Dollar’s Rise Fuels Foreign Debt Fears Companies that issued bonds in U.S. dollars instead of the local currency face higher costs on debt payments. Some financially strapped firms might default on their bonds, analysts warn.
For 2014, the dollar is on track to gain more than 7% compared with a group of emerging-market currencies tracked by the Federal Reserve Bank of St. Louis. (…) The dollar’s rise means it costs more to make regular bond payments and pay off outstanding bonds as they mature. (…)
The Indonesian rupiah, Chilean peso, Brazilian real and Turkish lira are near multiyear lows. Mexico’s central bank bought pesos earlier this month to keep the depreciating currency from pushing the economy into a funk. (…) Fears are swirling about Russia, where the ruble has swung sharply as the economy struggles under the weight of Western sanctions and lower oil prices. (…) Malaysia’s state-run oil and gas company, Petroliam Nasional Bhd., or Petronas, said in its third-quarter results that the dollar’s rise against the ringgit was partly to blame for lower quarterly revenues. About 70% of the company’s debt is in U.S. dollars, and its bond yields spiked as the ringgit fell nearly 9% in the past six months.
The financial hit was bad for Malaysia’s government, which collects major revenue from oil and gas sales.
In 2014, companies in emerging markets issued a record-high $276 billion of dollar-denominated bonds as of Tuesday, according to Dealogic. (…)
Countries also have flocked to dollar-denominated bonds, saddling those governments with higher debt-service costs as the dollar rises. Analysts say many countries generally are in a stronger position to withstand the dollar’s pain because their reserves are larger than in previous crises.
Overall, companies and sovereign-debt issuers have $6.04 trillion in outstanding bonds, up nearly fourfold since the 2008 financial crisis, according to Dealogic, a financial-data provider.
More than two-thirds of the outstanding corporate bonds in emerging markets are considered high-quality by major rating firms, meaning they carry a low default risk. (…)
Top officials at the International Monetary Fund and the Bank for International Settlements, two of the world’s leading financial institutions, have warned that the exchange-rate turmoil could lead to corporate defaults and asset-price busts around the globe. Some analysts expect the IMF to lower its five-year growth forecast for emerging markets.
Moscow moves to prop up Gazprombank Latest intervention by Russian government to stabilise banking sector
Singapore’s Economic Growth Slowed to 2.8% in 2014, Lee Says Singapore’s economic growth cooled in 2014 and the nation will experience slower expansion than it’s used to, Prime Minister Lee Hsien Loong said.
So, now that emerging markets are front page stuff, we may be near “Buy Low” territory as this Short Side of Long chart suggests:
Oil workers to pay for near 50% price fall Big producer groups target North Sea in savings push
(…) In a sign of how the oil majors are scrambling to make savings, BP, Royal Dutch Shell, Total and Chevron have all ordered sharp cuts in the rates paid to skilled contractors on projects in the UK North Sea.
The groups are cutting up to 15 per cent of the pay of thousands of self-employed oil and gas workers in the region. US-based Chevron told employment agencies that it would reduce rates from January 1 “to better align with industry benchmarks and manage cost pressures”, while BP has decided to cut the wages of 450 workers by up to 15 per cent from the new year. It said it remained “firmly committed” to the North Sea, but added that “costs have been rising and we must respond to these toughening market conditions”.
Another oil major is cutting UK contractor rates by 10 per cent. Shell has reduced rates in recent weeks, and oil services company Wood Group has announced pay cuts for 1,300 contractors.
A senior oil executive said that the drop in crude was “an opportunity” to lower exploration costs globally by renegotiating contracts with providers such as drilling companies. “Exploration is the easiest activity to reduce,” he said. (…)
The U.S. population has climbed past 320 million and, according to new Census Bureau estimates, will stand at a record 320,090,857 on Jan 1, 2015. As of Jan. 1, the population will be about 2.3 million people larger than a year earlier. That’s a modest uptick from population growth of 2.2 million in 2013.
In percentage terms, population growth slowed during the recession to the lowest pace in more than half a century and has yet to rebound. So while 320,090,857 will be the largest U.S. population ever, the growth rate has slowed–in part due to the economy–and has yet to kick back into gear.
Tough for an economy to grow rapidly with slow population growth and slowing productivity…(chart below from Andrew Smithers)
2015 equities: here’s all you need to know:
Bulls Hope History Repeats Itself in 2015 If stocks have history on their side, 2015 should be a good for a gain. Next year falls into three separate buckets all of which have averaged double-digits returns for the Dow Jones Industrial Average going back more than a century.
(…) When it comes to pre-election years, or the third year of a presidential term, the Dow has not booked a loss in a whopping 76 years. In the years since the blue-chip index’s last slide, which came during a pre-election year in 1939, the Dow and the S&P 500 have each averaged gains of 16% during the third year of a presidential term.
On top of that, the Dow has averaged an annual gain of 13% during the seventh year of a presidential cycle since 1901. Including President Barack Obama, seven presidents served two terms — or in the case of FDR more — since then.
“Typically each administration usually does everything in its power to juice up the economy so that voters are in a positive mood at election time,” the almanac highlights. (…)
History shows January’s performance may give investors an indication on how 2015 will shake out. That’s because 14 of the past 16 pre-election years followed January’s direction. That is, if stocks rose in January, the S&P booked an annual gain nearly 90% of the time over the past 16 periods. Furthermore, in 12 of the past 16 pre-election years, the Dow moved in tandem – higher or lower – with the performance of the first five trading sessions of the year.
To complete the trifecta of historical upside trends working in 2015′s favor, the fifth year typically produces the strongest returns. Years ending in “5” have only suffered one loss in the past 13 decades. Since 1885, the Dow has rallied an average 28% during the fifth year. The S&P 500 has gained an average 25% during the period since 1935, and the Nasdaq has increased an average 25% since 1975 in the fifth year.