London copper slips from highest in nearly 4 months

July 2 (Reuters) - London copper eased from its highest level in nearly four months on Wednesday as northern hemisphere summer holidays drained the market of direction, although an upbeat global manufacturing outlook and low exchange stocks underpinned prices.

"Overall demand is doing ok, still better than first quarter," said analyst Chunlan Li at CRU Group in Beijing.

"The macro seems very good, liquidity is easing, so that's also helping copper prices. We are expecting a higher average price in the third quarter." 
China's factory activity hit multi-month highs in June, official and private surveys showed on Tuesday reinforcing signs that the world's second-largest economy is steadying as the government steps up policy support.

However, three-month copper on the London Metal Exchange edged down 0.3 percent to $6,998 a tonne by 0240 GMT amid a lack of fresh drivers. It inched to its highest since March 7 at $7,028.50 a tonne in the previous session.

The most-traded September copper contract on the Shanghai Futures Exchange traded flat at 50,170 yuan ($8,100) a tonne.

Reflecting greater demand for metal, premiums for copper in Shanghai bond climbed $5 on Tuesday to $110-$130 according to China price provider Shmet, suggesting appetite for financing has picked up after a probe into fraud at a Chinese port led banks to review their lending practices.
China is relaxing the rules used for calculating the amount of deposits that banks can re-lend as loans, an attempt hailed by some economists as the latest move to stimulate growth in its cooling economy.
Elsewhere, the outlook for metals demand was brightening after a string of factory reports on Tuesday.

Global manufacturing activity accelerated in June, and with new orders coming in faster output is likely to pick up in the coming months, a business survey showed on Tuesday.
U.S. manufacturing activity rose at a steady clip in June and automobile sales raced to their highest level in almost eight years, pointing to momentum in the economy after a turbulent start to the year.

Newmont Mining Corp said on Tuesday it had filed for international arbitration against the Indonesian government over a near six month-old mining dispute that has halted the U.S.-based firm's copper concentrate exports from the country.
A Chinese bank is suing a local government financing vehicle over a bad loan in a rare public display of a deepening rift between lenders and borrowers in China's murky $3 trillion local debt market. 

Gold near 3-month high on second day of fund inflows

SINGAPORE, July 2 (Reuters) - Gold held close to a three-month peak on Wednesday, boosted by a second day of inflows into the top bullion-backed fund, while platinum traded at a near 10-month high on supply worries.

SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, said its holdings rose 5.69 tonnes to 796.39 tonnes on Tuesday. [GOL/ETF]

The fund is a proxy for market sentiment due to its size, and flows in and out of the fund tend to impact prices.

"Two days of big flows into the fund is supporting prices," said one Hong Kong-based trader. "This is a good sign as physical demand in Asia is weak because of the rise in prices."

"From here, an upside looks more likely given persistent tensions in Iraq and Ukraine."

Spot gold was little changed at $1,325.20 an ounce by 0306 GMT, just shy of the three-month top of $1,332.10 hit in the previous session. Physical demand across top buyer Asia has been lacklustre due to high prices.

Investors are waiting for a key U.S. jobs report on Thursday for indications on the strength of the economy, which will then give direction to prices of the safe-haven metal that continues to be underpinned by geopolitical tensions in Iraq and Ukraine.

Ukrainian forces struck at pro-Russian separatist bases in eastern regions with air and artillery strikes on Tuesday after President Petro Poroshenko announced he would not renew a ceasefire but go on the offensive to rid Ukraine of "parasites".
In Iraq, Sunnis and Kurds walked out of the first session of the country's new parliament on Tuesday after Shi'ites failed to name a prime minister to replace Nuri al-Maliki, dimming any prospect of an early national unity government to save Iraq from collapse.
Among other precious metals, platinum dipped slightly to $1,497.24 after gaining 1.5 percent on Tuesday, when it hit a near 10-month high of $1,511.00.

Last week, the world's biggest platinum producers reached a wage settlement with miners in South Africa after a five-month long strike. But fears of further labour unrest and possible restructuring at mines continued to support prices of the metal.

Platinum, a key component of autocatalysts, was also supported as U.S. June auto sales posted the best annualized figures in eight years, hitting levels not seen since before the financial crisis that led to the bankruptcy of two American automakers.

Brent eases towards $112 on Libya; lingering supply fears stem losses

Brent futures slipped towards $112 a barrel on Wednesday as Libyan rebels agreed to reopen two oil terminals, but lingering worries over the threat of a sudden worsening in the Iraq crisis stemmed further losses.

The European benchmark dropped for a third day to trade near its lowest in nearly three weeks, but limited spare production capacity amid an improving demand outlook in China and the United States should help underpin prices.

Brent crude had eased 12 cents to $112.17 a barrel by 0311 GMT, after its lowest settlement since June 11. U.S. oil added 4 cents to $105.38, after also recording its lowest ending since June 11.

"We are looking at sideways movement in oil. The situation in the Middle East won't allow prices to go down," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

"The summer driving season is getting underway in the United States and China isn't falling off the cliff."

Libyan rebels blockading key eastern oil ports have agreed to reopen the remaining two terminals at Es Sider and Ras Lanuf. Since last summer, the port seizures have crippled Libya's oil industry.

