Russia imposes steep interest rate hike as ruble plummets Russia appeared headed Tuesday for the worst economic turbulence in President Vladimir Putin’s 15 years in power, raising fundamental questions about the future of the country as investors’ trust in its basic institutions seemed to be eroding fast.
The fear was sparked by the plummeting ruble, which has dropped 17 percent against the dollar in two days despite a dead-of-night decision Tuesday by the Russian central bank to impose a steep interest-rate hike to stem the currency losses.
At one point Tuesday, a dollar could buy 79 rubles, an extraordinary development for a currency that stood at 33 rubles to the dollar in January and held mostly steady for much of the year. Later Tuesday, the currency stabilized closer to 68 rubles to the dollar.
The central bank tactics have revived memories of Russia’s 1998 financial meltdown, when the nation defaulted on debts and hyperinflation wiped out a generation’s savings. Buoyed by rising oil prices, Putin devoted much of his early years to building institutions that would preserve economic stability. As a result, Russia still has far more crisis-fighting resources today than it did then, including the world’s fourth-largest currency reserves. They stood at $416 billion at the beginning of the month, down $80 billion this year.
Russia’s economy was already in trouble before the March annexation of Ukraine’s Crimean Peninsula and subsequent support for pro-Russian rebels in eastern Ukraine. Those decisions sparked Western sanctions and the worst tensions between Russia and the West since the Cold War. The unpredictable environment has spooked investors, which the central bank predicts will pull $128 billion from Russia this year.
China’s stocks are worth double those in Brazil, Russia and India combined. Just six months ago, the one-versus-three comparison was at parity.
Chinese equities have rallied amid speculation the central bank will take further steps to loosen monetary policy after cutting interest rates last month. Russia and Brazil are boosting borrowing costs as their currencies weaken, while the Reserve Bank of India left the benchmark repurchase rate unchanged for a fifth straight meeting this month.
“China is easing” while some other emerging markets are tightening, said Hao Hong, Hong Kong-based head of China research at Bocom International Holdings Co. “As long as the renminbi does not depreciate in a disorderly way, China will continue to outperform.”
1. The Dollar Index pushed above the 89 level following yesterday's FOMC decision. Markets were awaiting the Fed's decision on considerable time. The Fed did leave considerable time language in the statement but in a different area. The FOMC tweaked the 'considerable time' language to 'patience'. At the end of the day the Fed remains data dependent as it has been saying for a few years. Of interest there then was the lower inflation outlook members forecast for 2015. Markets continue to view mid-2015 as the likely time frame for when the Fed is set to raise rates. Economic data this morning was weak as surveys (Markit Services, Philly Fed) continue to disappoint. But it is the Fed statement that continues to dominate headlines today. 2. The euro has tumbled back into the 1.22 area. The rally in the dollar has helped put selling pressure on the single currency. The markets will be paying close attention to an EU Economic Summit that will be held over the next couple of days. Hints of any potential monetary easing will be important. But also markets will be looking at commentary on any potential fiscal reform and on Greece. The latter is of course undergoing an important confidence vote in the government. 3. The pound has rallied off the 1.5550 level this morning to push back to 1.5660. 1.5550 has been setting up as low end support for the recent trading range for sterling. This marks the third time it has been able to bounce off this area in the past two weeks. A better than expected retail sales number has helped provide a boost. 4. The yen is running into resistance at 118. Yen would eventually pullback to 119.30 but is now moving back higher. The recent strengthening in the yen is showing signs of cooling following the recent volatility. 118 will set up as a key level of resistance moving forward. 5. The Russian ruble is settling around the 60 level and remains a key focus for markets. This morning President Putin held a four hour press conference discussing the situation in Russia. The ruble whipped around in the 57-63 area during the speech which was relatively aggressive but nothing outside of expectations for Putin. The Bank of Russia is now announcing that it will recapitalize systemcially important banks and hold talks with brokers. 6. The Swiss franc is also in focus as the Swiss National Bank moved rates into negative territory. This has led to the franc weakening to 0.97 against the dollar. It would appear the SNB is preparing for a EU QE as it attempts to maintain a 1.20 peg against the euro. That cross is currently trading at 1.2037 (FOREX, BONDX)
VGK = Europe ETF EWG = Germany Index Fund EWU = UK Index Fund EWP = Spain Index Fund EWI = Italy Index Fund EWA = Australia Index Fund EWJ = Japan Index Fund EWH = HK Index Fund EWT = Taiwan Index Fund EWY = S Korea Index Fund
The reason oil could drop as low as $20 per barrel
The history of inflation-adjusted oil prices, deflated by the U.S. Consumer Price Index, offers some intriguing hints. The 40 years since OPEC first flexed its muscles in 1974 can be divided into three distinct periods. From 1974 to 1985, West Texas Intermediate, the U.S. benchmark, fluctuated between $48 and $120 in today’s money. From 1986 to 2004, the price ranged from $21 to $48 (apart from two brief aberrations during the 1998 Russian crisis and the 1991 war in Iraq). And from 2005 until this year, oil has again traded in its 1974 to 1985 range of roughly $50 to $120, apart from two very brief spikes in the 2008-09 financial crisis.
