Markets: Asian equities and currencies were mostly on hold as markets looked to Friday’s looming release of US jobs data. Economists expect the US unemployment rate to have fallen from 7.3 per cent in October to 7.2 per cent for November. Non-farm payrolls data are forecast to show the world’s biggest economy added 185,000 jobs in November. (Financial Times)
Take yourself back to the heady oil price days of early 2008. Imagine a rogue voice reassuring the market to “fear not, one day soon the US will be saturated in the black oozey stuff”. What would the market have made of such a concept? Would such a voice have been dismissed as a loon? Very possibly. And yet, less than six years later comes the following warning from Goldman Sachs:
Markets: The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons. (Bloomberg) (Financial Times) Today: EU: CPI, US: Industrial Production; NY Fed Empire Manufacturing Survey for September
So, there was evidence this week that the US authorities might finally be getting to grips with the Chinese reverse merger scandal, whereby a string of Chinese companies exploited lax listing rules to shake down naive American investors. Executives at RINO International, a steel industry supplier, have been charged by the SEC with inflating revenues 15 fold in their US filings, while some of the proceeds from a reverse merger and $100m cash raising in 2007 were diverted to buy a house in Orange County, two Mercedes Benz cars and also funded shopping trips to the Chanel and Valentino stores in Beverley Hills. Most of the rest of the money was dispatched to China.
ROUND-UP Brazil wins battle for WTO leadership: “Roberto Azevêdo has emerged as the new director-general of the World Trade Organisation after a pitched battle with Mexico’s Herminio Blanco, according to officials familiar with the contest. Both Latin American countries saw the race for the WTO leadership as a way of elevating their influence in the global economy and cementing their status as rising powers.” (Financial Times)
This is a cracking *cough* little note from Bank of America Merrill Lynch on soaring gasoline crack spreads… which are being driven by a spate of refinery closures which, as it turns out, are specifically impacting the New York Harbour market, known as PADD I, beyond all others. This has generally resulted in a divergence in regional prices across the United States (mostly to the disadvantage of East Coast drivers). As BofAML notes: Despite being the middle of the winter, US RBOB gasoline crack spreads to Brent crude oil have soared by an astonishing $16/bbl in the past month (Chart 2).
Asian shares rise || Hedge fund reaps $500m on Greek bet || Geithner told of Libor fears in 2008 || Japan’s exports fell in November || Knight agrees to Getco offer || Cerberus to sell gun company stake || Basel may tighten ABS risk weight models || Watching for unintended consequences in 2013
It seems odd — and it may well be short-lived — but the US is beginning to shape up as a rare bright spot in the world economy.* Or indeed almost the only bright spot in the world’s economy, except for the Gulf petro-states. That is, if you were to base such an assessment solely on Japan’s September export data, released on Monday. Japan’s preliminary September trade data tell a story not dissimilar to China’s — exports to Europe are slowing (unsurprisingly) by a lot, down 26 per cent for the month, year-on-year.
Cheap labour isn’t forever. The act of taking advantage of it enriches the work force over time. At least, that’s what should happen. As America proved, a work force can, in effect, end up aiding its own overall decline due to a lack of competitiveness on wages and pensions. That sort of rigidity, whether good or bad, isn’t the only thing that can lead to a decline in manufacturing employment. Automation can too.
A few weeks ago FT Alphaville drew attention to a Standard Chartered report that quantified what we had been hearing via anecdotal reports for a while, namely that Chinese corporates had somehow ended up with a large dollar short position — estimate about $800bn — due to previous expectations that the Chinese renminbi would only ever strengthen against the US currency. This, of course, is very reminiscent to the situation that non-eurozone emerging Europe found itself in after 2008. Many corporates there had shorted the euro and the Swiss franc on similar expectations that their own currencies would only keep strengthening — though this time related to euro adoption convergence effects.
The US manufacturing PMI released by the Institute of Supply Management (ISM) on Monday beat expectations, coming in at 53.4. But that’s not what we really want to talk about here. Instead, we want to ask the question that the team at Bank of America Merrill Lynch asked themselves in an impressive 73-chart, 43-page report last week. Namely: is US manufacturing in the early stages of a renaissance? There is a popular image of the sector as being in perpetual decline due to offshoring. However, at least some of the alleged decline had more to do with other sectors growing and thus decreasing manufacturing’s share of GDP as a percentage.