If fulfilled, the deal would bring back around 500,000 barrels per day (bpd) of crude oil export capacity.
The overarching supply risks from Iraq and other key producers such as Nigeria amid a healthier demand picture look set to place the U.S. benchmark "firmly in the $100 camp", said Nunana.

Prior to Iraq conflict, Nunan assessed the fair value of the contract at around the $90-level. Brent is likely to similarly remain supported, he said.


Sunnis and Kurds walked out of the first session of Iraq's new parliament after Shi'ites failed to name a prime minister to replace Nuri al-Maliki, dimming any prospect of an early national unity government to save Iraq from collapse.

GOING SPARE?

Prices have also been supported on worries of limited spare capacity to make up for any major loss in shipments. The world's unused spare oil production capacity would struggle to cover for another big outage, industry officials and analysts say, increasing the chance governments may tap strategic reserves should Iraq's southern exports be disrupted.
U.S. crude stocks fell by 876,000 barrels in the week to June 27 to 381.7 million, compared with expectations for a decrease of 2.2 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.

Gasoline stocks dropped by 407,000 barrels versus forecasts of a 400,000-barrel gain. Distillate fuels stockpiles, which include diesel and heating oil, rose by 4.4 million barrels, against expectations of a 800,000-barrel gain, it said.

Investors are now awaiting official data from the Energy Information Administration (EIA) due later in the day to gauge the country's demand outlook.

Source: Reuters

Petrobras May oil, gas output rises to a 27-month high

 Brazil's state-run oil company Petrobras said on Tuesday that oil and natural gas output rose to a 27-month high in May as it added new wells in the offshore Campos Basin northeast of Rio de Janeiro.

Petroleo Brasileiro SA , as Petrobras is formally known, said production in Brazil and abroad jumped 4.2 percent in the month to 2.61 million barrels of oil and equivalent natural gas per day (boepd) compared with 2.50 million barrels a year earlier.

May output was 2 percent higher than the previous month.

Petrobras said production in Brazil reached an average of 2.39 million boepd, up 2.2 percent on the previous month.

Jose Formigli, Petrobras' head of exploration, described the results as "very good" at an event in Rio de Janeiro on Tuesday.

Preferred Petrobras shares, the company's most traded stock, were down 0.52 percent in late afternoon trading in Sao Paulo.
Source: Reuters

Chinese bank sues local govt financing vehicle in rare public spat

 A Chinese bank is suing a local government financing vehicle over a bad loan in a rare public display of a deepening rift between lenders and borrowers in China's murky $3 trillion local debt market.

The unusual step also highlights growing strains in the market confronted by slowing economic growth and a property sector that has started to cool off after decades of runaway expansion.

Qilu Bank, based in the city of Jinan in the coastal province of Shandong, announced in its 2013 annual report -- published online in Chinese and English -- that it was suing a local government financing vehicle (LGFV) over unpaid debt.

The bank said the Urban Construction and Comprehensive Development Company of Licheng District failed to make payments on a 35.4 million yuan ($5.71 million) outstanding loan, along with 6.1 million yuan in unpaid interest.

"To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan," wrote Nomura analysts in a research note distributed to clients on Monday.

Neither Qilu Bank nor the company in question answered phone calls requesting comment.

Much of China's massive debt overhang and its accompanying industrial overcapacity was incurred by local governments using such vehicles, known as LGFVs, to get around laws prohibiting local governments from borrowing directly. These entities, financed by local banks, were linked to the local governments and conducted investment activities on their behalf, dabbling in real estate, battening on subsidies to strategic industries like solar power, and otherwise helping contribute to China's industrial overcapacity and its real estate asset price bubble.

Until recently banks have been willing to roll over LGFVs' debts indefinitely, avoiding write-downs and keeping reported non-performing loan (NPL) ratios at levels well below what analysts considered realistic -- a strategy analysts say worked fine so long as China maintained double-digit economic growth.

Chinese banking sources agreed that while de-facto defaults by LGFVs are common, the public nature of the disclosure was unusual given the fraternal relationship between the two entities. Both are headquartered in Jinan, and according to the Qilu report the Licheng District LGFV is one of its shareholders, holding 0.08 percent of its shares.

"LGFV defaults are to be expected and are inevitable," said a loan officer at a Shanghai-based Chinese bank, who spoke on condition of anonymity, but said in most cases the defaults were hidden from public view using accounting methods.

However, pressured by regulators to clean up their books, banks have grown less willing to roll over the loans and more sceptical about local governments' readiness to bail out failed their financing arms.

A senior bond trader at a major Chinese state-owned bank in Shanghai noted that while investors still largely considered debt issued by provincial-level financing vehicles to be effectively guaranteed, that no longer held true for lower level entities.

"Bonds issued by provincial LGFVs are privately guaranteed by related local governments, but I don't think lower-level LGFVs' debt is guaranteed in a similar way."

Beijing has said it is trying to move away from the investment-intensive economic model that spurred the development of local financing vehicles, and the central bank announced in January that it would move to eliminate those with "unclear functions" and unsustainable finances.

The local government financing vehicle bond market has yet to experience a public default. Beijing did allow China's first default of a publicly traded bond in March, and since then other firms have also defaulted, but none of them have been operating under presumed government guarantees the way LGFVs do.

