Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: November 2014

NEW$ & VIEW$ (28 NOVEMBER 2014)

OPEC Decision Roils Markets The tumbling price of oil hammered commodity-dependent currencies as well as shares in oil and gas companies, a day after OPEC kept its output target.

(…) Russia’s ruble, which this year has also been pummeled by geopolitical tensions and resulting sanctions, hit yet another all-time low against the dollar, while fellow oil-linked currencies such as the Canadian dollar, Norway’s krone and Nigeria’s naira slipped too.

One dollar now buys more than 49 rubles. It started the year close to 32. (…)

Barclays economists said they now expect Brent crude to sink below $70 per barrel and the West Texas Intermediate benchmark to fall even further.

“Over the course of the coming months, oil markets will have to find a new equilibrium—a world where demand elasticities are tested, and non-OPEC supply sensitivities, and particularly the pain threshold for U.S. producers becomes better understood,” they wrote in a note. (…)

Some perspective from The Short Side of Long:

U.S. Personal Income and Spending Growth Remain Moderate

Overall personal income increased 0.2% during October (4.1% y/y) after an unrevised 0.2% September rise. Wages & salaries earnings improved 0.3% (4.4% y/y) while proprietors income jumped 0.5% (3.3% y/y). Disposable income increased 0.2% (3.9% y/y) and in real terms it ticked 0.1% higher (2.5% y/y).

Personal consumption expenditures increased 0.2% (3.6% y/y) following no change in September, revised from down 0.2%. Motor vehicle purchases fell 1.7% (+7.0% y/y) following a 4.5% decline while spending on furnishings & durable household equipment improved 0.4% (2.6% y/y) after a 0.3% gain. In constant dollars, overall spending increased 0.2% (2.2% y/y).

The equal gains in income and spending left the personal saving rate stable at 5.0%, though September’s rate was revised down from 5.6%. Personal savings fell 0.4% (+10.5% y/y) following a 1.3% rise.

large image

large image
U.S. New Home Sales Improve

New home sales during October edged up 0.7% m/m to 458,000 (1.8% y/y) following a 0.4% rise to 455,000 in September, initially reported as 467,000. The latest figure disappointed expectations for 470,000 sales in the Action Economics Forecast Survey.

large image
Eurozone Sees Further Rise in Jobless, Fall in Inflation The number of people without jobs in the eurozone rose for the second straight month in October, while the annual rate of inflation fell further below the European Central Bank’s target in November, increasing the likelihood of aggressive stimulus measures.

The European Union’s statistics agency Friday said the number of people without work increased by 60,000 in October, the biggest monthly rise since January 2013.

Eurostat also said consumer prices were just 0.3% higher in November, than in the same month of 2013, as the inflation rate slowed from 0.4% in October to match the five-year low reached in September.

The inflation rate has now been below 1.0% for 14 straight months, while the ECB targets a rate of just under 2.0%.

Excluding prices of energy, food and other volatile items, the core rate of inflation was unchanged at 0.7%. (…)

Figures also released Friday showed German retail sales rose 1.9% in October, the largest increase since June 2011.

Punch But the WSJ omits saying that retail sales had dropped 2.8% in September…

However, French consumer spending dropped 0.9% in October from September, the sharpest month-on-month decline since June 2013, the French statistics agency Insee said. The consumer spending figures came on top of other weak data in October. On Thursday the labor ministry reported a record high in the number of unemployed people.

Punch And French consumer spending was off 0.5% in September…

Japan’s CPI falls to 0.9% Further fall highlights challenges facing PM Abe as he heads to polls

Core consumer prices, all prices excluding fresh food, slowed to an annual pace of 2.9 per cent growth year-on-year in October, in line with forecasts. Stripped of any impact of the sales tax rise in April, core prices are up 0.9 per cent.

Pressure Grows for Rajan to Follow China Cut as India Slows

Growth slowed to 5.3 percent last quarter, inflation is at a three-year low, Chinalowered borrowing costs and Finance Minister Arun Jaitley is calling for a cut. While almost all economists expect Rajan to ignore the clamor and hold the benchmark rate at 8 percent on Dec. 2., markets are pricing in a reduction and forecasters are moving up their rate-cut calls. (…)

A rate cut would signal a divergence among the biggest emerging markets, with India and China easing policy to boost growth as Russia and Brazil raise rates to fight inflation. Rajan has kept one of Asia’s highest interest rates unchanged since January after pledging to lower Indian inflation once and for all when he took over the central bank last year.

NEW$ & VIEW$ (26 NOVEMBER 2014)

Americans Borrowing More Briskly for Cars, Homes

Household debt—including mortgages, credit cards, auto loans and student loans—rose $78 billion between July and September to $11.7 trillion. Debt levels had fallen the previous quarter and remain $1 trillion below their peak in 2008. (…)

New mortgage loans, including refinanced mortgages, edged up to $337 billion after four straight quarters of declines, the Fed’s figures showed. Total mortgage balances—the biggest part of Americans’ debt—climbed $35 billion to $8.1 trillion.

