Oil Prices Fall As Production Freeze Expectation Fades

Oil Prices Dropped – Oversupply/Decline Expectation of Production Freeze

Oil prices had dropped on Thursday while market concentrated on oversupply and declining expectation of a production freeze. Global crude oil benchmark Brent had been down by 10 cents at $48.95 per barrel by 1230 GMT after closing down at 1.8% on Wednesday and U.S. light crude oil fell by 15 cents at $46.62 a barrel, after slipping by 2.8% on Wednesday.

In the first three weeks of August the oil prices had increased over 20% on talk of a probable deal by oil exporters to freeze production levels in an attempt to support prices. On September 26-28, members of the Organization of the Petroleum Exporting Countries would be meeting on the side-lines of the International Energy Forum, with groups and consumers in Algeria.

There are rumours that the meeting would agree to some kind of output curbs when similar attempts for production freeze had failed in April. Expectations however of a deal have been restrained by the record of OPEC output where some analysts envisage the vision of voluntary restrictions. Senior oil analyst at Commerzbank in Frankfurt, Carsten Fritsch, states that speculators pressed the price up expecting an output freeze that is doubtful to take place and perceives downside risk if the expectations are being scaled back.

Effects Minimal on Physical Market

U.S. investment bank Jefferies approved informing clients recently that even if a freeze had been agreed, the effects would seem to be minimal on the physical market. It was mentioned in a report that they did not expect a production freeze, let alone a production cut from the OPEC meeting.

With the output reaching almost record levels from several of the top producers and the demand unsteady, there seems to be little vision to the end of the surplus which had pulled down the prices of crude from more than $100 per barrel in 2014 to their present sub-$50 stages.

High storage levels too seemed to be weighing on the market. Commercial crude oil stocks, in the United States had increased by 2.5 million barrels to 523.6 million barrels, higher by 16% than a year ago.

Stocks across the world, with regards to refined products also brimmed as the demand slowed while refinery output seemed to stay high. BNP Paribas has commented that `ample inventories were due to weaker demand in Asia though more generally were driven by excess supply generated by refiners maximising runs, notably to produce gasoline in the U.S.’.

China’s Indirect Demand of Oil Dropped

According to Reuters’ calculations utilising official data, the indirect demand of oil of China had dropped by 0.3% from a year earlier to 10.58 million barrels a day in July.

After Saudi Energy Minister Khalid Al-Falih had informed Reuters that oil had paired some gains, he was of the belief that any substantial oil market intervention would be essential as the demand for crude would be picking up well around the world. He informs that there has been no discussion of substance still on the production levels of OPEC.

His comments strengthened the belief of several market participants which the September meeting would not resort to any production curbs particularly with the recent data portraying the Saudis and fellow OPEC member Iran were driving as much as they could.

Weak oil prices pull Wall Street away from record levels

U.S. Stock Indexes Move Back – Drop in Oil Prices

Stock indexes of U.S. moved back from its record levels due to drop in oil prices which overstretched energy stocks. The prices of oil dropped by 1.6% in cutting trading after the reports of the U.S. government of a surprise crude stockpile build. The energy index of S&P 500 fell by 0.9% and Exxon Mobil – XOM.N 1.5% drop was the top strain on the S&P 500 and the Dow. Since late June, a rally has left the S&P to almost 7% in 2016 as prospects of constant low interest rates motivated investors in buying into U.S. equities. The standard index this month had hit four record intraday highs.

 Regional investment director for The Private Client Reserve of U.S. Bank, Tim Dreiling had stated that once they had seen the new inventories, it certainly moved energy far lower dragging almost everything down.He further added that to grind higher, earnings improvements needed to be seen and that would come from economic improvement. The industrial average of Dow Jones – DJI had declined by 0.2% to finish at 18,495.66 points while the S&P 500 .SPX lost 0.29% to 2,175.49 points. The NASDAQ Composite .IXIC had dropped by 0.4% to 5,204.59.

Trading Volume – Lack of Market-Moving Information

Out of the 10 major S&P 500 index, six were lesser. Due tolack of market-moving information in a traditionally low-volume season, trading volume had been low. Around 5.92 billion shares had changed hands on the U.S. exchanges when compared to the 6.45 billion regular averages for the last 20 meetings. The shares of Walt Disney – DIS.N had ascended by 1.23% after the company recently had informedthe results which beat estimates stating that it is purchasing a 33% stake in video-streaming firm BAMTech. The stock offered the biggest increase to the S&P 500 and the Dow.

SunPower shares had fallen by 30% after the company had fluctuated to a second quarter loss, lowering its full year revenue prediction, stating that it would restructure its business. Perrigo dropped 11% to $85.06 after the company had reported a lower than expected earnings and dropped its remunerations forecast. JD.com soared to 8.6% to $24.28 after the company had stated the revenue within its forecast. The stock had given the biggest increase to NASDAQ. Weakening matters outstripped progressing ones on the NYSE by 1,610 to 1,259 and on NASDAQ; the issues dropped by 1,798 and advanced by 924.