Source: Reuters

GLOBAL MARKETS-Asia shares score 3-year high as data cheers

 Asian stocks scored a three-year peak on Wednesday after a round of upbeat global economic data whetted risk appetites and helped Wall Street taste all-time highs.

Dealers said fund managers were rotating money out of bonds and into equities for the start of the second half of the year, nudging up U.S. Treasury yields.

At the same time, the outlook for super-low rates in the major economies and an almost eerie absence of volatility across markets, encouraged investors to take on leveraged bets in search of higher returns - the so-called carry trade.

"Global equity and credit markets are feeling the tailwind of firmer activity data in the world’s largest economies, with the exception of the euro area," analysts at Barclays wrote in a client note.

"Our global manufacturing confidence recovered from the declines in Q1, and aggregate forward-looking components suggest the improvement should last well into the second half."

MSCI's broadest index of Asia-Pacific shares outside Japan  gained 0.38 percent to 495.69, heights not visited since May 2011. Japan's Nikkei added 0.7 percent to reach its highest in over five months.

The Dow and S&P 500 both scored record closing highs, as did the MSCI world equity index The Dow <.DJI> gained 0.77 percent and the S&P 500 <.SPX> 0.67 percent, while the Nasdaq Composite <.IXIC> put on 1.14 percent.

Top European shares <.FTEU3> ended up 0.85 percent, despite some disappointing manufacturing data from the region.

The economic news elsewhere was mostly bright with measures of manufacturing in China, Japan, the UK and United States all pointing to a pick up in production. 

In an encouraging sign for consumer demand, U.S. auto sales almost reached 17 million annualised in June, way above forecasts and the strongest since 2006.

STERLING, A$ ON THE RISE

With money switching to riskier assets, bond prices gave up some of their recent gains. Yields on 10-year U.S. Treasuries ticked up to 2.57 percent , leaving behind last week's lows near 2.50 percent.

Losses should be limited, however, given expectations the Federal Reserve will keep rates near zero well into next year.

Later on Wednesday, Fed chair Janet Yellen will appear at an event with International Monetary Fund Director Christine Lagarde and dealers generally assume she will stick to her recent dovish script.

In currencies, bullish UK data sent sterling to peaks not seen in nearly six years while the Australian dollar reached an eight-month top after the central bank sounded resigned the to the currency's strength.

The pound scurried as far as $1.7167 , its highest since October 2008. The Aussie jumped almost a cent to above 95 U.S. cents for the first time since early November. It last traded at $0.9493.

The U.S. dollar was dull in contrast, making only slight gains on both the euro and yen . Its currency basket index <.DXY> inched up to 79.823 from a two-month trough of 79.740.

Gold eased back a touch to $1,325.39 an ounce having hit a 2-1/2-month high of $1,332.10 on Tuesday.

Brent crude lost 17 cents to $112.12 a barrel, while U.S. crude was quoted a couple of cents firmer at $105.36. 

Source: Reuters

Hong Kong police clear last kicking and screaming protesters

 Hundreds of police forcibly removed kicking and screaming protesters from the Central business district on Wednesday, holdouts of an all-night sit-in on the heels of a mass rally demanding greater democracy from Communist Party rulers in Beijing.

The pro-democracy march on Tuesday, which organisers said attracted more than 510,000 people, and the subsequent sit-in by mainly student groups could be the biggest challenge yet to China which resumed control over the former British colony in 1997.
Many of the more than 1,000 protesters linked arms in a bid to resist efforts to remove them but they were taken away one at a time, in some cases by three or four police, as activists kicked, screamed and punched before being bundled on to buses.

"I have the right to protest. We don't need police permission," the crowd chanted as they sat sweltering in Hong Kong's summer heat and humidity.

The activists were taken in buses to the police training school in Hong Kong, although it was unclear how many arrests had been made or how long they would be detained.

"Our purpose is first universal suffrage and second to let the government respond to Hong Kong citizens' voice for democracy," said Frank Chio, a representative of the Hong Kong Federation of Students.

"This is only step one, there will be other steps."

In one of the first moves of what is expected to be a hot political summer in Hong Kong, the demonstrators were demanding greater democracy in elections for the city's leader, or chief executive, in 2017.

They want nominations to be open to everyone. China's leaders want to ensure only pro-Beijing candidates are on the ballot.

Hong Kong returned to China with wide-ranging autonomy under the formula of "one country, two systems", allowing protests such as Tuesday's march to take place.

But China bristles at open dissent, especially over sensitive matters such as demands for universal suffrage and the annual June 4 vigil in Hong Kong to mark the crackdown on pro-democracy protesters in Beijing in 1989.

Such protests, even by one or two people, would be met by stern punishment elsewhere in China.

Hong Kong Chief Executive Leung Chun-ying said on Tuesday his government would do its "utmost" to move towards universal suffrage and stressed the need for stability. Beijing's Liaison Office in Hong Kong said China "firmly supported" universal suffrage for Hong Kong, and "its sincerity and determination is unswerving".

Volunteer lawyer Jonathan Man, who was at the police training school to support activists, said up to 500 people may have been taken away, although some would likely just fill in forms and would then be allowed to leave.

Twenty to 30 core activists, such as those who spoke on the stage at the rally, were not allowed to leave, Man said.

