Europe’s Banking Beatdown is a US Banking BoonJul12

Daily Intelligence Briefing

Tuesday, July 9, 2019

Banks

How Deutsche Bank’s Woes Infect All European Lenders 

Europe has too many banks making too little money. The continent’s big lenders appear to lurch from crisis to crisis, burning through chief executives and seemingly endless resets of strategy. The flailing is particularly dramatic when compared with American rivals. A decade ago, Europe’s top five banks earned more than their counterparts across the Atlantic Ocean. By last year – when the top five U.S. banks raked in more than $100 billion in profit – their European equivalents earned just a third as much. With the global financial system increasingly intertwined, weak banks in Europe are a concern for banking systems everywhere.

The most common refrain from bankers in Europe is that they’d be better off if they could get bigger. The industry is fragmented in France and Italy as well as in Germany, where banks share the market with a large number of government-backed and cooperative lenders. Those serve social and political goals, and they also make it hard for banks to turn much of a profit. Mergers might help reduce bloated expenses: The 10 biggest banks have costs that equal about 75 percent of income on average, compared with about 60 percent in the U.S., though their mix of business is somewhat different. They’re also investing in digital payment systems to compete with online rivals.

Bankers had been hoping that the ECB would finally begin raising interest rates, but the economic clouds have pushed that prospect back and borrowing costs could be headed even deeper into negative territory. The ECB is considering a new round of low-cost loans to banks, known as TLTROs, to help lift the profits of lenders. The central bank has also been quietly lobbying in favor of cross-border mergers. And while EU officials have started work on building the institutions needed to underpin a broad and robust European market, like a common deposit insurance mechanism, progress has been slow and resisted by some members.

Read the full article from Washington Post +

Banks

U.S. Banks Rush in as European Banks Stumble

The decline of Deutsche Bank AG and other former European financial powerhouses has left a gaping hole in European banking. U.S. banks are filling the void, strengthening their stranglehold on the region.

Deutsche Bank’s announcement Sunday that it would cut 18,000 jobs and shut its global equities sales-and-trading business is the latest sign of how European banks are struggling. As Europe’s banks have retreated, U.S. banks are dominating.

More than halfway through the year, American banks such as Morgan Stanley and Goldman Sachs Group Inc. have racked up the highest revenues from advising on deals and arranging stock sales and bond issues in Europe. Such is their dominance that so far this year the top five banks in Europe by investment-banking revenue are all U.S. banks, according to data provider Dealogic. Only one European bank has made the top five spots annually between 2014 and 2018, the data show.

“It’s a very depressing picture if you’re a European bank,” said Martin Armstrong, chairman of Armstrong International, a London-based executive search firm that advises banks on strategy and head count. “They’re being killed by a thousand cuts.”

Read the full article from The Wall Street Journal +

Banks

Cash Hoarding Is Eventual Restraint to ECB Rate Cuts

The European Central Bank has cut the deposit rate to -0.4% and Bloomberg Economics expects that rate to be cut by a further 10 basis points in September. As a firefighting tool, rate cuts are compromised — tiering would probably be needed for big moves and that may even impede transmission of policy. Then, at some as yet unknown point, cash hoarding would become the binding constraint: As deposit rates have fallen there’s already evidence of this in ECB data on the volume of cash held in bank vaults — though it’s currently in small quantities.

Read the full article from Bloomberg +

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Video Gaming

LONG

3D Printing

SHORT

Autos

LONG

Electric Utilities

LONG

Solar

LONG

Vietnam

US Consumer Credit Beats Expectations

Consumer credit in the United States went up by USD 17.09 billion in May 2019, following a downwardly revised USD 17.46 billion gain in the previous month (vs preliminary USD 17.50 billion) and above market expectations of a USD 16.65 billion rise.

Click here to access the data +

German Stocks Lower on Deutsche Bank Plunge

The DAX 30 dropped 25 points, or 0.2% to 12,544 on Monday, as Deutsche Bank shares reversed early gains and plunged more than 5% following Sunday’s announcement that it will close its global equities unit, scale back its investment banking and cut 18,000 jobs by 2022 as part of its €7.4 billion restructuring plan. Meanwhile, other major European stock markets closed near the flat line.

Click here to access the data +

Oil Rises on Middle East Tensions

Oil prices were up on Monday, amid increased tensions between Washington and Tehran, as President Trump has warned Iran it “better be careful” after the country announced it would increase its enrichment of uranium beyond 2015 nuclear deal limits. US crude oil rose as much as 0.5% to $57.73 while Brent added 0.4% to $64.50 a barrel around 12:30 PM New York time.

