Justin Trudeau’s Liberal Party swept into office with a surprise majority in Canada’s election, ousting Prime Minister Stephen Harper and capping the biggest political comeback in the country’s history.

With 86 percent of polls reporting, the Liberals were elected or leading in 184 of the 338 seats in the House of Commons, with the Conservatives on pace to take 102 and the New Democratic Party 41, according to preliminary results Monday from Elections Canada. Most polls had predicted the Liberals would win a minority government.

The result is a vindication of Trudeau’s campaign to reject Harper’s budget restraint agenda, claiming the nation needsdeficit spending to combat economic woes triggered by an oil-price collapse. Trudeau, 43, also used his youthful optimism to exploit a thirst for change, as almost three-quarters of voters said they were ready to oust Harper’s Conservatives after more than nine years in power. Harper plans to step down as party leader.

“Canadians from all across this great country sent a clear message tonight -- it’s time for a change in this country, my friends, a real change,” Trudeau told cheering supporters at a Montreal hotel.

The result reflected an east-west vote split in a country with six time zones, with Liberals dominating along the Atlantic coast and the country’s two largest provinces -- Quebec and Ontario -- while the Conservatives won most seats in western provinces such as Alberta.

http://www.bloomberg.com/news/articles/2015-10-20/trudeau-s-liberals-projected-to-win-canada-vote-networks-say

Europe’s Big Oil Is a Buy as Cuts Point to Recovery at Last

After enduring the longest oil-price collapse in more than a decade, crashing profits and an investor exodus, Europe’s biggest producers are regaining fans as analysts bet earnings bottomed last quarter and will now start to recover.

While Total SA, the region’s second-biggest oil company, will probably post the worst quarterly performance since 2009, it also has the highest proportion of buy ratings in a year, according to analysts surveyed by Bloomberg. Despite similarly bleak forecasts, Royal Dutch Shell Plc, Europe’s No. 1, has the
biggest share of buy recommendations since mid-2012 while BP Plc has the most since February.

The ratings show faith in the producers’ ability to weather the commodities rout, which has seen Brent crude tumble by 40 percent in a year and company valuations shrink to at least three-year lows. More analysts now believe that the industry’s sweeping spending cuts, job losses and shuttered output will be sufficient to bolster oil prices and foster profit growth.

“It is possibly a case of being darkest before the dawn,” Lydia Rainforth, a London-based analyst at Barclays Plc, said by e-mail. A pullback in production and delays to projects “make some form of recovery inevitable” in the oil market, she said.

Shell’s B shares, the most widely traded, have increased 15 percent this month, heading for the best performance since April 2008, after previously falling 30 percent this year. Total has gained 11 percent, while BP is up 13 percent, the biggest jump since October 2011. Energy companies are the best performers on the MSCI World Index this month after languishing at the bottom for most of the year. 

                         Spending Cuts

The rebound comes after the companies made spending cuts to help them ride out the downturn. Drillers have reduced investments in exploration and production by a record 20 percent this year, International Energy Agency Executive Director Fatih Birol said Oct. 6. Companies also have divested assets, scrapped staff incentives and renegotiated contracts to lower costs.

“Across the board, we see companies working very hard to cut capital and operating expenditure levels and the speed at which this is going is very high,” Occo Roelofsen, Amsterdam- based leader of the oil and gas practice at consultants McKinsey & Co., said by phone. “A lot of business units are starting to
cope with the new situation relatively fast as they start to adjust to the new normal.”

While the cutbacks help to buoy balance sheets and cash flow, they hamper explorers’ ability to add oil resources. Shell’s reserves and production have dropped in three of the past four years, while BP’s output has declined about 18 percent since the 2010 Gulf of Mexico oil spill that forced the company to sell assets to pay for the damages. 

                      Defending Dividends

As cuts bite, companies are making dividends a priority over production growth. Shell Chief Executive Officer Ben Van Beurden said this month he is “pulling out all the stops” to safeguard shareholder payouts that Shell has maintained since the end of the Second World War.

Oil’s 16-month dive has been brutal, wiping out $397 billion from the value of the 23 companies in the Stoxx Europe 600 Oil & Gas index and driving down earnings.

Total will post adjusted profit of $2.5 billion for the third quarter when it reports on Oct. 29, according to the average of five analyst estimates compiled by Bloomberg. That’s the lowest since the fourth quarter of 2009. Profit at BP, reporting Oct. 27, will drop to $1.3 billion, the lowest in at least five years, while Shell will report $3.3 billion, near the lowest since 2013, analyst estimates show.

