U.S. government to unveil near $9 bln fine for France's BNP-sources

The U.S. Justice Department is expected to announce on Monday a settlement with BNP Paribas involving a record fine of nearly $9 billion over alleged U.S. sanctions violations by France’s biggest bank, sources familiar with the matter said.

The penalties, which the sources said may also include a temporary ban on some dollar-clearing business, could hit BNP's dividend payout, regulatory capital ratios and its investment banking targets, analysts say.

BNP is expected to plead guilty to a criminal charge in both federal and state courts in Manhattan on Monday and the U.S. Justice Department is planning a news conference in Washington to announce a deal the same day, sources said.

However, the lender is expected to retain its banking license from the New York state banking regulator after negotiations which, according to sources close to the matter, at one point raised the prospect of an even bigger fine of up to $16 billion.

U.S. authorities have been examining whether BNP evaded U.S. sanctions relating primarily to Sudan between 2002 and 2009, sources have said.

"I want to say it clearly here: We will receive a heavy penalty," BNP Chief Executive Officer Jean-Laurent Bonnafe told staff in an internal message sent on June 27 and seen by Reuters. "However, the difficulties that we are currently experiencing must not affect our plans for the future."

The bank has not commented publicly on the case since it warned shareholders on May 14 that the fine could be stiffer than the $1.1 billion for which it originally provisioned.

A BNP spokeswoman declined to comment. Shares in the group ended 0.27 percent higher at 49.545 euros in Paris trade.
Source: Reuters

As caliphate declared, Iraqi troops battle for Tikrit

Iraqi troops battled to dislodge an al Qaeda splinter group from the city of Tikrit on Monday after its leader was declared caliph of a new Islamic state in lands seized this month across a swathe of Iraq and Syria.

Alarming regional and world powers, the Islamic State in Iraqand the Levant (ISIL) claimed universal authority, declaring its leader Abu Bakr al-Baghdadi was now caliph of the Muslim world - a mediaeval title last widely recognised in the Ottoman sultan deposed 90 years ago after World War One.

"He is the imam and caliph for Muslims everywhere," group spokesman Abu Muhammad al-Adnani said in an online statement on Sunday, using titles that carry religious and civil power.

The move, at the start of the holy month of Ramadan, follows a three-week drive for territory by ISIL militants and allies among Iraqi's Sunni Muslim minority. The caliphate aims to erase colonial-era borders and defy the U.S.- andIranian-backed government of Shi'ite Prime Minister Nuri al-Maliki in Baghdad.

It also poses a direct challenge to the global leadership of al Qaeda, which disowned ISIL, and to conservative Gulf Arab Sunni rulers, who already view the group as a security threat.

"This declaration is a message by Islamic State not only to Iraq or Syria but to the region and the world. The message is that Islamic State has become a threat to all countries," he said. "I believe all countries, once they read the declaration, will change their attitudes because it orders everybody to be loyal to it."

The fighting in Iraq, the second biggest oil producer in OPEC, has contributed to a rise in analysts' forecasts for the global price of crude, a Reuters poll found. The consensus view of the average 2014 price of a barrel of Brent rose more than $2 to $108 in the course of the past month.

Fighters from the group overran the Iraqi city of Mosul on June 10 and have advanced toward Baghdad, prompting the despatch of U.S. military advisers. In Syria, ISIL has captured territory in the north and east, along the desert frontier with Iraq.

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

The army attempted last week to take back Tikrit but was unable to seize the city, 160 km (100 miles) north of Baghdad. Helicopters hit ISIL positions overnight. On the southern outskirts, a battle raged into Monday, residents said.

The fighting has started to draw in international support for Baghdad, two and a half years after U.S. troops pulled out.

Armed and trained by the United States, Iraq's armed forces crumbled in the face of the ISIL onslaught and have struggled to bring heavier weaponry to bear. Only two aircraft - turboprop Cessna Caravans normally used as short-range passenger and cargo carriers - are capable of firing the powerful Hellfire missile.

The U.S. is flying armed and unarmed aircraft in Iraq's airspace but says it has not engaged in fighting.

Russia has sent its first warplanes to Baghdad, filling an order for five second-hand Sukhoi Su-25 ground attack jets. The government said they will be operational within a few days.

In Falluja, where ISIL fighters have been in control for six months just west of Baghdad, a bank accountant who asked to remain anonymous for fear of retribution said the announcement of the caliphate was a "step backward": "It will only turn the government even more hostile to us," he said. "This will isolate us further from the rest of the world."

ISIL has used alliances with other, less radical Sunni armed groups and tribal fighters who are disillusioned with Maliki. Members Saddam’s secular Baath party have also fought in the revolt.

The term caliph indicates a successor to the Prophet Mohammad, with temporal authority over all Muslims.

Traditionally it denotes a political and military leader with religious elements. Rival claims to the succession lie at the root of the 7th century schism between Sunnis and Shi'ites.

