Tuesday, 10 June 2014

Militants Overrun Iraq's Second-Largest City As Government Forces Flee

         The WSJ reports,"Al Qaeda-inspired militants seized control of Iraq's second-largest city on Tuesday in a brazen military operation that underscored the weakness of the Baghdad government across vast swaths of the country.
Hours after government forces fled Mosul in disarray following four days of fighting, Prime Minister Nouri al-Maliki declared a nationwide "state of maximum preparedness" but didn't indicate whether government forces were mobilizing to retake the Iraqi city, 220 miles north of the capital Baghdad.
The capture of Mosul by rebels linked to the Islamic State of Iraq and al-Sham, or ISIS, is the latest evidence of the weakness and disorganization that have beset Iraq's security forces since the U.S. forces withdrew from the country in December 2011.
It also underlines the group's determination to establish an Islamic emirate encompassing the Iraqi-Syrian frontier, weaken the already fragile Iraqi state and expand the theater of the three-year-old civil war in neighboring Syria".
"Residents of Mosul said they were shocked at the ease of the rebel takeover of government buildings, television stations and military installations where U.S.-supplied fighter airplanes, helicopters and other heavy weaponry are based".
"Jessica Lewis, a former U.S. Army intelligence officer, said ISIS fighters won a notable victory in Mosul.
"ISIS is designing its campaign around the state that it believes it has already created," said Ms. Lewis, currently research director for the Institute for the Study of War in Washington, D.C.
"I think that means that Iraq is going to start to look more like Syria. It's a gauge of the severity of the conflict and the trajectory that it's on. That's a very bad sign.""
"The U.S.-trained and equipped Iraqi security forces, which have floundered since the U.S. pullout, haven't succeeded in thwarting ISIS's emergence as a formidable paramilitary force. Its fighters regularly launch daytime attacks against government forces and have held the city of Fallujah, 36 miles east of the capital, since early January.
Mosul, the capital of Nineveh province, has been a longtime staging ground for al Qaeda-linked forces. Residents of the province have complained recently about stepped-up ISIS activities, including cash-for-protection demands to local businessmen and political officials—a major source of funding for the group's operations".
The threat of an attack rose sharply last Thursday, when fighters identified as ISIS commandos seized and occupied the nearby city of Samarra for 12 hours before withdrawing. Authorities in Mosul sounded the alarm, ordering government employees to go home and imposing a dusk-to-dawn curfew.
"Despite the security precautions, ISIS fighters raided the western half of Mosul early Friday, forcing military personnel and federal police forces to retreat over bridges to the eastern bank of the Tigris River, which divides the city.
For three days, residents in the eastern half of the city huddled in their houses and parceled out their ever-dwindling supply of food and other staples, as authorities tried to secure the city.
Mosul governor Atheel Nujaifi, appearing Monday evening on national television, made a desperate call for city residents to form ad hoc committees to defend themselves. But he fled on Monday night.
In the early-morning darkness of Tuesday, local resistance dissolved, as insurgents poured across the bridges separating east from west. According to witnesses, government soldiers fled on foot, leaving the streets littered with abandoned army vehicles, weapons and uniforms.
The vanquished soldiers knocked on doors and begged for civilian clothes, so they could escape without being identified, said Ahmed Khaza'al, a cosmetic dealer.
The victory by ISIS and its allies means they control sizable regions in at least three of Iraq's 18 provinces. Upon news of Mosul's fall, fears of more fighting rippled across the country.
Authorities in Kirkuk, a city near Mosul, have requested aid from Kurdish fighters known as Peshmerga.
The request for help from the Kurdistan Regional Government, a semiautonomous northern province, is likely to compound the troubles facing Mr. Maliki's government. It is already in a heated dispute with the KRG's government in Erbil, and stepped-up Peshmerga operations will only complicate it.
Mosul's capture also comes at an inopportune time for Mr. Maliki. His State of Law Coalition won a plurality of seats in late April parliamentary elections on promises that he would secure the country and subdue al Qaeda-linked fighters. But he still needs the support of other parliamentarians to secure a third, four-year term as premier".

Google to buy satellite company Skybox Imaging for $500 mln

Google Inc said on Tuesday it is acquiring satellite company Skybox Imaging for $500 million in cash, the Internet company's second high-profile acquisition of an aerospace company this year.

Google said that Skybox's satellites will provide images for Google's online mapping service. Google, the world's No.1 Internet search engine, said that Skybox's technology could also eventually be used to provide Internet access and help with disaster relief.

The acquisition of the five-year old company comes as Google and rival Facebook Inc are racing to snap up satellite and drone companies in an expensive effort to expand the reach of their businesses.

In April Google acquired Titan Aerospace, a New Mexico-based maker of solar-powered drones, for an undisclosed sum. Google has also launched a small network of balloons designed to deliver Internet access over the Southern Hemisphere.

Facebook, the world's No.1 Internet social network, announced in March that it had created a special "Connectivity lab" project tasked with developing satellites, drones and other technology that could be used to beam Internet connectivity to people in underdeveloped parts of the world.

Skybox has built satellites packed with sensors and camera electronics that take high-resolution images and video of the earth but which it says are smaller and lighter than traditional satellites. The company, which like Google is based in Mountain View, Calif, has launched one satellite and had planned to launch a constellation of 24 satellites, according to the company's website.