The US has launched a case against India at the World Trade Organisation, charging that the Asian nation’s ban on poultry imports – imposed to prevent avian flu – violated global trade rules, the FT reports. The move comes as the Obama administration has become more aggressive on trade enforcement, recently establishing a new taskforce across government agencies to co-ordinate litigation efforts. The move marks the fifth time the US has brought a WTO case against India, and the first under the Obama administration.
US crude imports have fallen to their lowest level for a decade as a result of weak demand and growth in domestic production, making the economy more resilient to oil price rises, the FT reports. The US imported 8.91m barrels a day of crude oil last year, according to the US Energy Information Administration, the lowest amount since 1999.
Japan is “in the final stages” of talks with the US on a deal to make deeper cuts to its Iranian oil imports, its foreign minister has said, according to the FT. A deal to reduce reliance on Iran’s crude would be made in return for Japanese banks avoiding tough US sanctions on dealings with Iranian financial institutions. Amid the clampdown on Iranian exports, more and more questions are being asked about the true extent of Saudi Arabia’s “spare capacity” to replace lost supply, the FT adds. A Western release of strategic crude reserves, also to meet demand, would meet the logistical problem of the oil market being tightest in Asia, Reuters says.
The Australian dollar rose to its highest level against the US dollar in five months on Thursday, as figures showed that the country’s trade surplus rose to a record high last year, buoyed by strong commodity exports. The FT reports that Australia’s currency advanced to a fresh five-month high of $1.0756 against the US dollar in early Asian trading. It later pared some of its gains and was flat against the dollar by the close of trading in London. The Japanese yen continued to strengthen against the US dollar after a week of gaining ground. The dollar declined 0.2 per cent to hit a low of Y76.02.
Orange juice prices hit an all-time high as worries over a possible US ban on Brazilian imports after the discovery of fungicide traces at the end of last year fuelled more speculative buying, the FT reports. Supply concerns were exacerbated last week after a destructive disease called citrus “greening” was found in Texas, the third-largest US orange producer after Florida and California. Frozen orange juice futures on the ICE Futures US exchange hit a record $2.2695 a pound, up by almost 8 per cent from last Friday. The contract was trading at $2.2210, up 5.4 per cent in late morning in New York on Monday. While uncertainty about a halt in Brazilian imports by the US Food and Drug Administration triggered the buying by speculative investors, there was no conclusive news from the authorities.
US natural gas prices have sunk to the lowest point in a decade as the shale drilling boom threatens to fill the nation’s underground storage network, reports the FT. Nymex February gas was $2.402 per m British thermal units early Thursday, down almost 50 per cent from a year ago to return to levels last reached in early 2002. The decline marks a stunning turnround for a market that was building sea terminals to handle an anticipated flotilla of imports just a few years ago. Drillers’ use of horizontal drilling and hydraulic fracturing techniques has instead added decades to estimated reserves, allowing the US to ponder significant liquefied gas exports. Analysts say that with production at records and mild winter temperatures leaving inventories swollen, prices could approach $1 per m Btu later this year. US gas now costs just a third of prices in European markets and a sixth of gas sold in Japan, where it’s $15 per mBtu. An analysis unit of the US Department of Energy is on Thursday expected to release a study on the impacts of exporting liquefied natural gas to higher-priced markets.
Japan wants to keep importing crude oil from Iran despite rising pressure from the US to cooperate in strengthening sanctions against the Islamic Republic, reports the WSJ, citing an unnamed official at Japan’s Ministry of Foreign Affairs. The official reportedly said the country was concerned about the impact on energy prices and the possibility of a fuel shortage affecting rebuilding after the disastrous earthquake and tsunami that hit in March. The comments came a day before the planned meeting between US Treasury Secretary Tim Geithner and Japan’s Finance Minister Jun Azumi. The two ministers plan to meet Thursday morning, with a possible ban on Iranian crude oil and Japan’s currency intervention likely to be on the agenda, which a spokesman at the Ministry of Finance declined to discuss.
China’s overall trade surplus last year fell to $155bn, its lowest level since 2005, underscoring how slowing global growth and rising Chinese demand are reshaping the country’s economy, the FT reports. The falling trade surplus could ease pressure on China to accelerate the appreciation of the renminbi, in a year when US election politics have turned up the rhetoric over Chinese trade policies. US Treasury secretary Tim Geithner arrives in Beijing on Tuesday for a two-day visit to discuss trade and economic issues, and he is also expected to press for Chinese co-operation on recent US sanctions on Iranian oil transactions. China’s trade surplus shrank last year as imports grew faster than exports, partly due to Beijing’s growing purchases of commodities such as iron ore and crude oil.
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday. China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America. In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres.