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Money markets upper hand seen with fed in liquidity tug of war

A contained fall in euro bank-to-bank lending rates after the European Central Bank promised to keep rates low suggests it may be able to offset only in part the effects of a likely withdrawal of U.S. monetary stimulus. Data on Friday showed U.S. jobs growth was stronger than expected in June, increasing chances the Federal Reserve will start to scale back its money-printing this year. That prompted Euribor futures to fall across the 2015 strip. The ECB's forward guidance - offered for the first time on Thursday - that interest rates will remain at record lows for an extended period and may fall further helped take Euribor rates off highs hit after the Fed indicated it would start to taper. But they have only retraced part of their rise from late May."The reason why the market is looking to the Fed as the dominant force in terms of the current trans-Atlantic liquidity tussle is that the ECB provided us with effectively a passive promise," said Richard McGuire, senior fixed income strategist at Rabobank.

"What they have guaranteed us is, over the near-term, there will not be a rise in interest rates, but that's passive. They told us what they won't do, whereas the Fed has given us an active threat."The ECB's break with its tradition of never pre-committing was a response to market turbulence triggered by the Federal Reserve's plan to exit its quantitative easing programme. Fed Chairman Ben Bernanke said on June 19 the economy was strong enough for the central bank to begin slowing the pace of its stimulus, after flagging that possibility in testimony to Congress on May 22.

Three-month Euribor rates fell to 0.217 percent after the ECB meeting from 0.222 percent - still above the 0.198 percent seen prior to Bernanke's May testimony. Six-month Euribor rates fell to 0.33 percent from 0.34 percent but are still above their 0.293 percent level before the Fed began to hint it would rein in its stimulus.

McGuire said the ECB would probably have to intervene verbally again to counteract the recent Fed-led rise in money market rates. Another interest rate cut may also be needed, taking the ECB's benchmark rate to a new record low, even though analysts say the latter would have a muted impact on growth. Forward-looking Eonia rates suggested investors were not pricing in another rate cut, but had pushed expectations of such a move further out, McGuire added. Overnight Eonia rates were seen reaching around 0.12 percent in December compared to 0.087 percent."There is probably no rate cut priced in here," Commerzbank strategist Benjamin Schroeder said. "It's a reflection that we don't have rate cut speculation at the moment."

Pfi oil majors step into sweet role

European oil companies are increasingly offering corporate financing to small- and mid-cap oil producers, using the loans to effectively lock up supplies of crude. Sources say oil giants like BP, Glencore and Vitol have filled the void left by eurozone commercial banks, which have pulled back from lending due to the debt crisis and new capital requirements. While advancing capital in exchange for production volumes is nothing new in the energy sector, the majors are said to have become more aggressive of late, as the civil war in Libya and the threat of a conflict over Iran have roiled the supply chain and driven up prices. Sources say the oil majors are specifically targeting light sweet crude, and are coming on board early in a project's development with the smaller companies, many of which have been struggling to obtain direct lending from banks.

"What we are seeing is a change in timing. Oil majors are offering capital pre-production, and sometimes even pre-drilling, because they have the technical expertise on board to assess the exploration and production risk," one source said."Most importantly, a knowledge of both the physical and paper markets allows them to correctly price this risk."One recent example was a $50m 23-month unsecured corporate facility between Nigeria-focused oil independent Afren and the Azerbaijani state oil company Socar.

The facility, which pays Libor plus 450bp, was agreed as part of Socar's deal as offtaker for Afren's light sweet crude production from the Ebok field in Nigeria. The agreement was signed in March 2011, before the Ebok field began production. In January 2010, BP procured US$20m of financing from a commercial bank for North Sea-focused independent Xcite Energy, as part of a supply and offtake agreement with BP Oil International. As in the Xcite deal, commercial banks are often involved as lenders to the oil major in pre-export, pre-payment or prepaid forward financing. A bank lends money to a major, which the major then lends to an independent oil company, to be repaid in oil offtake.

This reduces the bank's risk of lending directly to the independent oil company. Societe Generale, Credit Agricole and ING are mentioned as banks active in this area in Africa. The growing trend of independent oil companies being the first movers in exploration and production means that the smaller companies are often sitting on light sweet crude reserves - particularly in resource-rich West African countries such as Nigeria, where BP has no operations save a recently-opened trading office. BP is said to have a specific budget for securing offtake volumes of light sweet crude over the coming year, and is willing to offer corporate finance at an early stage of the project to achieve this, sources say. The company declined to comment. Demand for light sweet crude is so strong that non-European banks with oil marketing arms are also looking to lend at an earlier stage of the project in exchange for volume, sources say. Standard Bank and JP Morgan, which is opening a full office in Lagos this year, are two names mentioned.

