Highlights of the week of September 1, 2014

ECB keeps rate on hold amid global tensions, deflation threatpercentage down

Dear PGM Capital Blog readers,

In this weekend’s blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of September 1, 2014:

  • PetroChina reports H1-2014 financial results and declares dividend.
  • ECB lowers key rates, launches asset purchase program.
  • USA Jobs disappointment.

On Friday, August 29, 2014, PetroChina Company Limited (HKE: 857), China’s largest oil and gas producer, reported its H1-2014 financial results.


Highlights H1-2014 financial report:

  • Net profit increased 4 percent YOY to 68.1 billion yuan (11.1 billion U.S. dollars)
  • Revenues rose 4.8 percent to almost 1.2 trillion yuan.
  • Its domestic business in the marketing segment and its international trading operations achieved an aggregate profit of 8.1 billion yuan, up nearly 138 percent year on year.
  • Processed 500 million barrels of crude oil during the period, up 0.2 percent year on year.
  • Output of refined oil products stood at 46 million tonnes, up 1.9 percent.
  • The board of directors have declared an interim dividend of 0.1675 yuan or equivalent to HK0.21065 per share, payable on September 29, for shareholders on record in the period September 13-18 2014.


On Thursday, September 4th, after its policy meeting, the European Central Bank president, Mario Draghi held a news conference in which he announced that the ECB has taken the following decision in their effort to avoid too-low inflation from derailing the eurozone’s weak economy:

  1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%, starting from the operation to be settled on September 10, 2014.
  2. The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%, effective from September 10, 2014.
  3. The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%, effective from September 10, 2014.

Below chart shows the development of the ECB refinancing- and deposit rate since 2010.ECB new rates

In an effort to keep too-low inflation from derailing the eurozone’s weak economy, the European Central Bank surprised financial markets with a cut in interest rates and new stimulus plans, despite opposition from Germany’s powerful central bank.

Press conference following the meeting of the Governing Council of the European Central Bank on September 4, 2014 at its premises in Frankfurt am Main, Germany. 

The US Jobs Report, reported on Friday, September 5, 2014, came in far from the markets expectations again.

However, this time it was disappointing, unlike the previous jobs reports. The US economy added only 142K new jobs in August, despite the fact that it had been anticipated to add more than 230K new jobs. This is the slowest jobs creation since December 2013.

US August Jobs Report Headlines:

  • Non-Farm Employment Change added 142K new Jobs.
  • Unemployment Rate fell to 6.1%.
  • Labor Force Participation Rate fell to the lowest since 1973.
  • Household Employment increased by 16K only.

Below chart shows the US non-farm and manufacturing payroll changes

US Payroll changes


Based on its fundamentals and business, model, PetroChina may be an interesting play thanks to its forward Price to Earnings ratio of 10.94, its Price to Sales ratio of 0.73, price to book ratio of 1.43  and its healthy dividend yield of 3.2%.

These factors suggest that PetroChina is a pretty good value pick, as investors have to pay a relatively low level for each dollar of earnings, and that PetroChina has decent revenue metrics to back up its earnings.

As can be seen from below chart, the stock of the company is up approx. 890 percent (in USD) since it went IPO in the year 2000. During the same period the company has increased its dividend from US$ 0.713 a share in 2000 to US$ 5,247 in 2014, an increase of 6,360 percent.

Dividend history PetroChina (2000 – 2014)


On top of this it is worth mentioning that PetroChina  as China biggest Energy Company will stand to benefit from Russian President Putin’s offer to sell a stake in the country’s second-biggest oil project to “Chinese friends,” as reported by Bloomberg on September 2nd.

Based on the above we have a BUY rating on the stock of PetroChina.

ECB Lowering rates:
The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output has slowed and inflation has fallen to just 0.3%. So the ECB is getting back into the business of buying financial assets. No government debt this time, though it’s clear that could yet come.

Instead the focus is on assets that bundle up private sector loans.

Does that sound familiar? Yes, it was that kind of stuff that played a central role in the financial crisis, especially mortgage backed securities in the USA.

But that market is much less developed in Europe and it could ultimately help the Eurozone deal with another problem: the continued weakness of the banks.

We believe that with the announcement of the ECB of last Thursday, September 4th, the world has entered in the second stage of the currency war, which in the end will lead to hyperinflation which will wipe out savings and erode pensions.


USA Job report:
There is no excuse for this disappointing jobs report. There is only one reason for this disappointing result, and that is that the labor market is shrinking and that the slack continues

The question remains whether it will change the Fed-tapering course. In short: No. However, this will lead to the Fed not speaking about the timing of the next rate hike anymore. Keep in mind that the Fed insisted to keep the “IF” in every statement, saying that tapering will continue if outlook holds.

There have been many disappointing figures recently, except the surveys, which reached notable levels. However, the core figures remain weak and major banks already began to cut the Q3 GDP forecast.

Last but not least, before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don’t move in a straight line and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


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