RETAILING

Retail Sales Drop as Consumers Pull Back U.S. consumers pulled back in December, underscoring the limits of counting on cheaper gasoline to fuel spending growth and propel the broader economy.

Sales at retailers and restaurants decreased a seasonally adjusted 0.9% in December from a month earlier, the Commerce Department said Wednesday. But that drop, the largest since last January, likely overstates the severity of the pullback. Some economists blamed technical factors such as seasonal adjustments, warning about potential revisions to the data or a rebound in coming months. (…)

Sales away from gasoline stations fell 0.4% in December. A closely watched gauge that excludes autos, gasoline and building materials also fell 0.4%. Retail spending excluding gasoline purchases rose 5.3% in December from a year earlier, far stronger than the annual gain of 4.1% in December 2013.

The National Retail Federation said Wednesday that retail sales excluding automobiles, gas stations and restaurants rose 4% in November and December from the same period a year earlier—marking the best holiday shopping season since 2011. Online retailers saw even stronger growth, with sales rising 6.8%. (…)

December’s retail-sales decline comes after downward revisions to sales in the previous two months. November purchases at retailers were revised to a 0.4% advance from a previously estimated 0.7% gain. Retail and restaurant sales advanced 0.3% in October, a downward revision from the prior estimate of up 0.5%.

The November reading was revised lower largely because gas-station sales fell 3% during the month, rather than the initially estimated 0.8% decline.

Retail Sales Don’t Take Growth Off the Shelf Falling Consumer Prices Put Dent in Reading

(…) if Friday’s inflation report from the Labor Department shows that falling commodity costs and the strong dollar have begun to leak into the prices consumers pay away from the gasoline station, spending estimates could move back higher.

Economists polled by The Wall Street Journal expect the consumer-price index fell 0.4% in December from a month earlier, with the core measure, which excludes food and energy prices, edging up 0.1%.

Yet State Street’s PriceStats measure, which is based on prices for millions of items scoured daily from the Internet, suggests that the overall CPI fell a much steeper 0.9%. Given that economists know what gasoline prices did, the weakness that PriceStats is picking up is probably elsewhere.

The chart is as of November via Forbes: Here’s the chart to Dec. 12 via the WSJ:Add the lagging impact of a stronger dollar:Wondering about Europe?Since we’re at it, here’s the developed world:

More on rising wages:

From Torsten Slok, Deutsche Bank, via The Big Picture:

Rising wages mean rising prices of services:

Franc Rockets as Swiss Scrap Currency Cap The Swiss franc rocketed beyond parity with the euro after Switzerland’s central bank stunned markets by scrapping its long-standing cap on the strength of the currency.

“It’s a pretty extraordinary move, and there are going to be some massive repercussions in currency markets. The Swiss franc is a major currency, we’re not talking about a rarely traded third-tier currency here,” said Paul Lambert, London-based head of currency at Insight Investment, which oversees $483.7 billion of assets. (…)

The markets running through technical stops right now, it’s impossible to say in terms of levels where this will end,” said Geoffrey Yu, currency strategist at UBS . Mr. Yu said the SNB had been expecting massive inflows into Swiss franc assets if the European Central Bank launches a large-scale bond-buying program—widely expected later this month. “The floor was going to be very hard to defend,” he said. (…)

Ahead of the SNB announcement, investors were running outsize negative bets on the Swiss currency, likely accelerating the franc’s move as many threw in the towel. The most recent data from the U.S. Commodity Futures Trading Commission show a $2.6 billion net short position on the franc against the U.S. dollar as of Jan. 6. (…)

The impact reverberated throughout currencies markets, sending the euro briefly plunging against the dollar to $1.1579, its lowest point since November 2003. (…)

The blue-chip Swiss Market Index dropped 11% to trade at 8196. The big banks were hit hard, with UBS AG dropping 12%, and Credit Suisse AG falling almost 14%. (…)

“The appreciation of the franc now means lower import prices, increasing downward pressure on Swiss inflation, and will challenge Swiss exporters’ competitiveness, at least for those exports going to the eurozone,” said Evelyn Herrmann, an economist at BNP Paribas.

(…) gold hit an 18-week high, pushing up 2.3% to $1,256.48 a troy ounce.

“The movements in the currency markets that we’ve seen this morning as a result of the Swiss announcement [and] the weakening of the euro that’s implicit in that has led to some safe-haven buying of gold priced in euros…[Secondly] negative interest rates are usually positive for gold as a safe-haven and as a currency hedge; and thirdly, this is all occurring against the backdrop of probable ECB loosening…so perhaps some further weakness in the euro and safe-haven buying coming on the back of that,” said Jonathan Butler, a precious-metal strategist at Mitsubishi .

• “The ripple-out effect of this likely to be hard to quantify, and we could well get a lot more volatility as investors and markets in general try and work out what this sudden change in policy means for future central promises going forward, but it seems like that the U.S. dollar could well benefit, as well as gold, as investors look again at the more traditional havens,” said chief analyst Michael Hewson of CMC Markets in London. (Globe & Mail)
• Simon Derrick at BNY Mellon is first to point out that the euro floor/chf celing was leaving an open door to safe haven flows from Russia by way of an open bid for euros. As he notes:
  

  Compounding this was Switzerland’s role as a safe haven as the Russian crisis intensified. It was, therefore, not entirely surprising when the SNB decided a few weeks ago to impose an interest rate of -0.25% on sight deposit account balances at the bank and expand the target range for three-month LIBOR to -0.75%/+0.25%.

