Baltic Dry Index. 1231 -73 Brent Crude 71.32
“China
is forced to respond to U.S. unilateralism and trade protectionism, and has no choice but to respond with its own
tariff.”
China
Finance Ministry. 18/9/18
The commemorations of
the 1918 Armistice ending the Great War over, that war being probably the biggest mistake of
the last century, we open the week pondering, what if anything, the oil price
collapse and a sinking Baltic Dry Index mean for the global economy.
To the perma-bull
stock pedlars, the oil price decline doesn’t mean anything at all. It’s merely
a reflection of President Trump’s U-turn on Iran by giving practically everyone
exemptions to carry on buying Iranian oil. Instantly turning expected oil scarcity
into a glut. Buy more!
To the stock market
perma-bears, it’s a sign that the global economy is slowing fast, under
pressure from rising interest rates and all the Trump trade war tariffs, with
more draconian tariffs set to start on January one.
I would buy the oil scarcity
to glut argument, were the Baltic Dry (shipping) Index not also signalling trouble
in the global economy. Whatever the Saudis do next month, we simply seem to
have too much supply to meet with global demand. To me it’s a growing demand problem, and that
probably means more trouble in the global economy still to come.
Below, a Santa Claus
year end rally, or will Santa Claus get a bad case of flu at the end of 2018?
Oil prices rise by more than 1 percent after Saudis announce December supply cut
November 12, 2018 / 1:32 AM
SINGAPORE
(Reuters) - Oil prices rose by more than one percent on Monday after top
exporter Saudi Arabia announced a December supply cut, a measure likely aimed
at halting a market slump that has seen crude decline by 20 percent since early
October.
Front-month Brent crude futures LCOc1, a benchmark for global oil
prices, were at $71.37 per barrel at 0531 GMT, up $1.19, or 1.7 percent, from
their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $60.87 per
barrel, up 68 cents, or 1.1 percent.
Saudi Arabia plans to reduce oil supply to world markets by 0.5 million
barrels per day (bpd) in December, its energy minister said on Sunday, as the
OPEC power faces uncertain prospects in getting other producers to agree to a
coordinated output cut.
Khalid al-Falih told reporters that Saudi Aramco’s customer nominations
would fall by 500,000 bpd in December versus November due to seasonal lower
demand. The cut represents a reduction in global oil supply of about 0.5
percent.
----- Peter Kiernan, lead energy analyst at the Economist Intelligence Unit in Singapore, said OPEC was “focused on mitigating downside risks” after crude prices declined by around 20 percent over a month following a supply surge, particularly from the top three producers the United States, Russia and Saudi Arabia.
“Saudi Arabia has stepped in front of the oil market bears, proactively
announcing they will reduce exports,” said Stephen Innes, head of trading for
Asia-Pacific at futures brokerage Oanda in Singapore.
A big concern for Saudi Arabia and other traditional producers from the
Middle East-dominated OPEC is the surge in U.S. output.
----
“One thing that is abundantly clear, OPEC is in for a shale shocker as U.S.
crude production increased to a record 11.6 million barrels per day and will
cross the 12 million threshold next year,” Innes said.
Asia stocks lower amid growth worries; oil rebounds
November 12, 2018 / 1:36 AM
SHANGHAI
(Reuters) - Asian shares drifted lower on Monday as signs of softening demand
in China rekindled anxiety about the outlook for world growth, but Saudi
Arabia’s plans to cut production helped to halt a slide in oil prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.07
percent, trimming earlier losses on a bounce in Chinese shares, but struggling
to break into positive territory.Australian shares added 0.13 percent, while
Japan’s Nikkei stock index gained 0.11 percent.
A combination of weak factory-gate inflation data in China and low oil
prices weighed on global stocks on Friday, dragging MSCI’s gauge of global
stocks to its worst day in two weeks. The index was last 0.09 percent lower.
Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets,
said there were genuine concerns from an equity market perspective about
China’s economic growth in general and its significant debt burden in
particular.
“There’s no way the economy can really can get back on a nice recovery
path unless they can seriously compress the debt significantly ... all this
deleveraging we’ve been talking about hasn’t really delivered any results,” he
said.
