Northvolt cuts cost estimate for European battery plant as seeks investors

Northvolt has cut the estimated cost of building Europe's largest battery factory, giving a boost to a project that faces a battle to attract investors worried about Asia's head-start in the industry.

The Swedish company, set up by former Tesla (NASDAQ:TSLA) executive Peter Carlsson, will spend "significantly less" than its previous guidance of 4 billion euros ($4.7 billion), chief operating officer Paolo Cerruti told Reuters, without giving a new figure.

Cerruti, who co-founded the battery start-up with Carlsson, said Northvolt had identified ways to increase equipment productivity and lower raw material costs as well as the amount of energy needed to produce each gigawatt of battery power.

European politicians and industry are keen for home-grown battery producers to emerge as rivals to Asian players such as CATL and Samsung (KS:005930), which are building a dominant position in the industry.

Demand is expected to surge over the coming years as the production of electric vehicles rises, with Northvolt investor InnoEnergy projecting the market will be worth up to 250 billion euros.

Northvolt plans to build a factory in Sweden to produce 32 gigawatt hours (GWh) of battery capacity a year by 2023.

It is preparing to raise 1.2-1.5 billion euros in debt and equity this year to help build an initial 8 GWh of capacity, and expects the European Investment Bank - an existing backer - to provide a chunk of the debt.

It has also hired banks to tap institutional investors for the equity portion. But that may prove a harder sell.

When asked if he would put money into a battery project, Jeremy Kent, a portfolio manager with Allianz (DE:ALVG) Global Investors, said: "It would be difficult from our perspective."

The reason: battery manufacturers face low margins and high risks due to competition from Asian companies that have already built up technical expertise, supply chains and relations with carmakers, he said.

HIGH RISKS

In comparison, Northvolt is a startup without any distinguishing know-how, said Gerard Reid, founder of Alexa Capital, which advises firms in the energy sector.

"I don't believe Northvolt will attract any (institutional money) because the risks are so high."

Investors lost billions funding European solar projects that were unable to compete against cheap Chinese entrants, and the experience has made some skittish about battery investment.

Cerruti acknowledged battery manufacturing was similar to solar cells in terms of the risk-reward analysis, but said the investment case was different.

With solar cells, China subsidized production while Europe inflated market demand by subsidizing purchases, allowing Chinese players to win expensive European products.

This time, Europe is funding battery projects, much like China, creating a level playing field, Cerruti said.

Northvolt exceeded its 80-100 million euro target in its initial funding, but the process took longer than expected.

Although partners it signed such as ABB and Scania made 10 million euro investments each, the EIB's 52.5 million euro loan, made along with the Swedish government, was easily the biggest contribution.

Cerruti declined to specify how much would be raised through debt in the upcoming financing round, but said the EIB had "expressed a willingness" to participate in the debt fundraising. That was confirmed by an EIB spokesman.

"The bank stands ready to support this kind of innovation in Europe," he said, adding Northvolt could ask for a loan covering up to 50 percent of the project's cost.

($1 = 0.8457 euros)

IMF warns United States against protectionist trade policies

The International Monetary Fund warned on Thursday that U.S. President Donald Trump's new import tariffs threaten to undermine the global trading system, prompt retaliatory responses from other countries and damage the U.S. economy.

The IMF, in a review of U.S. economic policy, also said that while the country's economic growth is expected to be strong this year and next, recent tax and spending measures could cause greater risks from 2020 onwards.

Trump has riled key allies by pursuing protectionist trade policies, including the imposition of steel and aluminum tariffs on the European Union, Canada and Mexico.

"These measures...are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the U.S. economy and for trading partners," the IMF said in its report.

Trump stunned his counterparts by backing out of a joint communique agreed by Group of Seven leaders in Canada last weekend that mentioned the importance of free, fair and mutually beneficial trade.

German Chancellor Angela Merkel has said the EU would implement counter-measures against U.S. tariffs, as did Canada and Mexico.