Following Turkey's defeat in World War One and the carving up of its Middle East empire by Britain and France, new Turkish nationalist rulers in 1924 formally abolished the caliphate that Ottoman sultans had held for nearly five centuries.

For many militant Islamists, who see a decline in religious observance and divisions among Muslims as causing many problems, the restoration of the caliphate has been an important goal.

According to the mid-20th century Egyptian Islamist writer Sayyid Qutb, whose ideas later helped form those of al Qaeda, in order to bring about a new caliphate, at least one state must revive Islamic rule - a role al Qaeda founder Osama bin Laden thought in the 1990s might be filled by Taliban-run Afghanistan.

Since the Ottoman collapse, Sunni Islam has lacked an internationally recognised clerical hierarchy. Senior figures generally hold authority within a single country. Among the most prominent of these is the Grand Mufti of Egypt, whose spokesman dismissed the new caliphate in Iraq and Syria as an "illusion".

"ISIL’s announcement of what they called the Islamic caliphate is merely a response to the chaos which has happened in Iraq as a direct result of the inflammation of sectarian conflict in the entire region," Ibrahim Negm said in Cairo.

ISIL has followed al Qaeda's hardline ideology, viewing Shi'ites as heretics, but has alienated bin Laden's successor Ayman al-Zawahri and other Islamists with its extreme violence.

ISIL's declaration could isolate allies in Iraq and lead to in-fighting. Such internal conflicts among rebel groups in Syria has killed around 7,000 people there this year and complicated the three-year uprising against Syrian President Bashar al-Assad, another ally of Shi'ite Tehran.

Source: Reuters

Gold scores biggest monthly gain since February

Gold futures climbed on Monday and tallied their biggest monthly gain since February. The "wild card" for the market is the geopolitical tensions, said Chris Gaffney, senior market strategist at EverBank Wealth Management, who mentioned Iraq, Ukraine and North Korea, in particular. "Any flare up in these areas could quickly lead to another round of 'safe haven' buying in the precious metals," he said. August gold  rose $2, or 0.2%, for the session to settle at $1,322 an ounce on the Comex division of the New York Mercantile Exchange. Tracking the most-active contracts, prices gained 6.1% for the month, their strongest gain since February. They rose 3% for the quarter.

Source: Marketwatch

Oil slips below $113 as Iraq supply concern eases

Oil prices fell on Monday, with Brent crude dropping below $113 a barrel as investors grew less jittery about global supplies after Iraq government forces launched a pushback against a Sunni militant insurgency.

The North Sea oil benchmark is still up about 3 percent this month, its strongest monthly showing since August. But Brent has come off the nine-month high hit two weeks ago, when it surged above $115.

"The fear premium is abating as the chances of fighting in Iraq hitting oil supplies diminishes," said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt.

"It now looks very unlikely that the rebels will reach the major oil supply areas."

The Iraqi army sent tanks and armoured vehicles to dislodge insurgents from the northern city of Tikrit. Heavy fighting in the north of Iraq has had little impact on the southern refineries that produce around 90 percent of the country's oil shipments.

Brent fell 84 cents to $112.46 a barrel by 11:21 a.m. EDT (15:21 GMT) after a 1.3 percent decline last week. U.S. crude declined 47 cents to $105.27 a barrel, after sliding nearly 1.4 percent in the past week.

On Friday, U.S. Secretary of State John Kerry and Saudi King Abdullah discussed global oil supplies during a meeting about the crisis in Iraq, a U.S. official said.

During the talks, Kerry referred to recent comments by a Saudi oil official that the world's largest oil producer would increase supplies if there was a disruption due to crises in Iraq or Syria.

The reopening of a port in Libya and an easing of tensions over the Ukraine crisis also weighed on oil.

Although violence in Iraq remains contained, the fear factor is going to hold oil prices above $105 for U.S. crude and $110 for Brent, analysts said.

"We'll be well supported as long as there are issues in Iraq and Russia," said Carl Larry, CEO of consultancy Oil Outlooks in Houston, Texas.

Economic data due this week will help investors gauge the outlook for the global economy and oil demand. Data due this week include U.S. June auto sales figures on Tuesday and U.S. June payrolls on Thursday, a day early due to the Fourth of July holiday.

Economists polled by Reuters expect U.S. jobs to increase 213,000 in June for a fifth straight month of gains above 200,000.

Source: Reuters

Copper slips but eyes second monthly rise on China hopes

Copper dipped on Monday as investors worried about high oil prices and waited for further signs of U.S. growth, but the metal was on track for its second straight monthly gain on tight supply and hopes of solid demand from China.

China purchasing managers' indices (PMIs) for manufacturing and services are expected to confirm on Tuesday that the world's second-largest economy is stabilising thanks to Beijing's measures to shore up growth. 

Earlier, local China media said the country's banking regulator was relaxing the rules for calculating banks' loan-to-deposit ratios in a bid to release more cash into the system to support the real economy.

