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Commercial Awareness

20/09/2016

Sterling regained some value after dropping following the Brexit result
as the consequences and markets seem to be performing fine.
However, with consequences of Brexit creeping up again and
negotiations taking place rapidly, uncertainty has risen amongst
investors which has caused the value of the pound to fall again to a 5week low. The pound has fallen against the US dollar and the Euro.

Chinas debt has grown to alarming levels, according to new data from the
Bank for International Settlements that highlight a big potential risk to the
global economy. The countrys credit gap is now three times higher than
the typical danger level, the research shows. The BIS rates a reading above
10 per cent as cause for concern; Chinas gap hit 30.1 per cent in March.
Virtually every other economy in history that has seen that rapid an increase
has subsequently experienced a financial crisis.

The Chinese company behind the Mi Band fitness tracker, which is


second only to Fitbit in global sales volumes of wearable devices, is
seeking a $1bn valuation in a new round of funding as it looks to
expand globally.

Accenture have file a patent for new blockchain editing technology,


which allows blockchain to be edited. Accenture says this will help
financial institutions such as investment banks immensely correct errors
with trades.

Demand for emerging market exports has hit a new post-crisis low, with
US imports from China dropping sharply in July in the latest sign
that the engine of growth for the worlds developing economies is
sputtering. The US has been one of the bright spots in an otherwise
gloomy global economy and one of the few sources of growth for
emerging market exporters, which last year saw exports of goods and
services fall for the first time since the global financial crisis, according
to figures from the UN. Data from the US Federal Reserve show that US
merchandise imports from China, the vast majority of which are
manufactured goods, have been contracting in value terms since March
and in volume terms since April.

The Nasdaq Biotechnology Index is up 15% since the end of June,


though it remains down 12% in 2016. On Tuesday, the biotech index
gained 1.5%, lifted by the U.S. Food and Drug Administrations decision
to grant accelerated approval to Sarepta Therapeutics Duchenne
muscular dystrophy drug. Sarepta shares jumped 13%.

The Fed is widely expected to leave interest rates unchanged, but


investors are watching to see if officials signal a rate rise in December.
Fed funds futures, used to bet on central-bank policy, currently price
just a 15% probability of a rate rise in September, but a more than 50%
chance of a move by year-end, according to data from CME Group.

In commodities, gold, which is sensitive to monetary policy


expectations, is flat at $1,313 per ounce.

Oil prices rose on Monday after Venezuela said OPEC countries and
those outside the producers group were close to reaching a deal to
stabilise global output. Venezuelan President Nicols Maduro said on
Sunday an agreement could be announced as early as this month,
sending Brent crude, the global benchmark, up $1 to $46.77 a barrel in
late afternoon London trading.

21/09/2016

Chinas central bank has designated an official renminbi clearing and


settlement bank for New York City, filling in the final major gap in a
network of offshore institutions designed to promote greater
international use of the Chinese currency. The establishment of a
clearing bank in the US will promote the growth of renminbi activity in
the US and help accommodate an increase in volumes and demand for
renminbi products and services. Designated renminbi clearing
banks facilitate offshore renminbi trading and cross-border
payments because they have special access to Chinas onshore foreign
exchange market, enabling them to provide liquidity to offshore
centres.

As the UKs Financial Conduct Authority reported on Tuesday, nearly


5,500 British registered companies use passports to access the EU
market. Passporting allows banks, insurers and asset managers to
operate smoothly across the EU from a base in the UK. An end to the
passport regime and the failure to provide an adequate replacement
in the form of a substantial trade accord would do significant damage
to financial services, which account for a third of the UKs services
exports to the EU.

Market volatility has spiked this month because of changing


expectations over when the Fed could raise rates, but mixed data cast
doubt over the health of the world's biggest economy, reducing the
chance of a hike this month.

Bank stocks on Wednesday rose after the BOJ unexpectedly said it


would start targeting 10-year interest rates, committing to keep them
around zero as part of a new policy framework aimed at bolstering

inflation. The central bank said it would maintain quantitative easing


until its inflation target of 2% is overshot, and it kept its main interest
rates unchanged.

The U.S. Federal Reserve left interest rates unchanged on Wednesday


but strongly signaled it could still tighten monetary policy by the end of
this year as the labor market improved further.

Russia will not start printing money to support economic growth and will
not allow populism to dictate the budget, Prime Minister Dmitry
Medvedev wrote in an article published on Thursday.

Oil prices rose as much as 3 percent on Wednesday after a third


surprise weekly drop in U.S. crude stockpiles boosted the demand
outlook in the world's largest oil consumer. Another supportive factor
was an oil workers' strike in Norway, which threatened to cut North Sea
crude output.

