11 December 2014
# Australian MI Inflation Expectations
# Australian Employment Change
# U.S. Retail Sales
# U.S. Weekly Unemployment Claims
# European stocks declined for the 3rd straight day, the Stoxx600 ending down 0.34%, erasing an earlier advance of as much as 0.9 %. The drag on the market was once again the energy sector which retreated to a 3 year low. Whilst we see the energy scene as one of oversupply, the market is cautious that the massive decline in crude is demand driven, with the obvious implications. Yesterday’s sharp U.S. stocks retreat, then recovery, was simply a harbinger of impending weakness, with the major indexes down in excess of 1% as we go to print. Once again energy related stocks weigh with the sector down a whopping 3.3%the day. The big board S&P500 is down 1.37% with 20 minutes until close.
# OPEC cut the forecasts for how much crude oil it will need to provide in 2015 to the lowest level in 12 years. In its monthly report, the Organization of the Petroleum Exporting Countries forecast demand for the group's oil will drop to 28.92 million barrels per day in 2015, down 280,000 bpd from its previous expectation and over 1 million bpd less than it is currently producing. The WTI oil price fell a further 4.75%, to US$60.80, its lowest level since mid-2009.
# ECB member Hansson was quoted as saying that the possible risks associated with the ECB buying sovereign bonds may outweigh the benefits. This would align with the likes of the Bundesbanks’ Weidmann who are cautious on further easing of policy and oppose full-blown QE.
# Not having garnered much coverage was the potential for a U.S government shutdown. A final agreement has now been reached on a $1.1T U.S. spending bill that would prevent a government shutdown and fund every government agency but the Department of Homeland Security through next September. The bill largely keeps fiscal 2015 domestic spending unchanged, but as the deadline loomed, a number of policy provisions were negotiated into the measure, including easing of regulations on the environment and financial derivatives trading.
# Calling it a "crazy economic policy", Prime Minister Stephen Harper says that Canada will not impose new carbon emission rules on its oil and gas sector in a time of falling oil prices. Canada’s critical energy sector has been slammed by the recent collapse of world oil prices, and a number of Canadian producers recently have announced plans to cut spending and dividends. Recall pre-GFC when carbon taxes would save the world but when the reality of economic hardship occurred the plans were quickly dropped (Australia!).
# U.S. wholesale interest rates continue to fall, the 10 year bond down to 2.17% from 2.30% only 2 days ago. We see this lower over time, thinking we’ve seen the best of the near term employment gains in the U.S. and a Federal Reserve that will tell us next week that they are nowhere near raising rates anytime soon, as inflation is not a problem (and indeed is likely to go south on the Oil price move).