Click here to access the data +

Finance

Banks

How Deutsche Bank’s Woes Infect All European Lenders 

Europe has too many banks making too little money. The continent’s big lenders appear to lurch from crisis to crisis, burning through chief executives and seemingly endless resets of strategy. The flailing is particularly dramatic when compared with American rivals. A decade ago, Europe’s top five banks earned more than their counterparts across the Atlantic Ocean. By last year – when the top five U.S. banks raked in more than $100 billion in profit – their European equivalents earned just a third as much. With the global financial system increasingly intertwined, weak banks in Europe are a concern for banking systems everywhere.

The most common refrain from bankers in Europe is that they’d be better off if they could get bigger. The industry is fragmented in France and Italy as well as in Germany, where banks share the market with a large number of government-backed and cooperative lenders. Those serve social and political goals, and they also make it hard for banks to turn much of a profit. Mergers might help reduce bloated expenses: The 10 biggest banks have costs that equal about 75 percent of income on average, compared with about 60 percent in the U.S., though their mix of business is somewhat different. They’re also investing in digital payment systems to compete with online rivals.

Bankers had been hoping that the ECB would finally begin raising interest rates, but the economic clouds have pushed that prospect back and borrowing costs could be headed even deeper into negative territory. The ECB is considering a new round of low-cost loans to banks, known as TLTROs, to help lift the profits of lenders. The central bank has also been quietly lobbying in favor of cross-border mergers. And while EU officials have started work on building the institutions needed to underpin a broad and robust European market, like a common deposit insurance mechanism, progress has been slow and resisted by some members.

Read the full article from Washington Post +

Banks

U.S. Banks Rush in as European Banks Stumble

The decline of Deutsche Bank AG and other former European financial powerhouses has left a gaping hole in European banking. U.S. banks are filling the void, strengthening their stranglehold on the region.

Deutsche Bank’s announcement Sunday that it would cut 18,000 jobs and shut its global equities sales-and-trading business is the latest sign of how European banks are struggling. As Europe’s banks have retreated, U.S. banks are dominating.

More than halfway through the year, American banks such as Morgan Stanley and Goldman Sachs Group Inc. have racked up the highest revenues from advising on deals and arranging stock sales and bond issues in Europe. Such is their dominance that so far this year the top five banks in Europe by investment-banking revenue are all U.S. banks, according to data provider Dealogic. Only one European bank has made the top five spots annually between 2014 and 2018, the data show.

“It’s a very depressing picture if you’re a European bank,” said Martin Armstrong, chairman of Armstrong International, a London-based executive search firm that advises banks on strategy and head count. “They’re being killed by a thousand cuts.”

Read the full article from The Wall Street Journal +

Banks

Cash Hoarding Is Eventual Restraint to ECB Rate Cuts

The European Central Bank has cut the deposit rate to -0.4% and Bloomberg Economics expects that rate to be cut by a further 10 basis points in September. As a firefighting tool, rate cuts are compromised — tiering would probably be needed for big moves and that may even impede transmission of policy. Then, at some as yet unknown point, cash hoarding would become the binding constraint: As deposit rates have fallen there’s already evidence of this in ECB data on the volume of cash held in bank vaults — though it’s currently in small quantities.

Read the full article from Bloomberg +

Services

Video Games

Microsoft may be making a $60 mini Xbox for xCloud game streaming

Currently, xCloud is confined to already-existing devices. It’s available for PC, Xbox, and mobile. Going into preview in October of this year, it’ll allow users to enjoy console-quality games on devices that otherwise may not be capable of running them. However, there were rumors that Microsoft was working on a standalone box for xCloud. Now, thurrott.com‘s Brad Sams has reignited those rumors in a YouTube video.

Sams says that Microsoft is starting to feel really confident in xCloud, and with the removal of Project Lockhart, it’s allowing them to focus more on the service. This has led to the development of this mini-Xbox style device that connects a controller to xCloud and streams games. Sams says that this device is intended to be a low-power, low-latency device that has minimal computing power. He explains that the only computing the device itself will do is moving the player’s character in virtual space since this is the aspect of games that is most prone to being affected by latency. Sams goes on to say that it is not a certainty that Microsoft will be shipping this device just yet. However, given the market potential for something like this, it seems likely.

Read the full article from XDA Developers +

Manufacturing & Logistics

3DP

Carbon Performance develops 3D printed brake calipers on new SK3L370N Platform

British automotive technology company Carbon Performance has manufactured a selection of 3D printed brake calipers using its new proprietary automated intelligent platform, SK3L370N.