Investors are also betting on a rebound in the United States, with the non-farm payrolls on Thursday expected to show 213,000 jobs were added in June, marking a fifth straight month of gains above 200,000.

"After a very weak first quarter, the U.S. economy is gaining steam and so is the Chinese economy. (Also) the availability of copper has been very low. I think we can test $7,300 over the next three months," said Gianclaudio Torlizzi, partner at metals consultancy T-Commodity.

He was less bullish on the direction of copper prices in the near term, however: "The price now has to discount a potential oil spike, so in (the) following days the market will test support between $6,700 and $6,800," said Torlizzi.

A Sunni insurgency in northern Iraq has driven oil prices as high as $115 a barrel in the past month and is raising worries about global growth. Some of last week's first-quarter U.S. data also underlined doubts about growth. [O/R] [MKTS/GLOB]

Three-month copper on the London Metal Exchange was last bid at $6,932 a tonne in official midday rings, down 0.26 percent on the day.

Copper hit its highest in more than three months on Friday, and is on track to log a one-percent gain in June, adding to May's three-percent advance and paring the year's losses to around 5 percent.

Data showed euro zone inflation in June remained low at 0.5 percent, confirming expectations the European Central Bank will keep policy loose for longer, and underpinning demand for risky assets.

Shanghai Futures Exchange copper stocks climbed in Friday's weekly report, but remain near 3-1/2 year lows, while LME stocks are around 150,000 tonnes, near the smallest in six years. 

The global copper market was expected to swing into a surplus in 2014 for the first time in four years, but a ban on ore exports from Indonesia and lower-than-expected metal production in China has curbed supply.

Reflecting investor optimism over copper prices, hedge funds and money managers switched the copper market into a net long position in the latest week, the CFTC Commitments of Traders report showed

In other metals, LME zinc prices traded up 0.34 percent in rings at $2,198 a tonne, having earlier hit a high of $2,183.25 a tonne, its highest since mid-February 2013.

Zinc is set to outperform other metals for June, with gains of more than 7 percent, also boosted by tight supply.

Reflecting distress in the spot market, cash zinc prices moved to a premium against three-month contracts on Monday for the first time in a month. 

Zinc in the West has been supported by deteriorating ore grades and the closure of big mines, while the story is not so bullish in Asia, one trader said, given that higher LME prices mean it is no longer profitable to import into China.

Tin traded down 2.45 percent in rings at $21,875 a tonne, having earlier hit a low of $21,850 a tonne, its weakest since late January this year.

Indonesia's biggest tin miner PT Timah reported on Monday a 25 percent fall in first-quarter net profit, hurt by lower tin prices.

Aluminium traded down 0.71 percent in rings at $1,883.50 a tonne, lead was down 0.74 percent at $2,158 a tonne, while nickel traded down 0.27 percent at $18,800 a tonne.
Source: Reuters

Tencent's Online Shopping Doesn't Come Cheap

   The WSJ reports "Tencent said Friday it will spend $736 million to take about 20% of 58.com , a Chinese site comparable to Craigslist in the U.S., where small businesses and individuals post ads for apartments, used goods, pets and so on. Tencent plans to channel traffic from its various platforms, including the WeChat and QQ messaging services, to 58.com.

"This marks Tencent's fifth major acquisition so far this year—and fits its deal strategy perfectly. The company's overarching goal is to become the dominant platform for people to access the Internet in China, building in particular on the highly popular WeChat messaging app. Earlier this year, Tencent bought minority stakes in online retailer JD.com,  real estate listings site Leju and restaurant review application Dianping, similar to Yelp in the U.S., in every case promising integration with WeChat.

In this, Tencent is looking more coherent than archrival Alibaba, whose investments so far this year include stakes in a film studio, a shopping mall operator, a soccer team, and the Singapore postal service.

Aiming to link all its diverse purchases to WeChat makes it more likely that Tencent will be able to benefit from network effects. But so far there is little evidence that these deals are feeding the bottom line—WeChat still makes money primarily through its mobile game offerings".

And the costs of Tencent's acquisitive strategy are mounting. It has spent over $2 billion over the past year on acquisitions, not counting the value of two business units that it traded to JD.com.

Tencent bought its stake in 58.com at a deep 23% discount to the publicly traded share price. That discount, however, is partly flattered by a sudden 14% spike in 58.com shares the day before the deal was announced.

It also doesn't mean 58.com came cheap. The stock has more than tripled since it listed in October last year and even Tencent's discounted price is equivalent to around 90 times forward earnings.

At prices like that, Tencent's serial acquisitions will eventually start to try investor patience.

Islamist militants have declared an Islamic "caliphate"

Islamist militants have declared an Islamic "caliphate" in an area straddling Iraq and Syria, trumpeting the declaration in several videos.

One slick video, mostly in English, features a bearded fighter with an AK-47 on his back, explaining the new caliphate.

"This is not the first border we will break, we will break other borders," a jihadist from the Islamic State in Iraq and the Levant (Isis) warned in the video called End of Sykes-Picot, a reference to the agreement between France and Britain that divided up the Ottoman empire territories after the first world war.

