MADRID | The Corner | “It’s not in the interest of OPEC producers to cut their production, whatever the price is… Whether it goes down to $20, $40, $50,$60, it is irrelevant, ” Saudi Arabia’s oil minister Ali al Naimi said in an interview with Middle East Economic Survey, quoted by Reuters. He sent oil prices tumbling below $60 per barrel. The oil crisis is causing violent and undesirable market volatility.
ZURICH | UBS analysts | The recent general strength of the dollar has a bearing on commodity prices, clearly. Commodities are universally priced in dollars, and as homogenised products dollar appreciation should lead to a decline in commodity prices in dollar terms. However, the strength of the dollar against sterling (in 2008/9) or against the yen (sporadically since 2012) did not lead to UK or Japanese exporters cutting the dollar price of their manufactured products or services.
ZURICH | UBS analysts | The initial move in oil price was greeted as stimulating growth. The precipitous decline is triggering destabilising factors, especially in EM. As the US economy has accelerated, concern is growing that the Fed is about to shift policy in ways suited to its domestic objectives but not to the needs of increasingly stressed emerging and commodity producing countries and companies. In short, uneven global growth is simultaneously raising the spectre of unsustainable debt deflation across important parts of the (mostly emerging) world and a tightening of US dollar liquidity precisely when it is most needed.
MADRID | By Luis Arroyo | When many were speaking of a new Japanese recession and the failure of Shinzo Abe’s bold Keynesian policy, his Liberal Democrat Party obtained a sweeping victory at the polls on Sunday. In Europe, the Abenomics are in austerity fans’ crosshairs because if these policies happen to work they would look ridiculous. They were delighted when Japan’s GDP contracted in 3Q. But I’ve been following the Nippon economy for some time and I don’t really rust quarterly figures.
By Ray Kwong | When it comes to putting the kibosh on things, the folks at Zhongnanhai (China’s version of the White House) have few peers. In recent memory, China has seen fit to ban puns, long beards, zombies, American pork, British cheese, clams from Alaska, Islamic-style clothing, TV programs that feature one-night stands, April Fools jokes, Bitcoin, film stars who use drugs or pay for sex, Windows 8, smoking in public places, the entire Muslim holy month of Ramadan, and the “The Big Bang Theory.”
And that was just this year.
MADRID | By JP Marín Arrese | Plummeting oil prices are sending shock waves to stock markets as investors fear the violent swing might cripple the global economic balance. Some exporting countries like Russia are crumbling while investments in industries face widespread disruption as they become out-priced. Even if importing countries are footing a downsized bill in the short run, volatility is never welcome.
MADRID | The Corner | Janet Yellen spoke about patience in judging when to raise rates on Wednesday, which means no hikes for at least two meetings. The change in guidance was played down by the FOMC statement. BNP Paribas analysts thinks the US central bank wants to prepare markets for hikes but at the same time reassure them. They call for the first hike in September.
ZURICH | UBS analysts | It is too early to buy Russian equities in our view. The failure of the Russian Central Bank to ‘back up’ yesterday’s aggressive rate hike with enough intervention to stabilize the Ruble means currency and market risk is likely not over. The Russian market needs the oil price and the Ruble to bottom out for a sustained rally to begin. MSCI Russia trades at just over 3x forward earnings (v. a long term average of 7.2x), but this is based on a consensus EPS forecast for 2015 of -1% – almost certainly far too high.
LONDON | Barclays analysts | The post-election challenge for Abenomics will be how to promote a transition from a favourable turn in expectations to the real economy (real GDP). For example, JPY depreciation has boosted earnings and led to an improvement in business sentiment (expectations), but export volume remains sluggish, suggesting it has not given a boost to the real economy (real GDP).
BEIJING | By Xiu Gao via Caixin | The annual Central Economic Work Conference report sketches a framework for looser monetary policies and adjustments to slower economic growth in China.