Draghi stands ready, without delay…
(…) Vitor Constâncio, Mr Draghi’s deputy, all but ruled out action in December. Last week he said policy makers wanted to wait until the first quarter of next year to judge the impact of existing measures, designed to swell the ECB’s balance sheet by up to €1tn, before acting again.
The view for policy makers is of a euro-zone populace so weary of years of economic turmoil that it’s increasingly electing politicians who say no to pan-European cooperation, and spurn reforms that the ECB says are vital to revive the economy. Trapped by their mandate to prevent deflation, officials fret they might soon be forced to roll out quantitative easing that can never succeed by itself.
India dashes business hopes for rates cut Central bank holds out prospect of easing ‘early next year’
(…) Prices of regular gasoline have fallen from $3.27 a gallon one year ago—and from a high of $3.68 in June—to around $2.77 on Monday, according to auto club AAA. That should provide a key boost at a time when growth abroad is faltering, even if lower prices curb investment in an expanding energy sector.
Consumers: Consumers spent $370 billion on gasoline last year. With prices expected to fall around 20% from their average during the first half of the year, the drop in gas prices over the past six months amounts to a $75 billion tax cut for consumers, according to an analysis by Kris Dawsey, an economist at Goldman Sachs.
Lower gas prices also benefit most businesses because it reduces shipping and production costs. Goldman estimates that the total boost from lower gas prices should boost growth domestic product by 0.4 percentage points over the coming year.
One open question is to what extent will households spend, rather than save, their unexpected windfall from lower gas prices. Goldman’s forecast assumes that around half of the windfall is spent over the coming year.
A drop in gas prices could be a particularly progressive tax cut because lower-income households are particularly sensitive to increases in energy prices. Households earning less than $50,000 annually spent around 21% of their after-tax income on energy in 2012, up from 12% in 2001, according to analysts at Bank of America Merrill Lynch. Households earning more than $50,000 spent 9% of their after-tax income on energy, up from 5% in 2001.
Energy producers: (…) Goldman sees an energy investment headwind of around 0.1 percentage points from current levels.
Taken together, that means lower oil prices should boost growth by around 0.2 to 0.3 percentage points. A separate model maintained by the Federal Reserve Board shows that a 25% drop in oil prices would boost GDP by a smaller amount, between 0.1 and 0.2 percentage points during the first half of next year, according to Goldman. (…)
The benefits to consumers also accrue over time as drivers fill up their tanks. So far, lower gas prices have saved the average household around $80, according to ClearView Energy Partners. If prices were to stay at their current levels for a year, the savings could rise to around $340 a household.
What about jobs? Don’t look for a big drag here. Goldman estimates that the main oil and gas production industries have added around 280,000 jobs over the last four years, or around 5,000 jobs per month. That’s a small share of total U.S. employment, since overall employers have added around 220,000 jobs per month over the past year.
THAT SAID, WEEKLY CHAIN STORE SALES REMAIN WEAK
The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index fell 1.8% in the week ended Saturday from the previous week on a seasonally adjusted, comparable-store basis.
“Early Black Friday promotions the previous week contributed to the sequential week-to-week decline,” according to Michael Niemira, ICSC research consultant.
In retailing, you’ve got be optimistic:
“Consumers actually reported being considerably behind on their shopping compared to the same week last year–which bodes well for December sales as consumers will play catch-up.”
(…) A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals. (…)
US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.
Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.” (…)
Opec may not be worried about countries such as Nigeria, but even there a full-blown economic and political crisis could turn the north into a Jihadi stronghold under Boko Haram.
The growing Jihadi movements in the Maghreb – combining with events in Syria and Iraq – clearly pose a first-order security threat to the Saudi regime itself.
The Libyan city of Derna is already in the hands of the Salafist group Ansar al-Shariah and has pledged allegiance to Islamic State. Terrorist movements in the Egyptian Sinai have also rallied to the black and white flag of IS, prompting Egypt’s leader Abdel al-Sisi to call last week for a “general mobilisation” of all leading Arab and Western powers to defeat the spreading movement.
The new worry is Algeria as the Bouteflika regime goes into its final agonies. “They have an entrenched terrorist problem as we saw in the seizure of the Amenas gas refinery last year. These people are aligning themselves with Islamic State as part of the franchise,” said Mr Newton.
Algeria exports 1.5m bpd of petroleum products. Its gas exports matter more but the price of liquefied natural gas shipped to Europe is indirectly linked to oil over time.
It is an open question what will happen to Algeria, Iraq, and Libya if oil prices hover at half the budget break-even costs for a year or two, given the extreme fragility of the region and political risk of cutting subsidies.
The Sunni Salafist tornado sweeping across the Middle East – so strangely like the lightning expansion of Islam in the mid-7th century – is moving to its own inner rhythms. It is not a simple function of economic welfare, let alone oil prices.
Yet Saudi Arabia’s ruling dynasty tests fate if it is betting that the Middle East’s fraying political order can withstand a regional economic shock for another two years.