"The time is right to join a company who can challenge us to think even bigger and bolder, and who can support us in accelerating our ambitious vision," Skybox said on in its Website on Tuesday in a message announcing the deal with Google.

Google said the deal's closing is subject to regulatory approvals in the United States.

Shares of Google were down less than 0.5 percent at $568.07 in midday trading on Tuesday.


Source: Reuters

La Banque de France prévoit toujours une croissance de 0,2% au T2

 La Banque de France a confirmé mardi tabler sur une croissance de 0,2% de l'économie française au deuxième trimestre 2014, dans sa deuxième estimation fondée sur son enquête mensuelle de conjoncture de mai.

L'Insee attend de son côté une progression de 0,3% du PIB.

L'enquête de la Banque de France fait apparaître une baisse d'un point de l'indicateur du climat des affaires dans l'industrie, à 97, et une baisse d'un point de celui des services à 93.

Le niveau des indicateurs d'avril a été confirmé.

Selon la Banque de France, la production industrielle est stable, le recul des matériels de transport, des équipements et de la métallurgie étant compensé par une hausse de la pharmacie et de la chimie.

Les livraisons progressent légèrement, le volume des commandes est inchangé et les stocks sont jugés normaux.

Les effectifs sont en léger recul, les prix des produits finis sont stables et les trésoreries continuent de s'améliorer.

Les chefs d'entreprise prévoient une progression de la production en juin.

Le taux d'utilisation des capacités de production a diminué, à 75,9% contre 76,4% en avril.

Dans les services, l'activité est en léger repli, sous l'effet notamment de la baisse de l'hébergement-restauration, des transports et du travail temporaire.

Les prix continuent de s'éroder, les effectifs sont stables et les trésoreries restent assez larges.

Selon les chefs d'entreprise, l'activité devrait rebondir en juin.

La Grèce se prépare à un "étirement" de son énorme dette

Il y a deux ans, la crise de la dette grecque avait failli faire exploser la zone euro. Aujourd'hui, les partenaires européens d'Athènes se préparent à alléger le fardeau de sa dette, sans renoncer à aucune créance mais en repoussant leur échéance tout en réduisant les taux d'intérêt, expliquent des responsables européens.

Cette perspective explique en partie le succès spectaculaire de l'émission de trois milliards d'euros à cinq ans bouclée par la Grèce jeudi, à la veille d'une visite à Athènes de la chancelière allemande Angela Merkel. 

Pour les investisseurs, même si l'économie grecque reste très affaiblie, la prochaine étape du dossier est bel et bien un allègement du fardeau de la dette.

"Il a été pour une bonne part intégré dans les cours et le marché s'attend aussi à ce que la Grèce soit rapidement réévaluée par les agences de notation", explique Alessandro Giansanti, responsable de la stratégie de taux d'ING Bank à Amsterdam.

"Parallèlement, le marché s'attend à une réduction du principal de la dette officielle, et à aucune implication du secteur privé (dans une réduction de la dette) au cours des années à venir."

Le scénario devrait se préciser au cours des prochains mois, lorsqu'auront débuté les négociations avec la zone euro et le Fonds monétaire international (FMI) sur le financement à plus long terme de la Grèce et la sortie du programme d'assistance en cours.

Les dirigeants européens ont tout intérêt à soutenir la coalition fragile conduite par le Premier ministre conservateur Antonis Samaras, pour éviter une arrivée au pouvoir d'Alexis Tsipras, le chef de file du parti de gauche Syriza, qui réclame un allègement massif du montant de la dette.

Les pays d'Europe du Nord s'opposent fermement à un tel effacement d'une partie de la dette, expliquant que cela reviendrait à récompenser Athènes pour ses fautes passées.

Repousser les échéances et réduire les taux d'intérêt serait plus acceptable pour l'Allemagne, les Pays-Bas et la Finlande. D'autant que cela a déjà été fait, puisque les prêts originels avaient été accordés pour cinq ans seulement et à des taux punitifs.


L'ACCÉLÉRATEUR ET LE FREIN À MAIN

"Etirer les prêts du secteur officiel et réduire leurs taux d'intérêt créera un espace pour de nouveaux prêts du secteur privé sans que celui-ci ait à craindre d'être en concurrence avec les créanciers du secteur officiel lorsque viendra l'heure de rembourser", explique Elena Daly, associé d'EM Consult, un cabinet parisien spécialisé dans la dette souveraine.

Pour les investisseurs, le profil de la dette d'un Etat - l'échéancier de ses remboursements futurs ou de ses obligations de refinancement - est plus important que le montant absolu de sa dette.

Aujourd'hui, après deux plans d'aide de l'Union européenne et du FMI d'un montant total de 240 milliards d'euros, la Grèce affiche une dette publique équivalant à 175% de son produit intérieur brut (PIB), un ratio bien supérieur au niveau jugé supportable par le FMI.

Le PIB grec a diminué de 25% depuis le début de la crise, les salaires et les pensions de retraite ont fortement baissé et le taux de chômage avoisine 27%. Le pays peut espérer renouer cette année avec la croissance mais celle-ci sera anémique.

