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Markets Update pm

European shares rebound, helped by strong earning updates

Oil fell from a three-week high

FTSEurofirst up 2 pct, still down since start of 2016

Lloyds, AXA, Deutsche Telekom rise after results

Zodiac slumps after profit warning

Citi stays overweight on continental Europe shares (Adds details, updates prices)

Overweight Europe says Citigroup ,cut its 2016 global economic growth forecast though

Feb 25 European shares rebounded on Thursday from losses earlier in the week, as solid corporate results including from British bank Lloyds lifted stock markets.

The pan-European FTSEurofirst 300 index, which had fallen around 4 percent in the previous two sessions, rose 2 percent by 1522 GMT.

The FTSEurofirst remains down by around 10 percent since the start of 2016, dragged by concerns about a slowing global economy and the health of Europe’s banking sector.

Markets were looking ahead to this weekend’s G20 meeting of world financial leaders in Shanghai but some investors were sceptical it could provide a big boost to sentiment.

AXA also progressed 1.5 percent after posting higher profits, and gains in top banking and insurance stocks added the most points to European stock markets.

Phone group Deutsche Telekom rose more than 3 percent after better than expected fourth-quarter results in its domestic German market, helped by expansion of its super-fast broadband network.

German builder Hochtief rose 10 percent after its full-year operational net profit rose more than expected, as its European division for the first time in many years achieved a clear break-even result.

“Today it was one of the busiest days for corporate earnings in Europe and the market has been strongly rewarding companies that have beaten consensus,” said Stephane Ekolo, Chief European Strategist at Market Securities.

Zodiac Aerospace slumped 23 percent after announcing a profit warning.

Lloyds surged 12 percent after announcing a special dividend payment and higher profits, while shares in the rig company Seadrill advanced 6.7 percent as investors welcomed a refinancing plan.

The Stoxx 600 has tumbled 21 percent since a record reached in April, making its stocks cheaper. It’s trading at 14.5 times estimated earnings, down from an April high of 16.7. And while Europe’s economic data have been missing estimates, the region is still forecast to expand every quarter this year.

Spain’s IBEX 35 Index, among the most battered this year, posted the best performance in western Europe, up 2.5 percent. Buoyed by gains in Lloyds and RSA, the U.K.’s FTSE 100 Index also gained 2.5 percent.

Despite rising to a three-week high on Monday, the Stoxx 600 is heading for its third monthly decline. It has fallen 11 percent in 2016 amid concern over China’s slowdown, routs in banks and oil, and dissipating faith in central-bank support. The benchmark hasn’t posted back-to-back gains since December.

OIL

Oil fell from a three-week high after a U.S. crude inventory gain kept supplies at their greatest level in more than eight decades.

Futures dropped as much as 3.4 percent in New York. Stockpiles increased to 507.6 million barrels, the most since 1930, according to an Energy Information Administration report. Gasoline supplies slipped as demand rose, the data show. Priceswon’t recover until the second half of 2017 at the earliest, Mexican Energy Minister Pedro Joaquin Coldwell said Wednesday.

U.S. crude inventories in thousands of barrels

The market is oversupplied by about 2 million barrels a day, Coldwell said in an interview Wednesday at the IHS CERAWeek conference in Houston. Mexico is willing to participate in a meeting with other producers to discuss a potential output freeze, but isn’t likely to cut output at this time, he said.

  • Saudi Arabia can “co-exist with $20 a barrel” if the process of rebalancing markets pushes prices that low, although the kingdom hopes such a plunge doesn’t occur, Oil Minister Ali al-Naimi said in Houston on Feb. 23.
  • Russia said the oil output freeze it proposed with Saudi Arabia would need to last a minimum of 12 months to support prices, Energy Minister Alexander Novak told reporters on a plane flying from Moscow to Minsk in Belarus on Thursday.
  • Pierre Andurand, the hedge fund manager who predicted the oil collapse, said prices will move higher in the second half of the year. Prices will rise as inventories stabilize.

US Oil defaults wave comming

In less than a month, the U.S. oil bust could claim two of its biggest victims yet.

QUICKTAKEOil Prices

Energy XXI Ltd. and SandRidge Energy Inc., oil and gas drillers with a combined $7.6 billion of debt, didn’t pay interest on their bonds last week. They have until the middle of next month to either pay the interest, work out a deal with their creditors or face a default that could tip them into bankruptcy.

If the two companies fail in March, it would be the biggest cluster of oil and gas defaults in a month since energy prices plunged in early 2015.

“We’re just beginning to see how bad 2016 is going to be,” said Becky Roof, managing director for turnaround and restructuring with consulting firm AlixPartners.

Debt-Fueled Boom

The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September.

Oil prices have now fallen more than 70 percent from a 2014 peak, and banks and bondholders are fighting for scraps. Bond prices reflect investors’ fears. U.S. high-yield energy debt lost 24 percent last year, the biggest fall since 2008, according to Bank of America Merrill Lynch U.S. High Yield Indexes. Investors are now demanding a yield of 19.6 percent to hold U.S. junk-rated energy bonds, after borrowing costs for these companies exceeded 20 percent for the first time ever this month, according to data compiled by Bank of America Merrill Lynch.

 

Most of the shale industry’s debt is in the form of bonds, according to data compiled for the Bloomberg Intelligence index. Of those $197 billion of securities, $101 billion is junk-rated.

 

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