Later the fighter pledges that jihadists will free Palestine. "We are not here to replace an Arab cahoot with a western cahoot. Rather our jihad is more lofty and higher. We are fighting to make the word of Allah the highest," the spokesman said.

He is filmed showing abandoned Iraqi army badges and vehicles left by fleeing soldiers. "There is no army in the world that can withstand the soldiers of Islam," he said.

The video features about a dozen men in a cell said to be captured troops and border police. A building, said to be a police station, is shown being blown up, as well as US-made Humvees captured from the border police. "Look how much America spends to fight Islam, and it ends up just being in our pockets," the spokesman taunted.

Isis, a breakaway group from al-Qaida, is notable for its hardline anti-Shia sectarianism, declaring Shia Muslims and other rivals as heretics that deserve death.

Abu Mohammed al-Adnani, an Isis spokesman, defined the Islamic state's territory as running from northern Syria to the Iraqi province of Diyala north-east of Baghdad, a vast stretch of land straddling the border that is already largely under Isis control. He also said that with the establishment of the caliphate, the group was changing its name to the Islamic State, dropping the mention of Iraq and the Levant.

"The legality of all emirates, groups, states and organisations becomes null by the expansion of the caliph's authority and the arrival of its troops to their areas," he said in an audio statement posted online, AP reported. "Listen to your caliph and obey him. Support your state, which grows every day."

Adnani said the group's chief, Abu Bakr al-Baghdadi, is the leader of the new caliphate and called on Muslims everywhere, not just those in areas under the organisation's control, to swear loyalty to him.

Baghdadi has been disowned by al-Qaida's leader, Ayman al-Zawahiri, after al-Baghdadi ignored al-Zawahiri's demands that the Islamic State leave Syria.

Another video called Breaking of the Borders showed Isis fighters killing Iraqi border guards, Reuters reported.

Meanwhile, the Syrian Observatory for Human Rights, a monitoring group, said Islamic State fighters crucified eight men said to be rival rebel fighters in the town square of Deir Hafer in Syria's Aleppo province on Saturday as a warning to others.

An analyst said the declaration of a caliphate by the Islamic State posed a huge challenge to al-Qaida.

"Put simply, Abu Bakr al-Baghdadi has declared war on al-Qaida," said Charles Lister, a visiting fellow at the Brookings Doha Centre. "While it is now inevitable that members and prominent supporters of al-Qaida and its affiliates will rapidly move to denounce Baghdadi and this announcement, it is the long-term implications that may prove more significant.

"Taken globally, the younger generation of the jihadist community is becoming more supportive of Isis, largely out of fealty to its slick and proven capacity for attaining rapid results through brutality."

The Islamic State's declaration came as the Iraqi government tries to claw back some of the territory gained by the jihadists and disaffected Sunnis.

On Sunday, Iraqi helicopter gunships struck suspected insurgent positions for a second consecutive day in the northern city of Tikrit, the predominantly Sunni hometown of former dictator Saddam Hussein. The insurgents appeared to have repelled the military's initial push and remain in control of the city.

Source: theguardian

WSJ: Gazprom Warning Heralds Changing of Seasons

"A new week begins with an old message from Gazprom.

The Russian natural-gas behemoth says Europe may not be feeling the effect of Russia’s spat with Ukraine right now but boy, just wait until the weather turns.

The Wall Street Journal’s Alexander Kolyandr explains that Gazprom stopped supplying gas to Ukraine earlier this month as both sides failed to reach a compromise on price. Russia’s state-owned gas giant said it would only sell natural gas to Ukraine if it pays for deliveries in advance and stumps up $4.5 billion it owes for past deliveries.

Although Ukraine has reduced its gas consumption, Gazprom believes that when summer turns to autumn and temperatures drop, the gas that transits Ukraine from Russia to Europe will begin to be siphoned off.

This is an accusation that has been made before, in the particularly cold winter of 2009. Gazprom then cut the flow completely.

Still, Gazprom says it’s working toward making this kind of argument defunct. It’s buildingthe South Stream pipeline across the Black Sea, and says this will make Ukraine redundant as a transit country.

But despite Russia and Austria agreeing to build the final 50 kilometers of the 2,446-kilometer total length, South Stream isn’t a done deal.

Bulgaria, at the request of the European Union, has halted work on its section; Serbia is demurring, its new government making eyes at the EU.

With midsummer already in the rear-view mirror, European nights are drawing in. The winter will give Russia a new card to play".

TheGuardian: Iraq: Nouri al-Maliki's days in office may be numbered

Nouri al-Maliki's days in office may be numbered, according to AFP in a look ahead to the opening Iraq's new parliament which is supposed to take place on Tuesday.

Maliki's Sunni and Kurdish rivals are refusing to grant him a third term, while his own bloc - less cohesive than during the previous 2010 election - has been subsumed into a pan-Shiaalliance, thereby lessening his clout.

