World economy talk

[Lady Bathory]

The oil market dominated headlines as OPEC decided not to cut production. Oil prices fell and the decline was made worse by an illiquid market due to U.S. Thanksgiving holiday. The U.S. dollar is up against the entire G10 complex. Yesterday USDJPY fell below 117.50 but encountered strong support near 117.00. I expect dollar bulls to continue to support USDJPY and hold it above 118.

[Lady Bathory]

Slowing demand and excess supply caused oil prices to crash. The cost of producing oil varies widely across the world. When oil prices remain too low for too long some projects become unprofitable and it makes sense for companies to shut down production. As the saying goes in the commodities market: the cure for low prices is low prices. Cutting production reduces supply. When supply falls below demand prices will rise again. High oil prices made U.S. shale projects possible. The breakeven level in North Dakota's Bakken is around $69/barrel and Texas' Permian Basin is around $68. If WTI remains around $70 for more than 6 months oil production will slow and funding will tighten. Low oil prices raise the risk of future price shocks. The lower prices fall and the longer prices remain low the greater the impact. Prolonged low oil prices will stimulate demand and at the same time reduce supply as investment in oil projects diminish. That will create a price shock as supply cannot return quickly. Projects that have been shut down cannot be restarted with a flip of a switch.

[Lady Bathory]

There's already a massive selloff in U.S. oil and gas stocks. If oil prices persist at current levels for several months, the Saudis will achieve their objective of hurting North American oil production. Below is a chart of the ETF XOP. XOP corresponds to the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

[Lady Bathory]

Some more thoughts on oil. Saudi Arabia will lose market share if they cut production. Other oil producers will simply benefit as they can sell at higher prices at the same time gain more customers. In other words, a Saudi production cut is a gift to other oil producers. By maintaining current levels of production, Saudi Arabia is protecting its market share at the same time squeezing its competitors. High oil prices encouraged investment in fracking. Sustained low oil prices will discourage further investment which will guarantee demand for Saudi oil in the future.

[A121]

With Brent breaking below USD 60 and WTI nearing USD 50, countries dependent on crude exports see their stock markets crash and the currencies devalue...

Naglalason na naman si Russia. It might trigger another economic crisis like the one that happened in 1998.

[Lady Bathory]

The Fed removed the “considerable time” phrase and replaced it with the idea that it can be “patient.” I think the first rate hike will be in the middle next year. Still long U.S. dollar vs the yen and euro. There may be near term weakness in the dollar but i see it as buying opportunity for a longer term trade.

[Lady Bathory]

Yesterday the Swiss National Bank surprised the market by lowering its benchmark interest rate to -0.25% saying massive capital flow from Russia forced it to intervene. I think it's to prepare for sovereign QE by the ECB which will create strong demand for the franc. The SNB is preempting the ECB. The negative rate is supposed to discourage the use of the franc as a safe haven asset.

[Lady Bathory]

We start the new year with the U.S. dollar rallying across the board as the DXY rises above 91, a level not seen since before the global financial crisis. EURUSD has fallen below 1.20 in anticipation of the ECB moving towards government bond purchases. News over the weekend that Germany is prepared to let Greece leave the eurozone if a leftist opposition party wins the snap elections is also pressuring the euro.

[CVT]

We start the new year with the U.S. dollar rallying across the board as the DXY rises above 91, a level not seen since before the global financial crisis. EURUSD has fallen below 1.20 in anticipation of the ECB moving towards government bond purchases. News over the weekend that Germany is prepared to let Greece leave the eurozone if a leftist opposition party wins the snap elections is also pressuring the euro.

The US dollar is getting stronger vs. the major currencies,- Euro, Brit Pound, AusD, CanD, JapY, IndR and arguably ChiRY compared to approx a couple of years ago....

For example, AusD and CanD lost something between 15%-20% of their value vs the USD, with the JapY losing even more... A lot lost their shirts on forex...


“The measure of a man is what he does with power – LJIOHF!”
Duterte for President of the Philippines in 2016!
25.4K:santa:

[machine.pistol]

How would this affect the decision of anyone who would like to have a vacation in Switzerland?

[Ry_Tower]

How would this affect the decision of anyone who would like to have a vacation in Switzerland?

Mas mahal na! Hehe

[_Cathy_]

Switzerland is one of the most expensive countries to travel in Europe. Pano pa nga kaya ngayon

[Lady Bathory]

One of Switzerland’s oldest private banks to charge clients negative interest rates on cash balances over 100,000 Swiss francs. Consommateurs: Taux négatifs introduits pour les clients privés - Économie - 24heures.ch

[safeorigin]

I wonder on how soon might QE4 happen

[Lady Bathory]

Leaks ahead of today's ECB decision took away the element of surprise. According to Bloomberg ECB Seeks to Inject Up to 1.1 Trillion Euros Into Economy in Deflation Fight - Bloomberg the ECB "proposed spending 50 billion euros a month through December 2016" and according to the WSJ ECB Executive Board?s QE Proposal Calls for Roughly ?50 Billion in Bond Buys Per Month - WSJ the ECB "proposed buying roughly €50 billion ($58 billion) a month in bonds for at least a year" which sounds more open-ended. EURUSD fell initially then quickly rebounded. The quick rebound from session low ($1.1565) to session high ($1.1680) shows expectations are largely priced-in. I think the risk is to the upside as traders will take profits on euro shorts rather than add positions to an already-crowded trade.

[Lady Bathory]

The ECB announced QE. It's bigger than expected. EURUSD falls below 1.15.
ECB Unveils Stimulus to Boost Economy - WSJ

FRANKFURT—The European Central Bank said Thursday it plans to purchase over €1 trillion ($1.157 trillion) in public and private sector bonds by the fall of 2016, a landmark decision aimed at combating stagnation and ultralow inflation in a region that has emerged as a top risk to the global economic recovery.

ECB President Mario Draghi said the ECB will buy a total of €60 billion a month in assets including government bonds, debt securities issued by European institutions and private-sector bonds. The purchases of government bonds and those issued by European institutions will start in March and are intended to run through to September 2016, Mr. Draghi said. The risks associated with the bonds of EU institutions will be shared, but purchases of other government bonds won’t be subject to loss sharing, he said.

Mr. Draghi said bond purchases might continue beyond September 2016, and until there are clear signs that the annual rate of inflation is rising toward the central bank’s target of just below 2%. The ECB also lowered the interest rate it charges on its four-year loans to banks by 0.10 percentage point.

[Monseratto]

FX rates (BDO) vs PHP

Euro= 50.66
USD = 44.35
JPY = 0.375

Nice time to travel...

[dreamur]

While oil prices are going down, share prices of electric car manufacturers like Tesla are going up. Is that just a coincidence?

[Lady Bathory]

The Greek finance minister proposed a debt swap instead of a debt writedown. Bonds held by non-ECB creditors will be converted to GDP-linked bonds while bonds held by the ECB will be converted to perpetual debt.
Greece finance minister reveals plan to end debt stand-off - FT.com

Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds.

The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds.

The guy is quite creative.

[Lady Bathory]

WTI is up more than 20% in the past 3 trading days. It's a short covering rally and will evaporate soon. The rally can be easily killed by an inventory build or a Saudi Arabia price cut.