Il est donc improbable qu'Athènes parvienne à ramener son taux d'endettement au niveau prévu par la "troïka", à savoir 124% du PIB en 2020 et 110% en 2022. Il faudrait en effet renouer durablement avec des taux de croissance soutenus pour faire baisser ce ratio aussi rapidement.

De surcroît, les intérêts de la dette grecque absorbent à eux seuls près de 5% du PIB, deux fois plus qu'en France. Vouloir relancer une économie soumise à un tel poids revient à tenter d'accélérer tout en serrant le frein à main.

Une fois qu'Eurostat, l'institut européen des statistiques, aura confirmé dans quelques semaines que la Grèce a renoué avec un excédent budgétaire primaire (hors service de la dette), la voie vers l'allégement de la dette du secteur officiel sera dégagée.

Ironie de l'histoire, le succès de l'émission obligataire de la semaine écoulée pourrait compliquer les discussions sur cet allégement, certains responsables allemands expliquant qu'il n'y a aucune urgence.

Source: Reuters

Copper dropped to a one-month low on Tuesday

Copper dropped to a one-month low on Tuesday as an investigation into metal financing in China prompted concern that a crackdown could hit trade in the metal, while aluminium and zinc retreated from multi-month highs as traders cashed in on recent gains.

Benchmark copper on the London Metal Exchange (LME) hit a session low of $6,628, its lowest level since May 7. It was last bid at $6,675 a tonne on the kerb, up just 0.07 percent from the previous session.

Copper prices have been under pressure by worries about financing after a investigation into metals fraud at Qingdao, China's third-largest port.

The latest firm to be caught-up in the scandal, CITIC Resources Holdings, said that metal it owns at the port may be affected by the probe.

Some analysts said the market's fundamentals remained strong, helping cushion any downside to prices. The latest data from top consumer China showed encouraging signs of an economic recovery.

China's consumer inflation edged up to a four-month high of 2.5 percent in May while factory price deflation eased, reinforcing signs of economic stabilisation.

"The ongoing investigation (at Qingdao port) is still the main theme which is causing the selling pressure for the metal," sad Naeem Aslam, chief market analyst at Ava Trade.

"However, the fundamentals remain strong ... and we think any kind of sell-off could be a buy opportunity in the longer term."

Reassuring investors, Standard Chartered said it acknowledges there are issues in China around commodity financing and while it is monitoring the situation, it is not pulling out of its commodity financing business in the country.

In a move that suggests the impact of the financing probe in China may be becoming priced into the market, premiums for bonded copper in Shanghai steadied after falling for a week.

Premiums traded at $80-$100 on Tuesday, flat from Monday, and down from $105-$125 last Wednesday, according to China price provider Shmet. (www.shmet.com)


ALUMINIUM, ZINC SLIP

Aluminium and zinc prices retreated from recent highs as traders took profits, but analysts say the longer-term outlook for the metals remains upbeat.

Benchmark LME zinc closed little changed at $2,132 a tonne, up just 0.05 percent, having hit a 15-month peak of $2,145 in the previous session, while benchmark aluminiumwas last bid down 0.58 percent at $1,900 a tonne, after hitting its highest level in 9-1/2 months - at $1,918 - on Monday.

Improving global demand prospects have helped to support prices for zinc and aluminium in particular, led by stronger-than-expected consumption and tight supply, and bolstered by continued monetary easing by central banks.

"Generally economic performance is going better than people have expected ... And that will certainly help prices," said analyst Matt Fusarelli at AME Group.

Chinese zinc demand is seen growing by 8 percent this year, the fastest since 2010, driven by auto sales, Fusarelli said. This is expected to push the market into a deficit for the first time in several years, he added.

A small deficit in the aluminium market in the first half is however expected to disappear as large projects come on line, mostly in China, Fusarelli said.

At 5,146,525 tonnes, aluminium stocks held in LME-registered warehouses are at their lowest level in a year. 

Lead ended at $2,140 a tonne, down 0.05 percent, tin closed down 1.85 percent at $23,865 a tonne and nickel closed down 0.69 percent at $18,775 a tonne.


Source: Reuters

U.S. EPA asks for more time to review Cove Point LNG project

U.S. environmental regulators have asked for more time to review a liquefied natural gas (LNG) export plant project planned for a site on a bay near Washington, D.C.

The Environmental Protection Agency, one of the departments that contributes to assessments of LNG projects, asked the Federal Energy Regulatory Commission (FERC) for a 30-day extension to conduct a review of Dominion Resources Inc's Cove Point liquefaction project in Maryland.

FERC, which assesses environmental and safety issues involving LNG projects, gave Cove Point a green light last month.  It is expected to make a final decision on the project sometime this summer after a public comment period and input from agencies.

The additional time "will allow the agency to compile comments from its regional associate internal reviewers and the required need for EPA headquarters' review," the EPA said in a letter to FERC dated June 3, and released on Monday.

FERC did not immediately respond to a request for comment.

U.S. green groups have also asked FERC to extend the public comment period by 60 days, which would push the deadline for public input to Aug. 13.
Some green groups say the plant, about an hour's drive from the nation's capital, would bring the practice of hydraulic fracturing, or fracking to Maryland. They also say the process of super cooling natural gas for export and shipping it thousands of miles to customers in Asia and Europe reduces the environmental benefit of switching from coal to natural gas.