While historically low, the uptick in new mortgages is a welcome sign for the nation’s housing market, which has struggled even as the economy comes off its best six-month stretch of growth since 2003.

In addition, auto lenders made $105 billion in new loans, the highest level in nearly a decade. Outstanding student loans rose $8 billion to $1.1 trillion.

Credit-card balances, which have generally been slow to rise, are now slightly above year-ago levels.

The share of mortgage debt seriously overdue dropped to 3.2% last quarter, from 3.4% in the second quarter. The share of seriously delinquent auto-loan debt also dropped, to 3.1%, from 3.3%—despite growing concerns about lax auto lending. Serious credit-card delinquencies eased, too.

New Mortgage Lending Drops to 13-Year Low New figures released by the Federal Reserve Bank of New York on Tuesday show that mortgage lending is running at its lowest level in 13 years, with 2014 on pace to be the weakest for new loans since 2000.

U.S. Home Prices Decelerated in September The yearly growth in home prices across the U.S. decelerated further in September, according to a home price report released Tuesday.

The home price index covering the entire nation increased 4.8% in the 12 months ended in September, said the S&P/Case-Shiller Home Price Index report. That is down from 5.1% in August.

On an unadjusted basis, the 10-city and 20-city gauges were unchanged in September from August, while the national index slipped 0.1%. S&P said that was the first national decline since November 2013.

German exports to RussiaGerman industry suffers sanctions fallout Germany’s exports to Russia are expected to fall 20% this year

German exports to Russia fell 16.6 per cent to €20.3bn in the first eight months of the year. (…)

Germany’s machinery sector has been particularly hard hit. Russia is the fourth most important export market for German machinery and plant technology. Sales were worth some €7.8bn last year but are drying up. (…)

Although Russia accounts for less than 3 per cent of Germany’s total exports, some 6,200 German companies do business in Russia and the uncertainty threatens jobs, says Ulf Schneider, managing partner at Russia Consulting in Moscow. (…)

Around 300,000 German jobs depend on trade with Russia.

Draghi stands ready…
ECB May Consider Sovereign QE Next Quarter, Constancio Says The European Central Bank will next quarter consider buying sovereign debt in relation to the size of each euro member’s economy if current stimulus proves insufficient, Vice President Vitor Constancio said.
OIL
Saudis signal no push for oil cut as market to ‘stabilize itself’

OPEC leader Saudi Arabia signaled on Wednesday it was unlikely to push for a major change in oil output at the producer group’s meeting this week, a day after Russia refused to cooperate in any production cut. Saudi Oil Minister Ali al-Naimi said he expected the oil market “to stabilize itself eventually” but did not comment on talks with Russia held on Tuesday, which produced no firm pledge from Moscow to help support flagging oil prices.

Russia’s most influential oil official, state firm Rosneft’s (ROSN.MM) head Igor Sechin, emerged with a surprise message – Russia will not reduce output even if oil falls to $60 per barrel.

Sechin added that he expected low oil prices to do more damage to producing nations with higher costs, in a clear reference to the shale boom in the United States.

Many at OPEC were taken by surprise by Sechin’s suggestion that Russia – in desperate need of oil prices above $100 per barrel to balance its budget – was ready for a price war.

Iranian Oil Minister Bijan Zangeneh said some OPEC members, although not Iran itself, were gearing up for a battle over market share and insisted that non-OPEC producers needed to participate in any OPEC-led output cut.

OPEC Members Near Compromise on Cuts OPEC members are inching toward a compromise that could lead them to cut oil supplies by adhering more strictly to agreed production ceilings.

(…) Support for such a move, which would be based on tighter compliance with OPEC’s existing output limit as opposed to an outright cut to its production target, was coalescing last week at a meeting of OPEC advisers, according to several of those present. With oil prices having recently stabilized at around $80 a barrel following a 30% slide since the summer, some within OPEC have seen less urgent need for the group to take stronger action. (…)

“Saudi Arabia will likely go for a rollover” of the current ceiling, the Gulf official said on Tuesday. A call for strict compliance would be “an option they would go for.” (…)

Closer compliance would imply a supply cut of around 300,000 barrels of oil a day compared with October levels, according to OPEC technocrats who met last week. (…)

But a supply cut of around 300,000 barrels a day is unlikely to satisfy some OPEC members, such as Venezuela and Iran, who need oil prices well above $100 a barrel to balance their government budgets.

(…)  An OPEC production cut of around 1.5 million barrels would be needed to tighten global oil markets next year, according to oil analysts at Barclays . (…)

U.S. shale oil producers need oil prices in the range of $53 to $78 a barrel to break even, meaning most are profitable even with prices at their current level, according to estimates presented at an OPEC technical meeting last week. (…)

Contact: edgeandodds [at] gmail.com