just 36 times.

Alibaba's leadership is still trying to shore up the firm's position on mobile, even as the competition surges ahead, said people familiar with the matter.

This includes Alibaba moving beyond its comfort zone and attempting to control how users access content on their mobile devices - though Laiwang, its attempt at a social messaging app to rival WeChat, has seen little traction among users in China.

Alibaba has also invested in Tango, a U.S. messaging app company, and spent more than $1 billion apiece for full ownership of mobile browser UCWeb Inc and digital mapping firm AutoNavi Holdings Ltd .

While these new ventures are in their early stages, Alibaba admits that profitability could suffer.

"Our strategic investments and acquisitions may affect our future financial results, including by decreasing our margins and net income," it said in its IPO filing. "Increases in our costs may materially and adversely affect our business and profitability, and there can be no assurance that we will be able to sustain our net income growth rates or our margins."

Alibaba has also driven the mobile percentage of gross merchandise volume (GMV) - the value of goods transacted through its businesses - to 27.4 percent of the group's total GMV in January-March, up from 10.7 percent a year earlier.

But while mobile may already account for more than a quarter of all transactions, it's far less profitable than the rest of Alibaba's e-commerce business. For January-March, mobile made up just one eighth of total online retail revenue.

Nevertheless, monetisation is improving. Alibaba's mobile monetisation rate - mobile revenue as a percentage of GMV - jumped in January-March to 0.98 percent from 0.47 percent a year earlier, but still less than half of the overall e-commerce monetisation rate.


While Alibaba is making progress in its transition to mobile, Tencent's WeChat holds the aces.

Tencent doesn't break down its WeChat users between domestic and overseas, but with close to 400 million monthly active users as of end-March, and overseas user numbers still limited, that could mean that close to four of every five mobile internet users in China is on WeChat.

WeChat started out as a messaging app similar to WhatsApp , but with stickers and emoticons and the ability to leave short voice messages. Today, WeChat, known in China as

'Weixin' (micromessage), allows users to book a taxi, find a nearby restaurant, get a deal on movie tickets, read the news and, like Facebook , update their social network profile.

"Of course everybody uses a communications app, WeChat," Joe Tsai, Alibaba's executive vice-chairman, told Reuters in an interview in March. "But that's communications, not commerce."

"A user coming to use the commerce function is much, much more valuable ... we're very focused on driving usage and engagement on our e-commerce apps," he said.

Tencent, though, isn't just in communications. In March, the Shenzhen-based social networking and gaming company bought a 15 percent stake in JD.com , China's No.2 e-commerce firm and Alibaba's main online shopping rival. By tying JD.com's online shopping into WeChat, Tencent has begun funnelling its hundreds of millions of users directly to Alibaba's competitor.

Last week, Tencent also bought a 20 percent stake in 58.com Inc , known as the Craigslist of China, in a bid to improve its location-based e-commerce business on WeChat and its other social networks. [ID:nL4N0P83H3]

Baidu Inc , China's biggest online search engine, is another of China's internet traffic gatekeepers. Its search app is widely pre-installed on Chinese smartphones, allowing the Beijing-based firm to dictate the results its users see and the websites they visit.

Alibaba depends on its user traffic to encourage its customers, the online merchants, to pay for advertising, its most lucrative source of revenue. In the year ended March 2014, more than half of Alibaba's total sales came from online marketing services.

"Advertising has always been much less profitable on mobile," said Ben Thompson, who writes about technology at stratechery.com in Taipei. "The challenge for Alibaba is figuring out a model that works for mobile, much like Facebook had to do."
Source: Reuters

Global M&A at seven-year high as big corporate deals return

Investor support for large acquisitions and a desire to trump rivals in consolidating markets have led chief executives to strike big transactions so far in 2014, raising year-to-date global deal volumes to their highest level in seven years.

Corporate buyers did not shy away from going hostile if their targets proved unwilling to sell, while more U.S. companies rushed to buy overseas peers to lower tax rates and access cash held offshore in a practice known as inversion.

The dealmaking frenzy could last for several months absent geopolitical or economic shocks, with buyers keen to take advantage of their strong stock prices, ample cash reserves and cheap available financing.

"Companies have strategic imperatives to do deals, they have the cash to do deals, and they can borrow additional cash at record-low rates," said Frank Aquila, a mergers and acquisitions lawyer at Sullivan & Cromwell LLP. "It really is a bit of a perfect storm when it comes to dealmaking."

Unlike the most recent heyday of dealmaking, which was back in 2007 when private equity used cheap money to load up companies with debt, this year's merger boom is being led by cash-rich corporations with strong balance sheets, such as Pfizer Inc , Comcast Corp and General Electric Co .