A Dominion spokesman said there has already been ample opportunity for the public to comment on environmental aspects of the project and that FERC's review last month raised no new issues that require an extended comment period.
Source: Reuters

Brent oil falls below $110 on profit-taking

Brent crude oil pared gains and fell below $110 a barrel on Tuesday, shrugging off some positive signals as traders took profits following strong gains on Monday.

Brent futures closed at $109.99 on Monday, the highest close in nearly two weeks, due in part to positive economic data from China and the United States, the world's two largest energy consumers.

But momentum stalled on Tuesday as Brent balked above the key $110 mark, traders said.

"This just looks like some profit-taking after the strong gains," said John Kilduff, partner at Again Capital LLC in New York.

U.S. crude, meanwhile, was largely unchanged as traders awaited a weekly inventory report that was expected to show a drop in U.S. crude stocks, signaling healthy consumption as the summer driving season gets under way. [EIA/S]

Brent was down 42 cents at $109.57 a barrel at 12:04 p.m. EST (1604 GMT) after its biggest daily percentage advance in nearly two months on Monday. U.S. oil was down 3 cents at $104.38 a barrel. It had ended up 1.7 percent on Monday, its biggest daily gain since April.

The expected decline in U.S. crude stockpiles of 1.5 million barrels, according to a Reuters poll, follows data last week showing employment returned to its pre-recession peak, the latest in a string of positive U.S. economic indicators.
The American Petroleum Institute will release its inventory data later on Tuesday followed by data from the Energy Information Administration on Wednesday.

China's central bank announced on Monday that to support the economy it will cut the level of reserves that banks with sizeable loans to the farming sector and to small and medium-sized companies must hold, a development the market initially viewed as positive for crude demand.

The oil market kept an eye on producer group the Organization of the Petroleum Exporting Countries (OPEC), which meets in Vienna on Wednesday to decide oil output targets.

The cartel, which pumps a third of the world's oil, has said it is happy with global oil prices and is expected to maintain its production target at 30 million bpd.

"We're starting to see global demand pick up a pace and get stronger," said Carl Larry, CEO of consultancy Oil Outlooks in Houston, Texas. "My expectation is that the big talk tomorrow will be about spare capacity."

United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui said on Tuesday that oil prices are at a suitable level for OPEC members and the group sees no shortage in supply:

"Oil prices have been steady over the past period and at a comfortable level for all members."

Libyan Oil Minister Omar Shakmak agreed, saying an oil price close to $110 a barrel is good for the oil market: "It's for the benefit of producers and customers alike."


Source: Reuters

U.S. May oil output, forecast for 2015 reach new records -EIA

Total U.S. crude oil production in May reached the highest levels in 26 years, hitting an average of 8.4 million barrels per day (bpd), the U.S. Energy Information Administration said in a monthly short-term energy outlook on Tuesday.

The organization also said its 2015 forecast of 9.27 million bpd was the highest annual average level of oil production since 1972.

Meanwhile, the EIA lowered its 2014 crude oil production forecast - by 40,000 bpd to 8.42 million bpd.

The EIA had earlier also cut its 2014 outlook in its February outlook due to severe weather, but said improving technology could boost shale oil output over the next two years [ID:nL2N0LG1IQ].

The EIA laid out its global production forecasts in the report. It increased its 2014 forecast for production by member countries in the Organization of the Petroleum Exporting Countries by some 130,000 bpd to 36.13 million bpd and raised its 2015 forecast by 200,000 bpd to 36.3 million bpd.

Supply forecasts for non-OPEC countries edged up 80,000 bpd to 55.66 million bpd this year and were up 150,000 bpd to 56.88 million bpd next year.

EIA estimated that OPEC crude oil production averaged 30 million bpd in 2013, a decline caused by production shortfalls in Iran, more unplanned outages in Libya, Nigeria and Iraq and strong non-OPEC supply growth.

OPEC oil production is expected to fall by 400,000 pd in 2014 and an additional 100,000 bpd in 2015 as a result of supply disruptions and cutbacks in crude oil production to accommodate increased supplies in non-OPEC countries.

"Libya continues to experience swings in its production, contributing to changes in the OPEC disruption estimate," EIA said.

Source: Reuters

Oil at $110 smoothes path for an unchanged OPEC ceiling

An oil price comfortably over $100 a barrel leaves smiling OPEC ministers with an easy task to leave things as they are on output policy at their Wednesday meeting.

Brent crude has stayed above that price, the preferred level of top OPEC producer Saudi Arabia, all year and was trading near $110 on Tuesday, supported by the almost total loss of supplies from OPEC member Libya.

The Organization of the Petroleum Exporting Countries, which pumps more than a third of the world's oil, is meeting in Vienna to agree policy for the second half of the year. Ministers have said they will leave the output target of 30 million barrels per day (bpd) unchanged, and that the market is well-supplied.

"The price is good. Brent is $110, it is not bad," said Angolan Oil Minister Jose de Vasconcelos.

Saudi Arabia's Oil Minister Ali al-Naimi was not expected in Vienna until the morning of the meeting itself, but told the Saudi Press Agency oil prices were suitable for producers, consumers and the oil industry alike and the group was unlikely to make any decision on the oil market situation on Wednesday.

Naimi's view echoed his very direct comments to reporters late last month in Seoul.