Low Volume Could Skew Market in Any Direction

The S&P 500 index portrayed 18 new 52-week highs together with two new lows though the NASDAQ verified 61 new highs and 28 new lows. Market strategist at Prudential Financial, Quincy Krosby had stated that low volume was fairly standard at that time of the year and August seems to be a very irregular month and if one has low volumes, it could skew the market in any direction and that is what we have today. The trading volumes had been near year low since Monday as the second-quarter earnings seasons tends to wind down. Dollar index had slipped for the second straight day as weak U.S. productivity data on Tuesday dimming a bit the prospects of economic growth which would probably discourage the Federal Reserve from increasing the interest rates.

5 Technologies That Can Change Stock Markets Forever

Improved Insight on Risk Undertaken

Disturbance in digital system has been making the financial markets more apparent, reachable and efficient. Besides this it also tends to help the regulators in getting an improved insight on the risks which the applicants may seem to undertake. The following technologies could transform the financial markets in the forthcoming days:

Artificial intelligence and natural language processing 

Several of the financial companies are adopting algorithms in doing the tasks which humans have been performing for years. Mechanism learning systems have been enhanced considerably and with expanding processor potentials at lower cost, these systems are made available for larger usage. The techniques for artificial intelligence enable the system to learn from user connections as well as patterns without the need of being openly programmed for the same.

Machine learning together with other artificial intelligence technologies, in the past few years, has provided us with self-driving cars, real-world speech recognition, chess champions as well as more related as well as realistic web-searches. With regards to financial markets, we have software analysing voice patterns of recorded calls at investment banks, brokerages and on the client side too which could instantly distinguish irregularities and frauds, It can also look at keywords, decode conversational encryption of information and achieve difficult searches on the recordings.

Robo Advisers 

From the present situation, there could be probabilities that we would be seeing the last few Wolves of Wall Street and Dalal Street and moving ahead we may have only robots of Wall Street and Dalal Street. Though the systems hasprogressed in grasping the monetary goals, risk profiles together with the other complex details of investment to come up with personalised investment portfolio, it could alter funds, book profits or square off position depending on self-learning processes. The platform could be either for web-based and/or smartphone based, thus enabling easy access or adapt.This is said to be self-operated without the need of the user talking to a live person. Compared to a human advisor who tends to charge a portfolio management fee, the services here are rendered at no recurring expense.

Quantum `sealed envelope’

Outrages centred on information theft have often been a nightmare for performers in financial markets. Till now, hackers have somehow achieved to stay ahead of security programs as well as passwords though it could change very soon. A team of researchers inGeneva, Singapore, Cambridge and Waterloo and Ontario had utilised the breakthroughspeculative work co-authored by Dr Adrian Kent from University of Cambridge’s Department of Applied Mathematics and Theoretical Physics in providing `unconditionally guaranteed’ security as well as purity of message transferred from any two points on earth. Earlier trials using these digital `sealed envelopes’ is said to be successful and if all goes well, the monetary markets would be entirelysecured against any threat of statistics invasion.

Bitcoin and Blockchain technologies 

The distributed ledger, Blockchain technology after the virtual currency Bitcoin, tends to record the financial transaction of any digital interaction in secured, transparent, traceable and in an efficient manner. So it is appropriate in providing a universal virtual currency as well as for digital accounting and auditing financial transaction of any kind. The possibility of Blockchain technology is understood from the fact that 30 of the largest banks in the world had recently formed a global consortium to research, design and build Blockchain solutions further. Besides this, the Reserve Bank of India – RBI that had issued a cautionary note in 2013, against Bitcoin had changed its stance. The Indian central bank is now of the belief that the Blockchain technology could be helpful in the prevention of counterfeiting currency as well as financial transactions.

Big data and analytics 

Financial markets tend to generate enormous amount of data each second. Storing and analysing these details on real time basis could be critical. With a combination of private as well as public cloud tends to resolve the issue of storage as well as real-time access to this multitude of data at reasonable charges. Big data analytics tend to make it likely to highlight correlations which seem incredible for humans to locate. For instance, envisage a situation where 90% of orders that are positioned on NSE and BSE through high-frequency algorithmic dealing platforms tend to abruptly get cancelled within a span of less than 30 seconds.

 A human may never have known such trends with so much accuracy; RBI had highlighted this trend last year and alerted the market regarding it. Such kind of analysis could never be done without leveraging technology for big data scrutiny. There could also be software which could analyse thousands of social media feeds regarding the sentiments and news of a company and could try to forecast future as well as probable sentiments regarding the company. These visions could change the way institutional as well as retail investor trade in the market. Though some of these technologies could be in its initial stage of development and may need substantial enhancement together with market interest, the base has been set for digital alteration.

The Brexit Effect -What’s next for Markets

Britain’s Vote – European Union Likely to Disturb British/European Economies

Mentioning that Brexit vote on June 23 which had taken the financial market unaware could be an understatement and the pound, British stocks as well as the Gilt yields had mounted sharply in the week which lead up to the vote but crashed once the results began coming in.