"What is notable about the deal activity we have seen in the first half of the year is the blue-chip nature of the companies who are doing the acquiring. We have finally seen the return of the strategic acquirer," said Gregg Lemkau, co-head of global mergers and acquisitions at Goldman Sachs Group .

Year-to-date global deal volume as of June 26 surged to $1.75 trillion, up 75 percent from the year-ago period, according to Thomson Reuters data. That was the highest level since 2007, when deal volume reached $2.28 trillion.

This year's increase came despite the number of global deals dropping slightly to 17,698 from 17,820 the year before.

At over $1 trillion, the second quarter of 2014 was the highest in deal volume since the second quarter of 2007 and was up significantly from the $680 million in the first quarter of 2014.

Thirty-eight unsolicited or hostile bids, worth more than $150 billion, were launched in the first six months of the year, compared with 19 such deals worth $8 billion in the same period last year.

Pfizer made an abortive $118 billion bid for AstraZeneca Plc , Valeant Pharmaceuticals International Inc is trying to buy Botox maker Allergan Inc for more than $50 billion , and AbbVie Inc plans to appeal to Shire Plc's shareholders after an unsolicited $46 billion bid was rebuffed.

"With both the target and acquirer's stock generally up after deals are announced, buyers see value creation and tend to be more aggressive even if targets are not willing to sell," said Ravi Sinha, executive vice chairman of global corporate and investment banking at Bank of America Merrill Lynch .

More CEOs and boards are willing to pull the trigger on transactions that have been contemplated for a while, with a view that financing conditions are at their peak and unlikely to improve, said Marc-Anthony Hourihan, co-head of Americas M&A at UBS AG .


RISING VALUATIONS

Risk-taking has been generally rewarded by investors, at a time when low cost of capital means buyers can obtain immediate boosts to their earnings from those deals.

Nearly 70 percent of announcements of U.S. acquisitions worth $1 billion or more in the first half were followed by gains in the stock prices of the buyers, up from 60 percent in the same period last year and compared with a seven-year average of 55 percent, Thomson Reuters data showed.

"In the early stages of an M&A wave, the returns to acquirers tend to be positive, but as the M&A wave matures, the returns turn negative as people get overconfident," said Bob Bruner, dean of the University of Virginia's Darden Graduate School of Business Administration and author of the book "Deals from Hell."

"It would seem that we are still at the early stage of the wave," he said.

With stock markets at record-high levels, the average premium buyers paid over target companies' four-week stock prices was 24.8 percent so far this year, down from 28.1 percent in the same period last year and 30.3 percent in 2012.

But on an earnings before interest, tax, depreciation and amortization (EBITDA) basis, valuations climbed.

Buyers on average paid targets 13 times EBITDA in the first half of the year, compared with 11.8 times in the same period last year. That was the highest level since 2008, according to Thomson Reuters data.

"On an (earnings per share) accretion basis, nearly every deal looks great. However, on a return-on-invested-capital basis, values appear pretty high," Goldman Sachs' Lemkau said.

"Many boards are being forced to think about whether their traditional return on invested capital thresholds remain appropriate in an environment where the cost of capital is so low," he added.

The red-hot equity markets and rising deal valuations also forced buyout firms to the sidelines, with private equity-backed leveraged buyouts declining 9 percent to $120.3 billion so far this year, representing 7 percent of the M&A market. Private equity firms, however, took advantage of the M&A boom to sell more of their companies for top-dollar amounts.

"It's a great debt market but the issue for private equity is that it has inability to do highly levered transactions, compared to the leverage levels in 2006 and 2007, given the federal limitations," UBS's Hourihan said.

Goldman Sachs was the top M&A adviser worldwide, with $623 billion worth of deals so far this year. Morgan Stanley , Bank of America Merrill Lynch , Citigroup Inc and JPMorgan Chase & Co rounded out the top five.


INVERSION TREND

Inversions by U.S. companies, which allow them to be domiciled in countries that have a lower corporate tax rate, have moved center-stage in the healthcare sector, which was the busiest industry for dealmaking this year.

Such transactions also helped boost cross-border M&A volume, which surged 132 percent so far this year to account for 39 percent of global activity.

U.S. medical device maker Medtronic Inc struck a $42.9 billion deal for Ireland-based rival Covidien Plc in June, in one of the largest attempted inversions. [ID:nL2N0OW0MD]

Pfizer's bid for AstraZeneca, as well as AbbVie's takeover offer for Shire, would also enable these companies to cut their tax bills by moving to a country with a lower corporate tax rate while also allowing them to access the cash held offshore without paying U.S. taxes.

