Brexit: US-China trade spat and its possible fallout in an uncertain global economy

The exit of the United Kingdom from the European Union (EU) known as Brexit and the trade war between the United States and China are today among the top issues concerning the global economy.
Brexit and its aftermath

The sole question of 'Brexit' has consumed the United Kingdom for two and a half years. The yes, how and when of its impending exit from the European Union, after decades of belonging, has displaced any other debate and does not augur well for the global economy. The economic consequences will be felt more sharply in the UK than in the EU. Even so, political and economic systems are undergoing profound structural changes driven mainly by technology as well as trade and climate change. We can also find examples of high inequality leading to growing political unrest.

In addressing these crucial issues, politicians around the world should understand the lessons learned from 'Brexit.' Since you cannot replace something for nothing, there was no immediate break in trade between the UK and the EU. In the absence of any clear idea about what kind of 'Brexit' would end up materializing, the economic and trading relationship simply followed the previous model and any disruption was avoided.

Soft Brexit or short term? 

In making macroeconomic and market forecasts for the 'Brexit' and its effect on the global economy so far, short term versus long term has been far more important than soft or hard Brexit. Hard option is the total withdrawal of the UK from the European common market and customs union. The question being asked is not if the UK will face a significant economic reckoning, but at which point in time. Anyway, UK economy is already undergoing a structural change at a slow pace. There is evidence of fall in foreign investment in the British economy in general. This trend has brought the challenges associated with less than notable productivity growth, and there are signs that companies with operations in the UK have started implementing their contingency plans for the 'Brexit' after a prolonged period of waiting for clear signals from the political establishment.

Possible implications

Businesses will not only shift investments out of the UK, but they will also begin relocating jobs to mainland Europe. This will probably accelerate even if British Prime Minister Theresa May succeeds in getting the exit agreement she proposed passed in some way with few amendments. The exit of the United Kingdom from EU will be a poignant moment in the global economy. Earlier this months the British Prime Minister, Theresa May’s plan failed to pass the Parliament, and she faced a vote of no confidence.

Investors are focusing attention on the Davos World Economic Forum which is ongoing in Switzerland. It is hoped that the US presidents, Donald Trump, and Chinese, Xi Jinping will smoothen out trade frictions between two global giants. On the whole, it is hoped that the world economy will be on track during the rest of 2019, but issues remain that need careful attention from policymakers.

Why is the US Dollar Falling

The US Dollar – Steadily Fallen

The US dollar, the symbol of American economic strength seems to have steadily fallen this year and since January, the index value of the dollar that tends to track the dollar against six main global currencies is said to drop by around 10%. It had pushed lower recently as demand for other safe-haven assets usually a category comprising of the US dollar, rising amid sabre-rattling between North Korea and the US.

The dollar which had rushed in 2014 while the economy of the US had gained strength is hardly in risk territory. The index has been running only a bit lower than it had been a year back. However last year, key US economic date seemed weak and it is left to be seen what lies behind the decline this year.

Driven by an improved economy in Europe, this seems to be good news story in some ways. In 2014, the euro had lost ground against the dollar when central bankers had accepted a stimulus program when the US had begun to move away from the stimulus policies.

 As the Eurozone economy tends to improve now and the European Central Bank views an end to the stimulus, the currencies have begun to move closer together and in June the election of pro-EU Emmanuel Macron in France had made its contribution to confidence in the Euro.

Dollar’s Loss/Euro’s Gain

The dollars’ loss is the Euro’s gain which is now worth over $1.17, up more than 10 cents since the end of last year. The dollar seemed to have lost ground against several other currencies inclusive of the Japanese Yen, the Mexican peso as well as the Swedish Krona.

 The British pound also had rushed after the Brexit vote had in recent months regained some of its power against the dollar which is now valued at around $1.30 up from $1.22 in March. Sameer Samana, a global quantitative and technical strategist at Wells Fargo based in St. Louis, Missouri, had commented that this kind of broad based decline portrayed that it is really people moving away from the dollar instead of just moving towards these other currencies and the one reason for the same was Donald Trump.

Analysts have traced the surge of the dollar in the final months of 2016 in his victory that had fuelled expectations of tax reductions or infrastructure investment, spending estimated, to drive demand for the dollar.

Retreat Portrays Recalculating

They have now stated that the retreat portrays traders recalculating since Mr Trump’s economic agenda tends to stand. An enduring investigation into ties between Russia and the Trump campaign tends to cast a shadow over his administration and the apprehension over Mr Trumps’ erratic statements together with foreign policy clashed including with North Korea has added to it.

Mr Samana had stated that if people feel like, there is greater political uncertainty, they tend to vote with their dollars. Increase in interest rates tends to be traditionally connected to stronger currencies since the higher rates are said to draw investment.

 Since December 2015, the US central bank has elevated the interest rates four times and predictable understanding calls for another in December. However, Janet Yellen, Federal Reserve Chair had recently commented that even supposing future hikes, the interest rates would probably remain historically low for some time.

Dollar retreats from 14-year highs, investors unpack Fed minutes

 
As the value of dollar fell against euro and yen the investors became cautious regarding increase in bets on greenback without any hints with respect to the economy of U.S. and the hike in rate of interest. The very first day of trading in 2017 for several investors was full of expectations as they met with U.S. manufacturing data which was way different from the previous days. Since, the depreciation of dollar was the highest till date.

The Federal Open Market Committee that met in December, had warned everyone of the risk of increase in inflation after President Donald Trump’s proposal of fiscal influence standards that would shift dollar and will push up euro to $1.0499, which is its highest value declared. But as the investors changed their ways, euro started tracing profits to some extent.

Joe Manimbo, a senior market analyst at Western Union Business Solutions in Washington has intended that this decrease in the value of dollar in comparison to euro and yen have led to mixed reactions as in a way it sounds optimistic in terms of the economy, and on the other way it suggests a demoralized power of dollar.

Research have shown that the last time the value of euro increased by 0.6 percent at $1.0465. The current data shows that such a quick increase in the value of euro in December was unexpected and the surveys prove that due to this the growth in business have reached new heights in more than five years.

The dollar was last seen to be down by 0.2 percent against yen at 117.51 after an overnight hike of 118.17 yen. After Trump was elected as the President dollar has increased against many currencies with an expectation that administration under him will push up inflation, leading the Federal Reserve to follow up through a hike in rate of interest.

The Mexican peso was found to be striking the lowest level against the greenback, it fell more than 2 percent to 21.62 pesos per dollar with an intention that Trump’s policy might allow the protectionist U.S. trade policy to become a reality.