Police had warned protesters that failure to evacuate Central might end in arrest and prosecution.

One man took to a stage and shouted: "The whole world will know how ugly the Hong Kong police are."

The protest threatened to disrupt traffic as people returned to work following a public holiday on Tuesday to mark the 17th anniversary of Hong Kong's return to China.

Some buildings in the area, including HSBC's headquarters, were ringed by barriers, although these were largely cleared as business resumed.

Source: Reuters

Chinese developers muscle in on Hong Kong as mainland market slows

 Chinese developers are moving aggressively into Hong Kong, outbidding their cross-border rivals for prime sites as policy uncertainty and falling property prices on the mainland send them scouring for opportunities to invest overseas.

The mainlanders see the southern territory as a lucrative market based on the absolute earnings enjoyed by Hong Kong-listed developers, which have beaten those of companies listed in mainland China over the past decade.

With some bids up to 20 percent above analysts' forecasts, mainland companies such as state-controlled Poly Property Group Co Ltd <0119.HK> are pushing up prices for popular sites in one of the world's most expensive real estate markets.

Fears of a bubble - prices have more than doubled in the Asian financial hub since 2008 - have proven no deterrent, while forecasts from some analysts of a 10 percent drop in prices this year have fallen on deaf ears.

But fatter margins aren't the only thing Hong Kong has to offer. Chinese developers also like its legal stability and status as a world city, giving them a platform to gain experience abroad and build brand awareness, industry watchers say.

"More and more Chinese developers are coming to Hong Kong," said Alvin Yip, managing director of investment and advisory services at property consultancy DTZ.

"They are not coming only for opportunities in Hong Kong, but also using Hong Kong as a base to invest in Europe, the United States and other parts of the world."

In Kai Tak district - one of Hong Kong's largest developments covering 320 hectares (790 acres) of residential and commercial complexes - half of the six available land plots were bought over the past year by state-owned developers, including China Overseas Land & Investment Ltd <0688.HK> and Poly Property. [ID:nL3N0LU2L1]

While hard data is not yet available to quantify the trend, it is rare to see mainland developers so active in public auctions of Hong Kong land. Observers also have been surprised by the mainlanders' willingness to out-spend their Hong Kong rivals.

In May, a luxury residential site on Hong Kong island fetched the city's fifth-highest land price per square foot when it was sold to a consortium of local and mainland Chinese developers, including Hui Wing-mau, chairman of Shanghai-based Shimao Property Holdings' <0813.HK>, and mainland commercial developer Mingfa Group International <0846.HK>.

"The premium price they (Chinese developers) offered surprised the market," said a senior executive at a Hong Kong property company, which was out-bid by state-owned developers in several land auctions.

"Chinese developers are more optimistic, while locals remain pessimistic due to uncertainty in the market," said the executive, who declined to be identified as he was not authorised to speak to the media.

China Overseas Land declined to comment, while Poly did not respond to several interview requests.

CHINA MONEY-Beijing crackdown on insider trading "rats" sparks industry exodus

A crackdown by Chinese regulators on insider trading in the country's $1.2 trillion mutual fund industry has sparked an exodus of fund managers from the industry.

The investigation is part of efforts to rebuild investor confidence in the country's lagging stock markets.

More than 100 asset managers have quit their jobs so far this year, almost twice as many as in the same period last year, according to Chinese data provider iFund. Industry sources reckoned a good many of the departures were due to fears of being caught up in the investigation.

A focus of the investigation is so-called "rat trading".

This involves fund employees using illegally obtained inside order information to front-run client orders, that is building positions in advance of a buy or sell instruction in order to take a risk-free profit when the transaction is executed.

Regulators are also investigating tip-offs by fund employees to relatives or friends on what stocks the fund plans to buy or sell, allowing them to take positions in advance.

The China Securities Regulatory Commission (CSRC) said in May that it was investigating more than 30 such cases, having concluded investigations into employees at Everbright Pramerica, China International Fund Management Co and Harvest Fund and Ping An Asset Management.

Three former managers at these fund firms, including one who worked for more of the firms, have been found guilty of "rat trading" and have been handed over to the police, the CSRC said. The penalties have not been announced, though imprisonment is a rarity in such cases.

One of the guilty who had worked for Ping An had left the company, a spokesperson for Ping An told Reuters in an email.

"The company is closely following and supporting the unfolding of the 'rat hunt' campaign," the spokesperson said. Ping An said employees are banned from directly or indirectly trading stocks.

The other companies did not comment when contacted by Reuters.

Fund managers said the problem was rampant but declined to give details, saying they were not allowed to discuss it with the media.

One fund manager said he expected the results of the probe to be released over time, and could involve some big names.

"The results will be announced gradually, possibly surprising the market since they are related to some industry stars," the fund manager said, requesting anonymity to avoid falling foul of the market regulators.

China has the world's 10th biggest mutual fund industry, with official Chinese data showing it is home to 91 mutual fund companies, with 680 funds managing 7.25 trillion yuan ($1.2 trillion) worth of assets as of the end of May, 2014.

The industry also boasts one of China's highest average annual salaries of over 1 million yuan ($160,300) per year, though fund managers have struggled to justify their earnings given the poor performance of equities in recent years.


