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China Virus Fears Send Oil Prices Even Lower

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Oil prices were down early on Friday for a fourth consecutive session, as fears of the deadly Chinese virus spreading and concerns about oil demand trumped supply outages and set prices on course for a 5-percent weekly loss.

Oil prices hit their lowest since late November early on Friday. As of 09:52 a.m. EDT on Friday, WTI Crude was down 1.89 percent at US$54.54, while Brent Crude traded down 1.73 percent at US$60.22.

This week started on the bullish note for oil prices, after a port blockade in Libya that began in the weekend threatened to cut off the entire oil production of OPEC’s African member. The market was concerned, for a few hours, about the implications of a 1.2-million-bpd supply outage.

But then on Tuesday, despite the continued blockade in Libya, oil prices started to slip as market participants became jittery over the deadly virus in China, which, analysts say, could cut oil demand as travel restrictions in and around the area of the outbreak are already in place.

The SARS CoV, better known as the SARS Coronavirus, is highly contagious, and Goldman Sachs estimates that the oil market could see a drop of 260,000 barrels per day in the global oil demand market—170,000 bpd of which would be in the form of jet fuel. Goldman Sachs analysts expect that demand erosion to translate into nearly US$3 a barrel decline in oil prices.

Since Goldman came up with that estimate, oil prices have already dropped by more than US$3 a barrel.

On Thursday, oil prices continued to fall and not even a modest crude oil inventory draw of 400,000 barrels for the week to January 17 managed to move prices higher.

“Like much of last year, this latest development illustrates well that the market continues to focus more on macro events, rather than specific market fundamentals – the downward price action a result of the virus more than offsetting the gains seen following Libyan supply disruptions,” ING strategists Warren Patterson and Wenyu Yao said on Friday.

“One would also think the supply losses from Libya would far outweigh the potential demand losses from the Wuhan virus,” they added.

By Tsvetana Paraskova for Oilprice.com

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FTX founder speaks for 1st time since crypto company's collapse – CBC.ca

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  1. FTX founder speaks for 1st time since crypto company’s collapse  CBC.ca
  2. Here’s what an FTX investor thinks of Sam Bankman-Fried  Fox Business
  3. A journalist who interviewed Sam Bankman-Fried about FTX’s collapse said it ‘felt like a therapy session’ for the crypto mogul  Yahoo Canada Finance
  4. SBF Missed FTX’s Risks  Bloomberg
  5. View Full Coverage on Google News



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Blackstone limits withdrawals from its US$69-billion REIT – The Globe and Mail

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Blackstone Inc limited withdrawals from its $69 billion real estate income trust (REIT) on Thursday after receiving too many redemption requests, an unprecedented blow to a franchise that helped it turn into an asset management behemoth.

The curbs in redemptions came because they hit pre-set limits, rather than Blackstone setting the redemption limits on the day. Nonetheless, they fuelled investor concerns about the future of the REIT, which makes up about 17% of Blackstone’s earnings. Blackstone shares ended trading down 7.1% on the news.

Investors in the REIT, which is not publicly traded, have been growing concerned that Blackstone has been slow to adjust the vehicle’s valuation to that of publicly-traded REITs, which have taken a hit amid rising interest rates, a source close to the fund said. Rising interest rates weigh on real estate values because they make financing them more expensive.

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Blackstone has reported a 9.3% year-to-date return for its REIT, net of fees, while the publicly-traded REIT index is down 3.02% in the same period. This outperformance has some investors questioning how Blackstone comes up with the valuation of its REIT, said Alex Snyder, a portfolio manager at CenterSquare Investment Management LLC in Philadelphia.

“People are taking profits at the value Blackstone says their Blackstone REIT shares are at,” said Snyder.

A Blackstone spokesperson declined to comment on how Blackstone values its REIT but said its portfolio was concentrated in rental housing and logistics and relied on a long-term fixed rate debt structure, making it resilient.

“Our business is built on performance, not fund flows, and performance is rock solid,” the spokesperson said.