"There is no reason for a change. Absolutely no reason," OPEC's most infuential minister had said then.

Riyadh kept production little changed in May, pumping 9.705 million barrels per day, according to industry sources, supporting Naimi's view that the market did not need more.

OPEC has steered a course around the loss of over a million barrels per day of oil from Libya, as the crisis there deepened to its worst since the civil war three years ago.

Oil Minister Omar Shakmak said on his arrival in Vienna that output had fallen below 200,000 bpd, a fraction of Libya's 1.6 million bpd before the conflict.

He at least welcomed the oil price.

"This is positive for the market, it's for the benefit of producers and customers alike," Shakmak said.

OPEC's sanguine view of supply will run into a seasonal rise in demand later in the year, underpinned by signs of some global economic recovery.

OPEC itself has raised the demand for its crude for the year to 29.76 million bpd, snugly inside its ceiling but the International Energy Agency, representing the United States and leading industrialized oil consumers, sees a tighter fit of around 30 million bpd.

The IEA in its May report said oil prices remained

"elevated" and market balances called for a "significant rise" in OPEC production from current levels for the second half of the year.

As well as unrest in Libya, western sanctions on Iran have also cut OPEC supplies, but output recovered in May close to the 30 million bpd target as extra barrels from Iraq and Angola helped offset the unplanned reductions. 

"With the current low price volatility, OPEC has no incentive to change anything when it also has to deal with the uncertainty of Libya and Iran," said Olivier Jakob, oil analyst at Petromatrix.

Taliban gunmen attack Karachi airport academy in second assault

Pakistan's Taliban insurgents claimed responsibility for an attack on a security academy at Karachi's airport on Tuesday, less than 48 hours after an all-night siege by Taliban gunmen at Pakistan's busiest airport that killed more than 30 people.
The late Sunday assault destroyed prospects for peace talks between the Taliban and the government of Prime Minister Nawaz Sharif and triggered speculation that the army might opt for an all-out offensive against militant strongholds. On Tuesday, a group of gunmen on motorbikes opened fire on an academy run by the Airports Security Force (ASF) and fled after security forces retaliated. No one was hurt, officials said.
"We accept responsibility for another successful attack against the government," Pakistani Taliban spokesman Shahidullah Shahid told Reuters.
"We are successfully achieving all our targets and we will go on carrying on many more such attacks."
Ten militants disguised as security force members and armed with rocket-propelled grenades broke into the airport in the first attack, one of the most brazen in a long-running Pakistani Taliban insurgency. At least 34 people were killed.
Reflecting an atmosphere of nervousness, Karachi airport suspended all flights in and out of the sprawling city of 18 million for the second time in two days, although most flights were restored by 0930 GMT.
Earlier on Tuesday, Pakistani fighter jets bombed Taliban positions on the Afghan border.
"Nine terrorist hideouts were destroyed by early morning military air strikes near the Pakistan-Afghan border," the army's press wing said, adding that 25 militants were killed.
SEVEN MORE BODIES
The Pakistani Taliban are allied with the Afghan militants of the same name and share a similar jihadist ideology.
But they operate as a separate entity, focused entirely on toppling the Pakistani state and establishing strict Islamic rule in the nuclear-armed nation, whereas the Afghan Taliban are united by their campaign against invading foreign forces.
It was unclear if the latest air strikes signalled the start of a broader offensive in the North Waziristan region where the al Qaeda-linked Taliban are based, or indeed if they had been carried out in retaliation for the airport attack.
The air force has periodically conducted raids to bomb Pakistani Taliban positions in the lawless, ethnic Pashtun region but has yet to launch a major offensive.
The semi-autonomous Pashtun lands along the border, known as the Federally Administered Tribal Areas, have never been brought under the full control of any government.
The Pakistani Taliban, a loose alliance of insurgent groups united by anti-state ideology, said they had carried out the late Sunday attack in Karachi in response to the air strikes on their strongholds.
At Karachi's airport, rescue workers earlier recovered the bodies of seven people trapped inside a cargo building, bringing to 34 the death toll from the first assault.
"The bodies are badly charred beyond identification," said a morgue official who declined to be identified.
Airport officials said the victims had taken refuge in the cargo shed to hide from the gunfire but got trapped when the building caught fire.

"They (security forces) were busy killing militants and clearing the area, nobody bothered to rescue these trapped men," said Abdul Rehman, whose brother was among those killed. "They could have been saved if timely rescue efforts had been made."
Source: Reuters

Al Qaeda-linked insurgents capture Iraq's second city

Sunni Islamist insurgents seized control of Iraq's second largest city of Mosul early on Tuesday in a spectacular show of strength against the Shi'ite-led government, which called on parliament to declare a state of emergency.

The capture of Mosul by the Islamic State of Iraq and the Levant (ISIL) - an offshoot of al Qaeda - and its allies followed four days of fighting in the northern city and attacks in other towns.

Residents said ISIL black flags and banners were flying on captured government buildings.

The fall of Mosul deals a serious blow to Baghdad's efforts to fight Sunni militants who have regained ground and momentum in Iraq over the past year, pushing into Mosul last week and overrunning a military base and freeing hundreds of prisoners.

The army has been fighting ISIL in western Iraq since the start of the year when they overran two cities in the Sunni heartland of Anbar, which shares a border with Syria.

