Focus: Oil and what to do with non-performing loans in the eurozone

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Updated 20 April 2020
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Focus: Oil and what to do with non-performing loans in the eurozone

What happened:

Major markets were up last week amid high volatility. It was the start of the earnings season, where Q1 results reflected the last quarter before the lockdown really hit Europe and the US.

There was a trend against emphasis on guidance, because of a lack of visibility on the full impact of the second quarter and inability to forecast the shape and pace of recovery as economies emerge from lockdown. Banks all shored up their loan loss provisions in expectation of a deterioration of their loan portfolios.

The President of the Cleveland Federal Reserve Bank, Loretta Mester, warned against the risk-on sentiment becoming too buoyant because the crisis was still ongoing and the shape and speed of any recovery unknown. She has a point. Several economists calculated that leaving major economies in lockdown could cost their gross domestic products 3 percentage points per month.

Mester explained the Fed’s interventions as a) ensuring a continued functioning of markets via the asset purchase program and b) mitigating the effects of the crisis on households and businesses by ensuring credit flows to them. They are inherently linked because functioning markets are the transmission mechanism enabling credit to flow.

Oil had a very bad start of the week with Brent having lost 6.8 percent on the day and WTI’s May forward contract at $11.05 down 39.52 percent on the day by mid-afternoon in Europe. The June contract is considerably higher.

The Bank of Spain forecast that Spain’s economy would contract between 6.8 and 12.4 percent in 2020.

Background:

The fall in the oil price reflects the world running out of storage capacity. The differential between Brent and WTI reflects the situation in the US. Some producers sell their crude at $2 per barrel. It is not beyond the imagination that producers must have to pay off-takers if the situation does not improve.

The OPEC+ deal, which takes 9.7 million barrels out of the market, only kicks in on May 1 and mostly affects Asia and Europe. It cannot compensate for the dramatic demand in decline which the International Energy Agency forecasts to stand at 23 million barrels per day during the second quarter. What it will do, however, is flatten the curve and extend the ability of stage facilities to take in crude.

We should not forget that what happens in the US shale space has big ramifications for some US lenders, if they are exposed to the traditionally highly leveraged producers in the shale space. This, and the effects the situation has on employment, explains why US President Donald Trump’s administration is considering paying oil companies to leave crude in the ground.

Going forward:

The chilling numbers out of Spain on Monday morning highlight the problems faced by the EU. Both Spain and Italy fail the loan/GDP criteria by far. Italy’s debt to GDP ratio may reach anywhere between 150 and 180 percent at the end of the crisis.

It brings to the fore how the EU will deal with the economic fallout of the coronavirus crisis. There is the problem of mutualization of debt in the eurozone which France, Spain, Italy and other southern countries favor and their northern counterparts like Germany and the Netherlands oppose.

One way around the problem could be to permit the EU Commission borrowing to fund an investment-led recovery plan under the Multiannual Financial Framework, the EU’s seven-year budget. This plan is still on the drawing board.

In the meantime, there is the non-performing loan (NPL) legacy of the 2008 financial crisis, leaving many eurozone countries with a mountain of NPLs. According to the Financial Times, the ECB is considering creating a “bad bank” to avoid NPLs clogging up the lending capacity of its banks, giving them headroom to lend as Europe emerges from the coronavirus-induced lockdown. This proposal is also still on the drawing board and there is no decision structure about the “bad bank” — national versus eurozone-wide — as of yet. However, it is crucial to find a solution to the NPL issue in order to support any recovery.

 

— Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources.