The Chinese yuan was increased to 6.8707, which was its highest value recorded against dollar since 6th December. As a result China went into both onshore and offshore markets to increase the depreciating yuan for the second time. China was also found to set the onshore middle point rate much lower than the market actually expected from it which lead many investors leaving the ground, who were intending more upcoming weaknesses in the currency, positioning in the negative direction, this was propagated by Greg Anderson, who is the global head of foreign exchange strategy at BMO capital Markets.

Thus, we can relate that how the marketing strategies as well as the position of investors are subjected to change with fluctuating value of currencies that on a longer run effects the entire economy of the country both positively and negatively.

Markets Struggle with Brexit Hangover, Pound Sinks

Asian Stocks Dropped/British Pound Plunged – Brexit

Asian stocks dropped and British pound plunged over 2% on Monday while markets wriggled to shake off the uncertainty which had ignited due to Britain’s choice of leaving the European Union. Emotion seemed weak even though the most horrible of the uproar envisaged on Friday when the global stock markets had suffered one of their largest declines in almost five years, had improved. Senior foreign bond strategist at Mizuho Securities, Hiroko Iwaki, had stated that “things are so uncertain that investors still do not have a clear idea how much risk assets they need to sell. But it is safe to assume investors are not yet done with all the selling they need to do. I would not be surprised to see another 10% fall in share prices”. From the several questions regarding the British exit, or Brexit, which have generated are `just how much UK and European economies will slow, how they would negotiate their new relationship and how European leaders would try to improve the collapsing EU’. The world’s most traded stock futures; US S& P dropped 0.4% to 2,011.50, soaring close to the three and a half month low of 1,999 of Friday.

Brexit – First Surprise in Re-Calibration

The widest index of Asia Pacific shares MSCI, beyond Japan, shrank losses to 0.6% since the companies especially with UK exposure were under pressure.Equity strategist at Bank of America Merrill Lynch in Hong Kong, Ajay Singh Kapur had written in a note that they think Brexit could be the first surprise in a re-calibration of the world away from globalisation towards more inward-looking policy making’.He further added that `Brexit has now possibly opened up more uncertainty about the European Union project and that the already crashed down Asian and emerging equity market could receive asset allocation flows from Europe. Nikkei of Japan extended gains to 1.9% which was a fractional rebound after the hefty 7.9% of Friday’s fall. Stocks of Japan had been supported by stronger warnings from the officials of Japan that they would interfere in currency markets in stabilising the yen. However, the dollar still fell 0.3% against the secured yen, trading around 101.81 yen.

Sell-Off in Euro – Exit Referenda Builds

Shares of China also increased with the CSI 300 index as well as the Shanghai Composite both increased around 0.8%. British pound dropped 2% to $1.34, yet some distance from the 31 year low of $1.3228moved during wild trade of Friday. Moreover, euro had also come under additional pressure, falling against the dollar by 0.8% as the investors fret that Brexit would strengthen the anti-establishment mood in Europe and also communicated about breakdown of the union. The chairman of New Sparta Asset Management in London, Jerome Booth, had commented that “there will be sell-off in the euro as talk of other exit referenda builds. This sell-off will be more profound and long lasting and will be not just against the dollar and yen but also against the pound. It would also raise fears of significant loss of values for holders of Eurozone government bonds”. Since December 2010 on Monday, Euro’s weakness aided in pushing the Chinese Yuan to its weakest level against the dollar and dropped to 6.6396 per dollar on opening at 6.6360 a dollar, in comparison with the five and a half year low midpoint level of 6.6375 agreed by the central bank, reaching an intraday low of 6.6469.

UK Inflation Rate Stays at 0.3%

UK Inflations Unchanged at 0.3%

According to the Office for National Statistics – ONS, UK inflation, measured by the Consumer Prices Index remained unchanged at 0.3% in February. There was a big rise in vegetables though the transport cost had dropped as per ONS. The annual inflation was below the target of 2% of Bank of England for two years and last year it had been zero. Last month the Bank had stated that it predicted inflation to remain below 1% this year.

Other figures of ONS published at the same time showed that Chancellor George Osborne had been close to missing his target in cutting the budget deficit of the country in 2015-16 financial years. According to ONS, borrowing of the government dropped than anticipated in February which brought the overall deficit so far to £70 for the 11 months of the year, as against the chancellor’s full-year target of £72.2bn.

The borrowing figures could mean that the government could borrow on additional £1.5bn this month if it intends to avoid exceeding the forecast set by the Office for Budget Responsibility during the last week’s Budget. Recent ONS’s release revised January’s borrowing by 2.6bn and even though next month’s figure exceeds the forecast, there is a possibility of waiting longer for confirmation.

Difficulties in Implementing Some of the Planned Budget Cuts

Chief economist at the British Chambers of Commerce, David Kern, stated that while there is a gradual progress in reducing the deficit, the timetables outlined in the Budget last week tends to be ambitious and the return to surplus could take a bit longer than the chancellor hopes.

He further added that `the difficulties in implementing some of the planned budget cuts would increase the problem’. Under the single Retail Prices Index – RPI measure including housing cost, inflation was 1.3% in February, which also remained unchanged from the previous month. According to the ONS, the biggest downward pressure on the inflation rate was from the transport segment with the changes in prices for items like road passenger transport, second hand cars and bicycles.

There was a drop in prices for toothpaste together with other personal care products, though higher prices for vegetables, milk, eggs and cheese compensated for those declines.

Britain’s vote on European Union Membership – Hit UK Economic Growth

An increase was also seen in hotel accommodation and restaurant bills along with the price of furniture as well as household equipment. Lower oil prices kept a cover on inflation leaving the central bank in no haste to increase the rates beyond 0.5% which remained there for almost seven years. The unmoved level of inflation of February comes after three months of increased consumer prices.

 Clothing prices had been up by 0.4% when compared to last year while gas prices had dropped by 6% over the same period after energy giant E. ON’s decision to reduce the cost of gas by 5.1% for two million customers last month. The inflation announcement was made after the Bank of England had voted to maintain the rates on hold once more this month and cautioned that Britain’s vote on its European Union membership could hit UK economic growth.

IMF Says World at Risk of 'Economic Derailment’

Global Economy Faces Rising Risk of Economic Derailment - IMF

The International Monetary Fund – IMF has advised that the global economy tends to face a rising risk of economic derailment. David Lipton, Deputy Director has called for urgent steps to increase global demand. He had mentioned in his speech to the National Association for Business Economics in Washingtonrecently, that they are clearly at a delicate juncture. He warned that the IMF’s latest reading of the global economy indicates once again a weakening baseline.