Across the frontier in Syria, ISIL fighters have seized territory close to the Iraqi border during three years of civil war between President Bashar al-Assad and rebels. ISIL militants from Iraq have joined the battle in Syria along with other foreign fighters with the aim of establishing a Sunni Islamist state on either side of the border.

In a speech on Tuesday, Iraqi Prime Minister Nuri al-Maliki urged the international community to support his country in its fight against "terrorism" and asked parliament to declare a state of emergency.

State television said the speaker of parliament had scheduled an emergency session for Thursday to vote on the motion, which requires a two thirds majority.

Source: Reuters

"TRAGIC SITUATION"

Police, military and security officials told Reuters the insurgents, armed with anti-aircraft weapons and rocket-propelled grenades, had taken over almost all police and army checkpoints in and around the Mosul early on Tuesday.

"We have lost Mosul this morning. Army and police forces left their positions and ISIL terrorists are in full control," said an army colonel at the local military command. "It’s a total collapse of the security forces."

Two army officers said security forces had received orders to leave Mosul after militants captured the Ghizlani army base and set more than 200 inmates free from a high-security prison.

A Reuters reporter saw policemen swapping their uniforms for plain clothes and discarding their weapons before fleeing the city. The bodies of soldiers and policemen, some of them mutilated, littered the streets.

"We can't beat them. We can't. They are well trained in street fighting and we're not. We need a whole army to drive them out of Mosul," one officer said. "They're like ghosts: they appear to hit and disappear within seconds".

Two police sources and a local government official said the militants had also broken into another jail called Badush, allowing more than 1,000 prisoners to escape, which they identified as belonging mostly to ISIL and al Qaeda.

The retreating army and police set fire to fuel and ammunition depots to prevent the militants from using them, the officers said.

University lecturer Zuhair al-Taie, who was trying to flee Mosul with his wife and three children, said ISIL's black banners were now flying over most army and government buildings.

"The situation in Mosul is tragic," he said.

Ibraheem al Sumeide'i, a former advisor to Maliki who fell out with him over his policies, said the prime minister should step down so a national salvation government could be formed.

"The fall of Mosul into the hands of ISIL means that ISIL has unified the Iraqi and Syrian front and they have achieved their goal."

Some in Iraqi security estimate more than a thousand Shi'ite troops have been killed and thousands have deserted from the army, as regular Shi'ite soldiers complain their leadership has not provided them with the equipment and training.

Maliki's opponents blame him for leading the country to ruin. They say his refusal to share power has prevented the creation of a national unity government, allowed for a rise in Sunni militancy, and made him enemies among Shi'ite, Sunni and Kurdish leaders alike.


"LIKE HELL"

Thousands of families were fleeing north towards the autonomous Kurdistan region, which shares a border with Nineveh province, of which Mosul is the capital.

“Mosul now is like hell. It’s up in flames and death is everywhere," said Amina Ibrahim, who was leaving with her children and said she had lost her husband in a bomb attack last year.

On Monday, governor Atheel Nujaifi made a televised plea to the people of Mosul to stand their ground and fight. Hours later, Nujaifi himself narrowly escaped the provincial headquarters in Mosul after militants besieged it.

Nujaifi's brother Osama, who is parliament speaker, called on the president of Iraqi Kurdistan to deploy the region's peshmerga forces to Mosul and wrest it back from "terrorists".

Kurdistan's Prime Minister Nechirvan Barzani said his region had tried to coordinate with Iraqi federal authorities to protect Mosul, but Baghdad's stance had made it impossible.

Nearly 800 people were killed in violence across Iraq in May

- the highest monthly death toll so far this year. Last year in turn was the deadliest year since sectarian bloodletting began to ease from its climax in 2006-07.

At least 20 people were killed on Tuesday when two bombs exploded at a cemetery in the city of Baquba about 50 km (30 miles) northeast of Baghdad, as mourners buried a university professor shot dead the previous day, police and medics said.

“Mourners' bodies were flung amongst the graves by the force of the blasts," said Muhsin Farhan, a relative of the professor.

U.S. wholesale inventories rise solidly, may boost second-quarter GDP

U.S. wholesale inventories rose more than expected in April, which bolsters views of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday wholesale inventories increased 1.1 percent after advancing by the same margin in March. The rise outstripped economists' expectations for only a 0.5 percent gain.

Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP - wholesale stocks excluding autos - increased 1.1 percent.

A sharp slowdown in the pace of restocking by businesses helped to sink economic growth in the first quarter, but a swing in inventories is expected in the April-June period.

Data last week showed a rise in stocks at manufacturers in April and further gains are likely after a surge in automobile sales in May depleted stocks of some vehicle models.

The economy contracted at a 1.0 percent annual pace in the January-March period as inventories subtracted 1.6 percentage points from GDP. Growth this quarter is forecast topping a 3.0 percent pace, but the sturdy gains in wholesale inventories in April could prompt some economists to raise their GDP estimates.

Sales at wholesalers increased 1.3 percent in April after rising 1.6 percent the prior month. At April's sales pace it would take 1.18 months to clear shelves, unchanged from March.

Source: Reuters

Treasury yields up, euro off as U.S. rates seen rising

A worldwide measure of stocks dipped on Tuesday but was within reach of its record high, while U.S. Treasury yields touched one month highs and the euro slipped as a whiff of higher U.S. interest rates takes hold in markets.