"There is a discussion going on" within Maliki's State of Law alliance over whether to replace the premier, said a Western diplomat on condition of anonymity.

"There are clearly talks going on," the diplomat said, adding: "It is quite a critical few days... This is an important period politically."

Maliki staked his reputation as the leader who brought violence under control in 2008 as Iraq emerged from a brutal Sunni-Shiite sectarian war.

But a rise in unrest this year, culminating in the sudden advance of jihadist-led Sunni militants who overran swathes of territory, has done significant damage.

The formal resurrection of the pan-Shia National Alliance coalition, that includes State of Law and rival groups, further dilutes Maliki's claim to the post, which was based on his party having won nearly three times as many seats in the polls as the next closest contender.

The recreation of the NA instead raises the spectre of a prime ministerial candidate emerging from any of the alliance's constituent parties.

"After the election, his chances were good, but the security breakdown in the country has clearly hurt him," said Hakim al-Zamili, an MP from the Ahrar bloc loyal to powerful Shiite cleric Moqtada al-Sadr.

"Maliki's chances now are weak under these circumstances - the security problems, problems with the Sunnis, the Sadrists, the Kurds."

Under a de facto agreement, the Iraqi premier - by far the most powerful position in the country - is typically a Shia Arab, the parliament speaker is Sunni Arab, and the national president a Kurd.

Though no single candidate has emerged as the frontrunner to replace Maliki, several names from within the country's majority Shiite community have been floated.

Well-known figures such as former vice president Adel Abdel Mehdi, ex-premier Ibrahim al-Jaafari, and ex-deputy premier Ahmed Chalabi are all being touted alongside backroom power brokers such as Maliki's current chief of staff Tareq Najim.

Russia's Rosneft signs further oil products supply deal with BP

June 27 (Reuters) - Rosneft signed on Friday its second major agreement with BP since sanctions were imposed on the Russian oil company's chief executive, a close ally of President Vladimir Putin, over Russia's involvement in the Ukraine crisis.

The five-year agreement will supply BP with up to 12 million tonnes of refined oil products and involves a pre-payment of at least $1.5 billion arranged by leading global financial institutions, Rosneft said.

Rosneft refined nearly 90 million tonnes of oil last year, according to company figures.

Some Western firms have been wary of investment and business in Russia since sanctions were imposed over the crisis in Ukraine, where Moscow denies accusations of orchestrating a rebellion by pro-Russian separatists.

But the sanctions have had only a limited impact on the Russian energy industry, a cornerstone of the country's $2-trillion economy, resulting mostly in higher borrowing costs for domestic companies.

Since the sanctions were imposed, executives from Total , BP , Statoil and ExxonMobil have visited Russia, underlining the importance they attach to business with the world's leading oil producer with current output of around 10.5 million barrels per day (bpd).

Last year, Rosneft announced deals worth more than $15 billion to sell crude oil and other products to BP, which now owns almost a fifth of Rosneft following Rosneft's acquisition of Anglo-Russian oil firm TNK-BP last year.

Friday's signing also follows an agreement by BP and Rosneft in May to jointly explore in Russia for hard-to-recover shale oil.

Such deals do not violate sanctions over the Ukraine crisis because Rosneft has not been included on any sanctions list, but Rosneft's chief executive Igor Sechin had a visa ban and asset freeze slapped on him by the United States after Russia annexed the Black Sea peninsula of Crimea from Ukraine in March.

"I am working here with Rosneft. It's a business between the companies. I don't comment on personal sanctions," BP's chief executive Bob Dudley told reporters in Khabarovsk in Russia's far east after attending the signing ceremony with other members of the Rosneft board of directors.

Sechin told reporters that he had no accounts or assets in the United States but he felt the impact from sanctions.

"Sanctions don't allow me to see the beauty of their (U.S.) nature, to learn their culture, show my kids their nature," he said. "I wanted to take a motorbike trip across America but this decision denies me such an opportunity."

Eight banks have signed a $2-billion prepayment facility backing the long-term delivery of crude oil products between Russian oil giant Rosneft and BP, Rosneft said on Friday.

The banks include Deutsche Bank, Bank of China, Societe Generale, Bank of Tokyo-Mitsubishi and Sumitomo Mitsui Banking Corporation, two banking sources close to the deal said.

Rosneft also said the prepayment facility will increase further as several other banks also have shown interest in joining the deal, adding that supplies to BP could start next month.

Bankers earlier this month said partly state-owned UK lender Lloyds Bank had pulled out of the $1.5-$2 billion trade finance deal to avoid risking any political embarrassment for its government.

Under the terms of the latest deal, Rosneft said oil product deliveries could be substituted for supplies of oil but gave no explanation of the circumstances under which this could happen.


LIMITED IMPACT

Such pre-payment supply deals have raised billions of dollars for Rosneft, which borrowed $30.1 billion in two separate loans in 2012 and 2013 to help finance last year's $55 billion acquisition of TNK-BP, once Russia's third largest oil producer.