The SK3L370N platform automatically generates environmentally sustainable designs for 3D printed automotive parts using self-taught algorithms. According to Gilbert Peters, CTO of Carbon Performance, “Carbon Performance is truly democratizing the automotive industry making it accessible for automakers of all sizes from giants to independent start -up teams to develop the cars of tomorrow.”

Less than five years old, Carbon Performance develops bespoke car parts using deep learning and metal additive manufacturing. It’s previous products have included the fabrication of a 3D printed suspension upright for the Lotus Elise sportscar. As a result of its collaboration with standards organization SAE International, the company also produces parts for the Formula SAE and Baja SAE student racing competitions.

To give smaller manufacturers access to the automotive industry, the SK3L370N one-stop, cloud-based ecosystem was introduced. The platform facilitates the digital development of complete cars and individual parts, and aims to eliminate prohibitive costs, human capital, resources, time, and infrastructure requirements.

Read the full article from 3D Printing Industry +

Satellites

Amazon asks FCC for permission to launch internet satellites

Amazon is moving fairly quickly on its plan to deploy thousands of internet satellites. The company has filed for FCC permission to launch 3,236 satellites as part of Project Kuiper. The spacecraft would be grouped into 98 orbital planes, and fly at altitudes between 366 and 391 miles. The filing reiterated Amazon’s plans to connect “tens of millions” of people around the world, although the company warned that it couldn’t cover everything — it asked for a waiver on a requirement to serve the whole US as its satellites wouldn’t cover parts of Alaska.

They’d use Ka-band frequencies like those Iridium is using for interlinks (not user connections) with its latest satellites, and Amazon is asking for clearance to use anti-interference technology to avoid headaches. And yes, Amazon is aware of the potential problems with space debris. The satellites would deorbit themselves in less than 10 years whether or not they were still in contact with Earth.

Amazon didn’t mention a timeline for putting the satellites into orbit. However, the FCC filing shows that it has been thinking about this plan for a while. Whether or not it’s timely is another story. SpaceX is already launching its first broadband satellites, and plans roughly three times as many. Although it will take years for satellite constellations like these to roll out, there’s a concern that Amazon might already be at a disadvantage.

Read the full article from Engadget +

Transportation

Aviation

Boeing 737 Max’s Autopilot Has Problem, European Regulators Find

Europe’s aviation regulator has outlined five major requirements it wants Boeing Co. to address before it will allow the planemaker’s 737 Max to return to service, according to a person familiar with the matter. One of them, about the jet’s autopilot function, hasn’t surfaced previously as an area of concern.

The European Union Aviation Safety Agency has sent its list to both the U.S. Federal Aviation Administration and Boeing, the person said, asking not to be identified because the details aren’t yet public. The FAA hasn’t publicly discussed details about what changes it’s demanding on the Max, so it’s difficult to know whether the EASA demands differ dramatically—and whether they would significantly boost the cost and time to get the Max back in the air.

Regulators worldwide grounded Boeing’s best-selling plane in March following two crashes in five months that killed a total of 346 people.

The issues being raised by EASA are consistent with the FAA’s own questions, said a person familiar with the U.S. agency’s work who wasn’t authorized to speak about the matter. In a statement, the FAA declined to confirm the specific matters being raised by EASA but said: “The FAA continues to work closely with other validating civil aviation authorities on our review of Boeing’s certification documentation for the 737 MAX. This process involves regular communications among all parties.”

Read the full article from AJOT +

Trucking

Trucking demand, spot rates fall year-over-year in June

Demand for van trucks in June fell by 50% year-over-year while demand sank nearly 75% for flatbeds and 55% for reefers, according to DAT’s load-to-truck ratio. The ratio can be used to measure demand in the spot market: the higher the number, the harder time a shipper will have finding a carrier.

All three trucking categories saw their demand grow from May into June, but all experienced lower ratios than in 2018 and 2017, according to DAT’s numbers. Spot rates across the three categories were also down year-over-year, dropping more than 18% for vans and flatbeds and almost 17% for reefers, according to DAT.

Freight volume in June in the top 100 markets was up 22%, but the number of trucks was also higher than in 2018. “A record number of truck purchases last year has led to increased capacity,” according to DAT. But there has been lower demand for reefers due to “muted” produce harvests, DAT’s Mark Montague said in a blog post. “When reefer freight is soft, that capacity moves to the van market,” Montague said.

Avery Vise, the vice president of trucking at FTR, said in June demand for trucking was “slowing substantially,” but the industry was coming off two “very strong years,” according to Overdrive.