More than $1.4 trillion - equivalent to 16 percent of China's gross domestic product in 2013 - has been wiped off the value of the Shanghai and Shenzhen exchanges since the Shanghai composite index <.SSEC> peaked at 6,124 points in October 2007.

The index has declined over 60 percent from that peak, a performance completely at odds with China's rapid economic growth over that time, and contrasting with rallies seen in other Asian stock markets.

One reason domestic investors avoid the stock market in general is the widespread suspicion that the exchanges are platforms for insiders to fleece ordinary investors.

"Recent investigations showed that inside trading is still a prominent problem in the asset management industry," CSRC spokesman Deng Ge said at a recent press conference.

The mutual fund investigation follows a similar one last year into the trading practices in China's bond market. 

It also follows the CSRC's prosecution of fund managers at Everbright Securities <601788.SS> in the aftermath of the stock market "flash crash" in September, during which Everbright employees hedged against the impact of their own trading error at the expense of retail investors.
"From bonds to funds, regulators want to squeeze out irregularities in the capital markets to pave the way for further expansion," said Wang Ming, head of marketing at Shanghai Yaozhi Asset Management Co.

"The clean-up of the fund industry also aims to expand the cohort of institutional investors in the stock market; China's bond market is already dominated by institutions," he said.

Institutional investors, mainly mutual funds and brokerages, hold just 10.87 percent of listed Chinese stocks, CSRC data shows, whereas they hold the majority of shares in most developed markets.

If investor confidence in China's stock markets is restored

, the prize would be substantial.

Investors have scorned Chinese equities, preferring housing and high-yield bonds instead, leaving China with one of the world's worst performing stock markets since markets elsewhere began recovering from the global financial crisis.

The speculative investment in housing and high-yielding but obscure wealth management products has produced economic distortions, and Beijing wants the stock market to be a viable alternative for both companies and investors.

Besides the regulatory clean-up, the CSRC is also liberalising the funds market and has just issued new guidelines that loosen derivative trading regulations, aiming to encourage innovation and promising to let in more foreign firms.

At the same time, the latest version of China's fund law, promulgated in June 2013, permits fund managers to trade stocks on their own accounts for the first time under tight conditions.
Source: Reuters

China's military calls for unity after top level graft bust

China's military called on Tuesday for unity and loyalty to the ruling Communist Party after one of its most senior former officers was accused of corruption, the highest-ranking official to date felled in a battle against pervasive graft.

Xu Caihou, who retired as vice chairman of the powerful Central Military Commission last year and from the Communist Party's decision-making Politburo in 2012, was also expelled from the party and will be court-martialed. 

President Xi Jinping heads the Central Military Commission, which controls the 2.3 million-strong armed forces, the world's largest, and has repeatedly reminded them to be loyal to the party.

In a front page commentary, the military's official People's Liberation Army Daily called on its forces to "resolutely endorse the correct decision of the party's centre ... the Central Military Commission and Chairman Xi".

"Our military is an armed bloc which carries out the ruling party's political mission, and must have high standards when it comes to building a clean party and government," it said, on a day that also marks 93 years since the party was founded.

"The military holds the barrels of the guns, and cannot give hiding space to corrupt elements. Absolute loyalty, absolute purity and absolute reliability are the political demands of the party for the military," the commentary said.

Xi has made weeding out corruption in the military a top goal. It also comes as Xi steps up efforts to modernise forces that are projecting power across the disputed waters of the East and South China Seas, though it has not fought a war in decades.

The party has struggled to contain public anger at a seemingly endless stream of corruption scandals, particularly when officials are seen as abusing their posts to amass wealth.

China stepped up a crackdown on rampant corruption in the military in the late 1990s, banning the PLA from engaging in business. But the military has engaged in commercial dealings in recent years due to a lack of checks and balances, sources say.

The buying and selling of military positions has also been an open secret but Chinese media have generally avoided the topic. It is difficult to assess how widespread the problem is.

For officers who paid bribes to be promoted, corruption is seen as a means of making a return on investment. Examples of graft include leasing military-owned land to private business, selling military licence plates, illegally occupying military apartments or taking kickbacks when buying food or equipment.

Source: Reuters

NYSE to run software tests for trading firms ahead of Alibaba IPO

- The New York Stock Exchange said it will hold a test run of Alibaba Group Holding's highly anticipated market debut, reflecting the securities industry's focus on risk controls after a raft of technical snafus in recent years.

NYSE, owned by Intercontinental Exchange Inc , said in a note to traders on Tuesday it would allow firms to test their trading software ahead of the initial public offering of Alibaba on July 12 for a listing on the New York Stock Exchange.

The Chinese e-commerce company's trading debut this summer could be the largest-ever technology IPO in the U.S., possibly eclipsing Facebook Inc's $15 billion share sale in May 2012.

Facebook's trading debut on Nasdaq OMX Group's exchange was plagued with software problems as massive volumes of orders came in, setting off a chain of events that market-making firms said cost them a combined $500 million.

Nasdaq, which was fined $10 million by the U.S. Securities and Exchange Commission over the problems, said it would voluntarily compensate firms that had been harmed up to a total of $62 million.