Press digest australian business news april 5

Compiled for Reuters by Media Monitors. Reuters has not verified these stories and does not vouch for their accuracy. THE AUSTRALIAN FINANCIAL REVIEW (this site)Telstra ,TLS. AX> has told shareholders that it would hold a briefing this week to better explain the telecommunications giant's strategy for implementing and spending the cash payments associated with participating in the national broadband network. Analysts have suggested that Telstra could launch a share buyback worth up to A$1.5 billion over the next two financial years. Page 16.-- Dale Elphinstone, the wealthiest man in Tasmania, yesterday called on the Federal Government to do more to sustain the manufacturing sector."More than anything, I think the government needs to get behind the manufacturing businesses we've got left and work out what needs to be done to make sure they stay here," Mr Elphinstone said. "You have to invest, you have to develop and sometimes that involves changing or redesigning products, systems and processes," he added. Page 16.-- Analysts are predicting that investment bank Macquarie Group's full-year profit, due out alongside its annual accounts later this month, will be substantially lower given that the company's bonuses are likely to have been reduced."The pendulum in the war for talent is now in the hands of the employer  so there is not as much competitive tension," an analyst at an investment bank said yesterday. Page 18.-- Phil Chronican, chief executive of Australia and New Zealand Banking Group yesterday told an American Chamber of Commerce function that fund managers should be held to the same disclosure rules regarding executive pay as followed by companies on the stockmarket."Listed companies have to be transparent and disclose not only how much their executives are paid, but also how performance is measured," Mr Chronican added. Page 18.-- THE AUSTRALIAN (this site)Phil Chronican, chief executive of Australia and New Zealand Banking Group, yesterday said policymakers' response to the eurozone debt crisis was uncoordinated and inconsistent."So we've had a lot of regulatory intervention, but I don't think it's well co-ordinated and I don't think the timetables have been thought through  and that's why we've got different timetables and different pieces of regulation, because everyone's wanting to be seen as doing something," Mr Chronican added. Page 19.--

The president of the Business Council of Australia, Tony Shepherd, yesterday told an audience that the Gillard government should not pursue a budget surplus "at any cost"."You shouldn't strive to achieve a surplus by putting into place policies which in fact hamper the productivity and competitiveness of Australian business," the lobby group's chief executive added. Page 19.-- The incoming chief executive of QBE Insurance, John Neal, who replaces Frank O'Halloran after 14 years in the position, told shareholders yesterday at the insurer's annual general meeting that the company would continue to target acquisitions around the world as its main strategy for growth."Our focus has always been on getting the right bottom-line performance and that will remain the case going forward," Mr Neal said. Page 19.-- Catherine Tanna, the leader of the largest coal-seam gas venture in Australia, has been replaced by Derek Fisher, the Asian head of global gas producer BG Group. BG yesterday announced that Ms Tanna, who is also a member of the Reserve Bank of Australia's board, would leave her current role as managing director to become the chairwoman of BG Australia. She will be mainly responsible for overseeing the group's public image with the various levels of government and the broader industry. Page 19.

-- THE SYDNEY MORNING HERALD (this site)Phil Chronican, chief executive of Australia and New Zealand Banking Group, yesterday commented that it was seen as "excessive" for executives to earn millions of dollars even though "we seem happy and proud to see Australian sports stars and entertainers earn large sums". His remarks come after the bank announced in February that it had made A$1.48 billion in audited profits for the three months to December last year, the same month that it announced a six basis points out-of-cycle rise in mortgage rates. Page B1.-- Official trade figures released yesterday have revealed a 19 percent slump in income from coal exports and a 10 percent drop in revenue from minerals and metal ores exports for the first quarter of the year."The commodity price cycle peaked in the third quarter of the last year  with global growth expected to be below trend and more commodity supply likely to come on stream over the next year or two, it appears likely Australia's terms of trade peaked in the third quarter as well," Paul Bloxham, chief economist at diversified bank HSBC, said. Page B1.-- The Housing Industry Association yesterday announced in its quarterly National Outlook for Residential Building report that housing starts will drop below levels seen in the 2008 global financial crisis should the current trend go unchecked.