His comments have come up after weaker than expected trade figures from China portrayed that the exports had plunged by a quarter from a year ago, in February. With the second largest economy of the world often stated as `the engine of global growth’, weaker global demand for its goods seems to be read as an indicator of the general global economic climate. IMF have already mentioned that it would be likely to downgrade the present forecast of 3.4% for global growth when it tend to release in April, the economic predictions. International lender had warned last month, that the world economy seemed to be highly susceptible and had called for new efforts to spur growth.

Downside Risks Clearly Pronounced

Ahead of last month’s Shanghai G20 meeting, in a report, the IMF had mentioned that the group need to plan a co-ordinated stimulus programme since the world growth had reduced and could be derailed by market turbulence, the oil price crash as well as geopolitical conflicts. In his speech in Washington, Mr Lipton had stated that the burden to lift growth falls more squarely on advanced economics which tend to have fiscal room to move.

He added that the `downside risks are clearly much more pronounced than earlier and the case for more forceful and concerted policy action has become more compelling. Moreover risks seemed to have increased further with volatile financial markets and low commodity prices creating fresh concern about the health of the global economy’. A swing of weak economic data had lately been added to these apprehensions and the US ratings agency Moody’s had downgraded its outlook for China from `stable’ to `negative’.

Time to Support Economic Activity

The rising unemployment is also another worry as Beijing tends to slowly shift its economy from over dependence on manufacturing and industry to more services and consumer spending. The economy of China seems to be growing at the slowest rate in 25 years which has resulted in considerable uncertainty in the financial markets all over the world leading to sharp falls in commodity prices.

Lipton has commented that `together with bank repair wherever needed and with adequate targeting on infrastructure, this approach could create jobs and probably reduce public debt-to-GDP ratios in the medium term by motivating nominal GDP as well as support credit and financial stability. On strengthening the global outlook, this coordinated action could hurry healing in the banking sector and prevent continent liabilities for the government which appear in case of inaction.

 Moreover it would also have considerable positive spill-overs to susceptible emerging economics comprising of commodity exporters which would be unable to participate in the fiscal expansion, directly. He added that at the recent G20 meetings in China, he thinks that `there was broad recognition of these risks and priorities and now is the time to support economic activity and put the global economy on a sounder footing’.

After the sell off, stocks may actually be cheap

Sell Off Wall Street - A Silver Lining

Wall Street is finally breathing a sigh of relief after the S&P 500 Index managed to hold on to its first weekly gain of the year. One prominent market watchers had commented that inspite of signs of strength; stocks are still in store for a thundering reset. The ruthless sell off Wall Street had faced during the last few weeks could have a silver lining.

 According to FactSet, the S&P 500 Index is presently trading at around 15 times the earnings; analysts tend to expect constituents companies to post over the next year. This reading is known as `forward P/E on the popular measure of valuation which is compared to a 15 year average forward P/E ratio of 15.7. The conclusion collected from historical comparison is based on the timeframe taken into account.

 It is worth observing, in this case that the current valuation level tends to represent the premium to the average of 14.3 observed over the past five and ten years periods. Since the firm in the meantime is probably using various earnings estimates, IQ of S&P Capital current forward valuation number is 15.7 though they also observed that was under the 15 year average.

Broad Market Trading in Abyss

David Stockman who was the former OMB Director under President Ronal Reagan, is of the opinion that the broad market has been trading in the abyss after breaking beyond 1,870 in 2014, since then with a meagre one percent return. He had commented that they had been there for 700 days and had something like 35 attempts at rallies where all have failed for the `four no’s’. For him the four no’s comprise of a combination of no escape velocity, no earnings growth, no dry powder from the central bank and no reflation.Accompanied together, it leads him to the belief that the U.S. economy seems to be on the point of a full blown recession.

He further adds that they are getting to a point where the chickens are coming home to roost and there is no help from the central banks and that is why these rallies seem to get weaker as well as shorter. He is of the belief that the overflow of easy money from central banks all across the world has shaped a credit crisis which is so severe that it could probable take years to come out of what it has created.

High Powered Money – Enormous Expansion of Credit

Market watchers have pointed out a stunning $21 trillion collective balance sheet built up all around the globe, up from 2.1 trillion only 20 years back. He has said that this is high powered money which has resulted in an enormous expansion of credit as well as financial valuation bubble.

Stockman has observed that the speedy increase of credit has caused debt all over the world of over $225 trillion and has mentioned that they `are at peak debt’. Stockman, at this point considers that the hands of the Fed could be tied up after being on zero interest rates for almost a decade. There is nowhere to go but negative and it is time to get out of the market completely.

The S&P 500 has been progressively in correction territory in 2016and the large-cap index closed the week at around 11% from its 52 week high. However Stockman is of the opinion that it could plunge another 30% from its present trading which takes it back to levels not envisaged since 2012.

What markets are really worried about

Dull Start for Global Stock Market

It has been a dull start for the global stock market this year and the first week has been described as the worst start ever, for Wall Street. During the first week of 2016, Frankfurt and Tokyo had dropped by double digit percentages while in New York the drop was 9% and in London 8%. However, China was the eye of the storm where the key index in Shanghai had lost 19% of its value during the same period.

The prices of commodity had also stumbled where crude oil prices for the first time in almost 12 years, had slipped to below $30 per barrel. Share prices, at times had followed oil downwards which is likely for shares of the companies in oil business. However, for the others it tends to reduce costs leaving consumers with more to spend on their products.

There seems to be a slowdown in emerging growth of the economies and China is an exceptional example though certainly not the only one. The instability had begun in the Chinese market, spreading all around the world.The Chinese stock market in itself does not seem to be the ultimate international issue.

Currency under Pressure

Though it is a serious issue for Chinese investors who had purchased shares while the prices were high, they have lost a good amount of money. However there are few of them to have a possible impact on consumer spending in China.

 There are also few foreign investors in Chinese market withthe possibility of serious losses inflicted beyond the country as direct significance. Besides the stock market, the currency, Yuan has also been under pressure and has lost its ground this year though not on the stock market scale. In the first week, the onshore, official rate dropped down by almost 2%. Some had indicated that there could be a possibility of the decline in the Yuan revolving into a full blown loss of confidence.

The financial market pressures on China are in portion at least an indication of the extensive and much discussed economic slowdown. Since the Chinese economy seemed to lose some space there has been some uncertainty on how well the authorities would handle the process. China would certainly need to slow to an added sustainable pace, but would the path tend to be a rocky one with an abrupt slowdown?

