Five Arab countries including Saudi Arabia, the Emirates, and Egypt have cut diplomatic ties and close their border with oil- and gas-rich Qatar, cutting air, sea, and land links and ordered their citizens to leave the country. The impact will hit everything from challenger Qatar Airways to supply of dairy milk to Qatar from Saudi Arabia. The US has a military base in Qatar used among other things to protect the Gulf from Iran.
The Saudis claim that Doha destabilizes the region by backing terrorist groups like Al-Qaeda and ISIS, which Qatar denies. This split within the Sunni Gulf region is unprecedented.
It will almost certainly delay the plan to sell a percentage of Saudi Aramco on global markets. Qatari bond yields rose 20 basis points and its stock market fell 7% yesterday.
The Gulf upheaval may wind up delaying another Federal Reserve rise in interest rates. Lower bond yields mean “a reduced opportunity cost of holding gold and greater motivation for income funds to allocate something to it,†according to Tom Kendall atICBC Standard Bank, quoted by Adrian Ash of bullionvault.com, our former advertiser.
Gold is likely to breach its 6 year downtrend in US$s today, at $1290, as it already has broken higher in sterling after the London Bridge bombing and in euros. If Theresa May fails to win the parliamentary election Thursday all bets are off. And if she continues to threaten to walk out over the talks with the European Union over Brexit there is more trouble ahead.
Money
*Allianz Insurance of Germany also was upped to bullish by Reuters polls. Its Pimco US fund management sub threatens to derail the euros 1 bn 75% sale to Lone Star Funds of Novo Banco SA in Portugal, saying it would rather buy it itself. The Portuguese CB is keeping 25%. Novo Banco, formerly the Banco Espirito Santo (BES), was among the victims of the fraud and collapse of the Espirito Santo family holdings which hit our Portugal Telecom nearly 3 years ago.
Pimco, which stands for Pacific Investment Mgm. Co. says it objects to the Lone Star deal requiring that bondholders in Novo Banco pay euros 3 bn (about $3.3 bn) to refinance their old notes with new ones paying less to recapitalize the bank. The “good bank†hived off from BES quickly ran through the the capital the CB provided because it had so many bad loans on its books because of self-dealing by the family, and because the “resolution fund†had already been emptied during the global financial crisis.
Pimco earlier objected to the CB decision at the start of 2015 to transfer out euros 2 bn it and other US funds held in BES bonds. The CB is in a rush to refinance Novo Banco by a deadline set by the European Union of August, 3 years after BES was nationalized, under Treaty of Rome rules against government control of companies which can harm competition. It appears that Pimco is back by other fund managers like BlackRock which also were forced to buy the notes in 2015.
If the Lone Star deal is derailed, Novo Banco could be forced into liquidation. Under Portuguese law a company suing the government is not allowed to buy into a state company. Moreover Lone Star was given “exclusivity†and allowed to block CB talks with any other buyers.