Twitter: @MeyerResources

 


South Africa’s Ramaphosa says violence has no place after election

Updated 5 min 46 sec ago
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South Africa’s Ramaphosa says violence has no place after election

  • Voters angry at joblessness, inequality and rolling power blackouts slashed support for the ANC to 40.2 percent

JOHANNESBURG: South African President Cyril Ramaphosa said on Monday there was no place for threats of violence or instability after last week’s election cost his African National Congress (ANC) party its majority for the first time.
The result, announced on Sunday, was the worst election showing for the ANC, Africa’s oldest liberation movement, once led by Nelson Mandela, since it came to power 30 years ago, ending white minority rule.
Voters angry at joblessness, inequality and rolling power blackouts slashed support for the ANC to 40.2 percent, down from 57.5 percent in the previous 2019 parliamentary vote.
The result means the ANC must share power, probably with a major political rival, to keep it — an unprecedented prospect in South Africa’s post-apartheid history.
“This moment in our country calls for responsible leadership and constructive engagement,” Ramaphosa told the nation in a weekly newsletter. “There can be no place for threats of violence or instability.”
The sharp drop in ANC support has fueled speculation that Ramaphosa’s days might be numbered, either due to the demands of a prospective coalition partner or as a result of an internal leadership challenge.
But so far senior party officials have publicly backed him, and analysts say he has no obvious successor.
Former president Jacob Zuma’s uMkhonto we Sizwe party has said it is considering a court challenge to the election results, despite performing much better than many had expected to come in third with 14.6 percent of the vote.
Analysts have long feared Zuma’s party may stir up trouble if his supporters, who rioted and looted for days when he was arrested for contempt of court in 2021, reject the results.
Ramaphosa added, “South Africans must stand firm against any attempts to undermine the constitutional order ... for which so many struggled and sacrificed.”


Sri Lanka closes schools as floods and mudslides leave 10 dead and 6 others missing

Updated 41 min 56 sec ago
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Sri Lanka closes schools as floods and mudslides leave 10 dead and 6 others missing

  • Six people died after being washed away and drowning in the capital, Colombo, and the remote Rathnapura district on Sunday, according to the disaster management center

COLOMBO: Sri Lanka closed schools on Monday as heavy rain triggered floods and mudslides in many parts of the island nation, leaving at least 10 people dead and six others missing, officials said.
The education ministry announced that the reopening of schools would depend on how the weather develops.
Heavy downpours have wreaked havoc in many parts of the country since Sunday, flooding homes, fields and roads, and forcing authorities to cut electricity as a precaution.
Six people died after being washed away and drowning in the capital, Colombo, and the remote Rathnapura district on Sunday, according to the disaster management center. Three others died when mounds of earth collapsed on their houses, and one person died when a tree fell on him. Six people have gone missing since Sunday.
By Monday, over 5,000 people had been moved to evacuation centers and more than 400 homes had been damaged, the center said in a statement.
Navy and army troops have been deployed to rescue victims and provide food and other essentials to those affected.
Sri Lanka has been grappling with severe weather conditions since mid-May caused by heavy monsoon rains. Earlier, strong winds downed trees in many areas, killing nine people.


Netflix drama stirs complex past of Pakistan’s ‘courtesans’

Updated 51 min 21 sec ago
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Netflix drama stirs complex past of Pakistan’s ‘courtesans’

  • Eight-part show portrays courtesans in “royal neighborhood” of pre-partition Lahore
  • Courtesans were at height of their power in Mughal era, from the 1500s to mid-1800s

LAHORE, Pakistan: The Netflix hit “Heeramandi” depicts the plush and powerful lives of courtesans in the 1940s, but there is little glamor for modern Pakistani sex workers in the faded red-light district where the series is set.

The eight-part show — subtitled “The Diamond Bazaar” in English — portrays courtesans in the “royal neighborhood” of pre-partition Lahore, once a hub of culture and political intrigue.

With dazzling Bollywood-style opulence, it shows women consorting with aristocrats, forging influential alliances and rivalries against the backdrop of India’s struggle for independence from British rule.

But in the derelict remains of the neighborhood, 65-year-old former sex worker Shagufta scoffed.

“This is not what Heera Mandi is like,” she told AFP, using a pseudonym to protect her identity.

“Now the girls just put their bodies on display,” explained Shagufta. “There is nothing left in Heera Mandi.”