Significant But Catastrophic Slowdown in Growth

The official figures so far indicate a significant though not catastrophic slowdown in growth. According to official figures published, after three decades of 10% average growth, China seemed to slow down to 6.9% last year.The new assessment of the economic outlook of IMF tends to predict a further easing of the pace to about 6.3% this year and in 2017 around 6.0%. It records that China has experienced a faster than presumed slowdown in exports and imports, partially reflecting weaker investments as well as manufacturing activity. The apprehensions regarding economic outlook are not only over China. The new forecast of IMF, downgrades the outlook for the emerging as well as the developing countries and the ones which tend to stand out are Brazil and Russia. This is partly regarding the low prices of oil together with the other commodities as well as the political issues, external for Russia and domestic for Brazil. Besides, this there is also a substantial downgrade in the forecast for South Africa.

IMF Cuts Global Growth Forecast As China Growth Slows

IMF Cuts Forecast of Global Growth

Recently the International Monetary Fund – IMF had cut its forecasts of global growth for the third time in less than a year, as the new figures from Beijing indicated that the Chinese economy in 2015, had been at its slowest rate in a quarter of a century. The IMF, to support its forecasts had cited a sharp slowdown in China trade and weak product prices which were hammering Brazil together with the other emerging markets.

 The Fund had forecast that the world economy would tend to grow at 3.4% towards 2016and 3.6% in 2017; both the years would be down by 0.2% point from the earlier estimates made last October. It has stated that policymakers need to consider means of bolstering short-term demand.

The updated forecast of the World Economic Outlook came as global financial markets were shaken by worries over the slowdown of China as confirmed by official Chinese data on Tuesday together with the plunging oil prices. IMF had maintained its earlier China growth forecasts of 6.3% in 2016 and 6.0% in 2017 representing sharp slowdowns from 2015.

Concern over Beijing’s Hold on Economic Policy

According to China’s report, growth for 2015 had hit 6.9% after a year wherein the world’s second biggest economy had suffered huge capital outflows, a slip in the currency as well as summer stock market crash. There was a rise in shares in Europeand Asia and the dollar gained after the China data had been released, while investors expected greater effort by Beijing to spur growth.

 There was concern over Beijing’s hold on economic policy which had shot to the top of global investors’ risk list for the year 2016 after drop in its stock markets as well as the Yuan fuelled worries that the economy would be quickly weakening.

The Fund also mentioned that a steeper slowing of demand in China seemed to be a risk to the global growth. The weaker than expected Chines imports as well as exports had been weighing heavily on the other emerging markets as well as commodity exporters.

Major Risk Aversion/Currency Depreciation/Dollar Appreciation

Maurice Obstfeld, IMF economic counsellor had mentioned in a videotaped statement that `they do not see a big change in the fundamentals in China compared to what is was seen six months ago though the markets are certainly very spooked by small events there that they find it hard to interpret’ He further added that the global financial markets seems to be overreacting to the oil prices drop as well as the risk of a sharp downturn in China and it was critical that China is clear about its overall economic strategy inclusive of its currency.

At a news conference Obstfeld had stated that `it is not a stretch to suggest that markets may be responding very strongly to rather small bits of evidence in an environment of volatility and risk aversion. The oil price puts strains on oil exporters, but there is a silver lining for consumers worldwide, so it is not an unmitigated negative’.

The IMF report states that continued market upheaval would also tend to help in dragging growth lower if it heads to major risk aversion and currency depreciation in the emerging markets. Besides this, other risk would comprise of further dollar appreciation and acceleration of geopolitical tensions.

RBS Cries 'Sell Everything' As Deflationary Crisis Nears

RBS Warns Clients – Brace for Cataclysmic Year/Global Deflationary Crisis

According to RBS, clients are advised to brace for a cataclysmic year as well as a global deflationary crisis, cautioning that main stock markets would fall by a 5th as well as oil would plunge to $16 per barrel. It was informed by the bank’s credit team that the markets tend to be blinking stress alerts similar to the stormy months prior to the Lehman crisis in 2008. In a client note it had stated to `sell everything except high quality bonds. This is about return of capital, not return on capital.

In a crowded hall, exit doors are small’. Bank’s research chief for European economics and rates, Andrew Roberts commented that the global trade as well as loans have been contracting nasty cocktail for corporate balance sheets and equity earnings which are mainly threatening,considering that global debt ratios have touched record highs.

He further added that `China has set off a main correction and the same is going to snowball. Equities as well as credit have become quite dangerous and we have hardly begun to retrace the `Goldlocks love-in’ of the last two years’. Mr Roberts is hopeful that the Wall Street and European stock would fall by 10 to 20% with a deeper slide for the FTSE 100 taking into account its high weighting of energy and commodities companies.

London Vulnerable to Negative Stock

He has commented saying that `London is vulnerable to a negative stock. All the peoplewho are `long’, oil and mining companies are under the impression that the dividends are safe, will discover that they are not safe at all. The oil prices of Brent will tend to continue to slide after breaking through an important technical level at $34.40, as claimed by RBS, with a `bear flag’ and `Fibonacci’ indication focusing to a floor of $16, which was a level seen last after the East Asia crisis in 1999. The bank has stated that a paralysed OPEC appears unable to respond to a deepening slowdown in Asia with swing region now for global oil demand. RBS predicts that yields on 10-year German Bunds would drop to an all-time low of 0.16% in an effort to safety and would break zero while deflationary powers tend to tighten their grip. The policy rate of European Central Bank would fall to -0.7%.

China – Epicentre of Global Stress

RBS had first delivered its grim warnings in November for the global economy though events had moved much quicker than dreaded. It had estimated that in the fourth quarter, the US economy had slowed to a growth rate of 0.5% and had accused the US Federal Reserve of `playing with fire’, by increasing rates. It stated that there has already been severe financial tightening in the US due to the rising dollar’.

 When the ISM manufacturing index appears to be below the boom-bust line of 50, it seems unusual for the Fed to tighten. Moreover, it is also more shocking to do so after nominal growth of GDP had fallen to 3% and since 2014 been trending down. RBS has informed that China is the epicentre of global stress where the debt driven expansion had reached saturation and the country is now facing a surge in capital flight and is in need of a dramatically lower currency. This next leg of the rolling global drama, according to them is to play out wild and frantically

Why US Banks soon will be singing the Blues

Analysts Apprehensive – Quarterly Profits Reports

Estimates seem to be moving in the wrong direction with Wall Street banks about to report on how much money they have been making. The industry had jointly reported $43 billion in profits, coming off a quarter and analysts are expecting a rising rate environment with increased demand which would tend to keep things moving for $15.1 trillion sector.

But with declining expectations for a rate hike in 2015 together with other factors, it tends to make the analysts apprehensive with regards to how the quarterly profit reports would turn out. For the Big Four coming up, JPMorgan Chase would get things started with the others following during the week, like Bank of America, Wells Fargo, Citigroup, Goldman Sachs and PNC. S&P 500 financials, as a sector is expected to indicate a 3.8% annual growth in profits as per S&P Capital IQ.

This seems to be an improvement than the 5.1% decline predicted for the total index and is a big disillusionment from early forecasts. The revenue is said to grow by 4.4%. As per July, analysts had been predicting 9.9% growth which a year back the expectations seemed to be a showy 27%.

Bank Earning – Increase – Based on Performance of Bank Stocks

Hence the results showed better than expected and are likely to remain below the earlier high hopes for financials which were expected to be the best performing sector of 2015. Bank earnings are increasing based on the performance of bank stocks recently and one would think that the earning could be a disappointment. However, it is not the same for all bank stocks.

Two great concerns for bank earnings are the weak trading and low interest rates. Trading profits being low seems to be correct. Trades in government bonds and the equity trading could be alright in the quarter though activity in the range of other financial areas could have been weak to awful.

In the case of awful, one could point to agency, asset backed bond as well as commodity trading. With regards to the weak side, one could view at corporates, currencies and municipals.

Substantial Revision – Individual Companies

Substantial revision has been seen in individual companies recently. According to FactSet, analysts have reduced MetLife estimates from 88% a share to 77 cents, while Goldman Sachs from $3.46 to $3.20, Morgan Stanley from 68 cents to 63 cents. In the S&P 500’s financial sector, expectations on earnings have been condensed for 53 of the 88 companies.

The weakness tends to come since loan growth has been steady due to strong climate in the commercial real estate. According to Federal Reserve data, in the third quarter, the sector increased by 9.7%, the greatest of the year after rising 6.7% in 2014.

Moreover, investment banking has been fairly strong all through the year and though the global revenue has been down by 10% year after year, it has been in level at $28 billion in the U.S. This was due to a record of $9.7 billion haul by way of mergers and acquisition revenue, as per Dealogic.

Banks stocks seem to have failed in 2015 with KBW NASDAQ Bank Index off 4.8% a year to date as against a 2.2% less in the S&P 500. In October, the index was up by 1.3% trailing behind the broader market’s gain of almost 5%.

Storm Clouds Gather Over Global Economy as World Struggles to Shake Off Crisis

IMF Framed Forecast – 2015, UK Growth Among Downgrades

According to the International Monetary Fund, Britain is among some of the shining lights in the global economy and as the world views, the slowest period of growth since the financial crisis. The IMF framed up its forecast in 2015, for UK growth among downgrades `across the board’ for emerging and advanced economies.

It stated that China’s slowdown, dropping commodity prices together with an expected increase in the interest rate in US would tend to weigh on output. It is now expected that the world economy would expand by 3.1% in 2015 from a forecast of 3.3% in July. Since 2009, this would represent the slowest expansion when the global growth came to a halt.

According to the IMF’s chief economist, Maurice Obstfeld, who stated that `six years after the world economy came from its broadest and deepest post-war recession, the holy grail of robust as well as synchronised global expansion remains elusive.


Inspite of differences in country specific outlooks, the new forecasts tend to mark down expected near-term growth marginally though nearly across the board. Besides, downside risks to the world economy seems more pronounced than it was a few months back’

Risk of Recession over Next Year

The Fund had also cautioned that the risk of recession in the US, Eurozone as well as Japan over the next year seemed to have increased in the past six months since emerging markets face a fifth year of slow growth.

The year of weak demand as well as anaemic productivity development meant the probability of damage to the development on medium term was a great concern, warns IMF. Further drop in global demand would be leading to near stagnation in advanced economies should emerging markets tend to continue faltering, it added.

The UK economy is anticipated to grow by 2.5% this year, slightly up on the IMF’s forecast of July by 2.4% and its expectation for 2016 growth remained unchanged at 2.2%. IMF had stated in its latest World Economic Outlook that `in the United Kingdom constant steady growth is anticipated which is supported by lower oil prices as well as constant recovery in wage growth’.

Fund Cautions – Countries Need to Be Prepared for Higher Interest Rate

The outlook also portrayed US growth for 2015 had been higher than expected three months back when Italy envisaged upgrades for 2015 as well as 2016. The biggest economy of the world is expected to lead growth in the G7 this year but the UK and US economies have shown indications of slowing down, recently. The latest health-check of IMF portrays that it anticipates the UK government to balance its books by 2020.

Mr Obstfeld had stated that the UK and the US seemed `not totally immune’ to a probable slowdown in China but were less open than countries with closer trade connections. As per the Bank of England, should China’s grown be 3% lower over the next three years than it present forecast, it would knock 0.1% off the growth of UK.

IMF has stated that the risk of a recession would now be higher in the Latin America 5 – Brazil, Chile, Colombia, Mexico and Peru when compared to the rest of the world group. The Fund has informed that countries need to be prepared for higher interest rates in the US which is expected by the turn of this year. It also added that the Bank of England would probably raise rates by 2016.

Nine of the World’s Biggest Banks Form Blockchain Partnership

Banks in Partnership to Form Blockchain

According to reports, nine of the world’s biggest banks which include Goldman Sachs as well as Barclays have come together with New York based financial tech firm R3 in order to develop a structure in utilising blockchain technology in the market.

For the first time banks have now joined forces to work on a shared way in which the technology that helpsbitcoin a Web based cryptocurency couldbe utilised in finance. Interest in blockchain has increased in the past few years and has already attracted major investments from many important banks which would be saving them money by making their operation quicker, efficient and more translucent.

The latest project which is the outcome of over a year’s worth of consultations with the R3, the banks as well as other members of the financial industry, would be led by R3 CEO David Rutter, earlier CEO of electronic trading at ICAP Electronic Trading which is one of the world’s largest interdealer brokers.

Rutter had informed Reuters recently that they had several round tables to consider in depth what the possible implications of the blockchain would be and what it could probably do in order to save money and time as well as to create an improved paradigm for the world of Wall Street and finance.

Function as Huge Decentralized Ledger

Some of those who have signed up for the initiative are J P Morgan, UBS, State Street, Royal Bank of Scotland, BBVA and Commonwealth Bank of Australia and Credit Suisse.

Blockchain tends to function as a huge decentralized ledger of all bitcoin transaction made which has been verified and shared through a global network of computers.

Hence it tends to be effectively tamper-proof. A team from Bank of England have been dedicated to it calling it a `key technological innovation’. Data that can be safeguarded by using the technology is not limited to bitcoin transactions.

Two parties could utilise it for the exchange of any other information quickly as well as without the need of a third party to verify the same. Rutter has mentioned that the earlier focus would be to approve on underlying architecture, however it had not been certain whether it would be supported by bitcoin’s blockchain or another one like one which is being built by Ethereum, offering additional features than the initial bitcoin technology.

Technologies - Transform Financial Transactions

He further added that once the same is agreed on, the first use of the technology could be the issuance of commercial paper on the blockchain.

He is of the belief that these technologies would probably be post-trade and the savings would be in the settlement side, in post-trade in issuance though not in exchange trading of OTC trading, in the near future. He also mentioned that R3 will soon be announcing a few more banks that would be joining the banks.

 Hu Liang, Senior Vice President as well as the head of emerging technologies at State Street, had mentioned in a statement that these new technologies could transform how financial transactions are recorded, reconciled as well as reported, with all additional security, lower error rates and significant cost reductions.

Could This Start-Up Save the Greek Economy

Week Long Start-up – Contribute to Crisis Worn Greek Economy

A week long start-up fast-track program had been started recently in London for the purpose of locating ways which would make some contribution to the crisis worn Greek economy. In 2012, the Greek government had the largest sovereign debt default in history and on June 30 2015, it became the first developed country to fail in making an IMF loan repayment while at that time, Greece’s government had debts amounting to €323bn.

Six short listed companies would now be working with mentors as well as investors which includes Steve Vranakis, Google executive together with George Kartakis of PayPal owned Braintree in refining their views prior to competing in a Dragons Den-style event.

The idea includes a chemical formula in order to protect historical sites from illustrations, a scheme of recycling unused hotel toiletries, a Mastiha liqueur importer, an online education manager a digital diary for the purpose of booking civil weddings as well as an internet shop for products that are handmade by the Greek businesses.

The accelerator program which is run in partnership with Watershed Entrepreneurs is planned by Greek expats as well as others who have a social and an economic impact in Greece.

The Brain Drain-Lost Generation-Lose Contact

Co-founder Effie Kyrtata, a 25 year old Athenian who had moved to London seven years back has stated that `as they are based in London, they are tapping into the dispersion, the global community who are connected with Greece.

He adds that they have seen a lot of people leaving Greece to go to other countries – the brain drain, the lost generation and lose contact with Greece and that he wants to create a bridge between Greece and the UK’. Reload Greece, has helped entrepreneurs to raise £1m in funding over the past 18 months which generally runs mentorship schemes that tend to run for several months, however was prompted to do the strong accelerator as a reaction to the recent economic improvements in Greece.

Kyrtata has stated that this is our effort to do something fast due to the great need that exists. They are aiming to activate the community which resides abroad in making an immediate impact now and what can be done that will help the Greek economy straight away by using the youth and the people who have left’.

Six Start-ups – Refining Business Plans/Coordinate/Interact

The six start-ups that had been selected from more than thirty applications from the UK as well as Europe would be refining their business plans, coordinate with successful entrepreneurs and interact with expert mentors prior to pitching to a panel of investors. The winner is said to receive five free business coaching sessions from Eudaimonia Coaching.

However, Reload Greece is hoping that all the participants would be able to make their contributions to the Greek economy by developing jobs and boosting businesses. Moreover, the non-profit organisation also perceives its task as much more than financial. Kyrtata has commented that they desire to change the perception which the world has created about Greece by showcasing young as well as successful entrepreneurs who could make a difference and that there is a crisis and it is essential to be motivated to create new things’.

China Economic Transformation Painful and Treacherous

China’s Economic Changeover – `Painful & Treacherous’

China’s changeover from an economy which is greatly dependent on manufacturing is a painful and treacherous one. China’s economic reformation has entered its most critical phase and authorities should deepen improvements in significant areas, eliminate barriers and restore the framework. Various challenges and tough times will be faced ahead.

This would create rare investment opportunities together with volatility and fluctuations and investors need to be positive and alert, looking for options to profit from the changes. China’s Premier Li Keqiang answered queries during a meeting on September 2, 2015, with foreign company executives at the World Economic Forum – WEF, in China’s port city Dalian and stated that China should embrace its global obligations with regards to combating climate change and that the country was already under huge pressure to meet emission reduction goals.

He admitted that the country is on track in achieving its target this year. He had informed the audience at the event that it was difficult to achieve 7% growth domestic product – GDP growth as China has targeted in 2015. However the nation’s new growth drivers as it tends to move from factories to a broader, service based economy would speedily tend to take shape.

Leaders Not Influenced by Short-Term Fluctuations

Li added that the Chinese economy has a bright future to what is known as the Summer Davos saying that `this is not unrealistic optimism’. Li further commented that China would be continuing in reforming its markets which included adopting an open and transparent capital market and relax restrictions on capital flow in the country.

He adds that over 10,000 new businesses are being registered in China each day and `sharing economy’ have been making new ways in creating growth.As the changeover takes place, leaders of China would not be influenced by short-term fluctuation in the economy, according to Li, who describes the company as shock-resistant and resilient.

His message reverberated to a statement which had been made by Finance Minister, Lou Jiwei earlier at the G-20 meeting in Ankara, Turkey wherein he had informed that China was not focused on monthly data. The position is at add with some of the economists who believe that what data is available from China, indicate that the world’s second largest economy is probably heading for a recession.

Risk of Falling into Deflation

Recession is usually demarcated as two successive quarters of a contraction in GDP. The influential Citigroup chief economists and a former member of the Bank of England’s interest rate-setting committee, Willem Buiter, have cautioned in a note that `there is a high and rising likelihood of a Chinese, EM – emerging market and global recession scenario playing out’.

Later on he also informed CNBC that the official data which had been provided by China was `largely meaningless’ and as per Citi’s own model, the economy of China had increased by 4 percent in 2014 and not at 7.3 percent since the number was studied down, by China earlier in the week.

The data that was released recently indicated that consumer inflation had accelerated in August when producers’ prices had fallen deeper into deflation. The CPI – China’s consumer price index increased to 2% in August from the previous year against expectations for a 1.8% increase from Reuter’s poll, following July’s gain of 1.6%. Chief China economist, Li-Gang Liu, at ANX stated that `as PPI remains negative for over three years, China is still facing the risk of falling into deflation’.

Oil Prices Fall Again as U.S., Asia Demand Looks Set to Weaken

Oil Prices Dropped in Asian Trading

Oil prices dropped again in early Asian trading recently as traders speculated lowering refinery consumption after the US summer while the weakening economies of Asia and the high global production showed concern on the oversupply. The US crude futures had been trading at $41.84 a barrel each at 0014 GMT, which was around 3 cents below their last settlement and not more than six years low touched earlier this week.

