THE RACE TO THE BOTTOM
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Euro’s Fall Accelerates The fall in the euro accelerated and bond yields in the eurozone hit fresh lows, showing how the effects of the European Central Bank’s bond-buying program continue to grip the region’s markets.
The euro fell over 1% to trade at $1.0735, one day after the ECB began buying government debt in an effort to drive up inflation and boost a fragile economy.
The single currency had already fallen sharply this year as investors geared up for the ECB’s $1 trillion quantitative easing program, which was first announced in January. But the decline resumed on Tuesday as the onset of the ECB buying pushed bond yields to new lows. (…)
Yields on a broad swath of eurozone government bonds touched all-time lows as demand from the central bank continued to drive up prices. Germany’s 10-year yield touched 0.28%, its lowest on record. German yields are now negative on maturities of up to eight years, meaning investors effectively pay to hold the debt. In Spain and Italy, 10-year yields hit their lowest on record at 1.17% and 1.24% respectively. (…)
China Car Sales Get a Tap on The Brakes China’s car sales growth at the start of the year slowed from a year ago, weighed by the cooling economy.
In the first two months of this year, a total of 3.43 million passenger vehicles including sedans, sport-utility vehicles and minivans were sold in China, up 8.7% from the same period in 2014, the government-backed industry group China Association of Automobile Manufacturers said on Tuesday.
The growth compared with an 11% year-over-year rise in January-February 2014.
The overall auto industry, which includes both passenger and commercial vehicles, saw a 4.3% sales increase to 3.91 million vehicles in the first two months of this year, said the auto-manufacturers’ group. (…)
GM’s sales in China were almost flat compared with the year-earlier period. Audi AG saw its China car sales growth slow to 10.5% from 13% in the year-earlier period. Honda Motor Co. reported a 7.6% decline in its China sales from a year earlier.
By contrast, some of Chinese domestic manufacturers posted stronger year-over-year growth thanks to low sales in the same period last year. For the first two months of this year, Geely Automobile Holdings Ltd. , a sister company of Swedish brand Volvo Car, recorded a 77% surge in car sales while Great Wall Motor Co. posted a 22% rise in sales of sedans and crossovers, their statements filed with stock exchanges show.
The combined share of Chinese domestic car brands rose to 43% of China’s passenger-vehicle market in the January to February period, from 38.4% in the same period of last year, according to the auto-manufacturers’ group.
China Inflation Picks Up
China’s consumer-price index rose 1.4% in February from a year earlier, significantly faster than the 0.8% five-year low in January, according to the National Bureau of Statistics. February’s CPI increase exceeded economists’ expectations and remained well below the government’s goal of keeping inflation under 3% for the full year.
According to Premise Data Corp., a database that tracks the cost of food, vegetable prices in China rose 6.2% over the past 30 days, seafood was up 3.7% and processed meat prices were down 4.0%, part of a 1.2% overall increase for food prices over the past month.
Non-food inflation remained subdued with an increase of just 0.9 per cent in February.
The combined consumer inflation rate in January and February, which smoothes out the distortion from the lunar new year holiday, was 1.1 per cent.
China’s producer-price index dropped 4.8% in February from a year earlier, deepening from a 4.3% year-over-year fall in January and marking three full years of price declines at the factory gate.
Why Saudi Arabia chose not to support oil market
(…) The shift in Saudi oil policy that was crystallised between June and October has been the subject of intense speculation. (…) But a close examination of Saudi actions suggests an unexpected series of global political events and — crucially — a misreading of the market were the driving forces behind Riyadh’s gamble. (…)
The Saudis “did not believe the actual potential of the US shale revolution,†says Leonardo Maugeri, a former executive of Italy’s state-owned oil company Eni, who last year briefed Saudi officials on their new rival. “They totally underestimated the resilience of this oil.â€
Even so, they were apprehensive. Throughout 2014 the Saudis enlisted analysts from ExxonMobil to investigate the break-even costs, debt financing and the output horizon for US shale, say two people familiar with the study.
As demand fell more than expected in Europe, Riyadh had been slow to pick up on weakness elsewhere: China.
There were indications that the market had been softening, but the data were hard to read. “If you are a refiner in China and you don’t need as much crude, you will drop other peoples’ cargoes first. Saudi Arabia has priority status,†explains one Gulf oil consultant.
But refiners in China as well as Vietnam and India began telling Saudi Aramco, the state oil company, that they needed less than their full crude oil allocations and wanted lower prices, say people familiar with the talks.
A series of steep cuts to export prices for Asian buyers followed. Yasser Elguindi, oil analyst at Medley Global Advisors, says the aggressive pricing was a sign of how seriously Riyadh was fighting for market share as it sought to be Asia’s supplier of choice.
“Saudi Arabia has been concerned about its exports to China. [It] has been losing market share to Venezuela, west African producers and others,†he says. With exports to the US reduced by the shale boom, these producers, alongside Opec peers, had been pushing for customers in China.