Two sources familiar with the matter said turmoil in the Asian market, fuelled by concerns about China’s economic prospects and political stability, contributed to the redemptions. The majority of investors redeeming were from Asia and needed the liquidity, they said.

Blackstone said it would curb withdrawals from its REIT franchise after it received redemption requests in November greater than 2% of its monthly net asset value and 5% of its quarterly net asset value.

Analysts said that Blackstone’s REIT runs the risk of getting caught in a spiral of selling assets to meet redemptions if it cannot regain the trust of many of its investors. On Thursday, the firm said the REIT had agreed to sell its 49.9% interest in two Las Vegas casinos for $1.27 billion.

“The impact on Blackstone depends on whether the REIT is able to stabilize its net asset value over time, or is forced to enter an extended run-off scenario, with significant asset sales and ongoing redemption backlog – too early to tell, in our view,” BMO Capital Markets analysts wrote in a note.

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Big Six bank earnings show mixed bag for Canadian economy – CTV News

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The most recent earnings reports from Canada’s big banks are showing signs that the Canadian economy is slowing down ahead of a potential recession, with some signs of optimism.

The Big Six banks – RBC, TD, CIBC, Scotiabank, BMO and National Bank – all released their Q4 2022 reports this week. Five out of the six saw their profits dip compared to last year and three fell short of their earnings expectations.

Michael Morrow, managing director of mergers and acquisitions and capital markets at financial firm BDO Canada, says high inflation, lower capital markets activity and rising loan-loss provisions are all putting pressure on the big banks.

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High inflation has meant higher operating costs – including higher staffing costs amid a tight labour market – that has cut into their margins, Morrow said. Meanwhile, rising interest rates and economic uncertainties have slowed investment and led to lower capital markets activity.

“Capital markets activity continues to be a drag on all of the banks, particularly those that have a higher concentration of capital markets activity versus regular retail-related activity,” Morrow said.

RBC CEO Dave McKay said on an earnings call on Wednesday the bank is bracing for a “brief and moderate recession.”

In anticipation of an economic downturn, the big banks are also increasing their loan-loss provisions, which refers to money set aside to cover bad loans.

“As the bank’s worry about the economic performance of the Canadian economy, what that might mean is more loan losses going forward. And so their provisions every quarter has been creeping up, including this quarter,” Morrow said.

“It’s definitely a leading indicator in terms of where we think the Canadian economy will be next year and where the where the risks lie.”

Loan-loss provisions especially weighed heavily on CIBC, which set provisions for credit losses for the three-month period of $436 million, up from $78 million in the same quarter last year. CIBC missed its earnings expectations by over 19 per cent.

“As we look ahead to 2023, global economic growth is expected to be slower as central banks continue with their monetary policy tightening to tame inflation,” said CIBC CEO Victor Dodig on an earnings call on Thursday.

“In response to these headwinds … we are going to continue to take actions to reposition our business to adjust to these new realities, but also continue to grow our client franchise and moderate our expense growth.”

But despite these so-called headwinds, Morrow believes there is still good news to be gleaned from these results. Most of the Big Six are increasing their dividend rates for shareholders, which Morrow says “provides us with a view of confidence in the stability of the banks and their earnings profile.”

“If they’re increasing dividend rates, then that’s certainly an indication that they feel that the business and their capital ratios are going to be able to not only withstand this downturn, but continue to thrive through the year, through the back half of next year,” he explained.

On top of that, RBC announced it would be taking over HSBC’s Canadian operations in a $13.5 billion deal, pending regulatory approval. Morrow says he sees the purchase as a “positive vote of confidence for the Canadian economy,” especially given the fact that RBC is paying a premium price for the acquisition. The bank is paying 9.4 times HSBC Canada’s 2024 adjusted earnings.

“Certainly, you know, it gleans to the confidence that RBC has within the within the Canadian lending market. And if there were certain doubts in the Canadian market, you wouldn’t see these participants paying premiums in the marketplace at this point in the cycle,” he said.

With files from The Canadian Press and Reuters

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