Brent futures had been at $48.61 per barrel, down by 13 cents though the same is still some way from their 2015 low of $45.19. Both crude oil benchmarks have more than halved in value from the last year. They had rallied earlier in the year though are now almost a third below their last year rise in May.

Data have conveyed that several speculators have taken on large bets on further likely falls lying ahead. The reason for the change being twofold, one is the weak demand in several countries due to dull economic growth together with surging US production. Beside this is the fact that the oil association OPEC is unwavering in not cutting production as a way to prop up the prices.

Speculating Rise in U.S, Stockpile

According to ANZ bank it was commented that the `fundamentals suggest downside risk still tends to remain in key markets, especially iron ore and crude oil, in the months ahead’, speculating a rise in U.S. stockpile in the forthcoming months as refiners reduce operations for the purpose of maintenance as the summer driving season tends to come to an end thereby reducing the demand for US crude.

A subsidiary of Fitch Ratings, BMI Research had stated that the market could have an overshot to the downside, hoping in a modest recovery in the prices towards the fourth quarter. BMI Research analyst had commented that `the downward move had been largely speculative driven by the Iranian nuclear accord, economic uncertainties surrounding China and bearish re positioning in the futures market’.

Several oil traders have been positioning themselves to earn profit from an additional drop in U.S. prices. With regards to betting on further outright falls, the traders have become aggressive in taking up put options, an option which tends to sell a contract once the price begins to fall to a certain level, at a price as low as $35 and probably $30 a barrel.

Long-Term Outlook Seems to Remain Bearish

One broker had informed that the amount of queries that they had recently received with regards to leveraging bets on further price falls, have been quite surprising. Underlining the bearish sentiment, money managers as well as hedge funds cut their net long holdings of Brent crude futures for a fourth straight week, according to exchange data shown recently.

Long-term outlook also seemed to remain bearish with BMI Research guessing `oil prices probably to remain fixed till 2018’. They had stated that `the return of Iranian oil to the market, coupled with strong project pipelines in North America, the Middle East, West Africa and Kazakhstan would see global supply growth exceed the growth in global consumption for the next two years’. It was forecasted by the firm, that Brent would average to $56 and $55 in 2016 and 2017 respectively with U.S. crude averaging $53 in both the years.

The U.S. is pushing to reform the international postal treaty that subsidizes Chinese shipping

American e-Commerce Put at a Disadvantage – UPU

American e-commerce business has been put at a disadvantage for subsidizing shippers from developing countries like China, by the Universal Postal Union, a postal treaty where witnesses as well as legislators state, has created a rough playing field for international e-commerce, which is up for renegotiation in 2016.

A hearing was held on June 16th, by the Government Operations subcommittee of the House Oversight Committee that the committee Chairman, Mark Meadows considered as the start of a push for U.S reform strategy. Reported earlier by Fortune, the Universal Postal Union is considered a treaty organization which tends to set international postal standards, comprises of the terminal dues agreements between post-office.

Congressman Meadows, in his opening statements, branded the terminal dues system as `trade distortion’ that had left thousands of the small businesses of Americans at a disadvantage. This was due to the system favouring shippers from countries that included China, which is considered as `developing’ country.Meadows suggested a question for the committee on how the situation could be improved wherein some were offered by the witnesses, which represented the Amazon, FedEx, State Department and USPS.

Negotiating Rights Taken from U.S. Postal Services 

SinceCongress took the negotiating rights away from the U.S. Postal Service and gave the lead to the State Department in 2006, U.S reform efforts have made little progress. Presently the State lead negotiator at the UPU, Robert Faucher, defended the progress that was made while at the same time clarified that the UPU is a very slow moving organization and dependent on an extensive one-country, one-vote Congress, which is held once in every four years.

Head of regulatory affairs for FedEx, Nancy Sparks, claimed that lethargy seems to be the source of the UPU’s deteriorating discrepancies. She stated that the tradition of the UPU is that the haves tend to pay the have-nots and what brings this problem up is that the have-nots suddenly have a lot.

Sparks further pointed that time seems to be short for U.S. game plan ahead of next year’s UPU Congress where the rules could be amended. `September 2016, in UPU time, is a heartbeat away’

Specific Goal – 2016 UPU Congress – Establish UPU Task Force

Faucher refrained from offering a timetable for meaningful terminal dues reform when he was compelledby representative Meadows. He stated that the `State Department’s most specific goal at the 2016 UPU Congress would be to establish a UPU task force to explore fundamental reforms’.

Proposals similar to these had been put forward by the U.S. at earlier congresses though were not successful.Essential approaches were also offered by Paul Misener, Amazon representative who called for the U.S. in making postal rates part of larger diplomatic negotiations with China. He further added that the UPU seems to be an imbalance which makes no sense to Amazon and that they are on the look-out for the whole ecosystem.

Insignificance of the problem could make it difficult to meet that type of political stress and most of the committee members commented that before the hearing they were ignorant of the facts. However, as per Congressman Meadows, this seemed to be just the beginning who commented that this would not be the last hearing, since they were going to look for real results.

Interest Rates Could Stay 'Glued' to the Floor, Admits Bank's Chief Economist

Photo: CHRISTOPHER PLEDGER

Interest Rates Remain Glued to the Floor – Andy Haldane-Chief Economist

Reports have come in from the Bank of England’s chief economist, that the interest rates would remain glued to the floor for the instant future. It has been stated by Andy Haldane who sits on the Bank’s committee of interest rate setter that inspite of strong attempts in dislodging them; rates tend to remain stuck at unprecedentedly low levels across major economies.Presently the financial markets are speculating that the UK rates would rise from their lows of 0.5pc to around 2,5pc ten years from now which according to Mr Haldane implies an extraordinarily slow pace of monetary tightening at least by historical standards.

He suggested that policymakers, in trying too hard to raise rates would make the situation even worse, but on the contrary with in due course, they could come free of their own accord. He further stated that it is one reason why the glue holding interest rates to their floor has stayed so strong and feels no immediate need to loosen that glue.Mr Haldane has earlier considered himself as one of the Bank’s most dovish interest rate setters, indicated that he would prefer rates to be lower, instead of being higher. He comments that the Bank should be prepared to cut interest rates if it looks like low inflation and tends to become entrenched in the UK.

Interpreted Downward Drift as Evidence of Secular Stagnation

He has said that the glue holding rates low is remarkably resilient and could have been aggravated by deficient western investment together with additional savings in the east. While in conversation with Milton Keynes, Haldane has stated that `some have interpreted their downward drift as evidence of secular stagnation’, which is a concept that economies tend will grow slowly than in the past and this fear is an echo of concerns raised after the Great Depression. Consumers and businesses now are concerned that what is a reasonable recovery may not be permanent. Consumers are pleased that their glass is now less than half empty but they are no more willing to drink it and this cautious behaviour is to a degree, mirrored also among companies’.