Last year Rosneft also agreed an $8.32 billion loan with commodity traders Glencore and Vitol and a $1.5 billion pre-payment loan with Swiss-based trading house Trafigura.

However, some Russian energy companies have recently been talking to their customers about a possible switch to using currencies other than the U.S. dollar in transactions to minimise sanction-related risks.

Other companies could also now follow the example of Surgutneftegas , Russia's fourth-biggest oil producer with an average daily output of 1.2 million barrels of crude, which according to its accounts has stockpiled over 1 trillion roubles ($30 billion) of cash instead of paying out higher dividends or making large acquisitions.

Meanwhile Lukoil , Russia's second-biggest oil producer, has postponed an up to $2 billion Eurobond issue until the autumn because of a spike in borrowing costs. 

Source: Reuters

U.S. judge says bank should return Argentine bond payment

 A U.S. judge on Friday called Argentina's decision to make a sovereign debt payment in defiance of a court order an "explosive action" and told Bank of New York Mellon to return the money to the government.

U.S. District Judge Thomas Griesa in New York told lawyers representing Argentina and BNY Mellon that any attempt to make payment to bondholders without complying with his court is illegal.

"It cannot be done and it will not be permitted by this court. I want the banks involved to know that. This payment cannot be made and anyone who attempts to make it will be in contempt of this court," said Griesa, who was appointed to the court by U.S. President Richard Nixon in 1972.

On Thursday, Argentina deposited $539 million in BNY Mellon’s account at the Central Bank of Argentina intended only for bondholders who participated in two sovereign debt exchanges in 2005 and 2010. 
The deposit was made, Argentina said, in order to meet a June 30 coupon payment deadline. There is a 30 day grace period,

however, before a default can be declared if exchange bondholders do not receive their money.

Argentina was ordered by Griesa in 2012 to pay holdouts, who did not participate in the debt exchange, $1.33 billion plus interest on unrestructured bonds stemming from the country's $100 billion default in 2001-2002. The order was denied a hearing by the U.S. Supreme Court on June 16, effectively upholding the holdout's victory in the U.S. 2nd Circuit Court of Appeals.

Holdout investors are led by Elliott Management's NM Capital Ltd and Aurelius Capital Management, two hedge funds that specialize in buying up deeply discounted or distressed debt and negotiating profitable settlements, often through the use of the courts.

BNY Mellon in court confirmed Thursday's deposit was made into its account and told Griesa it was seeking to comply with his orders.

"Those funds remain in that account. Nothing more has happened," BNY Mellon's lawyer Eric Schaffer of Reed Smith told Griesa.

Griesa's order says Argentina cannot pay exchange bondholders without also paying the holdouts at the same time under the pari passu, or equal treatment, clause in the original bond contract.

"The money should be returned to the republic. Simple as that," Griesa said, adding that Argentina should get back to the negotiating table. Earlier this week, the judge appointed New York financial trial lawyer Daniel Pollack as a special master to help facilitate a settlement between Argentina and the holdouts.

Pollack told Reuters via email he was in court during the hearing and said he was “making every effort to get the parties to the table.”

Source: Reuters

EU Signs Pacts With Ukraine, Georgia, Moldova

The WSJ reports,"the European Union and three of Russia's neighbors signed sweeping trade-and-political agreements Friday, pushing the bloc's influence eastward but potentially provoking fresh tensions with Moscow.

The deals with Ukraine, Georgia and Moldova, which lower trade barriers and promote democratic reforms, were years in the making but faced doubts recently as Moscow stepped up its opposition. Russia, which annexed Ukraine's Crimea region in March, has said it might retaliate against the three countries by curtailing trade ties.

But EU leaders want to show they won't let a newly aggressive Russia deter them from welcoming countries into the European orbit. Many nations on Russia's periphery have become more eager to align with the EU as a way to protect themselves against potential Russian threats.

The leaders of Ukraine, Georgia and Moldova said Friday that the agreements are a pivotal step in aligning their countries permanently with Europe. Ukrainian President Petro Poroshenko stressed the rapid changes engulfing his country in recent months, including street protests and the previous government's ouster, that led to this moment".

What a great day—maybe the most important day for my country after independence day," Mr. Poroshenko said as the heads of all 28 EU countries looked on. "It shows how dramatically things can change in a short time, if the will of the people is strong enough."

But leaders of both sides warned of challenges ahead. EU officials stressed that the three countries must keep up their reforms. Mr. Poroshenko said the EU must stand by Ukraine as it goes through a tough transition in the face of Russian displeasure.

"Will Europe be free, or partly free?" said Mr. Poroshenko, elected in May. "Will it have to worry about more war and annexation, or will it be confident in the future? These aren't idle questions, and the answer will depend on the success or failure of documents we sign today."

Herman Van Rompuy, president of the European Council, the assembly of EU heads of state and government, appeared to address Moscow when he said, "There is nothing in these agreements, nor in the European Union's approach, that might harm Russia in any way."

