Sukuk

Malaysian Ringgit Tumbles After 1MDB Default Raises Spectre Of Sovereign Failure

Update: after widening by 2bps earlier, Malaysia CDS is now +4 at 167bps and starting to move as macro "analysts" finally catch up on the entire story and comprehend the implications.

Malaysian CDS rose to near 3-month highs and the Ringgit has spiked over 300 pips - back near recent lows - after the Malaysian slushfund government investment fund 1MDB is reportedly in default. This is exactly the scenario we laid out last week that initially sent the currency lower and CDS higher, as the Abu Dhabi sovereign wealth fund has by all appearances started a potential waterfall default on Malaysian sovereign debt (due to cross-default triggers at the sovereign).

Petrostate Cash Crunch Continues Amid Oil Collapse, Proxy Wars

The fallout from the demise of the petrodollar is becoming impossible to sweep under the rug even as Gulf states are keen to downplay the severity of the budget crunch. For the Saudis, who need crude at $100 to plug a budget deficit that’s projected at a whopping 20% of GDP, the situation is becoming particularly acute. For Qatar, the situation isn't quite as dire but that doesn't mean the country's officials aren't acutely aware that the world is now scrutinizing the budgets of petrostates in the wake of collapsing crude and indeed on Monday, Qatari Finance Minister Ali Sherif al-Emadi was at pains to reassure the market.

Three Reasons Why Saudi Arabia Flip-Flopped On Iran. And Now Supports The US "Nuclear Deal"

To summarize: in order to get the Saudis to "agree" to the Iran deal, all the US had to do is remind King Salman, that as long as oil is where it is to a big extent as a result of Saudi's own record oil production, crushing countless US oil corporations and leading to the biggest layoffs in Texas since the financial crisis, the country will urgently need access to yield-starved US debt investors. If in the process, US corporations can invest in Saudi Arabia (and use the resulting assets as further collateral against which to take out even more debt), while US military corporations sell billions in weapons and ammo to the Saudi army, so much the better.

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump

Early last month, we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has been complicated by the Fed's ZIRP, was set to opportunistically tap the debt market in an effort to offset a painful petrodollar reserve burn. As Bloomberg reports, Qatar is now doing the same, "raising money from local banks as the slump in oil prices buffets the finances of the Middle East’s largest oil and gas exporters."

In Addition To The Latest Fake Ceasefire, Here Is What Else Happened Overnight

Heading into the North American open, the bulk of the morning’s price action has been provided by news that Ukrainian President Poroshenko said that he reached an agreement with Russia's Putin on a "permanent cease fire" in Eastern Ukraine's Donbass region. This saw an immediate spike higher in European equities with the DAX future rallying and breaking above its 100DMA seen at 9644.50, thus extending earlier gains that stemmed from the strong performance in Asia-Pacific equities, while the e-mini S&P once again printed a fresh record high. However, these moves staged a partial reversal amid comments from Russia’s Putin that he denied that such an agreement had been reached as Russia is not a party to the Ukraine conflict. In stock specific news, Russian exposed Raiffeisen Bank outperforms Europe (+7%) in reaction to the geopolitical developments, while Hugo Boss have underperformed throughout the session following a share placement which came in at the lower end (-5.3%).

Global Markets Unchanged As Obama Pause Does Not Bring Levitation; Apple Crumbles

Despite earlier comments from Obama on Tuesday night, who called for a pause in authorizing military strikes on Syria, which led to another drop in crude prices overnight, the drop has since reversed and both WTI and Brent Crude contracts are trading in the green. Whether this is the result of a note by Goldman analysts who noted that the Brent crude sell-off was overdone and that they see no improvement regarding the conflict in Libya which is constraining oil production, or because Russia is once again throwing hurdles in the international process to force Syrian disarmament, is unknown.  The lack of any key catalysts and no USDJPY levitation, led to most global markets unchanged, and futures currently trading sideways. What is not trading sideways is Apple which is down over 2% to just over $480 as all hopes of a China Mobile deal fall apart, coupled with pervasive critical panning of the new iPhones which, aside for the commodity version, is just the old iPhone with an extension that allows the NSA's new fingerprint database to be filled in record time.

GoldCore's picture

There is the slow realisation that the complacency of recent months was again misplaced. It remains obvious that the euro zone debt crisis is far from over and this will support gold in the coming months – especially in euro terms. 

Gold in euro terms has been consolidating above €1,200/oz for six months now. With the eurozone crisis set to deepen and the continuing risk of contagion, we could see gold break out in euro terms prior to doing so in dollars, pounds and other currencies.

Nakheel Sukuk Unlikely To Be Repaid, Dubai Banks To Be Impaired, Likely Need More Bailouts

Reuters reports that hopes of a Nakheel pay down in whole or in part are getting increasingly illusory. The $980 million Nakheel issue maturing on May 13, which had initially been rumored to be paid off in full (at about the time PIMCO was selling it after buying it up in the sub 50 cent range), then at 60, now seems will not get any consideration at all. Reuters quotes a source as saying "It is very unlikely that the bond will be paid off. Incredibly unlikely." Of course, now that M&A rumors don't exist per se, as it is all really just SEC-endorsed insider trading, the rumor mongering has focused on Dubai and Greece, which leads us to believe that this is simply some Nakheel short talking up (or down, as the case may be) their book.

Daily Highlights: 2.22.10

  • Asian stocks, oil advance as US interest rate concern eases; Yen weakens.
  • China mustn't "bow before external pressures" on trade policy: Chinese Trade Ministry.
  • China received $8.13B in foreign direct investment in January, up about 7.8%.
  • Crude oil rises above $80 on speculation economic recovery to spur demand.
  • U.S. consumer prices rose 0.2% in January, less than economists forecast
  • World markets recover from drop following Fed move
  • Yuan strengthened the most in 11 months on speculation govt will allow more flexibility.
  • Aramco and Total said to hire bankers to sell Sukuk for Saudi Jubail refinery

Abu Dhabi Agrees To Fund $10 Billion For Dubai World Debt

The government of Abu Dhabi and the Central Bank of the United Arab Emirates agreed to provide $10 billion to the Dubai Financial Support Fund, allowing Dubai World to repay $4.1 billion of Islamic sukuk bonds that are due today, the government of Dubai said in an e-mailed statement. Statement from Dubai Supreme Fiscal Committee attached.

Frontrunning: December 9

  • The new underground economy (Washington Times)
  • Goldman Sachs taking "Hard Look" at pay practice, board member says (Bloomberg)
  • China said to plan 8 trillion Yuan new loans cap for next year (Bloomberg)
  • China squeezes property speculators with tougher tax penalty (Bloomberg)
  • Greece finance minister says no risk of default (Bloomberg)
  • At the same time Greece tumbles (FT)
  • Dubai stocks slump for third day, Nakheel sukuk in focus (MarketWatch)