Stocks on Wall Street opened slightly lower a day after the S&P 500 closed at a record for a fourth straight session and world shares <.MIWD00000PUS> drifted near their record set in November 2007.

"Most valuation metrics suggest that equities are no longer cheap, though they're not exactly overpriced where they are now. People are looking for reasons to really buy, but we're optimistic that equities can continue to push higher," said David Carter, chief investment officer at Lenox Wealth Advisors in New York.

The Dow Jones industrial average <.DJI> fell 18.37 points or 0.11 percent, to 16,924.73, the S&P 500 <.SPX> lost 2.38 points or 0.12 percent, to 1,948.89 and the Nasdaq Composite <.IXIC> dropped 4.41 points or 0.1 percent, to 4,331.83.

The pan-European FTSEurofirst 300 index <.FTEU3> edged up 0.1 percent to extend its high going back to January 2008.

Chinese, Indonesian and Korean shares all rose more than 1 percent, helped by Chinese inflation data that remained well within the government's comfort zone, giving room for the government to launch fresh stimulus measures if needed to support the economy.

Last week's ECB cut in interest rates, and its move to start charging banks for keeping their spare cash, ensured the impact continued elsewhere. Fresh bets that the U.S. Federal Reserve could begin to raise rates earlier than expected were also supportive of the greenback.

"If broader measures are suggesting that the U.S. economy is on a stronger footing, the market has to bring forward the expectations of a Federal Reserve rate hike," said Aroop Chatterjee, currency strategist at Barclays in New York.

The euro fell back near last week's four-month low against the U.S. dollar at $1.3532.

The dollar index <.DXY>, which measures its strength against a basket of key currencies, climbed 0.2 percent, though the dollar was slightly lower against the yen at 102.38 .

The greenback continued to benefit from rising U.S. Treasury yields as the benchmark 10-year rate topped 2.65 percent for the first time since May 13.
"The Fed's bias could likely shift to a more hawkish stance. They're a little worried about financial exuberance and a little bit of complacency in the market," said Aaron Kohli, interest rate strategist, at BNP Paribas in New York.

Next week's two-day meeting of Fed officials will be followed by a press conference in which Fed Chair Janet Yellen will likely be pressed on the timing of interest rate hikes.

Source: Reuters

Banks search for loopholes in leveraged loan guidelines

Wall Street banks are playing cat-and-mouse with U.S. regulators over rules that seek to reduce lending for deals that load up companies with too much debt, as they try to retain a profitable business and meet demands from clients and investors.

Leveraged lending is one of the most lucrative forms of loans for banks, giving Wall Street an incentive to accommodate borrowers as much as it can. Banks fees on U.S. junk-rated loans stand at $4.9 billion so far this year, a year-to-date record and up 10 percent from the same period last year, according to Thomson Reuters and Freeman Consulting data.

The guidelines, issued by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp in March last year, generally seek to restrict banks making loans in deals such as leveraged buyouts that would leave a company with debt levels that are more than six times its annual cash flow. Since the guidelines were issued, regulators have warned lending standards have in fact deteriorated. [ID:nL1N0NZ2F0]

As a result, banks are exploring whether they can arrange more of special kinds of bonds for companies that should not be taking on more loans under the guidelines, according to banking sources who spoke on condition that neither they nor the banks they work for or with are identified. These bonds would help to split the overall debt load between a holding company and its operating subsidiary. The guidelines are aimed at curbing risky loans and do not directly address bonds.

"There are a lot of smart, creative people out there that are looking for ways to both meet demand from borrowers and investors and satisfy regulators," said David Brittenham, chair of law firm Debevoise & Plimpton LLP's finance group.

Banks including JPMorgan Chase & Co , Bank of America Corp and Credit Suisse Group AG all have big leverage finance businesses.
The loans are also important for buyout shops such as KKR & Co LP and Apollo Global Management LLC , which often use debt to magnify their returns. These firms have warned in regulatory filings that the guidelines could erode returns in their private equity business because of limits in how much their companies can borrow.

One illustration of the guidelines' effect came last month, when some of KKR's closest banking relationships snubbed a request for a buyout loan over concern it is too risky to pass muster with U.S. regulators.

Regulators, which are now reviewing banks' loan books to assess their credit quality and compliance with the guidelines, declined to comment on the workaround strategy.

A source familiar with the OCC's thinking said the agency is likely to crack down on strategies such as the use of holding company bonds that it thinks are meant to circumvent the guidelines and could lead to a bank getting fined. The feedback banks have received from regulators on the idea has been negative, other sources said.

The deliberations show the challenges regulators face in implementing financial reforms and curtailing the side effects of the Fed's cheap money policies six years after the financial crisis. By aiming for the most indebted companies, regulators are trying to reduce risk in the banking system as well as in the broader economy.

Perhaps the most infamous instance from that era was the $48 billion leveraged buyout of Texas power utility Energy Future Holdings in 2007, the biggest LBO in history. The deal's $40 billion debt was equal to 8.2 times adjusted EBITDA (earnings before interest, tax, debt and amortization). Energy Future filed for bankruptcy earlier this year.

For investors, junk bonds have been one way to find returns at a time when interest rates remain at record lows.