Results will subsequently improve, said Ahmed Ben Salem, a Paris-based oil analyst with Oddo & Cie. As a result of spending cuts, the oil companies’ break-even price -- the level at which they can make a cash profit -- is at about $80 a barrel and will fall to $60 by 2017 from $100 last year, he said, without giving
an oil-price forecast.

"Oil companies are doing the job and adjusting to this lower-price situation,” Ben Salem said. “They’re resetting their companies to be leaner and more cost-effective, which will only benefit them in the future.”

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European Union plans to impose position limits on commodity trading firms could mean Trafigura takes its clearing business outside the region, Christophe Salmon, the company's chief financial officer said on Monday.

The European Securities and Markets Authority (ESMA) last month announced rules to flesh out the Markets in Financial Instruments Directive II (MiFID II) law that comes into force in January 2017.

Position limits, which curb how much of a commodity individual trading firms can hold in order to avoid unduly influencing its price, are being introduced for the first time.

Depending on the commodity, position limits will range from 5 to 35 percent of the market. ESMA will publish its draft rules on position reporting by end of 2015.

While the new rules are aimed at curbing speculators, commodity trading companies - often acting as wholesalers in the market - will be caught up in the regulation.

"We are completely price agnostic, meaning that each time there is a mismatch between buy and sell we hedge it on the derivative market," Salmon said at the Reuters Commodities Summit.

Large volumes transacted by trade houses can give the impression of unduly large positions, but any holdings are typically physically backed.

"The simple fact that you can put some hard limit to the quantum of hedging...is a complete misunderstanding of the concept," Salmon said.

"It will probably be that we will have to use non-European clearing platform and marketplace to be able to do the same volume of hedging."

MiFID II also stipulates that commodity market wholesalers or intermediaries will have to hold capital reserves unless they pass a couple of tests on trading activity.

The "market share" test assesses whether a company's speculative trading in commodity derivatives is high in relation to overall trading in the EU. The "main business" test measures speculative trading in commodity derivatives as a percentage of its total commodity derivatives trading.

The thresholds for the market test for metals and agriculture are four percent, oils and oil products and gas at three percent, six percent for power and 10 percent for coal.

Salmon also said regulatory capital requirements for commodity traders would make the EU uncompetitive in relation to the United States or Asia.

"Most of the hedging we do, 95 percent, is done on a cleared platform, we post initial and variation margin on a daily basis," he said.

"Asking commodity traders to book regulatory capital to potentially cover a liquidation scenario is in fact wearing the trousers with belts and braces."

Initial and variation margins is the cash left with clearing houses to cover a percentage of open futures positions.

http://www.reuters.com/article/2015/10/19/commodities-summit-trafigura-clearing-re-idUSL8N12J33S20151019

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Forget oil, copper and wheat. Commodities traders are crowing about the money to be made in the bond
market.

On the cocktail party circuit at the industry’s LME Week earlier this month, at least a dozen traders and executives said that the surest profits these days was in debt issued by their employers and their very own rivals: Glencore Plc, Louis Dreyfus Commodities BV, Trafigura Pte Ltd. and Noble Group Ltd.

Take $1.25 billion of Glencore notes maturing this month: the yield surged to a record 32.3 percent on Sept. 29, up from less than 2 percent in early September. Buying $1 million worth of the bond that day may generate in excess of $35,000 in profit in less than four weeks if Glencore repays the notes by maturity on Oct. 23.

Bonds got sucked into the same vortex that sent Glencore shares plunging 30 percent in a matter of hours on Sept 28. Even as yields surged, traders said the turmoil hadn’t shaken the backing of the lenders who financed the industry, suggesting the bonds were a safer bet than the markets had priced in.

"The bonds of the trading houses were extremely cheap," said Graham Sharp, an adviser to consultants Oliver Wyman & Co. and co-founder of oil and metals trading house Trafigura. "This was an anomaly."

While the natural resources industry is battling the worst drop in prices since the global financial crisis, traders -- particularly in oil -- are benefiting from the pick up in price volatility.

Not only traders, but the firms themselves have been buying back their own debt. Gunvor Group Ltd. last month completed the repurchase of the commodities trader’s $500 million debut bond. The yield on the notes peaked at more than 14 percent in December after the U.S. imposed sanctions on co-founder Gennady Timchenko. The Russian billionaire sold his stake one day before the sanctions were announced.

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