NYSE regularly conducts systems testing during the weekends but it was only last October, ahead of Twitter Inc's market debut, that it opened up for an IPO simulation requested by member firms, many of which participated in Facebook's IPO.
During the Twitter IPO simulation, NYSE was testing mainly for two things: To see if its systems could handle the amount of message traffic that might be generated by the IPO; and to make sure that once the IPO took place any firms that placed orders would promptly receive the reports telling them that their orders had been executed.

The Facebook incident was one of a number of high-profile technology-related problems that have roiled markets and weighed on investor confidence in recent years, placing a bigger focus on operational risk by regulators and market participants.
Source:  Reuters

GLOBAL MARKETS-Stocks make strong start to second half; dollar flat

 Stock markets around the world rose at the start of the second half of 2014 on Tuesday, propelled by solid U.S. and Chinese data and the notion that central banks will keep interest rates low for some time.

Encouraging U.S. and Chinese factory figures pointed to stabilization in the world's two biggest economies, while weaker data on euro zone manufacturing and inflation supported the view the European Central Bank might lower interest rates to help the region's businesses and avert deflation. 
"The latest data from China suggests that the main economic and oil demand growth engine of the world may be starting to turn the corner toward the upside," said Dominick Chirichella, founding partner of the Energy Management Institute in New York.

There was relief among euro zone banks  after France's largest, BNP Paribas , on Monday pleaded guilty and agreed to pay almost $9 billion for violating U.S. sanctions against Sudan and other countries. 

The Dow Jones industrial average  rose 116.37 points or 0.69 percent, to 16,942.97, the S&P 500  gained 10.16 points or 0.52 percent, to 1,970.39 and the Nasdaq Composite  added 40.801 points or 0.93 percent, to 4,448.979.

The S&P hit an intraday record high at 1,971.24.

Top European shares  were up 0.6 percent, while Japan's Nikkei  closed up 1.1 percent.

The MSCI world equity index , which tracks shares in 45 nations, rose 2.03 points or 0.47 percent, to 430.78.

Source: Reuters

China factory activity hits multi-month highs, economy steadying

China's factory activity hit multi-month highs in June, official and private surveys showed, reinforcing signs that the world's second-largest economy is steadying as the government steps up policy support.

Analysts believe the worst for the economy is over as recent

"mini-stimulus" measures kick in, but said Beijing may have to announce more stimulus measures in coming months to offset the increasing drag from the cooling property sector.

The official Purchasing Managers' Index (PMI), published by the National Bureau of Statistics, hit a six-month high of 51 in June, in line with market expectations and up from May's 50.8.

The final 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 economy has turned the corner, but it will take time for the recovery to become more broad-based. Infrastructure investment needs to pick up more strongly in the coming months to lift demand," said Julia R Wang, an economist at HSBC in Hong Kong.

“Meanwhile, the slowdown in the property market continues to pose downside risks to growth in the second half of the year. We expect both fiscal and monetary policies to remain accommodative until the recovery is sustained."

The government 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.

On Monday, China's banking regulator announced changes in the way it calculate banks’ loan-to-deposit ratio (LDR) to help channel more credit into the real economy. 

Source: Reuters

JD.com Rating

Source: Reuters

Fighting Intensifies After Ukraine's Poroshenko Declares End to Cease-Fire

        The WSJ reports,"Ukrainian forces used aircraft and artillery against pro-Russian separatists in the east of the country Tuesday, as fighting intensified after President Petro Poroshenko declared an end to a 10-day unilateral cease-firethat had failed to stop the violence".

"The active phase of the antiterrorist operation resumed this morning," Parliament Speaker Oleksandr Turchynov, told legislators in Kiev on Tuesday. "Our armed forces are striking the bases and staging areas of the terrorists."

The decision to use the army represents a bet by Mr. Poroshenko that Kiev's ragtag forces can oust the increasingly well-armed militants who have taken over swaths of the east. Sporadic fighting had continued through the cease-fire even as separatist leaders said they would join.

Mr. Poroshenko's supporters had grown impatient, believing the cease-fire and peace talks were buying time for the insurgents to dig in. Negotiations yielded few results, as did several telephone conferences between Mr. Poroshenko, Russian President Vladimir Putin and the leaders of Germany and France.

Mr. Putin criticized Ukraine's decision on Tuesday but didn't give any clear signals of how Moscow might respond.

"Unfortunately, President Poroshenko made the decision to resume military operations," he said in a foreign policy speech to Russian diplomats. "And we, by that I mean myself and my colleagues from Europe, weren't about to convince him that the road to a reliable, strong, long-term peace can't lie through war."

Mr. Putin laid the blame for the crisis on the U.S., saying the tensions resulted from a continuation of Cold War-era policy. He said many European officials are more sympathetic to Moscow's position and oppose allowing their countries to become what he called "hostages" to U.S. geopolitical interests.

Sugar eases after expiry, cocoa dips but near peak

 ICE raw sugar futures eased on Tuesday as the market digested a small delivery against expiry of the July contract, signalling weak near-term demand for the sweetener.

Cocoa dipped but remained close to a near-three year high supported by a strong demand outlook. Arabica coffee edged lower, with dealers still uncertain over the extent of damage to crops in Brazil from a recent drought.

Raw sugar futures fell slightly, as dealers took stock of a small delivery against expiry of the ICE July contract, and with Friday's Commitment of Traders report showing speculators nearly tripled their net long position viewed as bearish.