E-commerce giant Alibaba Group Holding Ltd added to the uncertain
outlook in China, recording the slowest-ever annual growth in sales for its
annual “Singles’ Day” event,.
Its sales outlook has weakened amid rising trade tensions between China
and the United States that have taken a bite out of China’s economy.
---- An index tracking consumer staples firms in China was 0.95 percent lower, even as the blue-chip CSI300 index rebounded from last week’s string of losses to gain 0.68 percent.
Risk asset markets have been under intense pressure of late as fears of
a peak in earnings growth added to anxiety about slowing global trade and
investment.
A spike in U.S. bond yields, driven by the Federal Reserve’s commitment
to keep raising borrowing costs, has also shaken emerging markets as investors
poured money into U.S. dollar assets.
The Dow Jones Industrial Average fell 0.77 percent on Friday, the
S&P 500 lost 0.92 percent and the Nasdaq Composite dropped 1.65 percent.
The yield on benchmark U.S. 10-year Treasury bonds closed at 3.189
percent on Friday.
More
What plunging oil prices may be telling us about the stock market and global economy
Published: Nov 11, 2018 11:30 a.m. ET
What the heck happened to oil prices? But more significantly, what does it
mean for the broader stock market and the global economy? That is what has some Wall Street investors scratching their noggins, as crude futures and U.S. stocks staged a tandem tumble this week, just when investors thought the worst was over following a bruising October for risk assets.
Now, oil futures are unraveling, down at least 20% after putting in a 52-week high early last month. And it isn’t so much the descent into bear-market territory—as the recent slump for crude can be characterized—as it is the celerity of the selloff that has market participants unsettled.
About five weeks: That’s all it took for bulls to pivot from cavalierly pondering if $100-a-barrel oil was a genuine possibility before the end of 2018 on the back of Iranian oil export sanctions imposed by the U.S. on Nov. 4, to wondering how ugly the current implosion in black gold could get before finding a bottom.
On Friday, West Texas Intermediate crude for December delivery CLZ8, +0.96% lost 48 cents, or 0.8%, to settle at $60.19 a barrel on the New York Mercantile Exchange, for the lowest front-month contract settlement since March 8, according to FactSet data. Prices lost 4.7% for the week, tallying their fifth straight weekly drop. The 10th session decline in a row matched the longest skid since 1984.
---- That is the query that Yves Lamoureux, president of macroeconomic research firm Lamoureux & Co., posed to MarketWatch via email last week as the decline in oil was gaining steam.
“Very large monthly down moves in crude oil has often heralded something more ominous,” he wrote on Nov. 1. “Most market observers think there is enough damage to see a bottom in stocks.
Consensus therefore looks for new record highs or a solid bounce back. We strongly disagree with this perspective.”
But here’s the thing to know as it pertains to oil: the commodity has often been used as a gauge of economic health. Oil prices in a basic sense can function as the lifeblood of a well-functioning global market.
However, few market participants that MarketWatch have spoken with
believe that crude’s current downturn is a reflection of global economic
weakness and precursor of something more pernicious to come, like a recession.
“I think the drop in oil has more to do with the 1 million barrels worth
of Iranian oil which wasn’t expected to be in the market, but now needs to be
factored into the supply equation, because so many waivers were granted
allowing firms to buy Iranian oil after all,” said Chris Zaccarelli,
chief investment officer, at Independent Advisor Alliance. He’s
referring to waivers granted to eight big importers of oil, including China,
that may have capsized investors’ expectations for more damaging disruptions
from sanctions against Tehran.
In other words, the decline in oil has been precipitated by a glut of
supply that isn’t expected to be matched by demand, when the opposite had been
expected just a few weeks ago.
More
Election over, investors are back on inflation watch and feeling a little spooked
By Jeffry
Bartash Published: Nov 10, 2018
12:01 p.m. ET
The results of a superheated 2018 election didn’t bother Wall Street much,
but oh, just a whiff of inflation sure did.U.S. stocks surged after voters divided power in Congress between Democrats and Republicans. But the Dow Jones Industrial Average DJIA, -0.77% and S&P 500 SPX, -0.92% tumbled toward the end of last week, especially after wholesale inflation showed the biggest gain in six years.
