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February 26th – The BESA Times

Thirty-Second Edition - Sunday, February 26th

Every week, a complete snapshot of what happened around the world in the past seven days


Notable Headlines

After the negotiation talks between Russia, Ukraine, Germany and France this Monday, the Russian prime minister (and his Ukrainian counterparty) both agreed to a ceasefire coming to force in Ukraine. The ceasefire would entail a Russian drawdown and heavy weapons’ withdrawal from both parties. None of the agreed upon actions have been implemented yet, fact that lead the Head of the OSCE to urge for actions compliant with the negotiations’ outcome. Failure to do so would escalate the situation, already tense after Russian authorities began recognizing passports issued by pro-Russia rebel republics in eastern Ukraine.

Exxon Mobil wrote down 19.3% of its oil reserves this week resulting in the largest such reduction of at least a decade. The write-down was predicted and signaled though, along with Exxon’s failure to replace all of the reserves it pumped during 2016. Low and declining oil prices last year made it uneconomical to continue drilling in certain locations, requiring reserves in the latter to be de-booked; as Exxon notably did by erasing all of the 3.5bn barrels in oil-sands reserves in Canada.

Earlier this week, following North Korea’s ballistic-missile test, China blocked coal imports from North Korea for the rest of the year. Coal exports remain North Korea’s single largest exported item and nearly half of its exports to China, understating the magnitude of the ban and the growing divide between the communist neighbours. Chinese authorities said the move was designed to implement the UN Security Council resolution’s tightening sanctions against the regime, whose nuclear tests now pose a threat to their Chinese allies if a nuclear leak takes place.


What to remember of last week's news?

Germany and Italy rule out starting trade talks with Britain until the UK gives assurance on a multibillion-euro Brexit bill and citizens’ rights as presented in European Commission’s plan. Michel Barnier, the chief EU negotiator is said to have both the countries support in the negotiations, with France and Austria being set on the 60bn bill and others, such as Spain remaining fluid on their stance. Merkel seems to be amongst the only ones that are reluctant to punish too harshly the UK. While she is conscious of GER-UK bilateral ties, her bottom line purpose remains providing enough of a disincentive for the other 27 countries to refrain from wanting out of the EU.

France’s Front National leader, Marine Le Pen had her team meet with stategists and analysts from BlackRock, Barclays and UBS to explain to them their economic program and plans to withdraw France from the euro. While executives from Crédit Agricole, BNP Paribas, Société Générale have dismissed Le Pen’s victory in their Bloomberg appearances, the representatives of the group that attended the meeting are trying to understand and assess the risk that her winning the elections might entail for business and are thinking of possible hedging strategies in case of a FN victory and a consequent Frexit.

In what is considered to be the largest IPO ever, dethroning Ali Baba’s $25bn that keeps the record to this date, Saudi Arabia has expressed expectations for its oil company Aramco to go public for more than $2tn, surpassing Ali Baba’s IPO four times or, put into perspective, being as large as two Apple Inc. and Alphabet Inc. together. The opinion of industry executives, analysts and consultants however ranges from $400 bn to $1 tn, clarifying the enormous size of the deal, but downgrading a lot the expectations of the Kingdom. A reason that might explain the large discrepancy between the Saudi authorities’ and the analysts’ valuation might be the fact that Saudi Arabia takes into account the company’s huge oil reserves, estimated to be around 260 bn barrels of oil reserves, while analysts focus on future cash flows and ability to distribute dividends to the company’s prospective shareholders. Seen from the latter’s perspective, Aramco has to pays 85% tax income and a 20% royalty inhibiting its ability to make investors as happy as they could be. A possible tax cut from the Saudi authorities might make the two valuations slightly converge, yet at current circumstances the $ 2tn expectation seems very high.


Understand in Pictures...

Russ Koesterich, BlackRock's Global Allocation Fund portfolio manager, explains why he is invested in gold. He speaks with Bloomberg's Joe Weisenthal, Lisa Abramowicz and Erik Schatzker on Bloomberg TV. Understand why here.


A Week in the Financial Markets


Our Homemade Article

by Andrea Strazzi Liverani


What to expect for next week?

This week will be focused on the real estate market with Japan and the United Kingdom publishing their Housing Prices on the 28th of February. Hong Kong will be declaring their trade balances and unemployment rates while the Eurozone’s economy confidence (consumer, business, industrial) indices will be available from the 27th of February. A lot from what is going on politically in Europe is expected to influence the figures made available by the end of the month.





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