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.

*Bank of Nova Scotia was upped to bullish by analysts surveyed by Thomson-Reuters reported. It rose modestly.

*ValuEngine upgraded Validus Holdings (VR) of Bermuda to buy from hold. 

*Banco Latino-Americano de Comercio (BLX) gained modestly also. BLX is a Panamanian multilateral loan bank for the Americas whose shareholders include Ex-Im and its fellows, commercial banks, and individual investors like us.

ASCO News

*The hottest news from the American Society of Clinical Oncology meeting is not the Celsion may work against ovarian cancer. It is that cancer survival can increase by over five months if patients are given a way to report to their oncologists about a list of 10 or a dozen markers on how they feel. The doctors then decide whether the situation is stable or if the patients need to be hospitalized with the risks this entails. The NY Times noted that many costly cancer treatments fail to improve survival by as much as this low-cost communication system.

*FiercePharma.com reports that Roche posted data at ASCO that its Alecensa cut the risk of disease and death by 53% pitted against Pfizer's Xalkori (crizotinib) in treating certain forms of metastatic anaplastic lymphoma positive non-small cell lung cancer.

RHHBY also won US FDA approval of its its automated COBAS cyctomegalovirus lab test for how well transplant patients are responding to treatment. A similar array helps test viral loads for HIV-1, and two types of hepatitis virus. RHHBY faces competition over Akecensa but it looks like a winner and it now is rated bullish by analysts surveyed by Thomson-Reuters. Roche fell 4.4% which is silly.

*Compugen (CGEN) of Israel presented pre-clinical data on COM701, its solo or combo immuno-oncology therapeutic antibody candidate at ASCO. The drug whose trials will be delayed because of problems at the outsourced maker, blocked PVRIG antibodies that reduced tumors in TIGIT-deficient mice PVRIG stands for a transmembrane protein, poliovirus receptor related immunoglobulin domain and TIGIT for T-cell immunoreceptors with Ig and ITIM domains. The combination may work in PD-1 pathway inhibitor in cancers which do not respond enough to TIGIT alone. CGEN is Israeli.

*Danish Novo Nordisk (NVO) will sell its global rights to IPH5401 to treat cancer to Innate Pharma of France in return for euros 37.2 mn in IPNYF shares and euros 2.8 mn in cash. There are milestones of up to 10xd that. Initially it will own up to 15.8% of IPNYF vs an earlier level of 10.3%. The cancer treatment uses anti-C5aR cell-signaling monoclonal antibodies which target myeloid derived suppressor cells and neutrophils in tumors, which strengthen many kinds of cancer. It also may work against rheumatoid arthritis for which it has proven safety during NVO trials. IPH5401 moves to stage 1 against next year. Innate of Marseilles is headed by former AZN oncology head (and former RHHBY-Genentech oncology researcher) Dr Mkondher Mahjoubi PhD, of Indian heritage, who was educated in the US, jumped to Innate onJan. 1

Vehicles and Defense

*BAE Systems (BAESY) fell because it is a big seller to the Middle East, but then launched a new movement intelligence software program called MOVINT and BAESY recovered. MOVINT enables analysts to quickly identify intelligence threats multi-tracking analytics from video, radar, and motion sensors to find vehicles and other objects which may present a threat. The system replaces the current situation which requires analysts to monitor and review huge amounts of data from multiple sensors. MOVINT will be added to BAESY's Geospatial exploitation Products, GXP, and analysts will be able to focus on intepreting threat activities and networks.

*Abhimanyu reports with two notes about Tata Motors (TTM), which also will gain from military demand:

TTM is joining with rivals Mahindra and Ashok Leyland to jointly develop electric buses with the Indian government providing half the funding. The same trio along with Maruti and Ford earlier abandoned a plan to jointly build electric cars as TTM wanted to it alone alone with its hatchback..

M&T Bank more than doubled its stake in TTM to $3.21 mn. Another fund manager, Coronation, raised its stake by 16% to 6.3%, its 3^rd largest holding. TTM rose modestly in Asia trading.

*Orocobre delivered forecasts about the future of lithium supply and demand to a Canada conference. Its shares are listed in Canada as OCL, as well as in Australia. Its presentation stressed that the portable electronics market for Li is “saturated” and future demand will come from the auto and power markets and the aftermarket. The main demand will come from electricity supply services which will want bigger and cheaper batteries. Among the electric car suppliers it cited were TTM's Landrover, Jaguar, and IRIS vans; Makindra “runabouts”; and the usual suspects like Tesla, Nissan, and the auto majors.