Glencore, the mining and commodities house, has risen above 2 a


share for the first time since August 2015 in early London trading, as its
recovery from last years annus horribilis continues. After dropping to as
low as 69p a share in January, Glencores shares have since rallied by
195 per cent, as the company has made strides in paying down a debt
load that at one stage imperiled the companys future, reports David
Sheppard, Deputy Commodities Editor. Shares are trading at
2.05p at publication time. A recovery in coal, iron ore and zinc prices
has also helped, while the company which is headquartered in the
Swiss canton of Zug has shuttered some production until the market
improves.

22/09/2016

At its August meeting, the Bank of England's Monetary Policy


Committee (MPC) halved the bank rate to 0.25% in addition to
implementing a new Term Funding Structure and a purchase of up to
70bn UK corporate and government bonds. This takes the total stock
of asset purchases to 435bn. The 9 August auction saw the Bank
struggle to get investors in long-dated (over 15 years) to part with their
bonds. This was the first time since the start of quantitative easing in
March 2009 that the Bank was not able to attract enough sellers.

Firstly, the vote to leave seems to have made no difference at all. After
an initial panic, equity markets are now higher than on the eve of the
referendum.

Secondly, the pound has fallen sharply since the referendum. This is a
big benefit to multinational companies that will receive a boost when

they translate their overseas earnings back into sterling. This is just
arithmetic, but it is powerful enough to drive positive earnings revisions
across the market for the first time in years.

Thirdly, this currency move is especially good news for UK equity


investors who hold UK stocks that declare their dividends in US dollars,
such as BP and AstraZeneca. Both of these have attractive yields, but
were not predicted to grow their dividends in US dollar terms.

Fourthly, while the equity market seems to be relaxed about the


outlook, the yield on the 10-year gilt has fallen from 1.3% to 0.7%.

While business confidence is now above pre-Brexit levels, it remains at


a four-year low.

The massive public debt which amounts to 250% of GDP is a long-term


serious issue for Japan and the Japanese government. The government
aims to achieve primary balance surplus in 2020. From a macroperspective, Japan will continue to face serious challenges that it has to
overcome over time. Therefore, stock market as a whole may not
replicate what we have seen over the last three years.

The Federal Reserve opted to hold its key short-term interest rate
steady on Wednesday. Asia-based traders welcomed the news, as a rate
rise would have pulled money out of emerging markets.

Few analysts and investors believe OPEC will come to a meaningful


agreement in Algiers when they hold informal talks on Wednesday
afternoon on the sidelines of the International Energy Forum. Some
OPEC officials say Mr. Maduro and others are issuing statements simply
to keep a floor under prices, which sunk to less than $28 a barrel this
year and have remained stubbornly under $50 a barrel.

The strategy of talking up prices is arguably the last arrow in OPECs


quiver. The cartel once saw its role as an oil-price maker, able to swing
the market up or down by regulating its own production to match global
demand. But an American oil boom made OPECs production less
relevant to prices, and OPEC members like Saudi Arabia are now
instead competing fiercely to maintain their share of the market by
pumping full tilt.

As one of the worlds leading metal producers, China is running into a


new problem acquiring the mineral ores it needs to churn out stainless
steel and aluminum: concern for the environment. Rising anti-mining
sentiment rippling through Southeast Asia has led to a series of mine
shutdowns that are helping push up prices for some crucial minerals.

The latest threat to Chinas ability to source minerals comes from the
Philippines, the worlds top supplier of nickel ore.

Gold prices rose to a two-week high Thursday after the Federal Reserve
left interest rates unchanged at its latest policy meeting.

24/09/2016

Its clear that China is embracing supply-side reform to reduce excess


industrial capacity and shed unviable assets because its debt-driven
growth policies were not working. The shift is essential for battling the
middle income trap, but the reforms effectiveness remains uncertain.
One of the greatest reform challenges is employee settlement in heavy
industries plagued by overcapacity including steel, coal and aluminum.
More than 2m workers may be affected. Some may argue the reform is
easier to carry out this time than the state-owned enterprises (SOEs)
reform in the 1990s when about 27m workers were let go. However, this
argument ignores the fact that the cost to maintain a reasonable quality
of life for unemployed workers is much higher today than in the 1990s
when most SOE employees lived in welfare houses. Whats more the
macro environment today is not as favourable for reform because the
prospect of finding alternative growth engines for a large unskilled
redundant workforce is grim.

Chinas reform is one of the most complicated in the world given its
massive economic scale and huge population. Its leaders are walking a
tightrope trying to strike a balance between social stability and
effective restructuring.

25/09/2016

Venezuela, teetering on the brink of utter economic collapse, is rushing


through a tender for billions of dollars of drilling contracts to boost oil
production in the Orinoco Belt.
Venezuela has seen its oil production fall slightly each year for more
than a decade, but the declines have accelerated this year as scarce
funds led to cutbacks by oilfield service companies. Venezuelas oil
production is down about 250,000 barrels per day so far this
year, dropping to 2.33 million barrels per day as of August. That is also
about 330,000 barrels down from the 2015 average. The combined
effect of low oil prices and falling production has pushed Venezuela to
the brink.