Banks are still trying to figure out how many deals that do not comply with the guidelines they will be allowed to do, the sources said. Regulators have told banks that these deals should be rare, but it is unclear what that means, they said.

For example, "rare" has been interpreted as anything from one or two deals a year to one or two percent of deals a bank does, the sources said. Banks are hoping that the regulatory review of their loan books will provide some clarity this summer.

The sources said allowance for a certain number of deals will also make putting together a lending syndicate for non-compliant financings challenging.

That's because every bank wants to be the lead arranger on a deal, which entitles it to most of the financing fees. The lead bank in a syndicate may be happy to use one of its allowances for a non-compliant deal, but will then have to persuade other banks to also use their allowance for a smaller cut of the fees, the sources said.


WORKAROUND STRATEGY

These challenges make the possibility of engineering a workaround even more attractive for banks. The idea contemplated takes advantage of the legal division of a company between an operating company that owns the physical assets and runs the day-to-day operations, and a holding company, which owns the equity in the operating company.

Companies typically borrow at the operating company level through loans. Since the loans can be secured against the company's assets, they are cheaper than other options.

They can also borrow through the holding company by issuing bonds. Payments on those securities are made from the cash that remains after the liabilities of the operating company are met, making them riskier than operating company loans.

Many holding company bonds are structured as payment-in-kind

(PIK) notes that pay interest by adding to the outstanding principal rather than returning cash to the bond's holder – an even riskier proposition.

Such bonds are expensive for the issuer and the risk involved makes the investor universe limited, but the market has been growing as investors seek higher-yielding securities.

By having the holding company issue PIK notes, financiers hope they can appease regulators concerned about the drag of more debt on the cash flow of a company. It remains unclear whether regulators will be convinced, given their preliminary negative feedback.

Bankers point to a recent deal as an example of how that can work. In March, alternative asset manager Crescent Capital Group LP invested in PIK notes of Catalina Marketing Corp, owned by rival Berkshire Partners LLC, according to a source familiar with that deal.

Catalina's overall leverage reached 7.5 times EBITDA, according to Thomson Reuters Loan Pricing Corp. But the operating company leverage remained at 6.5 times EBITDA.

Credit rating agencies took the view that the move to issue PIK notes was positive for operating company creditors because they would not draw on Catalina's cash.

Berkshire Partners and Crescent Capital declined to comment on the motives for that deal. Sources close to the transaction said the bonds were aimed at giving more financial flexibility to the operating company rather than to circumvent the guidelines.

Source: Reuters

Monday, 9 June 2014

China presents documents to UN Secretary-General Ban Ki-moon, showing Vietnam's provocation

 A Chinese envoy on Monday sent a note to UN Secretary-General Ban Ki-moon, presenting documents making clear Vietnam's provocation and China's stance regarding the Xisha Islands in the South China Sea.

In the note, Wang Min, China's deputy permanent representative to the United Nations, also asked Ban to circulate the documents, as UN General Assembly documents, among all UN member states.
The documents included an article, released by the Chinese Foreign Ministry on Sunday and titled "The Operation of the HYSY 981 Drilling Rig: Vietnam's Provocation and China's Position", as well as annexed material that proves the Xisha Islands are part of Chinese territory.
"China sent the note to tell the international community the truth and set straight their understanding on the issue," Wang told reporters here after delivering China's second note to the UN chief on Vietnam's provocative actions on the sea. The first note was sent to Ban on May 22.
He noted that the actions of the Vietnamese side, which illegally and forcefully disrupted the Chinese operation, were serious infringements upon China's sovereignty, sovereign rights and jurisdiction, grave threats to the safety of Chinese personnel and the HYSY 981 drilling rig, and gross violations of the relevant international laws, including the Charter of the United Nations, the 1982 UN Convention on the Law of the Sea (UNCLOS) and 1988 Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation and the Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms Located on the Continental Shelf.
"Such actions also undermined the freedom and safety of navigation in these waters, and damaged peace and stability in the region," Wang added.
The Chinese envoy stressed that Xisha Islands are an inherent part of China's territory, over which there is no dispute.
Wang quoted the documents as saying that, prior to 1974, none of the successive Vietnamese governments had ever challenged China 's sovereignty over the Xisha Islands.
"Vietnam had officially recognized the Xisha Islands as part of China's territory since ancient times," he said. "This position was reflected in its government statements and notes as well as its newspapers, maps and textbooks."
But now, Wang noted, the Vietnamese government goes back on its word by making territorial claims over China's Xisha Islands, which is a gross violation of the principles of international law, including the principle of estoppel, and the basic norms governing international relations.
Wang also underlined that China is a staunch force for maintaining peace and stability in the South China Sea and promoting cooperation between and development of countries in the region.
He went on to say that China wants good relations with Vietnam, but there are principles that China cannot abandon.
Wang reiterated that China urges Vietnam to bear in mind the overall interests of the bilateral relations and peace and stability in the South China Sea, respect China's sovereignty, sovereign rights and jurisdiction, immediately stop all forms of disruptions of the Chinese operation and withdraw all vessels and personnel from the site, so as to ease the tension and restore tranquility at sea as early as possible.
"China will continue its effort to communicate with Vietnam with a view to properly addressing the current situation," he added.
Source: ChinadailyUSA

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