The IMF said a cycle of retaliation on trade would likely dampen national and international investment, interrupt global and regional supply chains and undermine a system that has supported U.S. growth and job creation.

"The U.S. and its trading partners should work...to reduce trade barriers and resolve trade and investment disagreements without resorting to tariff and non-tariff barriers," the IMF said.

It added that targeting specific levels on bilateral trade balances was counterproductive.

The Trump administration's trade dispute with China has also yet to be resolved. The United States is expected on Friday to unveil revisions to an initial tariff list targeting $50 billion of Chinese goods.

China urged Washington on Thursday to make a "wise decision" on trade, saying it was ready to respond in case Washington chose confrontation.

Elsewhere in its analysis, the Washington-based international lender stuck to its April forecast that the U.S. economy will grow at a 2.9 percent pace in 2018 and 2.7 percent in 2019.

The U.S. economy is being juiced by the administration's $1.5 trillion package of corporate and income tax cuts as well has higher government spending.

In line with the U.S. Federal Reserve, the IMF expects growth to slow considerably in 2020. It forecasts the annual pace of growth falling back to 1.9 percent.

It noted that the U.S. government's tax and spending policies during a time when the economy is already experiencing strong growth and low unemployment "increases the range and size of future risks" including higher public debt and greater likelihood of recession.

"The output gap could close more abruptly, through a policy-induced recession, with negative spillovers for the global economy," the IMF said.

The IMF also expressed concern about the growing market power of some of the largest U.S. "superstar" corporations and said that there was a "clear role" for applying antitrust policies or increased regulation.

It did not name any firms, but IMF officials in the past have cited concerns with the market concentration wielded by large technology firms such as Alphabet Inc's Google (O:GOOGL), Amazon.com Inc (O:AMZN) Apple Inc (O:AAPL) and Facebook (O:FB).

The IMF said the United States needed to combat price discrimination, supply restrictions or predatory pricing that could arise from increased market concentration, and should fairly tax "supernormal" profits resulting from such power.

"It may also sometimes be appropriate for the entity providing the service to be regulated," the IMF said.

Euro craters, stocks jump as ECB holds off on rate hikes

European stocks jumped more than 1 percent on Thursday, while the euro cratered against the dollar, after the European Central Bank indicated it would not raise interest rates through the summer of 2019.

The bank's unexpectedly dovish guidance on interest rates overshadowed its statement that it aimed to wrap up its crisis-era stimulus program, quantitative easing, at the end of this year.

The ECB now plans to reduce monthly asset purchases between October and December to 15 billion euros until the end of 2018 and then conclude the program, though ECB President Mario Draghi stressed that the governing council stood ready "to adjust all its instruments as appropriate."

Investors, though, seized on comments indicating that interest rates would stay at record lows at least through the summer of 2019.

Some analysts believe it could be even longer.

"With Draghi's term of office due to expire at the end of October 2019, we feel the ECB is unlikely to start increasing interest rates until the new ECB president is firmly in place," said David Zahn, head of European fixed income for Franklin Templeton.

Ten-year government bond yields in Germany, the euro zone benchmark, fell around four basis points to 0.43 percent (DE10YT=RR).

The euro, meanwhile, touched on its steepest one-day drop against the U.S. dollar since June of 2016, while the dollar accelerated to a two-week peak.

The euro (EUR=) was last down 1.37 percent to $1.1628, while the dollar index, which measures the greenback against six top currencies, (DXY) rose 0.85 percent.

EQUITIES STRONG

European equities rose sharply after initial losses, with Wall Street creeping into positive territory.

The pan-European FTSEurofirst 300 index (FTEU3) rose 1.40 percent, buoyed by big gains in interest rate-sensitive sectors like autos and utilities.

"The hawks had been guiding for a June hike before the (ECB) meeting and, given the clear guidance the ECB gave today on interest rates, it had to be priced out," said AFS Group analyst Arne Petimezas. "It doesn't seem like we're at the stage where the hawks are on top of things."

