December 10th, 2014
VOICE OF DOLLARS
The stock market had its worst day in 27 years on Tuesday. A Greek default and a Euro exit may be back on the table. With austerity measures comes public discontent, and then the voting in of anti-capitalistic governments who scare away investors.
The drop saw 9.7% drop in the market, as the far left-party Syriza who currently lead early polls want an end to austerity measures in Greece and have been campaigning for market-unfriendly measures.
How far will oil drop? Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in the Organization of Petroleum Exporting Countries, said an expert in Iran’s oil ministry. OPEC, a 12 member group, which supplies 40% of the world’s oil, may need to call a meeting in Q1 if the drop continues.
Saudi Arabia has hinted that the first production cuts in support of the price are going to have to come from somewhere else, as in, the US. It is widely assumed OPEC would need to cut output by between 1 and 1.5 million barrels per day to normalize the price.
The highest-cost products of Oil are suffering, like oilsands in Alberta, Artic exploration, deep-water drilling in Brazil and poorer members of OPEC like Venezuela, Nigeria and Iran. It also puts the Russian ruble under pressure as over 50% of government revenue is derived from oil there.
Consumer prices in China eased to a five-year low in November, down from 1.6% in October to 1.4% in November. That’s the lowest since November 2009. To some observers this suggests weakness in the Asian economic giant. The slowdown in China’s economy can be seen in last month’s unexpected cut of interest rates for the first time in more than two years to spur activity. Still China’s annual growth target remains at 7.5%. China is the world’s largest copper consumer, accounting for nearly 40% of the world’s consumption last year.
Trend to Watch 2015
- Some think China is vulnerable, creating recessionary headwinds for the emerging world
- Eurozone may be on the verge of a deflationary collapse
- Will the European curve go into negative territory?
- How will emerging world fair? Growth in emerging world was 7% in 2010 and in 2011 but is now down to just 4.4%
- China used to have a balance of payments surplus of over 10% of GDP; the surplus is now down to only 2%
- Will Chinese growth fall sharply?
- If China growth slows to 4-6%, global implications would include much lower commodity prices, a loss of trade momentum, downward shocks to equity markets and broader discomfort for the financial system.
- Some observers note, only India of the BRIC quartet of emerging markets still is exciting.
- Emerging markets will have to undergo continued structural reform
- Will US hamper recovery by premature tightening?
- High US interest rates could trigger upheaval in some emerging markets
- So will other economies effectively drag the US back down? If that happens, US growth and inflation could take a tumble.
- What if the US dollar becomes too strong? Severe greenback gains may in 2015 come to represents a collapse in confidence of monetary regimes elsewhere than the US.
Canada’s 3 Pillars
Oil, bank and raw-materials are all down in Canada for the first time since at least 1988, giving rise to concern that our economy is fading just as the US is showing strong economic signs. The three industries, which collectively account for two-thirds of the standard & Poor’s/TSX Composite Index, saw the biggest one day retreat since June 2013.
The TSX closed down 329.53 points on Monday, or 2.28% to 14,144, the biggest decline in energy and financial stocks. Some observers are saying, “it looks like Canada is going to be back to being one of the global punching bags.” The 40% drop in Canadian oil in prices is thought to be costing Canada’s oil-rich provinces billions in lost revenue.
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VOICE OF DOLLARS
This feature is a thread on the Blog that discusses financial news.