CSC Sugar and Louis Dreyfus Commodities will receive 761 lots of Central American sugar delivered against the July contract, U.S. traders said.

"There was no willing receiver of a large tonnage. It was a sign that there is a lack of demand," a senior London-based trade source said.

"In the short term, people have sugar in their warehouses that they can't sell."

ICE October raw sugar traded down 0.11 cents, or 0.6 percent, at 17.90 cents a lb at 1314 GMT.

"We will probably trade 10/15 points either side of 18 cents in the coming session," said Tom Kujawa, co-head of the softs department of broker Sucden Financial Sugar.

Liffe August white sugar eased $1.40, or 0.3 percent, to trade at $470.80 a tonne.

Cocoa on ICE Futures U.S. traded lower, pressured by strong deliveries in Ivory Coast, the world's top grower.

ICE September cocoa was down $15, or 0.5 percent, at $3,112, below a near three-year peak of $3,142 hit on Monday.

"A reversal on the downside in breach of the 10-day moving average currently at $3,096 could see declines extend towards the 40-day moving average at $3,024 while any extended losses could target levels below $3,000," said Kash Kamal, research analyst at Sucden Financial.

The second position on ICE ended the second quarter up 5.4 percent as traders piled into the market on expectations of a supply deficit.

Liffe September cocoa traded down 18 pounds, or 0.9 percent, at 1,930 pounds a tonne.

The benchmark ICE September arabica contract fell 2.75 cents, or 1.6 percent, to trade at $1.7235 per lb, after the second position ended the second quarter down 2.7 percent following the first quarter's 60 percent surge.

"Arabica prices are to consolidate as Brazilian production remains uncertain," Rabobank said in its latest Agri Commodities Monthly report.

The September Liffe robusta coffee contract fell $8, or 0.4 percent, to trade at $2,008 per tonne.

Source: Reuters

Corn, soy and wheat extend losses on USDA forecast

U.S. grain futures extended losses on Tuesday, with corn hitting a near six-month low, after the U.S. Department of Agriculture surpassed market expectations with projections for ample supplies.

Chicago Board of Trade front-month corn futures fell 0.29 percent to $4.22-3/4 a bushel, after hitting $420, the lowest since January 10.

September corn futures , the most actively traded contract, fell 0.42 percent to $4.17 a bushel, hitting a fresh contract low.

"The USDA report from last night continues to weigh," said Paul Deane, senior agricultural economist, ANZ Bank. "There will be funds trying to close positions and limit losses."

The U.S. Department of Agriculture said U.S. corn stocks as of June 1 were 3.85 billion bushels, up 39 percent from a year ago, and above the trade guess of 3.72 billion.

Corn planting was seen at 91.6 million acres, implying a crop of almost 13.9 billion bushels, just below the record, using a projected yield of 165.3 bushels per acre.

Adding to pressure, analysts said, was confirmation that recent wet weather across the key growing conditions aided crops.

U.S. corn crop improved and soybean ratings held steady at their highest in 20 years due to warm temperatures and rain in key production areas of the Midwest, the U.S. government said on Monday.

Ratings for corn topped analysts' expectations while soybean ratings were in line with market forecasts.


November soybean futures fell 0.58 percent to $11.50-1/2 a bushel, just above the session low of $11.48-1/2 a bushel, the lowest since March 3. Soybeans closed down 5.8 percent on Monday, the biggest single session loss ever for the contract.

Dalian Commodity Exchange January soybean futures fell nearly 3 percent on the USDA forecast.

USDA reported June 1 soybean stocks at 405 million bushels, above the average trade estimate of 378 million.

USDA forecast soybean plantings up 11 percent on the year to a record high 84.8 million acres. Projected harvested acreage will be a record by more than 7.4 million acres.

September wheat futures fell 0.26 percent to $5.76 a bushel, having closed down 2.7 percent on Monday.

Source: Reuters

U.S. ISM index dips to 55.3% in June, but new orders jump

U.S. manufacturing companies expanded at a slightly slower but still rapid pace in June, as new orders rose to the highest level since the end of 2013, a survey of executives found. The Institute for Supply Management said its manufacturing index dipped to 55.3% last month from 55.4% in May. Economists polled by MarketWatch had expected the index to rise to 55.7%. Readings over 50% indicate more companies are expanding instead of shrinking. The ISM's new-orders index climbed 2 points to 58.9% from 56.9%; production slipped to 60% from 61%. The employment gauge was unchanged at 52.8%. Fifteen of the industries tracked by ISM reported growth last month while three recorded a decline. 

Source: Marketwatch

Despite Saudi pledge, another big oil outage would strain supply

 The world's unused spare oil production capacity would struggle to cover for another big outage, industry officials and analysts say, increasing the chance governments may tap strategic reserves should Iraq's southern exports be disrupted.

Unrest in Iraq comes as the almost total loss of Libyan supply, Western sanctions on Iran as well as conflict in Syria and northern Iraq are keeping almost 3 million barrels per day

(bpd) - more than 3 percent of world demand - off the market.

More Saudi Arabian supply, and the U.S. shale oil boom, have helped plug gaps, but another crisis would deepen dependance on the Saudis, who are alone in holding significant amounts of unused production capacity.