MSCI's gauge of stocks across the globe (MIWD00000PUS) shed 0.05 percent, while Wall Street wavered, with two of the three main indexes up after better-than-expected May retail sales data.

The U.S. Commerce Department reported that retail sales rose 0.8 percent last month, the biggest advance since November 2017. Data for April was also revised upward.

The Dow Jones Industrial Average (DJI) fell 7.94 points, or 0.03 percent, to 25,193.26, the S&P 500 (SPX) gained 7.6 points, or 0.27 percent, to 2,783.23 and the Nasdaq Composite (IXIC) added 62.69 points, or 0.81 percent, to 7,758.39.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) closed 1.11 percent lower, while Japan's Nikkei (N225) lost 0.99 percent.

Benchmark 10-year U.S. Treasury notes (US10YT=RR) last rose 8/32 in price to yield 2.9516 percent, from 2.979 percent late on Wednesday.

The 30-year bond (US30YT=RR) last rose 21/32 in price to yield 3.0696 percent, from 3.102 percent Wednesday.

TRADE TENSIONS

One issue keeping investors in check was concern about U.S. threats to impose tariffs on $50 billion of Chinese goods. U.S. President Donald Trump was planning to meet with trade advisers later to decide whether to activate the tariffs, a senior administration official said on Wednesday.

CBOT corn and soybean futures were down sharply as uncertainty about tariffs and favorable crop weather in the U.S. Midwest have prompted funds to liquidate big long positions.

CBOT July corn <1CN8> fell to its lowest since mid-January and front-month soybeans dipped to a 9-1/2 month low. Traders are worries about China, Mexico and other countries curbing demand for U.S. grain and soy exports.

Another event markets were gearing up for: the start of soccer's World Cup in Russia, where time zone differences mean there will be more matches during European or U.S. and Latin American trading hours than any previous tournament.

A study done during the last World Cup with similarly-timed games, the 2010 finals in South Africa, showed trading volumes on share markets dropped by a third on average when matches were on and 55 percent when a market's own team played.

Oil prices were down, facing pressure from evidence of rising U.S. output and uncertainty over supply, before a meeting next week of the world's largest exporters.

U.S. energy firms chasing oil price rally stumble on old baggage

With oil price recovery taking hold, several U.S. oil and gas companies entered 2018 with a compelling plan - sell undeveloped or less essential fields and invest the money to boost returns from their sweetest, most productive spots.

There is a catch, though. The strategy assumes that with crude now up more than 150 percent from its February 2016 bottom enough firms are keen to crank up production, even if it means buying fields with higher extraction costs and lower margins.

So far, sale attempts suggest those buyers may be hard to come by. After a bruising downturn, shareholders are looking to get a cut of improved profits and asset sale proceeds rather than underwrite acquisitions, those involved in these deals say.

"Oil and gas companies are no longer rewarded for simply 'grabbing land' and public investors have become more discerning regarding acquisitions," notes Jon Marinelli, head of U.S. energy investment and corporate banking at BMO Capital Markets.

Shares of Devon Energy Corp (N:DVN), QEP Resources Inc (N:QEP) and Southwestern Energy Co (N:SWN) and others have rallied after they floated plans to sell non-core acreage, reflecting hopes that some of the proceeds will return to investors.

But since shareholders across the industry in general favor shedding assets over acquisitions, the sentiment makes striking new deals tricky.

An informal poll of five investment bankers by Reuters put the share of sales that failed to close in the fourth quarter of 2017 and the first quarter of this year at between 50 percent and 80 percent, with Marinelli putting the figure at around two-thirds.

Dealmaking for oil and gas fields going into 2018 was already stagnating. While last year's total sales were only marginally down from 2016 at $67.3 billion, the first quarter accounted for around 38 percent of that figure, according to data provider PLS.