Even excluding Pfizer's AstraZeneca bid which has been put on hold for now, healthcare deals more than tripled to $317.4 billion so far this year, representing 18.2 percent of total deal volume, Thomson Reuters data shows.

Some companies that are still without a foreign domicile are now trying to catch up with rivals that have already gone offshore and taken advantage of their more favorable tax status to strike even more deals.

"I think you will continue to see inversion transactions being contemplated. This is particularly relevant to the Healthcare and TMT sectors, where you have a lot of cash trapped offshore," Goldman's Lemkau said.

Gary Posternack, head of Americas mergers and acquisitions at Barclays Plc , added that while there are a large number of U.S. companies interested in exploring inversions, finding the right partner at the right valuation can be a challenge.

"The limiting factor for inversions will likely be the ability of U.S. companies to find attractive and willing partners," he said.

The second-busiest sector for dealmaking this year was media and entertainment, which had deal volumes nearly triple to $220.7 billion on the back of two mega-mergers: Comcast Corp's $45.2 billion bid for rival Time Warner Cable and AT&T Inc's proposed acquisition of DirecTV for $48.5 billion.

The broader telecom sector is likely to get another boost in the near future as Sprint Corp and T-Mobile US Inc are in advanced talks about a deal that would combine the third- and fourth-largest U.S. wireless operators.

"The tone in the boardroom has changed from one that was doubtful about strategic M&A activity to one that is questioning the status quo," Posternack said.

"With all of the recent deal activity and the positive associated market reaction, the question now being asked is why are we not acting on the logical transactions?"

Reuters: 2014 Asset Performance

U.S. stocks end strong quarter on sour note

U.S. stocks ended June and the second quarter higher, even as the broader market closed marginally lower on Monday.

The S&P 500 recorded the fifth consecutive month of gains and the biggest second-quarter gain since 2009.

The benchmark index   closed less than a point lower at 1,960.19, gaining 3.9% over the month and 5% over the quarter.

The Dow Jones Industrial Average   shed 25.24 points, or 0.2%, to 16,825.96, but gained 1.9% over the past month and 2.2% over the past quarter.

The Nasdaq Composite   defied the trend and ended the day 10.25 points, or 0.2%, higher at 4,408.18. The tech-heavy index gained 3.9% in June and 5% over the past quarter. 

For the first half of 2014, the S&P 500 recorded a 6.1% rise, the Dow industrials rose 1.5%, and the Nasdaq gained 5.5%. Airline, pharmaceutical, and utilities stocks led advancers during the period, which was marked by the impact of bad weather, a drop in first-quarter gross domestic product and a decline in Treasury yields.

Source: Marketwatch

REUTERS POLL-Investors see rates staying low and put faith in stocks

Global investors put more money into stocks in June favouring the United States and Britain where economic recovery is gathering pace over other developed markets, a Reuters poll showed on Monday.

The monthly poll of 51 fund managers and chief investment officers in the United States, Britain, Europe and Japan showed the average recommended exposure to equities in global balanced portfolios rose to 51 percent from 50.8 percent.

This small increase came at the expense of allocations to bonds, which were down to 35.6 percent from 35.9 percent a month earlier.

Allocations to cash and alternative investments such as hedge funds remained unchanged at 5.7 percent and 5.6 percent respectively. Property investments were also slightly higher at 2.1 percent, advancing further after having reached their highest levels since June 2011 last month as investors sought out the yields offered by commercial real estate.

Within global equities portfolios, the average allocation to North American stocks rose to 42.1 percent from 41.5 percent while investors also hiked exposure to British stocks to 11.9 percent from 11.5 percent.

This came partly at the expense of equities in the euro zone, where economic recovery is seen as further off than in Britain and the United States.

Extra stimulus from the European Central Bank, which cut its deposit rate to negative earlier this month, and hints from Federal Reserve Chair Janet Yellen that rates are likely to stay low, are fuelling demand for riskier assets such as equities.

But while portfolios are increasingly shaped to catch an expected uplift from economic recovery and rising corporate profits, a significant number of investors taking part in the poll said they worry about the chance markets might correct.

"I am becoming uneasy about the increasing correlation between what are now fully valued asset classes and also by the gradual fall in volatility in equity, bond, commodity and FX markets to dangerously complacent levels," said Rob Pemberton, Investment Director at British wealth manager HFM Columbus.

