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Asia stocks gain as dollar slide boosts oil

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SYDNEY Asian shares rebounded on Thursday as speculation the U.S. Federal Reserve might opt to not raise interest rates at all this year hammered the dollar and sparked a huge rally in oil prices.

By some measures the U.S. currency suffered its largest one-day percentage drop outside of the crises of 1998 and 2008, symptomatic of just how crowded bullish positions had been.

The sudden reversal provided a much-needed boost to beleaguered commodities, sending oil up no less than 8 percent, and easing pressure on energy shares and risk appetite.

That relief showed in equity markets where MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.9 percent. Australia’s resource-heavy index rose 1 percent and South Korea .KS11 0.5 percent.

Japanese investors, however, seemed unhappy with the yen’s newfound strength against the dollar and nudged the Nikkei .N225 down another 1 percent.

Wall Street had taken its cue from oil and recouped early losses on Wednesday, in a wild session that saw the Dow swing in a 420-point range.

The Dow .DJI ended Wednesday up 1.13 percent, while the S&P 500 .SPX added 0.5 percent and the Nasdaq Composite .IXIC eased 0.28 percent.

Traders were unsure what triggered the dollar rout though many pointed to comments from Federal Reserve Bank of New York President William Dudley that tighter financial conditions would be taken into account at the next policy meeting in March.

In an interview with Market News International, Dudley also warned that a sharp rise in the dollar could have “significant consequences” for the U.S. economy.

Investors took that to mean the Fed did not want to see the currency rise any further and might delay further increases in interest rates. Futures markets had already priced out almost any chance of a hike in March and imply a funds rate of just 0.51 percent by December .

The current effective funds rate is 0.38 percent.

The impact was amplified by a surprisingly soft reading on the U.S. services sector, just the latest in a string of disappointing economic indicators.

The market reaction was swift and violent with the dollar collapsing through a host of key chart levels and triggering waves of stop-loss selling.

Early Thursday, the dollar was down at 117.94 yen JPY= having shed 1.7 percent overnight in its biggest daily drop since August.

The fall wiped out all the gains from the Bank of Japan’s decision to cut its rates below zero, a tit-for-tat response that only to added to market suspicions central banks were engaged in a war of competitive depreciations.

Against a basket of currencies, the dollar was pinned at 97.304 .DXY, after shedding 1.6 percent on Wednesday. The euro was enjoying the view at $1.1092 EUR=, having climbed 1.7 percent on Wednesday.

The drop was a boon to commodities priced in U.S. dollars, lifting everything from copper to gold to oil.

Brent futures LCOc1 settled up $2.75, or 8.4 percent, at $35.47 a barrel, after rising as high as $35.11.

U.S. crude CLc1 added another 20 cents in early trade on Thursday to reach $32.49, having jumped 8 percent overnight.

Spot gold XAU= was up at $1,141.90 an ounce having touched its strongest since Oct. 30.

(Reporting by Wayne Cole; Editing by Eric Meijer)


Source: R-Business

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London 'flash crash' accused trader to fight U.S. extradition

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LONDON The London-based trader accused by U.S. authorities of helping to cause the 2010 Wall Street “flash crash” by spoofing the markets appears in court on Thursday to try to block his extradition to the United States.

Navinder Sarao, 37, arrested by British police on a U.S. warrant last April, has been indicted by a U.S. federal grand jury on 22 criminal counts including wire fraud, commodities fraud and attempted price manipulation.

If he is extradited and convicted, the maximum U.S. sentences for the charges of which he is accused amount to more than 350 years in prison.

Sarao, who ran a one-man operation from his parents’ modest London home in Hounslow near Heathrow airport, is accused of using an automated trading programme to “spoof” markets by generating large sell orders that pushed down prices.

Prosecutors say he cancelled the trades and bought contracts at lower prices, netting him some $40 million profit.

The flash crash saw the Dow Jones Industrial Average briefly plunge more than 1,000 points on May 6, 2010, temporarily wiping out nearly $1 trillion in market value.

However, according to a draft of a new U.S. academic research paper last month, Sarao had little if anything to do with the event.

Three academics who studied all the trades and orders placed on the day of the crash said it was “highly unlikely” Sarao’s actions, which might have been illegal, could have caused the dramatic market plunge.

However, Sarao’s actual role in events may be of little consequence in his two-day extradition hearing at London’s Westminster Magistrates Court, which will focus not on the facts of the case but whether the U.S. charges are offences under English law and if he should be tried in Britain.

