A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

December 15, 2014

"Why should we cut production?"

— Ali Al-Naimi, Saudi Arabia's Minister of Petroleum and Natural Resources (Asharq Al-Awsat, December 11, 2014)

The week in review...

GLOBAL OIL

Price: How low can you go? Crude oil reached $58.50 on Dec 12, 2014 (7:42 PM), the lowest price since July 2009, more than 44% below June 20's high of $107.26, capping a series new 5-year lows regularly since October. Kuwait, Saudi Arabia and Iraq have been discounting their prices to Asian customers.

Quantity: Open tap On Nov 27, oil cartel OPEC decided to cap its collective production at 30 million (mn) barrels a day (b/d); at least one survey estimates that the cartel has exceeded its production targets for six straight months. In the US, production rose to 9.12 mn b/d through December 5, the fastest ever rate since weekly records started in Jan 1983. US crude inventories rose by 1.45 mn to 380.8 mn barrels this past week -- stockpiles had been projected to shrink by 2.7 mn bbl. Did lower import prices feed the glut?

Venezuela: Under pressure Outspoken opponent of OPEC's open taps, the country's finances have been hit hard by this year's price drop. The upfront cost of contracts to insure the country's debt against non-payment for five years has jumped to 60%, pushing the implied probability of default to 94%, the world's highest.

AMERICAS

US: Jobs news still improving the JOLTS survey for October showed US employers with 4.835 mn job openings, up from 4.685 million in September. The ratio of unemployed job seekers to openings fell to 1.86 from September's 1.98, lowest since February 2008. While the quits rate dropped 0.1 percentage point to 1.9%, that's still the second highest level since June 2008.

US: Household wealth still strong Net worth for households and non-profit groups for 3Q2014 was $81.3 trillion, 0.2% lower than in 2Q but still well above its pre-recession peak of $67.9 trillion. One reason for the slight drop: declining value of financial assets, including stocks and pension fund holdings. Household debt-cutting is leveling off as well, from a peak of 135% of disposable income in late 2007 to 108% this year through September -- the lowest sustained level since early 2003.

Argentina: Back from black? The 3-year-old ban on the sale of US dollars created a thriving black market in dollars. New central bank president Alejandro Vanoli has stepped up enforcement and coordination with other agencies; the peso has rebounded so far from September's 15.95 to the US dollar to 12.650. Tactics include hiking the savings deposit rate for small-scale savers, cutting bond arbitrage and boosting reserves some $814 mn by tapping a currency swap line with China. But inflation is still estimated at 40% per year, difficult to slow via currency moves alone.

ASIA

China: Helping hand The People's Bank of China (PBoC) is reported to have added 400 bn yuan ($65 bn) into the banking system, just as 500 bn yuan in recent PBoC loans to the country's top five state-owned banks are coming due.

Japan: Election jitters The stakes in the Dec 14 general election: Prime Minister Shinzo Abe's ability to enact badly-needed economic structural reform. One of Abe's advisors said "It's all about the third arrow now," referring to the third of Prime Minister Abe's goals, after reversing deflation and reforming government spending.

EUROPE

European Banks: Waiting for a better offer? One of the ECB's support program for Eurozone banks, heavily discounted loans, is facing meager demand; banks borrowed €129.8 bn ($161.3 bn) in four-year loans, well below the expected €150 bn on offer. The lack of interest may paradoxically act as encouragement for the ECB to take on a more aggressive stance toward monetary stimulus.

Signs of the times:

Greek Crisis 2.0 Leaving Other Bailout Patients Unscathed – Bloomberg

Fall in Oil Prices Threatens Africa’s Economic Growth – Wall Street Journal

Detroit Emerges From Bankruptcy – New York Times

Yuan Has Real Shot at IMF Blessing on Reserve Status – Bloomberg

Sources: Bloomberg, Wall Street Journal, Financial Times, New York Times, China Daily, Xinhua Online, Deutsche Welle, China Daily, Asharq Al-Awsat (London, Mideast)

...And the week ahead:

GLOBAL ECONOMIC CALENDAR: Dec 14–20, 2014

 

U.S.

Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Sun
Dec 14

 

 

 

Japan: general election
China: foreign direct investment

Mon
Dec 15

Industrial production, capital flows

 

UK: housing prices

Japan: large manufacturer business confidence

Tue
Dec 16

Housing starts

 

UK: bank stress tests, inflation
Germany: ZEW index

China: manufacturing PMI

Wed
Dec 17

FOMC policy announcement, consumer prices

 

UK: unemployment

S Korea:  producer prices
Japan: trade data

Thu
Dec 18

Jobless claims, leading indicators

Mexico: retail sales

UK: retail sales
Germany: business confidence
Ukraine: industrial production

China: property prices
Hong Kong: unemployment

Fri
Dec 19

 

Brazil: unemployment

 

Japan: monetary policy announcement

Sat
Dec 20

 

 

 

 


Definitions:

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organization of 12 oil-exporting developing nations that coordinates and unifies the petroleum policies of its member countries.

The Job Openings and Labor Turnover Survey (JOLTS) is conducted by the US Department of Labor, producing data on job openings, hires, and separations.

The People's Bank of China (PBC or PBOC) is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China.

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements.

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The Centre for European Economic Research (ZEW) is a public-private institute associated with the University of Mannheim, Germany.

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms. PMI greater than 50 indicated economic expansion; below 50, contraction.


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FN1414525

Previous Editions

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Poll

What would be the best news for markets for the remainder of the year?








Poll

What would be the best news for markets for the remainder of the year?

Strong US corporate earnings validate US economic expansion
(34%)
Strength in the US dollar convinces the Fed to keep short rates low longer
(11%)
European Central Bank bond buying rekindles growth in European Union countries
(47%)
Growth in China strong enough to leave room for financial system and structural reform
(8%)



Previous month Poll

Which Asian country will have the strongest growth in the coming year?

Japan, as Shinzo Abe's policy initiatives take hold
(17%)
India, as Narendra Modi's new government enacts changes
(45%)
China, as Xi Jinping's reforms promote a stronger financial sector
(17%)
South Korea, as President Park Geun-hye's plan to boost growth bears fruit
(21%)