If proposed sales fail to materialize this year, it could mean a time of reckoning for these oil and gas firms.

"If these companies cannot execute the divestiture(s) that gave investors' confidence on their future leverage profile, you would likely see less risk-tolerant investors trim or sell their positions," said Tim Dumois, portfolio manager at BP (LON:BP) Capital Fund Advisors, which invests in energy stocks.

Among those seeking spin-offs, Anglo-Australian miner BHP Billiton Ltd (AX:BHP) (L:BLT) has the most ambitious plans. Facing the same pressure from shareholders as U.S. energy producers, it wants to sell onshore shale assets in the Permian, Eagle Ford and Haynesville basins, valuing them at $14 billion on its balance sheet.

While BHP's Permian and Eagle Ford land is generally considered attractive because of low production costs, one of the Eagle Ford asset packages and its Haynesville fields mainly produce shale gas, making them less appealing to buyers given stubbornly-low gas prices.

BHP would consider a bid that valued the entire business below the company's original valuation, if it ensured no unsold assets remained, according to people familiar with the sale process.

The company received bids from interested parties on May 23, although a final decision on what it will do is not expected for a few months.

PRIVATE EQUITY WARY

For those weighing acquisitions, Bakken operator Oasis Petroleum (N:OAS) offers a cautionary tale. Shares in the company fell as much as 25 percent in the two days after it said on Dec. 11 it paid $946 million for acreage in the Delaware Basin.

Since then, major land purchases by U.S. oil and gas firms have fizzled, with executives preaching focus on controlling costs and avoiding unnecessary expansion.

"We can do a whole lot of great work by hitting some singles," Brad Holly, chief executive officer of Whiting Petroleum Corp (N:WLL), told an industry event in April, drawing on a baseball metaphor to describe how the company was looking for some "really small things" to add to its existing acreage.

In the absence of companies as buyers, private equity firms have picked up some slack: the value of land bought by buyout firms rose to 47 percent of the total in the fourth quarter from 11 percent in the first three months of 2017, according to PLS.

However, the run-up in oil prices, rather than whet their appetite further has an opposite effect, making private equity firms wary that prices may not be as strong when they are ready to cash out.

Higher crude prices also boost sellers' expectations, making it harder for buyout firms to drive a hard bargain to ensure better future profits. Such calculations gain added significance after years of returns on energy stocks trailing other sectors.

"If energy equity markets are underperforming the wider S&P, this reduces the chance of private equity buying larger assets because you don't think you'll get a good runway for an exit," said Glenn Jacobson, partner at Trilantic Capital Partners.

Some sellers have now started moderating their expectations. Hunt Oil Company for example, owned by one of Texas' wealthiest families, split a package of Eagle Ford land it was marketing for up to $700 million in the fourth quarter into three individual pieces, according to a person familiar with the transaction. Two bits went to private equity buyers, with a third sold to Penn Virginia Corp (O:PVAC) for $86 million, the person added.

"The decision becomes do you hold your nose and sell, or do you retain the asset," said BMO's Marinelli.

Asian shares slip on Fed hike, trade fears and soft China data

Asian shares eased on Thursday after the Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening, while concerns about U.S.-China trade frictions kept investors on edge.

Chinese retail sales and urban investment data were surprisingly weak, pouring cold water on investors' risk appetite and adding to uncertainty over the world's second-largest economy after its central bank unexpectedly left interest rates on hold.

MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) lost 0.5 percent. South Korea's KOSPI (KS11) was off 1.2 percent, while Hong Kong's Hang Seng (HSI) dipped 0.2 percent. Japan's Nikkei (N225) shed 0.4 percent.

The Fed raised its benchmark overnight lending rate a quarter of a percentage point to a range of 1.75 percent to 2 percent, as expected, on the back of strong U.S. economic growth.

Fed policymakers' rates projections pointed to two additional hikes by the end of this year compared to one previously, based on board members' median forecast.