  Since this measure wasn’t enough to put the flows off, it was clear, Derrick notes, something else would have to be done.

  So what does today’s move tell us? According to Derrick, mainly that the SNB probably expected quite an inflow in the weeks to come and was not prepared to provide these buyers of CHF with an artificial cheap rate. (FT Alphaville)

There will be blood…

Polish Banks, Zloty Dragged Down by More Expensive Swiss Franc Mortgages

Polish banks had 131 billion zloty ($35 billion) of Swiss-franc mortgages in their portfolios as of Nov. 30, amounting to 46 percent of all home loans, according to data from the country’s financial market supervisor. Poles and other Eastern Europeans rushed for cheaper funding in francs and euros in the run-up to the global financial crisis in 2008, only to see their borrowing costs surge due to currency swings.

The zloty weakened 14 percent to 4.1357 against the franc at 11:37 a.m. in Warsaw, paring an earlier loss of as much as 40 percent. The Polish currency declined 2.3 percent versus the euro and 2.2 percent against the dollar. Shares in Warsaw-listed lenders tumbled, with Getin Noble Bank SA sliding 8.9 percent, Bank Millennium SA losing 9.1 percent and PKO Bank Polski SA, the country’s biggest, dropping 2.6 percent.

India Cuts Interest Rate The Reserve Bank of India surprised markets with an early-morning lending rate cut Thursday, stepping back from its inflation-fighting stance in hopes of helping bolster growth in Asia’s third-largest economy.

Central bank Gov. Raghuram Rajan said he decided to lower rates thanks to signs that India is winning its long battle with inflation in recent months as oil and food prices have slid.

“These developments have provided headroom for a shift in the monetary policy stance,” Mr. Rajan said in the statement announcing his first rate cut since becoming governor. (…)

The Bank of Korea left its benchmark rate unchanged at 2% on Thursday. But many analysts expect it to cut again in February or March due to fears about low inflation and anemic growth.

Bank of Korea Cuts 2015 Inflation, Economic Growth Forecasts

Inflation will slow to 1.9 percent, from a previous estimate of 2.4 percent, Governor Lee Ju Yeol said today after the bank held the seven-day repurchase rate at 2 percent. Gross domestic product growth is expected to ease to 3.4 percent, compared with an earlier projection of 3.9 percent.

Growth was probably 0.4 percent in the last three months of 2014, Lee said today, and the bank expected the economy to expand an average of 1 percent in each quarter this year.

OIL

Oil projects worth billions put on hold Shell and Premier lead big cost cuts as crude slides

The Anglo-Dutch oil major on Wednesday abandoned plans for one of the world’s biggest petrochemical plants, a $6.5bn project with Qatar Petroleum, blaming “the current economic climate prevailing in the energy industry”.

Its move came as Premier said it would delay a final decision on whether to proceed with the $2bn Sea Lion project off the Falkland Islands until there was a recovery in oil prices. The company has also cut rates of pay for contractors and other freelance workers engaged in projects in the North Sea and southeast Asia and is attempting to renegotiate deals with suppliers to trim operating costs.

Meanwhile, Statoil, the Norwegian major, said it had handed back three exploration licences on the west coast of Greenland, an area considered one of the highest-cost frontiers in the industry. (…)

Data from IHS Energy showed daily rates for hiring state-of-the-art ultra-deepwater rigs, used in areas such as the Gulf of Mexico and offshore Angola, were tumbling. The average new fixture rate for drillships fell to $440,000 a day in December, more than $100,000 below levels at the start of 2014. Utilisation rates have this month hit 15-year lows. (…)

Drillers in the Bakken start backing off

Drilling activity in North Dakota’s prolific Bakken field is falling sharply and production is expected to drop by summer, as Saudi Arabia’s strategy of squeezing high-cost producers out of the market begins to bite.

In many areas of Bakken, break-even costs already exceed current oil prices and companies are shutting down development, North Dakota’s commissioner of mineral resources, Lynn Helms, said Wednesday.

“The core area is as busy as ever, but you get outside the core area and it’s pretty quiet,” Mr. Helms told a conference call.

“If we see these kind of prices stick around through the first quarter, then we’re going to drop below the production-maintenance rig count,” he said. (…)

In North Dakota, the rig count has fallen to 158, down 16 per cent from this time last year and is increasingly concentrated in the core area of the play, where companies can make money even if WTI prices fall to $40 a barrel.

Mr. Helms said he believes 130 rigs could maintain production levels at the state’s current 1.2 million barrels a day, but expects the count to fall to 120 rigs by spring.

If oil prices fall to the low $40s and stay there, North Dakota would see production drop to 1 million barrels a day by July and to 875,000 by July, 2016, he told state legislators last week.

But that may be a moving target. Companies are driving down costs and increasing productivity by focusing on the core areas. In November, the state saw a slight increase in production.

At the same time, many companies are not bothering to complete wells that have been drilled but have not done the hydraulic fracturing needed to recover the oil and gas from tight rocks. They’re waiting either for state tax incentives to kick in, triggered by low prices, or for a rebound in prices. (…)

Iran Lowers Oil Price for Budget to $40 After Collapse