The increase was driven by higher gas prices and rising costs for industrial supplies, perhaps a byproduct of Trump administration tariffs on steel and other foreign goods
Markets could get another jolt this week after the latest read on
inflation at the household level. The consumer price index, out Wednesday, is
also forecast to increase sharply in October.
Higher inflation means higher interest rates, and eventually, slower
economic growth.
That’s in the future, though.
For one thing, the spike in inflation in October could ease as soon as
this month. The price of oil — a hugh influence on inflation — has plunged
below $60 after topping $76 a barrel in early October. That decline will soon
show up in the inflation numbers.
“With oil in a bear market now, it’s safe to assume relief is in store
in November and December,” said chief economist Chris Low of FTN Financial.
The
economy, meanwhile, is still growing rapidly, if not quite as fast as in the
spring and summer. Economists surveyed by MarketWatch predict gross domestic
product — the official measuring stick — will slow to 2.7% in the final three
months of the year from the third quarter’s 3.5% and the second quarter’s 4.2%.
The chief reason? Consumers can’t keep spending more than they are
earning, as they’ve been doing since the spring.
“Consumer spending gains tend to closely track income growth over the
long term. In other words, people largely spend what they earn,” noted Scott
Anderson, chief economist of Bank of the West.
More
Interest rates are the most important prices
in the economy, according to Nobel laureate F.A. Hayek, because they reflect
the collective time preference of individuals to consume either now or later.
Accordingly, interest rates co-ordinate allocation of capital across the
economy by signalling to businesses whether they should invest. Distortions in
interest rates can cause “clusters of errors” in which large swathes of
businesses unwittingly miscalculate at the same time.
Caitlin Long is head of Corporate Strategy,
Capital Markets at Morgan Stanley.
Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.
In trade war news, rising
concern that China’s economy is slowing.
China says will further open up its economy, slams rising protectionism
November 12, 2018 / 5:43 AM
SINGAPORE (Reuters) - Chinese Premier Li
Keqiang said on Monday Beijing will further open up its economy in the face of
rising protectionism, as he headed for meetings with Asia-Pacific leaders in
Singapore that are expected to focus on trade tensions.
Li’s remarks in an article in Singapore’s Straits Times newspaper, ahead
of his arrival in the city-state later in the day, came as Singapore’s Prime
Minister Lee Hsien Loong called for more regional integration, saying
multilateralism was under threat from political pressures.
“China has opened its door to the world; we will never close it but open
it even wider,” Li said in the article, in which he called for an “open world
economy” in the face of “rising protectionism and unilateralism”. He did not
directly refer to China’s bruising trade war with the United States.
Notably absent from this week’s meetings is U.S. President Donald Trump,
who has said several existing multilateral trade deals are unfair, and has
railed against China over intellectual property theft, entry barriers to U.S.
businesses and a gaping trade deficit.
Vice President Mike Pence will attend instead of Trump, and Russian
President Vladimir Putin, Indian Prime Minister Narendra Modi and Japanese
Prime Minister Shinzo Abe are among those also expected to join Li and the
ten-member member Association of Southeast Asian Nations (ASEAN).
It was not clear if Li and Pence will hold separate talks on the
sidelines of the meetings, which would be a prelude to a summit scheduled
between Trump and Chinese President Xi Jinping at the end of the month in
Buenos Aires.
The encounter, if it happens, would come on the heels of high-level
talks in Washington where the two sides aired their main differences but
appeared to attempt controlling the damage to relations that has worsened with
tit-for-tat tariffs in recent months. [nL2N1XK1G9]
Meanwhile, in remarks at a business summit on Monday ahead of this
week’s meetings, Singapore PM Lee said:
“ASEAN has great potential, but fully realising it depends on whether we
choose to become more integrated, and work resolutely towards this goal in a
world where multilateralism is fraying under political pressures”.
Lee has previously warned that the U.S.-China trade war could have a
“big, negative impact” on Singapore, and the city-state’s central bank has
warned it could soon drag on the economy.
