Deutsche Bank: to Shrink in Commodities as Revenue Slides

According to Bloomberg,

Deutsche Bank AG (DBK), Europe’s biggest investment bank, will shrink its commodities trading business as the industry faces tighter regulations and a drop in revenue.

The bank will exit dedicated energy, agriculture, dry bulk and base metals trading and transfer its financial derivatives and precious metals desks to the fixed income and currencies division. The decision will have “no material impact” on earnings, Deutsche Bank said in an e-mailed statement from Frankfurt today.

Deutsche Bank is joining JPMorgan Chase & Co. in downsizing after investors pulled a record $34.1 billion from commodity funds globally since last December and prices tracked by Standard & Poor’s are headed for their first annual drop since 2008. The Federal Reserve is reviewing banks’ control of raw-material assets and regulators are demanding they set aside more reserves to cover potential losses.

“The decision to refocus our commodities business is based on our identification of more attractive ways to deploy our capital and balance sheet resources,” Colin Fan, co-head of the investment banking and trading unit, said in the statement. “This move responds to industry-wide regulatory change and will also reduce the complexity of our business.”

Job Losses

Deutsche Bank (Bloomberg)

About 200 people will be affected by the measures, which include job losses or the sale of individual businesses, said a person familiar with the matter, who asked not to be identified because the information isn’t public. A Deutsche Bank official declined to comment on the measures.

The world’s 10 largest investment banks, including Goldman Sachs Group Inc. and Morgan Stanley (MS), will receive 14 percent less revenue from commodities this year, London-based analytics company Coalition said in a report last month.

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BMW: to Make Lone Shift to Carbon Fiber to Gain Auto Edge

According to Bloomberg,

Bayerische Motoren Werke AG (BMW)’s bid to save its cars from potential extinction starts with hundreds of thousands of fine white strands snaking upwards in a production hall in rural Washington.

Looped through an almost mile-long course, what looks like the world’s thinnest rice noodles will be stretched, toasted and eventually scorched black to create carbon fiber — a material thinner than human hair and yet tougher than steel.

BMW will use the sleek, black filaments for the passenger frame of the i3 electric car, which goes on sale at dealers in Germany tomorrow and around the world in the coming months. It’s the first effort to mass produce a car made largely from carbon fiber and represents the biggest shift in automobile production since at least the 1980s when the first all-aluminum car frames were made.

The strategy started taking shape six years ago, as Norbert Reithofer, then the newly appointed chief executive officer, examined trends affecting the industry and concluded that increased environmental awareness would likely prompt tougher emissions regulations that could make the future of autobahn cruisers like the 5-Series sedan unsustainable.

Business Threats

“Looking forward to 2020, we saw threats to our business model,” Chief Financial Officer Friedrich Eichiner, who was head of strategic planning at the time, said in an interview in his sparsely furnished office in BMW’s landmark four-cylinder headquarters building in Munich. “We had to find a way to bring models like the 6-Series, 7-Series and X5 into the future.”

For BMW to continue to sell cars that live up to the company’s “ultimate driving machine” claim, the manufacturer needed to offset those emissions with a viable electric vehicle for growing cities, where more and more potential customers would live. That was the start of the i3.

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Euro Zone: Fizzling Growth Seen to Back Draghi Cut Case

According to Bloomberg,

Bank of Spain (Bloomberg)

Euro-area growth data this week may show the region’s nascent recovery slowing to a crawl, supporting Mario Draghi’s case for an interest-rate cut to help the economy get back to its feet.

Gross domestic product in the region rose just 0.1 percent in the third quarter, according to the median forecast of 41 economists in a Bloomberg News survey. In the 3 1/2 hours before that report on Nov. 14, economists predict a series of data releases to show growth slowing in Germany and stalling in France, with Italy remaining mired in an unprecedented slump.

Such an outcome would confirm that the recovery is grinding after a second-quarter growth spurt of 0.3 percent that ended the region’s record-long recession. The data are due one week after the European Central Bank president’s surprise rate cut to 0.25 percent. Draghi said at the time that the euro zone faces the danger of a “prolonged” period of low inflation.

“There are a few minor bright spots, for example Spain, (SPNAGDPQ) but Italy will continue to remain in contraction and growth in France will likely be flat at best,” said Nick Matthews, a London-based economist at Nomura International Plc. “That plays into the scenario the ECB is seeing, which is a very weak and fragile recovery.”

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U.K. Leads European Venture-Capital Funding, but Russia Is Fastest Growing

According to The Wall Street Journal’s Ben Rooney, Venture Capital, Russia, Europe, Venture Capital, Finance, Netherlands, Germany, France, Economy, U.K Data on venture-capital funding show the extent of the boom in Russia’s technology sector over the past six years.

In our report Monday, we wrote that the U.K. led the overall European venture-funding pecking order, followed by Germany, France and the Netherlands. That was for all sectors, based on data produced by Dow Jones VentureSource.

Looking at the numbers for just the tech sector, a rather different pecking order emerges.

The revised tech figures push the Netherlands right off the grid (there was a large deal in 2012 in the biopharmaceuticals sector, which is why the Netherlands was ranked fourth overall). As of 2012, the top five nations were, in order: the U.K. (€867.46 million), France (€508.76 million), Germany (€431 million), Russia (€236.55 million) and Sweden (€88.93 million).