"The Fed was slightly more hawkish. But at the same time, the Fed is raising rates because of a strong economy and not because of the need to contain inflation. So that might have helped curb market reactions," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.

The spectre of higher borrowing costs hit stocks while boosting U.S. bond yields and the dollar. The overall market reaction was short-lived, however.

"When you look more closely, only eight board members saw two more hikes by the end of year, compared to seven who saw one hike. In March it was seven versus eight. So you are talking about a change of only one board member after all," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.

"The fact that markets quickly reversed their course suggests the Fed's decision was broadly in line with expectations," he said.

On Wall Street, the S&P 500 (SPX) lost 0.40 percent and the Nasdaq Composite (IXIC) dropped 0.11 percent.

The 10-year U.S. Treasuries yield hit a three-week high of 3.010 percent before quickly slipping back to 2.953 percent (US10YT=RR).

Keeping investors in check were concerns about U.S. threats to impose tariffs on billions of dollars in Chinese goods.

U.S. President Donald Trump will meet with his top trade advisers on Thursday to decide on whether to activate the tariffs, a senior Trump administration official said.

In the currency market, the dollar had erased all its post-Fed gains as traders' focus quickly shifted to the European Central Bank's policy meeting later in the day.

Recent comments from top ECB officials have sparked expectations the ECB may offer clues on its intentions to end its bond purchases by the end of the year at its upcoming meeting.

The euro traded at $1.1801 (EUR=), bouncing back from $1.1725 hit after the Fed's policy announcement and not far off last week's high of $1.1840 on June 7.

The dollar stood at 110.19 yen , losing steam after hitting a three-week high of 110.85 in the wake of the Fed's decision.

The dollar index has erased all of its gains so far this week and stood at 93.501 (DXY).

The Australian dollar fell 0.3 percent to $0.7556 after China reported weaker-than-expected activity data for May, adding to views the economy is finally starting to slow under the weight of a prolonged crackdown on riskier lending that is pushing up borrowing costs for companies and consumers.

Some emerging market currencies were hit by worries higher U.S. interest rates could prompt investors to shift funds to the United States and also squeeze dollar borrowers in emerging markets.

The South African rand hit six-month lows while the Mexican peso dropped to 16-month lows .

Still, many Asian currencies remained fairly stable so far, thanks to robust growth in the region.

Oil prices were little changed but underpinned by a bigger-than-expected decline in U.S. crude inventories and surprise drawdowns in gasoline and distillates, which indicated strong demand in the world's top oil consumer.

U.S. crude futures (CLc1) traded at $66.67 a barrel, unchanged on the day but extending their recovery from eight-week low of $64.22 touched last week.

I&E Forex Window attracts $50.73b in 13 months

The Investors’ and Exporters’ (I&E) Forex Window has attracted to the economy in 13 months $50.73 billion, a report by FSDH Research has shown.

Prior to the introduction of the I&E Forex window in April 2017  by the Central Bank of Nigeria (CBN), the market and exchange rates were in turmoil. But, in a dramatic turn of events, the acute shortage of forex, which businesses and individuals grappled with, has improved, with banks and bureaux de change (BDCs) now desperately looking for forex buyers.

The window, which offers investors the opportunity to sell dollars at rates of their choice, provided they find willing buyers, has restored confidence to the forex market and boosted the foreign exchange reserves.

The FSDH Research June 2018 Monthly Economic and Financial Market Outlook, said  the  positive  domestic  and  external  environment  will  further lead  to  external  reserves accretion  in  the  short-term  and  this  development  should provide further stability for the foreign exchange rate.

It said the 30-day moving average external reserves increased by 0.36 per cent up from $47.49 billion at end-April to $47.66 billion at May 28, 2018. The month-on-month growth rate recorded in the external reserves was the lowest level since July  2017.  The pressure on demand  from foreign  investors  was  mainly  responsible for the low growth in the external reserves.