Generally speaking, strategists on Credit Suisse’s Global Markets and Investment Solutions and Products (IS&P) teams anticipate markets to stay volatile in the forthcoming days and for the investors to favour safe assets to the uncertain ones.

 Some of the views have been highlighted from across the bank on how Britain’s referendum vote leaving the European Union is likely to disturb the British as well as the European economies and a broad range of financial resources.

The Economic Impact

The Credit Suisse’s Global Markets and IS&P team are of the belief that the Brexit vote would be creating a considerable amount of uncertainty for British businesses which would eventually lead to a weakening in GDP. Both the teams also tend to believe that the Bank of England would step in with cuts in rate.

Moreover, the Global Markets team believes that the Bank of England to cut rates from 0.5% to 0.05% and had another round of measurable easing to the tune of £ 75 billion which would not be later than August 2016.

Credit Suisse’s Chief Investment Officer for International Wealth Management, Michael O’Sullivan, pointed out that the central banks all over the work seems to be on alert to step in, ensuring that their own banking systems tend to have sufficient liquidity. Besides weak corporate spending, Global Markets economists anticipate growing inflation as well as the decline of the British pound to squeeze household expenditure.

Accordingly, they predicted that GDP would fall 1% between the third quarter of 2016 and the first quarter of 2016 which would have lessened their growth predictions for 2016 from 1.8% to 1% and the 2017 growth predictions from 2.3% to 1%.

Significant Slowdown in Growth

The analysts of Credit Suisse’ IS&P also expect a significant slowdown in growth and the teams contemplate it possible that the deteriorating value of the pound would be causing a front-page inflation to spike. The Global Markets team also seem to anticipate an impediment to the recent pickup in corporate spending especially in Europe together with the tightening of financial conditions.

The economists of the team had dropped their European GDP growth expectations from 1.7% to 1.5% in 2016 and from 2% to 1% in 2017. Credit Suisse’s IS&P team are of the belief that the Eurozone would not be following the U.K. into depression unless the Brexit vote ends in severe financial infection to peripheral economies like Italy. However, the analysts on the team envisage this as a tail risk. The IS&P team are of the belief that the European

Central Bank would lengthen its quantitative easing program whereas the Global Markets team consider that there is a possibility with added easing through the prevailing TLTRO program offering low-interest funding to commercial banks.Credit Suisse’s Investment Committee has downgraded European stocks to neutral as well as British stocks to drift whereas the U.S. stocks to neutral. Moreover strategists of Credit Suisse’s Global Markets had shifted their year-end goals from 6,600 to 6,200 on the FTSE 100, 2,150 to 2,000 on the S&P 500 and on the Eurostoxx 50, from 3,350 to 2,950.

Bank of England Warns Property is a Key Risk to Economy

Bank of England Cautions – Commercial Property Main Key to Economy

The Bank of England has cautioned that commercial property would be the main key to the economy after the Brexit vote. The main concern is that the market from warehouses to office space to retail parks with regards to commercial property is deep distress. Foreign investors, who have purchased commercial property, have made around 45% of all commercial property bought and sold since 2009. The inflow of money to UK seemed to slow down, even before the Brexit vote and dropped by 50% during the first quarter of 2016.

A warning had been given by The Financial Policy Committee that `valuations in some sections of the market, particularly the prime London market had become stretched’. The Financial Stability Report of the Bank points that the real estate investment trust share prices had dropped severely and cautioned about the risk of `future marked adjustment in commercial real estate prices’. According to the translation from Bank of England, there is a risk that commercial property prices may crash.

Considerable amount of most of the valuable prime London commercial property is said to be in the City where some of the foreign investors like banks and investment manager have a

ssisted in financing a powerful and constant session of construction, which have been symbolised by iconic buildings with nicknames like the Gherkin, the Cheese-grater or the Walkie Talkie

Inflows of Foreign Investment in British Companies – Slowed Down

Since 1980, the UK had earned abroad, extremely less selling goods and services than it had spent on imports thus developing a current account deficit. Roughly there was more money going out than coming in. For years it was compensated by attracting money to the UK in two ways.

The first way was that foreign investors had been willing to buy shares in UK companies and lending money to their government. The second was, the foreign companies had been ready in investing directly for instance, constructing new buildings in the City of London or in investing in business such as Jaguar Land Rover in order to turn it into success.

The report of the FPC had stated that all inflows of foreign investment in British companies had slowed down in the approach to the referendum.

Investors’ Belief – Risk in Investing in UK Companies

Investors are now of the belief that they will be taking a risk in investing in UK companies, that are reproduced in share prices, the biggest two-day slip in the value of sterling in more than forty years.There have been some reassuring words in the report. The banks for instance have been stress examined against scenario where the commercial property drops by 30% and residential by 35% with severe recession.Banks tend to have high quality liquid assets of £600bn like shares in top companies, government cash and bonds.

They could endure losses which were double as those undergone in the 2008 crisis without falling short of money. With that security, the Bank of England ruled on that the banks did not need to build up £150bn as a `counter-cyclical capital buffer’. The counter-cyclical buffer is just cash that is kept aside in good times so that it can be made available when the down-swing occurs