Chinese imports from Saudi Arabia, which stood at 1.3m b/d in January 2013, fell to around 900,000 b/d by August 2014. Although imports and prices have since picked up, the drop illuminated a festering concern.
If the US loosens its crude oil export ban, as many expect, “this is a trend that will only accelerate,†Mr Elguindi says. Riyadh had no choice but to “protect its market share against competitors inside and outside Opec,†he adds. (…)
“By October a policy was in place,†says a western diplomat in Riyadh. (…)
“Naimi has been around for a while and he knew that this is an impossible situation for Opec to resolve [alone],†says Sadad al-Husseini, an ex-Saudi Aramco executive. “To try and police this kind of market was not possible.†(…)
The Saudi oil minister is said to have told the Russians that with both countries producing roughly 10m b/d, any potential cuts should be equal. The Russians refused. (…)
“If the Saudis had cut they would have been the idiot at the party. They would have done what everyone wanted, but they would also have been the one that everyone else laughed at,†says one long-time Opec analyst. “Ultimately, Naimi has told the world the Saudis would not be the ones to mop up everyone else’s mess.â€
China’s Feb crude oil imports rise 11% on year to 6.69 mil b/d
The volume was a 1.1% increase from January’s average of 6.62 million b/d. China’s crude imports hit a record high of 7.18 million b/d in December last year.
Over the first two months of this year, overall crude imports rose 4.5% to 53.53 million mt, or an average 6.65 million b/d. This is less than half the year-on-year growth rate of 11.5% witnessed over January-February last year.
SENTIMENT WATCH
As Bulls Romp, Advisers Temper Expectations Some financial advisers say they have to counter views by clients for stock-market returns that are well above long-term averages.
(…) On average, the S&P 500 has returned 18% a year since 2009, including dividends, and from the start of 2012 the index’s total return has averaged 21% a year. That is the S&P 500’s best three-year period since the tech bubble era of 1997 through 1999.
In 2014, shares of large U.S. companies outperformed nearly all other investment classes, with the S&P 500’s total return 14%, a year in which the index closed at an all-time high 53 times. (…)
Some advisers said the grumbling among some investors over not owning enough U.S. stocks heated up in January after investors received their 2014 portfolio statements. (…)
Some advisers said they have already lost clients unsatisfied with what they view as lackluster portfolio returns. Bob Jazwinski, founder of JFS Wealth Advisors with $1.4 billion of assets under management, said a client withdrew his money from the Hermitage, Pa.-based firm in January because he said he wanted to take the funds invested across international stocks and put it all in U.S. companies.
Other money managers echo Messrs. Abusaid and Jazwinski.
“All they [clients] hear is stocks, stocks, stocks, stocks and higher, higher, higher, higher. I call it investment pornography,†said Gary Ran, founder of wealth-management firm Telemus Capital in Southfield, Mich., which oversees $2.4 billion.
He said clients who have portfolios diversified across different kinds of investments, ended up with returns last year below that of the S&P 500. “That’s why clients come in and say, ‘I heard it was such a great year in the stock market. What happened?’ â€
France Casts Fate With Ex-Banker French President François Hollande’s shift away from tax-the-rich policies is heavily influenced by Economy Minister Emmanuel Macron, who vows to be “more confrontational.â€
Good, hopeful article in the WSJ.
(…) By backing Mr. Macron, Mr. Hollande is turning away from his past as an apparatchik who focused on appeasing the Socialist Party’s left with tax-the-rich policies and employment programs that stretched France’s finances, such as job subsidies for more than 150,000 young people.
It is increasingly clear that the French leader has decided to cast his political fate with European governments, led by Germany, that view entitlements and job protection as causes of economic inertia. (…)
1 thought on “NEW$ & VIEW$ (10 MAR. 2015): China, Equities: Curb Your Enthusiasm”
Adjusted for the change in the USD, the current price of WTIC crude is still about twice what it was at the spike lows in early 2009.
As for Saudi Arabia’s oil market strategy, one could make the argument the assault on the shale producers is merely a byproduct of a larger, over-arching chess game that involves Iraq, Russia, Nigeria, Libya, Venezuela, Brazil, etc.
With Saudi’s gargantuan Ghawar oil field thought to be 55% depleted, the Saudi strategy appears to revolve around limiting emerging production in other areas to protect their market share and price.
Exporting revolutionary zeal in Iraq, Nigeria, and elsewhere keeps those oil fields from gushing at maximum capacity. It also keeps new oil production investment down in those areas. Killing the Russian treasury by pushing the natural gas pipeline from Qatar through Syria into Europe while pushing sanctions against the Putin regime is another method of crippling investment in new hydrocarbon production in Russia.
The Saudi Royal family is working feverishly to balance the needs and aspirations of its welfare society against it’s own fight for survival in a time in history where royal rule is the exception.
In the long run, it’s a losing game. In the short run, it’s one they’re likely going to play with the petal to the metal, with collateral damage around the globe.
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