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Hedge Funds Boost Bullish Bets by Most Since July: Commodities

According to Bloomberg’s Elizabeth Campbell, Hedge funds increased bullish commodity bets by the most in six months as accelerating growth from China to the U.S. boosted prices for a seventh week.

Speculators raised net-long positions across 18 U.S. futures and options by 11 percent to 758,048 contracts in the week ended Jan. 22, the biggest gain since July 3, U.S. Commodity Futures Trading Commission data show. Bullish crude- oil bets reached a four-month high, while those for soybeans climbed by the most since March. Investors are the most bullish on cotton since February 2011.

More than $2.2 trillion was added to the value of global equities this month as the Standard & Poor’s 500 Index posted the first eight-session rally since 2004. Manufacturing in China is expanding at the fastest rate in two years, and an index of U.S. leading indicators rose the most in three months in December, private reports showed Jan. 24. Germany’s economy, Europe’s largest, has started to show signs of recovery, the Bundesbank said Jan. 21.

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Hedge Funds Bet France Is More Peripheral Than Core

Hedge funds are going against market consensus and betting that ultra-low French government bond yields are unsustainable, believing a sluggish economy and the new government’s policies will eventually force up borrowing costs.

Investors have generally given France the benefit of the doubt this year, treating it as a core euro zone economy despite its debt. Its bond yields have, as a result, generally tracked Germany’s rather than struggling Italy’s or Spain’s.

But many macro funds now think the yields, which have collapsed this year, cannot remain around the lowest levels seen for more than 20 years. France’s economy, after all, is teetering on the brink of recession.

These include raising taxes on the rich and cutting the pension age to 60 for some workers, risking a reduction in tax revenues, increasing pressure on France’s welfare system and hitting its credit rating.

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EU Rushes To Make ECB Single Bank Watchdog In Race For Spain

Europe’s quest to sever the link between Spain’s fiscal fate and its failing banks hinges on an obstacle-strewn race to hand greater powers to the European Central Bank.

Until euro-area leaders overcome German doubts, ECB concerns, and turf battles everywhere, Spain will remain on the hook for a bailout of its banks of as much as 100 billion euros ($121 billion). Policy makers want to protect taxpayers from losses so potentially big they risk bankrupting governments, as happened in Ireland and Iceland.

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Wall Street flat as Europe, outlooks weigh

(Reuters) – Wall Street was flat on Tuesday as traders remained focused on high bond yields inSpain and as cautious outlooks from major companies including United Parcel Service weighed on sentiment.

United Parcel Service (UPS.N) reported higher quarterly results that missed forecasts and the world’s largest package delivery company cut its 2012 outlook, citing uncertain global economic conditions. The shares fell 3 percent to $74.66.

Concerns about the euro zone focused on Spain’s high borrowing costs due to fears the country may seek a bailout, a survey showing Germany’s private sector shrank for a third straight month, and Moody’s move to cut Germany’s rating outlook to negative.

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Survey Points to Fragile Recovery in Euro Zone

An official gauge of the mood among consumers and businesses showed Thursday that the euro zone economy remains fragile, with manufacturers and builders growing more pessimistic about their prospects even though the sovereign debt crisisseems to have eased, the New York Times reports.

The economic sentiment indicator compiled by the European Commission, based on surveys of business managers and consumers, slipped by 0.1 point to 94.4. A reading below 100 points indicates that pessimism prevails and adds to evidence that the euro zone economy is in recession. The sharpest drops in sentiment were among manufacturers and builders, offsetting improvement among consumers and retailers.

There was some good news for the region on Thursday, as a new report showed German unemployment fell, continuing to defy the trend in the rest of the euro zone. At the same time, a decline in orders for German machinery and other industrial goods showed that the country is not immune to the problems afflicting its neighbors.

Despite their success selling cars and machinery to China and other emerging markets, German exporters remain dependent on other euro zone countries for sales.

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World Factory Output Curbed by Troubled Europe

As reported by Jonathan Cable and Anooja Debnath from Reuters, crumbling global demand restrained factory output in Asia and most of Europe in January, business surveys showed on Wednesday, putting pressure on policymakers to shore up growth and counter a spreading malaise.

Asia‘s export-reliant countries, while far more resilient, remain vulnerable to the euro zone’s messy sovereign debt crisis that threatens at best to tip the currency bloc into a recession and at worst to rip it apart.

Meanwhile, the first rise in German manufacturing output in four months was not enough to offset prolonged contraction in the currency union’s smaller economies and suggests that the bloc will not avoid that recession.

“There is an awful long way to go yet, and given the headwinds that these economies face I would be cautious about being too optimistic,” said Peter Dixon at Commerzbank.

“Germany continues to motor on and show a reasonable amount of dynamism, and that will drag France along and maybe Italy, but it is not really going to help the likes of Greece. You need much more buoyancy from domestic demand, which at the moment appears to be sadly lacking.”

The Eurozone Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, rose to 48.8 last month from 46.9, revised up from a flash reading but recording its sixth month below the 50 mark that divides growth from contraction.

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