Housing starts are tipped to fall to 137,820, or 12.4 percent, this financial year, after shrinking by 5.6 percent the year before. "We have been warning of an outcome of this magnitude for over 12 months," the association said. Page B3.-- According to a special purpose financial report lodged with the Australian Securities and Investments Commission, Vodafone Hutchison Australia posted a A$445 million loss last year. Many journalists reported that the mobile network operator posted a A$350 million loss in 2011 after half-owner Hutchison Telecommunications Australia revealed in February that it had booked a A$175 million loss on the joint venture. The document also revealed that one or both of the joint venture's parent companies injected A$300 million into the business. Page B3.-- THE AGE (this site)Shares in Rio Tinto -controlled miner Ivanhoe Mines have plummeted after the company released a 513-page technical report into its parent's Oyu Tolgoi gold and copper venture in Mongolia. The Canadian firm said the US$6.2 billion project could be struck with higher processing and mining costs, while the grade of the ore mined could also be lower than expected. The global miner refused to comment on the report last night, leading some to question if further tensions have opened between the two companies. Page B4.-- Whitehaven Coal yesterday lowered its production forecasts for this financial year, citing the closing of chemicals and explosives manufacturer Orica's factory in Newcastle, New South Wales and inclement weather during February for the downgrade. The coal producer made the announcement less than a fortnight before shareholders vote on whether to approve a A$5.1 billion merger with fellow miner Aston Resources. Page B4.-- The Australian Competition and Consumer Commission has suspended its clearance process for AGL Energy's attempt to increase its stake in the Loy Yang brown coal power station until it receives more information about the transaction, the energy retailer said yesterday. AGL currently controls 32.54 percent of the power generator and is seeking to acquire the remaining 67.5 percent from Tokyo Electric Power Company, which is strapped for cash following last year's catastrophe at the Fukushima nuclear power plant. Page B4.-- A A$554 million takeover of Flinders Mines has been stalled after a minority shareholder in Russian steel manufacturer Magnitogorsk, the iron ore junior's suitor, successfully won a legal injunction against the bid on the grounds that it could adversely impact the latter's operations and bottom line. Elena Egorova owns less than 0.001 percent of Magnitogorsk, but her actions resulted in a selling frenzy of Flinders' stock, which closed almost 20 percent down at the end of trade yesterday at A24.5 cents. Page B4.--

Press digest australian business news feb 29

Compiled for Reuters by Media Monitors. Reuters has not verified these stories and does not vouch for their accuracy. THE AUSTRALIAN FINANCIAL REVIEW (this site)Bill Boyd, resources minister for the Canadian province of Saskatchewan, yesterday said it was uncertain whether the board of global miner BHP Billiton would approve a US$10 billion-plus potash venture in the area by the end of the year. "They are certainly getting closer to making a final decision but they are not in a position in terms of disclosing that at this point," Mr Boyd said. Page 17.- - - - Shareholders in Ludowici Limited are expecting that Scottish firm Weir Group will submit a higher takeover bid for the local mineral processing equipment manufacturer, after Danish engineering firm FLSmidth's A$388 million bid received the unanimous support of Ludowici's board. FLSmidth was also ordered by the Takeovers Panel to pay compensation to shareholders who sold their shares in the last week of January, after FLSmidth's Jorgen Huno Rasmussen was quoted saying the company would not increase its offer. Page 19.- - - - Ian Campbell, chief executive of GUD Holdings, yesterday abolished plans to fully acquire kettle and coffee machine maker Breville Group after the owner of the Sunbeam brand sold its 19.3 percent holding for A$84 million. The sale brings an end to any possible takeover or merger rumours between the two appliance firms after the Australian Competition and Consumer Commission prevented GUD from acquiring Breville three years ago. Page 19.- - - - Iron ore producer Atlas Iron yesterday announced that the commissioning of the South West Creek berth at Port Hedland in Western Australia would increase its exports to 22 million tonnes annually from 15 million tonnes. The news came as the junior miner revealed a 76 percent jump in underlying profit for the first half of the 2011-12 financial year to A$62.2 million thanks to a jump in exports. Page 21.- - - - THE AUSTRALIAN (this site)John Neal, the anointed replacement for Frank O'Halloran as chief executive of QBE Insurance, yesterday pledged "evolution and not revolution", with the company seeing a rise in premium rates and fewer natural disasters. The announcement came as the diversified insurer released its full-year accounts for 2011, which included a 45 percent drop in profit to US$704 million from US$1.28 billion. Page 19.- - - -