More
Hayek observed that “clusters of errors”
tended to happen after monetary stimulus sparked an investment boom. When boom
turned to bust he urged quick recognition of losses to free capital trapped in
bad investments so markets could redeploy it to better uses. Any further rounds
of monetary stimulus to cushion the bust would only prolong the inevitable
adjustment and distort economic calculation anew.
Caitlin Long is head of Corporate Strategy,
Capital Markets at Morgan Stanley.
Technology Update.
With events happening fast in the
development of solar power and graphene, I’ve added this section. Updates as
they get reported. Is converting sunlight to usable cheap AC or DC energy
mankind’s future from the 21st century onwards?
Transforming carbon dioxide into industrial fuels
Date:
November 8, 2018
Source:
Harvard University
Summary:
One day in the not-too-distant future, the gases coming from power plants and
heavy industry, rather than spewing into the atmosphere, could be captured and
chemically transformed from greenhouse gases like carbon dioxide into
industrial fuels or chemicals thanks to a new system that can use renewable
electricity to reduce carbon dioxide into carbon monoxide -- a key commodity
used in a number of industrial processes.
Imagine a day when -- rather than being spewed into the atmosphere --
the gases coming from power plants and heavy industry are instead captured and
fed into catalytic reactors that chemically transform greenhouse gases like
carbon dioxide into industrial fuels or chemicals and that emit only oxygen.
It's a future that Haotian Wang says may be closer than many realize.
A Fellow at the Rowland Institute at Harvard, Wang and colleagues have
developed an improved system to use renewable electricity to reduce carbon
dioxide into carbon monoxide -- a key commodity used in a number of industrial
processes. The system is described in a November 8 paper published in Joule,
a newly launched sister journal of Cell press.
"The most promising idea may be to connect these devices with
coal-fired power plants or other industry that produces a lot of CO2,"
Wang said. "About 20 percent of those gases are CO2, so if you
can pump them into this cell...and combine it with clean electricity, then we
can potentially produce useful chemicals out of these wastes in a sustainable
way, and even close part of that CO2 cycle."
The new system, Wang said, represents a dramatic step forward from the
one he and colleagues first described in a 2017 paper in Chem.
Where that old system was barely the size of a cell phone and relied on
two electrolyte-filled chambers, each of which held an electrode, the new
system is cheaper and relies on high concentrations of CO2 gas and
water vapor to operate more efficiently -- just one 10-by-10-centimeter cell,
Wang said, can produce as much as four liters of CO per hour.
The new system, Wang said, addresses the two main challenges -- cost and
scalability -- that were seen as limiting the initial approach.
"In that earlier work, we had discovered the single nickel-atom
catalysts which are very selective for reducing CO2 to CO...but one
of the challenges we faced was that the materials were expensive to
synthesize," Wang said. "The support we were using to anchor single
nickel atoms was based on graphene, which made it very difficult to scale up if
you wanted to produce it at gram or even kilogram scale for practical use in
the future."
To address that problem, he said, his team turned to a commercial
product that's thousands of times cheaper than graphene as an alternative
support -- carbon black.
Using a process similar to electrostatic attraction, Wang and colleagues
are able to absorb single nickel atoms (positively charged) into defects
(negatively charged) in carbon black nanoparticles, with the resulting material
being both low-cost and highly selective for CO2 reduction.
"Right now, the best we can produce is grams, but previously we
could only produce milligrams per batch," Wang said. "But this is
only limited by the synthesis equipment we have; if you had a larger tank, you
could make kilograms or even tons of this catalyst."
More
Where might the costs of the current loose
money show up over time? It is impossible to predict with certainty. But low
interest rates for a longer period increase the likelihood that businesses will
miscalculate. Early signs of an investment recovery are showing up in such
long-term businesses as industrial and transportation equipment and machinery.
We will soon find out whether this recovery is real or the beginning of another
bubble.
Caitlin Long is head of Corporate Strategy,
Capital Markets at Morgan Stanley.
The monthly Coppock Indicators finished October.
DJIA: 25,116 +176 Down. NASDAQ:
7,306 +232 Down. SP500: 2,712 +146 Down. All three slow indexes went sharply down in
October, suggesting there’s more of the correction to come.
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