It also revealed that high lithium production growth companies are forecasting (including OROCF itself) are hard to meet so it is hard to be sure battery capacity demand can be met. The shortfall to the end of last year was about 20% of the expected capacity increase in part because of the time it take to ramp up output, with the Latin American producers (OROCF) doing better than newer players. It also claimed that having a deep pocket partner (like Toyota) helps Li mines get funding because the metal is not a traded commodity, being neither a chemical nor a mining product, and because the technology is unique. It is up 2.14% here.

*Reuters reports that Sociedad Quimica y Minera de Chile, Soquimich or SQM, a much larger Latin producer in Chile, is able to provide Li carbonate for batters, ceramic and enamel frits, ceramic (heat-resistant) glass, primary aluminum, A/C chemicals, and continuous casting powder for extruding steel and making pharmaceutical while also producing lithium hydroxide. SQM is down 1%.

*CAE (CAE) which mostly sells pilot training software doesn't induce the usual Canadian unity on forecasts. It last reported May 30 that its EPS at 25 loony cents beat the Thomson Reuters consensus by a two cents and prior year earnings by 15%. Because of the Jewish holiday we could not cover its results. It fell short on revenues, at C$734.7 mn rather than the expected $748.41 mn. But its backlog beat at $7.5 bn, up 18% from prior year Q4.

Fully ear results were EPS of 93 cents, up 20% over FY 2016, and revenues of $2.7 bn, up 8%. Civil aviation revenues were up 9%. and military up 5.5%. Its profits rose despite restructuring costs of C$26.4 mn in 2017 and 15 mn in Q4. Its startup healthcare revenues were down 3% for the year but up 9.8% in Q4. It also cut its debt by about 3% and engaged in a share buyback worth $3 mn. This complicated result let to a Canadian standoff.

Desjardins cut its rating for the full 2018 FY to 81 loony cents from 83.

Zacks from Chicago upped its rating to hold from sell. Scotiabank raised CAE from sector perform to outperform. It is rated buy by 3 analysts and hold by 7 at last count.

Sweet Mexico; Sour Brazil

*The US has agreed to delay imposing duty on refined cane sugar from Mexico until Nafta is renegotiated, thanks to the savvy of Wilbur Ross, Commerce Secretary, who refused to be led by the nose by US refiners objecting to Mexican imports of ready-to-eat sugar, under the lead of the Cuban-born Fanjul brothers, Pepe and Alfy, who are his personal friends. Mexico was also helped by the PRI winning the weekend gubernatorial election against the left.

*As a result of Ross's tough stance, Mexican stocks and funds were upwardly mobile: Cemex (CX), Bimbo (GRBMF), Herzfeld Caribbean (CUBA, in fact a heavy investor in Mexico), and Mexican Equity & Income Fund (MXE). However the REIT Fibra Uno (FBASF) is flat in part because it is hedged out of US$s.

*However as an alternative producer of sugar, Cosan (CZZ) of Brazil cratered 2.6% in local trading. 

From the Oil Patch

*Delek Group of Israel gained 4.7% yesterday because its Arab neighbors will have problems coordinating their energy policy after the Qatar ban. DGRLY.

*Ormat Tech signed its biggest geothermal electricity ever last week according to Globes Israel, for $95 mn with the Southern California Public Power Authority. NYSE-ORA is incorporated in Nevada but is controlled by Israelis, why we keep an eye on it. The contract runs to 2022 and can be renewed until 2043 as long as both sides are prepared to use a $75.5/megaWatt fixed rate. Now that Orix of Japan is buying into ORA we are even keener to own it. ORA is gaining from the decision of Los Angeles and its region to stop using coal to generate electricity, to protect against climate change, defying the Trump Administration.

*Ecopetrol (EC) gained 2.5% in European trading over the Qatar crisis. It is up 2% here. EC was raised to buy by HSBC Securities.

*BP plc, (BP) which is more involved in the Persian Gulf and with Saudi's new pal Russia, gained modestly. BP just opened its second gas station in Mexico, Eduardo Garcia writes in sentidocomun blog.

*Ditto for Schlumberger Ltd, (SLB) which funds and provides drilling services globally but is incorporated in the Dutch Antilles. SLB.

Gold and Colza

*SPDR Gold, (GLD), of course is up on higher risk perception, as Adrian forecast.

*Input Capital, INPCF of Canada, tipped by Martin Ferera, is up 1.84% more because it is sui generis.

Tech

*Vodafone (VOD) signed a key jv with South Korean LG to supply its U+ mobile and broadband telecom service and in a dropping market was one of the winners.

*Tencent Hldgs (TCEHY) rose 2.5% in Hong Kong trading yesterday.