This photograph taken on May 17, 2024 shows an old building of a restaurant that formerly served as a part of the royal neighborhood of Heera Mandi, a red-light zone, in Lahore. (AFP)

Shagufta can trace back seven generations of women in her family who worked as “tawaifs” in Heera Mandi, and she began dancing and being prostituted at the age of 12.

While courtesans did command respect for their artistry in dance and music during the Mughal period, the show exaggerates the wealth and glamor of the British-ruled era in which it is set.

“It was never like this,” she said.

This photograph taken on May 16, 2024 shows a man making a tabla (Indian hand drum) at a music instrument shop near the royal neighborhood of Heera Mandi, a red-light zone, in Lahore. (AFP)

The glittering jewels and swooning melodrama of the show attracted nearly 11 million views in its first three weeks on Netflix, as well as a deluge of interest on social media.

Fascination has been split across Pakistan and India, where TikTok has lit up with videos of influencers dressing in traditional costumes and lip-syncing to the show’s songs and dialogues.

A sequence from a seductive classical dance inspired by the gait of an elephant — considered regal and dignified — has gone viral, with the dancer gracefully moving her hips from side to side.

Some vloggers have performed in front of shops selling shoes and musical instruments that have replaced the once-grand brothels, their crumbling art deco facades framing filthy alleyways.

But whether the show is breaking down barriers around sexuality in deeply conservative Pakistan or simply compounding them with titillation is up for debate.

This photograph taken on May 16, 2024 shows Shagufta, a former sex worker with a pseudonym, watching the trailer of "Heeramandi", a Netflix series, on a mobile phone in the royal neighborhood of Heera Mandi, a red-light zone, in Lahore. (AFP)

Naveen Zaman, a cultural researcher, is excited about the renewed attention Heera Mandi is getting.

“People are once again talking about the tawaif culture,” he said. “So actually, they are starting researching about these topics which were considered taboo in the past years.”

For Zaman, it is a step toward reviving an uncomfortable history.

“Old connections are being built here,” he said.

The courtesans were at the height of their power in the Mughal era, which lasted from the 1500s to the mid-1800s.

During British rule, Victorian morality codes were threatened by the women’s influence over the adoring local aristocracy, and the “diamond bazaar” was relegated to a red-light zone.

Decades after Pakistan gained independence, the dictatorship of President Zia ul-Haq introduced hard-line Islamic reforms which pushed sex work further into the shadows.

A police crackdown in 2009 finally shuttered Heera Mandi’s brothels and ended the music and dancing with which sex workers entertained their clients.

For 38-year-old Noor — also a pseudonym — the Netflix series does not wash away the stigma of being a sex worker from Heera Mandi.

Unlike in the series, where the term “tawaif” evokes ideas of art and etiquette, sex work in present-day Pakistan is a raw and dispiriting business.

Forced into sex work when she was a child to support her family, Noor is ostracized even by her relatives for the work she does.

“Women in this field are not considered honorable and are not treated with respect. It doesn’t matter how pious they become, they will never be respected. People will always call her a tawaif.”

“Even though in other areas of the city more sex work occurs — because of Heera Mandi’s reputation this place is still notorious,” she said.

This photograph taken on May 16, 2024, shows Noor, a sex worker with a pseudonym, speaking with AFP during an interview in the royal neighborhood of Heera Mandi, a red-light zone, in Lahore. (AFP)

Classical Indian dancer Manjari Chaturvedi has been working to reclaim the storied culture of courtesans for 15 years.

In her New Delhi studio, she called the Netflix series a “missed opportunity” which “could have created a different narrative for women, who were stigmatized for many centuries for the work they did.”

“The saddest thing that a cinema like this does is it again brings sexuality into the foreground rather than the art, and again it brings the same stigma,” Chaturvedi said.