But the Kremlin has made it clear it sees the deals as a threat to its rightful sphere of influence. Moscow has said recently it might scale back trade ties with its neighbors if they sign such pacts, and after Friday's signing the Russian Foreign Ministry warned of serious consequence for Ukraine.

The deals are part of an eastward-looking EU strategy launched in 2009, with an EU-Ukraine agreement always the centerpiece. Azerbaijan, Belarus and Armenia, which last summer suddenly decided to tear up its draft agreement with the EU, turned down similar bilateral pacts.

Former Ukrainian President Viktor Yanukovych's refusal to sign an EU association agreement led to weeks of street protests and finally to his ouster.

The continuing tensions with Russia over Ukraine are a major topic of Friday's gathering of EU leaders in Brussels, although no new sanctions are expected. Russia's relations with Georgia and Moldova are also delicate, and the EU's choice to push ahead and sign deals with them could anger Moscow.

Canada stocks to hit record highs on energy rebound

Canadian stocks will probably set record highs this year and next, lifted by strength in the energy sector and an improving global outlook, a Reuters poll showed on Thursday.

Buoyed by an increasingly stable global economy and easy monetary policies across the world, stock markets have been steadily advancing. The Canadian equities market, which lagged behind its global peers in 2013, has finally caught up.

The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> is expected to build on recent strong momentum to end 2014 with double-digit growth, but the advance from current levels will be somewhat muted.

The median forecast in the poll of 38 market analysts showed the index reaching 15,300 by the end of 2014, up 12 percent from the start of the year and 2 percent from Wednesday's close.

The data also projected the index would hit 15,850 by the middle of 2015.

"The broad theme for the rest of this year is a modest but continued rebound," said Edward Jones strategist Craig Fehr. "I have a fair amount of confidence that the global economy is on the upswing.

"The fact that the TSX has finally started to get some legs this year is a reflection of the rebound in energy and materials," he added.

The Canadian benchmark, up about 10 percent this year, has outperformed most major equity indices so far. It hit a record closing high last week but failed to crack the all-time intraday high of 15,154.77 touched in June 2008.

"The flip side to the good news story is that people are worried we've had such good returns over time that the valuations look stretched," said John Stephenson, president of Stephenson & Co Capital Management.

Given the recent run-up in share prices, some fund managers expect the Toronto market to pull back at some point.

"I wouldn't be surprised to see a correction along the way in the next few months," said Michael Sprung, president of Sprung Investment Management. "It's getting very difficult to find really good value when you look at individual securities."

Other dangers for the market include the prospect of higher interest rates, which would be negative for both Canadian equities and commodity prices, said Matt Skipp, president of SW8 Asset Management. He sees the market slipping to 14,500 by year-end.

But the biggest risk for Canada would be significant weakness in China, he said. China is a major consumer of commodities exported from the resource-sensitive Canadian market.

Others are more optimistic that what is driving Toronto shares is optimism about Canadian companies, not just liquidity from global central banks.

"This rally is earnings-driven," said Elvis Picardo, strategist at Global Securities. "And because it's earnings-driven and because those earnings estimates don't look out of whack, valuations are still quite reasonable for this cycle of the economy."

The TSX is trading at a price-to-earnings multiple of 18.10, compared with 18.76 for the S&P 500 <.SPX>. 
The driving force behind the TSX rally has been the energy sector, which has climbed about 24 percent this year.

The industry has benefited from stronger oil prices, a narrowing of Canadian crude's discount to global benchmarks, solid earnings and an expansion in production.

The flaring of tensions in Ukraine and Iraq in recent months has also provided a boost to both oil prices and energy shares.
Source: Reuters

U.S. takes time to gather data before any attacks on ISIL in Iraq

U.S. intelligence about the Islamist insurgent offensive in Iraq is improving but it could take weeks to complete a detailed picture of the threat and any possible American air attacks do not appear imminent, U.S. officials said on Thursday.

Last week's announcement that up to 300 U.S. military advisers were being sent to Baghdad and the earlier movement of an aircraft carrier, a cruiser and a destroyer into the Gulf prompted speculation of impending military action against Islamic State of Iraq and the Levant (ISIL) militants.

"We’re just not there yet," one official told Reuters, speaking on condition of anonymity.

The U.S. intelligence picture is being filled in with information from flights by about 30 to 35 manned surveillance planes and drones flying over the country daily.

U.S. officials said this would be further boosted by the opening on Wednesday of a joint Iraq-U.S. operations center in Baghdad staffed by about 90 military personnel.

It will take time, the officials said, to build a detailed picture of ISIL's deployments, intentions and weapons stockpile,

which has grown considerably since its black-clad forces overran Iraqi government arsenals in the last few weeks.

Another U.S. official, who declined to be identified, said the patchy nature of current intelligence on ISIL's activities would not necessarily rule out early limited U.S. air strikes should specific targets be identified.