Militants from the Islamic State in Iraq and the Levant overran the northern Iraqi city of Mosul in June, increasing concern of a disruption to exports from the second-largest OPEC producer. So far, Iraq's southern shipments are not affected.

Global spare production capacity stands at 3.3 million bpd, the International Energy Agency estimated in June. Iraq produces about 3.3 million bpd and exports about 2.5 million bpd from its southern terminals around Basra.

"If we were to have another big outage, spare capacity would be really tested," said Olivier Jakob, oil analyst at Petromatrix. "The answer to a big disruption is going to come more from the SPR than from spare capacity."

The SPR, or the Strategic Petroleum Reserve of the United States and similar reserves held by other industrialised countries through their membership of the IEA, are consumer countries' last resort in case of supply outages.

Another big outage would also encourage the case in the West for relaxing strict monitoring of Iran's oil exports, stunted by sanctions over Tehran's nuclear prgramme.
Strategic reserves were last tapped in 2011 during the Libyan conflict. China, not an IEA member and the second-largest oil consumer after the United States, also holds stocks.

"A major hit in or around Basrah would be very bullish in the short term for prices, and would likely lead to an IEA/SPR release," said a former government official involved in strategic reserves, now working for an oil company.

Of the 3.3 million bpd of spare capcity the IEA estimates is available, some 2.65 million bpd is in Saudi Arabia, the world's largest exporter.

A Saudi official last week reaffirmed the kingdom's willingness to make up shortages.

"Saudi Arabia has the capability to produce up to 12.5 million bpd when the customers ask for it," a Saudi official said. "The oil resources, production facilities and the management all support this."

But some in the industry question how sustainable the full 12.5 million bpd is. The kingdom has not been known to boost its production that far - output touched 10.1 million bpd in 2013, believed to be the record high. 

"Saudi Arabia may very well be technically capable of supplying close to 12.5 million bpd, but probably only by drawing down stocks and thereby for a limited amount of time," said David Wech of JBC Energy.

As a result, readily available spare capacity may be less than the IEA's official estimates.

"Global spare capacity is 1.5 million bpd, overwhelmingly in Saudi Arabia, although for short periods of time we could draw on surge capacity of say another 1 million bpd," said a former IEA official. "People are surprisingly complacent, I think."

Apart from Saudi Arabia, supply could also increase in the short term should Western sanctions on Iran, in place over its nuclear programme, be removed, analysts including Jakob said. But there is no sign of that happening yet.

It is therefore fortunate that Iraq's southern oil ouptut is unaffected so far. Brent oil has fallen to below $113 a barrel from the nine-month high of $115.71 it reached on June 19 as traders saw less of a risk of disruption.

"Should there be no meaningful disruptions to Iraq's oil production – as we expect – the Brent price should correct most of its recent increase," said Eugen Weinberg, analyst at Commerzbank in Frankfurt.

"Should there be any meaningful disruption, a price rise to at least $120 per barrel should be expected."

Source: Reuters

Iran's oil exports drop in June, stay above Western limits

 Iran's crude oil exports dropped in June after a spike in May, yet sales were still above the level allowed by an interim deal aimed at curbing Tehran's nuclear programme, according to sources who track tanker movements.

Under the agreement signed in November between Iran and six world powers, which came into effect in January, Iran's exports should average 1 million barrels per day (bpd) through to July 20.

Iran's oil exports slipped to 1.21 million bpd in June, from 1.33 million bpd in May, one of the sources said.

"Total exports are about 10 percent down month-on-month as China and India have taken less," the source said.

"Exports in June to Japan and Turkey have been firm and South Korea has taken more, making up for lower sales to that destination in May."

A second source said Iranian crude exports fell by 100,000 bpd to almost 1.2 million bpd in June from May's high levels.

China, Tehran's largest oil client, has since late 2013 been stepping up purchases from the OPEC country. China's Iranian crude oil imports expanded 36 percent in May, or 757,900 bpd, from a year ago to the second highest on record, customs data showed last week. 

Though higher exports since late 2013 have bolstered Iran's coffers, officials in U.S. President Barack Obama's administration have said they expect Iran's oil sales to average

"approximately" 1 million bpd over the entire six-month period under the agreed deal, which expires on July 20 but can be extended for up to six months.


BOLDER IRAN

"Iran is increasingly emboldened to export its oil," said Mark Dubowitz of U.S.-based independent think-tank Foundation for Defense of Democracies (FDD).

"The Obama administration already has sent the message that it won't crack down on Iran's excess crude oil sales, condensates exports, or its transfer of crude oil to (Syrian President Bashar al-) Assad despite congressional demands," he added.

The U.S. administration has argued that condensates, a premium-price form of very light oil found at natural gas fields and mostly used to make plastics, do not count as crude oil; that Iranian gifts of oil to Syria are not "sales" and so also do not count; and that Iran is allowed to sell between 1 million and 1.1 million bpd under the deal, a range slightly above the White House's public estimate.

The extra supply is not unwelcome in the global market at a time of concern about flows from Iraq.

"The U.S. authorities appear to have been very tolerant of rising Iranian condensate supplies, which have boosted observed imports of Iranian oil by Asian buyers," a senior executive at an oil company said.

Source: Reuters