Read the full article from Supply Chain Dive +

Autos

China Car Sales Rise for First Time in a Year on Discounts

China’s passenger-car sales showed signs of recovery from a historic rut as dealers offered discounts to clear inventory before new emissions rules kicked in.

Retail sales of sedans, sport utility vehicles, minivans and multipurpose vehicles rose 4.9% to 1.8 million units in June from a year earlier, according to preliminary numbers from the China Passenger Car Association Monday. That’s the first increase since May 2018 for the world’s biggest market.

The report offers some hope for automakers and dealers struggling with the first slump in demand in a generation, caused by slowing economic growth, rising trade tensions and stricter emissions rules. Yet a sustained recovery is far from certain, with researcher LMC Automotive last month estimating a decline of about 5% for the full year.

European auto stocks rose, with the Stoxx Europe 600 Automobiles and Parts Index climbing as much as 0.8%. Volkswagen AG, the biggest carmaker by sales in China, gained as much as 1.1% and was up 0.5% at 155.36 euros at 12:33 p.m. in local trading. While the June data is “inspiring,” it’s inflated by discounting and it won’t be easy for the market to keep up the growth, Cui Dongshu, secretary general of PCA, told reporters in Beijing.

Read the full article from Yahoo Finance +

Commodities

Metals

Congo’s Swing Producers Turn to Copper After Cobalt Meltdown

Production of hand-dug cobalt in the Democratic Republic of Congo is poised to drop sharply after prices tumbled, prompting many of the country’s thousands of artisanal miners to switch focus to copper instead.

Congo last year produced about 72% of the world’s cobalt, a key ingredient in the rechargeable batteries that power electric vehicles and smartphones. While most of the country’s production is from large, mechanized mines run by companies including Glencore Plc, diggers that use rudimentary tools tend to respond more quickly to price changes.

Artisanal output soared during cobalt’s rally during 2017 and early 2018 and accounted for as much as 20% of Congo’s production of the metal last year, according to Darton Commodities. The Congolese authorities say the figure was as high as 30%. After a supply glut sent cobalt prices plummeting about 70% from the peak, many of the country’s artisanal miners are now switching focus to copper instead.

“At the moment the diggers prefer to work the copper,” said Jacques Kaumbu, the president of a mining cooperative in Lualaba province. “The old cobalt pits no longer interest them.”

Read the full article from Bloomberg +

Metals

China’s steelmakers say iron ore import prices are too high

Surging iron prices have taken a hit from signs the Chinese government could act on complaints from Chinese steel mills that market manipulation by futures traders is squeezing their profit margins.

Iron ore futures, which hit a five-year high last week, fell almost 4 per cent late Friday after a top official representing China’s powerful steel industry said Beijing was preparing to crackdown on soaring prices.

Dual-listed shares in Australian miners BHP Billiton and Rio Tinto fell sharply in London on news that China’s top steelmakers had formed a working group to investigate “irregularities”. Analysts warned any move by the Chinese government to respond to the industry complaints would result in lower prices for imported iron ore, although a shortfall meant volumes were not threatened.

Higher iron ore exports pushed Australia’s trade surplus to a record $5.7 billion in May and exports to China during the month surged 18 per cent, data released last week showed. China’s continued demand for Australian iron ore will be crucial to achieve the first current account surplus since the 1970s. The price of iron ore hit a five-year high of more than $US126 a tonne last week before falling on Friday to as low as $US107 a tonne.

Read the full article from Hellenic Shipping News +

Oil

Is US Shale Cannibalizing Itself?

U.S. oil production continues to grow, but the shale industry is in the midst of a deceleration as low oil prices and a financial squeeze slow the pace of drilling.

The U.S. added 246,000 bpd of fresh supply in April, the latest month for which data solid is available. That put to rest concerns that the industry was in the midst of contraction, after production fell in January and February (some of which was due to offshore maintenance). Even as the rig count continues to fall, production grinds higher. The EIA expects output to grow by another 70,000 bpd in July, with the Permian alone adding 55,000 bpd.

But the rate of growth is slowing. In April, production was up 1.6 million barrels per day (mb/d) compared to the same month a year earlier. By any measure, that is a massive increase. But it is down sharply from the nearly 2.1 mb/d year-on-year increase seen in August 2018, which looks set to be the peak in terms of the pace of growth.

The problem is the “parent-child” well interference problem, an issue that has cropped upover the past few years as companies intensify drilling operations. The larger companies that have the acreage, capital and technology to play around with different techniques and spacing are the ones that can weather the storm. Smaller companies, which have an immediate need for capital to drill their next well, are facing a much deeper problem.

Read the full article from Oil Price +