China’s lunar probe could return with answer to origins of solar system

Updated 54 min 2 sec ago
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China’s lunar probe could return with answer to origins of solar system

  • Chang’e-6, named after the mythical Chinese moon goddess, was launched on May 3
  • A landing in China’s Inner Mongolia is expected around June 25

BEIJING: China’s Chang’e-6 lunar probe looks set to begin its historic journey back to Earth from the moon’s far side after collecting samples that scientists expect will help answer key questions about the early evolution of the solar system.
Chang’e-6, named after the mythical Chinese moon goddess, was launched on May 3 from the southern Chinese island province of Hainan.
The fully robotic probe landed on Sunday in a previously unexplored location in a gigantic impact crater called the South-Pole Aitken Basin, on the side of the moon that permanently faces away from Earth.
China’s previous Chang’e mission collected samples from the moon’s near side in December 2020, restarting global lunar material retrieval efforts after a gap of 44 years.
The uncrewed Luna 24 mission launched by the former Soviet Union in 1976 collected 170.1 grams (6 ounces) of samples from Mare Crisium, or “Sea of Crises,” on the near side of the moon.
Between 1969 and 1972, six Apollo missions, all crewed, collected 2,200 samples weighing a total of 382 kilograms, also from the side of the moon facing Earth.
James Carpenter, head of the European Space Agency’s lunar science office, said the samples collected by the Apollo missions from the moon’s near side suggested the South-Pole Aitken Basin on the far side was caused by an epoch of extremely heavy bombardment of the solar system, Earth and moon.
“This is a really core event in the history of the whole solar system, but there is some controversy about whether it happened or not,” he said.
“To understand that, you need to anchor those events, and that’s going to be done with samples from the lunar far side from the South-Pole Aitken Basin.”
SMALL WINDOW
After landing, Chang’e-6 had a 14-hour window to drill, excavate, and seal 2 kg of material, with the goal of being the first probe to bring back such samples from the moon’s far side. This compares to the 21-hour window Chang’e-5 had in 2020.
“Once it gets dark, once the sun goes over the horizon, the mission has to end, so there is a limited time window between landing, getting those samples, and getting off the surface again, so it’s quite an exciting mission because it has to be done quickly,” Carpenter said.
While China said it had improved the efficiency of its digging and drilling machines compared with 2020, the mission could still encounter snags at the sampling phase.
Chang’e-5 returned 1.73kg of lunar samples, rather than the planned 2kg, as the drill was only able to create a hole one meter deep, rather than two meters, after encountering impenetrable layers beneath the surface.
The Chang’e-6 samples will be transferred and sealed on a rocket booster atop the lander, which will launch back into space, dock with another spacecraft in lunar orbit and transfer the samples.
A landing in China’s Inner Mongolia is expected around June 25.
Throughout the probe’s journey, payloads from Italian, French, and Pakistani research institutes, as well as the European Space Agency, will collect data on questions pertaining to space and the moon, highlighting the growing international weight of China’s space program, which is competing with the United States to build a lunar outpost in the next decade.
Carpenter said there was “extremely strong” collaboration between European and Chinese scientists in analizing the lunar samples brought back by Chang’e-5, and he hoped this would be repeated for Chang’e-6.


UAE, Jordan provide online education for Syria refugee students

Updated 55 min 18 sec ago
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UAE, Jordan provide online education for Syria refugee students

DUBAI: The UAE and Jordan are providing online education for Syrian students at Zarqa refugee camp, the Emirates News Agency reported on Sunday.

The project is a collaboration between the Mohammed bin Rashid Al-Maktoum Global Initiatives Digital School and Jordan's Ministry of Education.

It is aimed at providing certified online education to students worldwide, particularly under-served communities.

All 45 classrooms at the school now feature interactive displays and reliable internet access.

The digital transformation model was rolled out for grades one to12 and serves 2,500 students.

Omar Sultan Al-Olama, the UAE’s minister of state for artificial intelligence, digital economy, and remote work applications, hailed the initiative.

“The launch marks a new success story for a humanitarian education project that reflects the visionary vision of His Highness Sheikh Mohammed bin Rashid Al-Maktoum, Vice President, Prime Minister and Ruler of Dubai.”

The aim is “to provide educational opportunities for the least fortunate students in the world and to provide a modern and distinguished educational experience for the Syrian refugees,” he reportedly said.