Around 80 jobs will be lost in Australia after Royal Bank of Scotland (RBS) decided to outsource the majority of its local fixed-interest team operations to London and Singapore. The move is believed to be the first step in the diversified bank's move to reduce its staff numbers in Australia to 70 from 600. However, the outsourcing is separate from RBS's plan to sell off either a portion or the entirety of its equity business. Page 19.- - - - Goodman Fielder, the largest listed food group in Australia, yesterday confirmed in a statement to the Australian Securities Exchange that Singaporean agribusiness Wilmar International was looking to acquire "10 percent of the issued capital" of the local firm. However, observers say the foreign firm may have to materially increase its offer price from A58 cents if it wants to acquire a larger stake, or the entirety, of Goodman. Page 19.- - - - The board of Billabong yesterday rejected an improved A$842 million takeover offer by private equity group TPG Capital, with major shareholder Gordon Merchant saying that even a 33 percent rise in TPG's bid was undervaluing the street and surf wear retailer. In a statement to the Australian Securities Exchange, Billabong announced that "discussions between the two parties have ceased". Page 19- - - - THE SYDNEY MORNING HERALD (this site)

A judge in the Victorian Supreme Court yesterday warned that the credibility of Solomon Lew would be a critical part of a case where the retailing mogul is seeking a court order to reveal the beneficiaries of a Lew family trust. Mr Lew has reportedly named his three children and two of their estranged partners as defendants, but is only seeking that the court to declare the children are only beneficiaries of certain loan accounts and not the trust. Page B1.- - - - New Hope Corporation, the coal miner controlled by billionaire Robert Millner, yesterday said unnamed parties had undergone "detailed due diligence" on the company but there was no guarantee that a deal would emerge. New Hope is majority-owned by conglomerate Washington H. Soul Pattinson, and reports have hinted at a reducing level of interest for the company. Page B3.- - - - NBN Co and Telstra can finalise a historic deal to share network infrastructure after the Australian Competition and Consumer Commission yesterday accepted the telecommunications group's structural separation undertaking. "There are a small number of matters left to finalise with the Government, including NBN Co shareholder approval and Telstra receiving ministerial waivers from the legislative requirements to divest our network and our share in [pay television network] Foxtel," Telstra chief executive David Thodey said. Page B4.- - - - Supermarket chain Coles has hired real estate group Jones Lang LaSalle Hotels to sell the Portadown Hotel in Queensland, Hampstead Hotel in South Australia and the Northlakes Tavern and nearby shopping centre in New South Wales. The campaign is part of the retailer's review of its hotels division, which is also exploring the possibility of forming a joint-venture agreement for the business. Page B5.

- - - - THE AGE (this site)Despite all the furore when home owners are slugged by out-of-step increases in standard variable mortgage rates, observers yesterday noted the lack of headlines dedicated towards National Australia Bank's decision to increase its "liquidity margin" on business loans by 18 basis points to 1.13 percent. The lender has come under fire from rival Commonwealth Bank of Australia, which used the announcement of NAB's increase to try to encourage customers to switch banks. Page B6.- - - - The business tax working panel created by Federal Treasurer Wayne Swan is considering rolling back tax incentives for subsidiaries of foreign corporations in a bid to assist firms in the slower sectors of the local economy. The panel will meet today to discuss methods to improve productivity before consulting with industry one last time before delivering its final report to the Treasurer next month. Page B8.- - - - The retail sector in the richer parts of Melbourne's inner east is being bolstered by a younger generation that is growing accustomed to living in apartments, observers say. Charles Emmett, executive at real estate agent Fitzroys, yesterday said many Gen Y professionals were moving into Victoria's South Yarra and Prahran areas, creating strong trade for many shopping strips such as Malvern Road, Greville Street, Toorak Road and Chapel Street. "Retailers are recognising the long-term value in these locations," Mr Emmett added. Page B12.- - - - The Railway Hotel in West Melbourne, Victoria, has been sold to a private developer for A$2.165 million through real estate group CB Richard Ellis' Scott Callow. According to Mr Callow, the hotel, which has a bar, dining room, 26 rooms and a beer garden, would benefit from being situated on the fringe of the state's capital. "West Melbourne has undergone as significant transformation in recent years, as residential developments have replaced former light industrial properties," Mr Callow added. Page B14.- - - -