The trader, dubbed “the Hound of Hounslow” by the British press, has denied any wrongdoing and in his only public comment in court last May he said: “I’ve not done anything wrong apart from being good at my job.”

If the judge approves extradition, the decision must be ratified by Britain’s interior minister Theresa May, and Sarao will be able to appeal their rulings.

(Editing by Stephen Addison)


Source: R-Business

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Flight control: China banks pilot jet leasing firms in chase for $228 bln market

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SINGAPORE Fresh from taking on the world in financial services, China’s cashed-up banks are targeting a bigger slice of the surging global aviation market, beefing up affiliates bent on supplying planes to airlines around the planet.

Chinese lenders have grown big in traditional business like investment banking and brokerage, flush with Beijing backing and cheap funding. Now institutions are investing in operators that specialise in jet leasing, a newer financial service that was once the exclusive preserve of Western players.

Bank of China Ltd’s (601988.SS) BOC Aviation Pte arm is set to go public this year with an estimated $3 billion listing, the industry’s biggest. Four Chinese lessors – including BOC Aviation – are among the world’s top 15 by fleet value in a $228 billion industry, according to consultancy Flightglobal.

Western firms like AerCap Holdings NV (AER.N) and GE Capital Aviation Services LLC still dominate a sector that underpins aviation – some 40 percent of carriers’ aircraft are leased to avoid the fixed costs of owning planes. But China, through its banks, is aiming to create its own global champions.

“The political drive is there for China to be part of the global economy,” said Johnny Lau, who ran the aircraft leasing arms of Industrial and Commercial Bank of China Ltd (ICBC) (601398.SS) and China Minsheng Banking Corp (600016.SS) before starting his own consultancy.

Against a backdrop of oil prices falling to 12-year lows, at least temporarily reducing aircraft operating costs and boosting carriers’ profitability hopes, the drive is already under way.

GROWING PAINS?

Though industry insiders say some of China’s newer leasing operations may face growing pains in securing specialist expertise, Singapore-based BOC Aviation is different.

Now China’s biggest lessor, and the world’s sixth-biggest, with a fleet valued at more than $10 billion, BOC Aviation was founded in 1993 and bought by Bank of China in 2006 from investors including Singapore Airlines (SIAL.SI).

For China’s banks, keen to grow abroad, the lure is in part predictable, dollar-denominated revenue streams.

Airplane lessors are basically financing operations: planes are bought from aircraft makers like Boeing Co (BA.N) and Airbus Group (AIR.PA) in bulk and rented out to airlines – from full-service carriers to budget operators – keen to keep fleets flexible.

“It is an enviable position,” said consultant Lau. “When (Chinese lessors) issue a bond backed by their parents with the bank’s guarantee, there is no problem finding investors.”

Apart from Bank of China, units of ICBC and China Development Bank Corp are among the top 15 leasing firms in the world. Their clients stretch across the global industry: BOC Aviation, which declined to comment for this article, leases jets to full-service Gulf carrier Emirates Airline and U.S. low-cost operator Southwest Airlines Co (LUV.N), among others.

Ambitious leasing subsidiaries of China Construction Bank Corp (601939.SS) and Bank of Communications Co (601398.SS) are among those ramping up after placing multi-billion dollar orders for Airbus and Boeing aircraft.

BOC AVIATION – MODEL OF SUCCESS

It’s not all plain sailing. The Chinese lessors can be hampered by a lack of management talent, experience and industry connections – ties which can smooth over everything from marketing a plane once a lease comes to an end, to lessening the impact of a client airline’s bankruptcy.

“The technical expertise in terms of the aircraft, how to actually manage it when it comes to the end of the lease term is very, very important because that impacts the return,” said Clarence Leung, asset finance & leasing director at PwC.

BOC Aviation provides an example of the opposite.

Chief executive Robert Martin, on board since 1998, has been credited with bridging differences between a Singapore-based team of experienced international leasing executives and a Chinese banking giant, creating a business known for a focus on profitability, not size.

While the lessor has ordered more than 170 Airbus and Boeing aircraft worth over $18 billion at list prices over the last 18 months alone, almost all are narrow-body jets like the Airbus A320s and Boeing 737s. These account for 70 percent of its overall portfolio – as they are used by more operators and therefore easier to place.

The company’s good record has also helped it to win lucrative, highly-competitive deals such as a contract to supply 20 A320s to Singapore Airlines’ Indian subsidiary Vistara.

(Editing by Kenneth Maxwell)


Source: R-Business

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