“The total turnover at the Investors’ and Exporters’ FX Window (I&E Window) between April 2017 and May 2018 stood at $50.73 billion. The highest amount was recorded in January 2018. Our analysis between August 2017 and May 2018 shows that Nigeria recorded the lowest foreign exchange inflows through the I&E Window in May 2018,” the report said.

It said the  value  of  the  Naira depreciated  further  at  the  inter-bank  and  parallel  markets  in May 2018, compared with April. The demand pressure at the I&E Window occasioned by foreign  investors’  repatriation  of  their  matured  fixed  income  investments  was  largely responsible for the depreciation in the value of the naira.

“The value of the  naira  depreciated month-on-month at the  inter-bank  market to  N305.95/$ as  at end-May  2018,  a  depreciation  of  0.08 per cent  from  N305.70/ $  at  end-April.  The average exchange rate at the inter-bank market also depreciated by 0.06 per cent to stand at N305.80/$ in May, compared with N305.61/$ in April,” it said.

Besides, the value of the naira also depreciated at the parallel market in May to N363.50/$, a drop of 0.14 per cent, compared with April. The average exchange rate at the parallel market also depreciated by 0.29 per cent to stand at N363.90/$ in May, compared with N362.86/$ in April. FSDH Research expects the value of the naira to remain stable in the short-to-medium term,” it said.

The fixed income market analysis for the month of May 2018 shows a net outflow of about N224 billion, compared with a net outflow of about N749 billion in April. The major outflows in May were the Open Market Operation and Repurchase Bills (REPO) of N1.81 trillion, CBN’s Foreign Exchange Sale of  N413 billion, Primary Nigerian  Treasury  Bills  (NTBs) of  N178 billion  and  the  Bond  auction  of N50 billion.

It said a total inflow of about N1.79 trillion is expected to hit the money market from the various maturing government securities and the Federation Account Allocation Committee (FAAC) in June 2018. “We estimate a total outflow of approximately  N781 billion  from  the  various  sources,  including  government  securities  and statutory withdrawal, leading to a net inflow of about N1.01 trillion.

FSDH Research expects the market to remain relatively liquid in June. This may necessitate the issuance of OMO to mop-up the liquidity in the system,” it said.

The research firm expects the inflation rate to drop below the current level. “We believe the yields on the treasury bills may drop marginally from the current levels. However, the yields on the Federal Government of Nigeria Bonds may increase from the current levels as government begins the implementation of the 2018 budget,” it said.

FSDH Research said the equity market is approaching an oversold position, hence, there  may  be  a  reversal  of  the  current  downward  trend  very  soon  as  the  economic environment continues to improve.

“The factors that should drive the performance of the equity market include stability in the foreign exchange market due to positive developments in the crude oil market, bargain hunting investors taking advantage of current prices, strategic positioning ahead of half year 2018 results and repositioning of portfolios as a result of the drop in yields on treasury bills,” it said.

Investors are advised to take strategic positions in the stocks that pay interim dividends and have prospect for capital appreciation from current levels. Some stocks in the consumer goods, building materials, petroleum marketing and banking sectors are attractive at their current prices.

UK watchdog to push ahead with new 'Aramco' listing category

Britain's markets watchdog said it will introduce a new premium listing category next month for sovereign-controlled companies, but with some changes following criticism that it was trying to help London win a possible Saudi Aramco listing.

"In July last year, the Financial Conduct Authority consulted on proposals aimed at encouraging such companies to choose the higher standards of premium listing, rather than standard listing," the watchdog said in a statement on Friday.

"The FCA thinks there is considerable benefit to investors if corporate issuers agree to meet these additional premium requirements."

The FCA said that following feedback to its proposal, it has made some changes, including the requirement that the election of independent directors be subject to approval from independent shareholders.

"These rules mean when a sovereign controlled company lists here, investors can benefit from the protections offered by a premium listing," FCA Chief Executive Andrew Bailey said.