Wage Growth Causing Fluttering 

Inspite of encouraging signs of wage growth during the year right up to April, together with rise in pay with its fastest pace from the time of the crisis, Mr Haldane had cautioned using the phrase `one swallow does not a summer make’. Analysts had informed that the pay growth could be even stronger after accounting changes in the UK’s workforce like the changing mix of employee ages, occupation and job tenures.

However, Mr Haldane has criticized the idea stating that `the wage growth is causing some fluttering though not in this dovecote’. It is now a matter of time to wait and watch for the outcome of the prevailing scenario on the interest rates in the near future.

India's May Month Iran Oil Imports Hit Highest Since March 2014

India’s Import – Increased to Highest Level – May 2014

Last month, India’s imports of Iranian crude oil increased to its highest level since May 2014 as the refiners enhanced the purchase ahead of a final push by the international negotiator in order to reach a deal on Tehran’s doubtful nuclear program by the end of June.

The increase to a 14 month high just two months after India, dropped its import on crude from Iran to zero under the pressure of U.S. to limit the purchases of the Islamic republics’ oil.For the first time, India did not take any Iranian oil, in at least a decade in March this year. Several analysts state that the United States, Tehran, Britain, China, France, Germany and Russia would be reaching an agreement by or littler later after June 30 deadline for a deal, though the sanctions which have cut Iran’s oil exports to less than half of pre-2012 levels are probably not likely to be lifted till next year.

United States along with its five partners have approved a way of restoring U.N. sanctions on Iran should the country tend to break the terms of any future nuclear deal, clearing a major problem of an agreement ahead of the deadline, though there are several other issues that need to be resolved.

India – World’s Fourth Biggest Oil Consumer

India, being the world’s fourth biggest oil consumer and Tehran’s top consumer after China, had shipped in about 367,900 barrels per day-bpd in nine vessels of Iranian crude in May, up 39% over April, as per preliminary data from trade sources as well as a report compiled by Thomson Reuter Oil Research and Forecasts. The data also indicated that the May imports surged by two-thirds from last year.

Between January to May, India had taken 203,100 bpd from Iran which is about 33% less oil than in the same period of last year, since the nations’ refiners had cut imports in the first quarter. This was to maintain the overall imports from the OPEC producers to a 2013/14 level of around 220,000 bpd. Private refiner Essar Oil was the biggest Indian client of Iran in 2014 which was followed by Mangalore Refinery and Petrochemicals Ltd and India Oil Corp.

Iran – Nuclear Programme – Peaceful/Rejects Accusations

The data also indicated Iran’s biggest Indian client in May which was Mangalore Refinery and Petrochemical Ltd – MRPL.NS that shipped in around 207,400 bpd from Iran. Purchases had been stepped up in May ahead of a three month shutdown by MRPL, during the coming monsoon season of a one point mooring site which enabled it to import oil in large crude carrier, according to a source.

The data also revealed that Indian Oil Corp. – IOC.NS, the country’s largest refiner, received around a million barrels of Iranian oil in May. The data also showed that India’s Iran oil imports surged by 43% to 316,800 bpd, in the first two months of the fiscal year being in April.

According to Iran, it states that its nuclear programme tends to be peaceful and rejects accusations from the Western countries that it wants the possibilities in producing atomic weapons. The data indicated that Iran was the seventh biggest oil supplier to India in 2014 and its share in the overall purchases rose to 7.3% last year when compared with 5.1% in 2013.

Money - Oil Prices Drop on Dollar, Oversupply

Oil Prices down – 3%

Oil price fell by nearly 3 percent recently as traders as well as investors disregarded a fifth straight weekly decline in U.S. crude stock piles and instead focused on big build in distillates which included diesel since the peak season for U.S. road travel gets under way. Core Gulf members of the Organization of the Petroleum Exporting Countries that pumps over a third of the world’s oil intend to have a consensus in maintaining the group’s oil output at the meeting held on Friday.

According to a senior Gulf OPEC sources has informed to Reuters. OPEC delegates informed Reuters in Vienna that `there is consensus among Gulf OPEC countries and others, to keep the –production, ceiling unchanged. Nobody wants to rock the boat.

The meeting is expected to be smooth sailing’. Dollar had gained about 0.4% against a few other currencies since the euro slipped, thus making fuel much more expensive to other currencies holder. Benchmark Brent crude oil for the month of July dropped $1.75 to a low of $63.74 prior to recovering a bit to around $63.90, down to about 2.5%, by 1010 GMT U.S. crude was $1.40 or 2.25% for $59.86 a barrel.

Analyst Gene McGillian – Market Down After Pairing Losses 

Brent had collapsed last year to almost $45 for a barrel in January from $115 last June pressing several oil producers in countries outside OPEC which included U.S. shale drillers as well. OPEC which pumps over a third of the world’s oil is likely to reject any calls for output cuts intending to produce around 2 million barrels per day beyond demand.

Crude stocks at Cushing, Oklahoma, delivery hub for U.S. oil fell also together with gasoline stocks. However distillate stockpiles including diesel and heating oil rose by 3.8 million barrels, which is four times the 1.1 million barrel build prediction.

According to analyst Gene McGillian of Tradition energy in Stamford, Connecticut, comments, `that he thinks the market came back down after pairing losses at first is telling of the sentiment that people don’t really think this is a very bullish report’. He is of the belief that consistent draws for gasoline and distillates would be an indication of demand. He added. `If not with refinery runs of above 93%, we could end up with a glut of refined products in storage rather than crude now’.

Future Seems Positive

Carsten Fritsch, analyst of Frankfurt based Commerzbank tends to agree stating that `a market that does not rally on falling inventories and a slumping U.S. dollar looks vulnerable to the downside’. Ali al-Naimi. Saudi Arabian Oil Minister stated in a conference organised by OPEC in Vienna recently that the group was `currently meeting global demand and does not see this changing.

In terms of the long-term energy outlook, the future looks very positive’, he added. OPEC, by pumping 2 million barrels per day which is more than needed is helping in filling oil inventories across the world and is keeping the price of oil for delivery now at a discount for future prices.

Some of the analysts are of the opinion that there seems to be a chance OPEC could increase its target on production soon. Barclay is said to have stated in a preview note of a recent meeting that `with heightened geopolitical risk threatening oil supplies in the Middle East and North Africa, it is highly unlikely that OPEC will reduce the quote, but an increase is possible’.