Investors cited geopolitical shocks, such as more tension with Russia over the Ukraine crisis and more instability in the Middle East, as well as unexpected moves on interest rates by key monetary authorities, as significant risks.

"Even with mixed economic data, the foundation for moderate growth is in place, but its sustainability (in the absence of) easy monetary policy is uncertain," UBS strategist Boris Willems said. "Further improvement in confidence is needed for self-sustaining growth."

U.S. fund managers recommended loading up on more American shares and bonds even as prices hit record highs in June, although they also increased cash allocations in their model global portfolio. 
European fund managers made their highest allocation to equities this month since March 2011, cutting cash positions in a risk-seeking environment. Fund managers in Europe put 48.3 percent of their global assets in equities in June, well above the long-term average of 46 percent, and compared with 48.1 percent in May. 

British investment managers also raised their exposure to stocks by more than a percentage point in June, to 55.2 percent from 53.8 percent, and showed a bias towards their home market, where economic fundamentals look comparatively rosy. 
Japanese investors, in contrast, eased back on their equity exposure in balanced portfolios, to 44.2 percent from 44.8 percent in May, although they increased their euro zone bond holdings. 
The poll was taken between June 13 and 25, when world stocks  were close to all-time highs and at levels last seen in 2007, prior to the global financial crisis.

The U.S. S&P 500 <.SPX> had hit a record high in late June and rose more than 2 percent over the month.

Emerging stocks rose during June but remained off highs for the year reached in the first half of the month that had capped a sharp recovery from the volatility seen in 2013.

Source: Reuters

GLOBAL MARKETS-Stocks set for quarterly gains, bond prices rise

Global stock markets were on track for a fourth straight quarter of gains on Monday, aided by the loose monetary policies of major central banks that have helped drive risk appetite, while concerns about the world's economic health have underpinned government debt.

Stocks on Wall Street were mostly higher, with the S&P 500 and Nasdaq Composite indexes set to close a sixth straight quarter of gains -- a streak not seen since the euphoria over technology shares came to a halt in 2000.

MSCI's all-country index <.MIWD00000PUS>, which tracks shares in 45 countries, rose 0.25 percent. It has gained more than 4 percent this quarter, aided by the prospect that monetary policy in the major economies will remain accommodative for longer, and was set to post a fourth straight quarter of gains.

In Europe, the FTSEurofirst 300 index <.FTEU3> of top regional shares posted a fourth quarter in a row of gains, though on the day it finished down 0.05 percent to end the quarter at 1,370.60 points.

Major stock indexes have rallied this year, and the S&P 500 has posted more than 20 record closing highs, even as the U.S. Federal Reserve trims its economic stimulus.

"The Fed and other global monetary forces have done their best to keep this market as liquid as possible, and that liquidity is restricting investors from finding a place other than stocks and have enabled risk takers to stay confident," said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

Bond yields, which had been expected to rise after a run-up late last year, have broadly fallen. Barclays' Aggregate U.S. bond index is up 3.82 percent in the first half of the year as benchmark yields have fallen nearly half a percentage point.

The 10-year Treasury note rose 2/32 in price to yield 2.5196 percent.

The Dow Jones industrial average <.DJI> fell 5.13 points, or 0.03 percent, to 16,846.71. The S&P 500 <.SPX> gained 2.3 points, or 0.12 percent, to 1,963.26, and the Nasdaq Composite <.IXIC> added 19.082 points, or 0.43 percent, to 4,417.012.

A sense of complacency in markets drew the attention of the Bank for International Settlements, a forum of the world's top central banks, which warned on Sunday that markets were increasingly out of sync with shaky global growth prospects.
Several early warning indicators signal vulnerabilities have been building in the financial systems of several countries, it said.

Gold was steady near a two-month high, poised to set a second straight quarterly gain after political tensions bolstered demand.

Spot gold was up $11.12 at $1,326.16 an ounce, having hit a two-month high of $1,328.14 earlier.

The dollar remained under pressure, awaiting this week's busy calendar of U.S. data, which includes the June non-farm payrolls report on Thursday, a day earlier than usual due to the U.S. Independence Day holiday on Friday.

The dollar fell versus the yen to a six-week low of 101.21 yen , and was last at 101.27, down 0.09 percent.

The euro rose to an almost six-week high of $1.3697 and last changed hands at $1.3692, up 0.33 percent.

Brent crude oil dropped below $113 a barrel as fears of a disruption to oil output from Iraq receded after government forces launched a pushback against a Sunni militant insurgency.

Brent was down 94 cents to settle at $112.36 a barrel. U.S. crude lost 37 cents to settle at $105.37 a barrel.

Source: Reuters