President Barack Obama has been reluctant to engage in the sectarian conflict. The president has said the emphasis at this stage is on pressuring the Shi'ite-dominated leadership in Baghdad to build an inclusive government that brings in Sunni and Kurdish factions to create a united front ISIL's Sunni fighters.


CONGRESSIONAL CAUTION

Members of Congress, who would have to approve action if it became long or expensive, have made clear that they would back action only if they see concrete signs that Iraqi Prime Minister Nuri al-Maliki is moving to form an inclusive government.

Democratic Senator Carl Levin, chairman of the Armed Services Committee, on Thursday set three conditions for his support for direct U.S. involvement, including air strikes.

He said he would back them if U.S. military leaders thought they would change the momentum on the ground, if they were supported by U.S. allies in the region and if leaders of all elements of Iraqi society came together to make a formal request for more direct support.

In a speech in the U.S. Senate, Levin criticized Maliki as failing to take action to draw in other factions and said: "We can’t save Iraqis from themselves. Only if Iraq’s leaders begin to unify their nation can any help from us really matter."

U.S. officials in Washington said as well as U.S. surveillance flights, aircraft from Iran and Syria, both U.S. adversaries but Shi'ite-run states supportive of Maliki, may also be flying over Iraq.

Syrian and Iraqi officials said Syrian aircraft hit the town of Al-Qaim on their mutual border. Malaki said the strike took place within Syrian territory and there was no direct coordination.

The State Department said it had no evidence to counter reports that Syrian planes had struck ISIL targets inside Iraq. A U.S. official said there was evidence that Iranian surveillance drones were operating over eastern Iraqi airspace, perhaps flying from within Iraq.
Source: Reuters

Google unveils new products

More than 6,000 geeks, app developers and Google fans flocked to San Francisco's Moscone Center on Wednesday to attend Google I/O's annual conference and unveiling of new products. Wearable devices, Google Fit for personal health, Google Auto for connected cars and Google TV were the favorites among Chinese developers here to explore and learn.

With a simple click on the Google Fit app, you can manage your daily workout information from number of steps to weight, meal intake and nutrition and a daily summary that can be uploaded for personal use or sharing.

"The service allows Google users to volunteer their health records either manually or by utilizing personal wearable devices to manage fitness, merging potentially separate health records into one centralized Google Fit profile," said Matias Duarte, Google's vice-president of design. "But the key point is: you are in control, it's your decision whether to share it with the public or not."

The previous Google Health service was released to general public in 2008 but closed in January 2012 due to lack of widespread adoption. The other concern was privacy related issues, since it did encourage users to set up personal medical profiles online, and according to its Terms of Service, Google Health is not considered a "covered entity" under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), therefore HIPAA privacy laws do not apply to it.

Mike, a Chinese developer who declined to give his company name, said the most attractive announcement for him today concerned the wearable devices.

"It's fascinating to see what Google has announced on wearable devices, which is definitely trendy for China, and something we could witness and learn," he said. "We are actually working on similar developments on our own platform, which is tailored for the Chinese market and end users."

Bruce, a Chinese software engineer attending the show, said what he saw today about Google Auto was something interesting to look into.

"Google Auto allows us to have a brand new experience in connecting our car, which has not happened in the Chinese market yet, definitely something the industry can utilize for the future. Since Android is the most used mobile operating system today, it gives all Chinese developers a positive signal on creating Android experiences within a strong ecosystem," said the engineer, who also declined to give his company's name.

For high-tech firms, much of the enthusiasm behind the emerging wearable devices comes from the prospect of a bountiful data platform. Companies providing software or making these devices see revenue potential in helping customers store and manage data.

In the Wednesday keynote speech, Sundar Pichai, Google's senior vice-president of Android, Chrome and Apps, said that Google would share basic design building blocks of smart phones with manufacturers in developing countries. Its platforms of release include Mobile Momentum, platform evolution and developer success.

According to Pichai, Google's global smartphone shipments reached 315 million in Q4 of 2013, and its Android tablet activations had an increase of 62 percent in 2014. The 30-day active Android users reached 538 million in 2013, and its 30-day active users on Android platform has reached 1 billion.

"We are pooling our resources together to work on a set of platforms including high quality smartphones, turnkey solutions for our OEM vendors and initiate partnerships on software to innovate our user friendly experience," said Pichai.

Kun Wu, senior project leader of Shanghai-based TouchPal, a mobile software developer running on multiple platforms including Android, iOS, Windows Mobile and Windows 8, said he was impressed by all the new products.

"The new announcement gives us better ideas of what kind of new services are delivered on Google's Android platform, which is the most used platform in China," said Wu.

Avi Greengart, research director at Current Analysis based in New York, said Google's release shows "a new, graphically consistent version of Android coming later this year, and extending Android from phone to tablet, TV, car and wrist. However, it did not talk about Glass, Nest, Google+, or Search. Nor did it talk about expanding its presence in China with Lenovo."

Source: ChinaDaily USA