What makes these three periods significant is that the trading range of the past 10 years was very similar to the 1974-85 first decade of OPEC domination, but the 19 years from 1986 to 2004 represented a totally different regime. It seems plausible that the difference between these two regimes can be explained by the breakdown of OPEC power in 1985 and the shift from monopolistic to competitive pricing for the next 20 years, followed by the restoration of monopoly pricing in 2005 as OPEC took advantage of surging Chinese demand.
There are several reasons to expect a new trading range as low as $20 to $50, as in the period from 1986 to 2004. Technological and environmental pressures are reducing long-term oil demand and threatening to turn much of the high-cost oil outside the Middle East into a “stranded asset” similar to the earth’s vast unwanted coal reserves. Additional pressures for low oil prices in the long term include the possible lifting of sanctions on Iran and Russia and the ending of civil wars in Iraq and Libya, which between them would release additional oil reserves bigger than Saudi Arabia’s on to the world markets.
The U.S. shale revolution is perhaps the strongest argument for a return to competitive pricing instead of the OPEC-dominated monopoly regimes of 1974-85 and 2005-14. Although shale oil is relatively costly, production can be turned on and off much more easily – and cheaply – than from conventional oilfields. T
On the other hand, there are also good arguments for OPEC-monopoly pricing of $50 to $120 to be re-established once markets test the bottom of this range. OPEC members have a strong interest in preventing a return to competitive pricing and could learn to function again as an effective cartel. Although price-fixing becomes more difficult as U.S. producers increase market share, OPEC could try to impose pricing “discipline” if it can knock out many U.S. shale producers next year. The macro-economic impact of low oil prices on global growth could help this effort by boosting economic activity and energy demand.
The U.S. dollar continued its advance against other major currencies. The sell-off came at the end of a volatile week and sets the stage for a Federal Reserve policy meeting next week. Investors will be watching closely for clues about the central bank's views on the economy and interest rates.
The euro declined 1.3% to $1.0486. The U.S. dollar index, which measures the dollar against a group of other currencies, increased 0.8% Friday and is up 6.4% over the past month.
The dollar's advance can be tied to two factors, strategists say. The U.S. economy is getting better, as seen by the strong jobs report last week, and the Federal Reserve is poised to raise interest rates sooner rather than later. In comparison, the European Central Bank is trying to drive down interest rates by buying government bonds, a tactic the Fed used until last fall. The ECB's program has been driving down the value of the euro.
A higher dollar makes U.S. exports more expensive abroad. General Electric, Caterpillar and Deere fell more than the rest of the market. U.S. Steel, whose products competes with cheap foreign imports, fell nearly 4% after the company announced it would idle of its operations and lay off workers. U.S. Steel lost 83 cents to $21.80.
#msg-83251138 ~> new quarter ER kick off (See replies for more daily movers) #msg-110814165 ~> (FLR CBI BWC) SPY Mar 2015 215.000 call #msg-99090112 ~> Federal Reserve again reduces bond purchases
Clinton appears towards the end of the 2-minute and 18-second video, which features a series of Americans talking about what they're getting ready for in the future.
"I'm getting ready to do something too," she says, standing in front of a home with a garden and trellis in the background. "I'm running for president."
In the video, Clinton says she's running to help Americans "get ahead, and STAY ahead."
"So I'm hitting the road to earn your vote. Because it's your time. And I hope you'll join me on this journey," she says.
Initial Market Reaction: slide after of Trump Victory on Nov. 8 but recovered well the next several day along with $$$ Oil/Gold running opposite direction due to strong $$$ #msg-126511210 WTIC/GOLD is in a deadly spiral down mode #msg-117522253 Wonder 3x 5 day 10 min
Remarkably, even as companies head towards bankruptcy, their top execs can get big payouts.
Days before Whiting Petroleum filed for Chapter 11, its board approved a $6.4 million cash bonus for its CEO. In early May, Chesapeake Energy announced it would pre-pay $25 million of executive bonuses, days before Bloomberg News reported that the natural gas giant was preparing a bankruptcy filing. Neither company responded to Business Insider's request for comment.
"If you're an oil CEO, you're kind of in a no-fail situation because you get compensated even if you don't make any money," Kelly Mitchell, senior analyst at Documented, told me.
It was a week of whiplash. On Tuesday morning, we reported on the recovering price per barrel. By the afternoon, we wrote that Goldman Sachs was expecting the price to fall — and then it did.
So what's what?
The rise: Oil gained value faster than most Wall Street analysts expected.
In May, US crude oil posted its sharpest monthly gains ever. Today, it's up more than 15% since mid-March. OPEC+ extended its record supply cuts through July, but the recovery is mostly about rising demand for fuel. Apple data suggest people are driving a lot more. Demand could fully recover by the end of 2021, Morgan Stanley analysts say. Some US producers are taking shuttered oil wells back online as a result of the recovery.
The stall: The rally that sent prices surging has stalled as concerns of a second coronavirus outbreak mount.
Oil prices are on track to fall for the first week in about two months. Good job, Goldman Sachs! The Wall Street bank predicted this earlier in the week. Goldman analysts said fear of a second outbreak, an enormous oil surplus, and an uncertain future of demand would cause the price to fall in the "coming weeks." The bank went as far as to call reversing well shut-ins "premature."
BP froze layoffs for 3 months. Now it plans to cut 10,000 workers.
It might have come as good news when BP announced a three-month layoff moratorium back in March, amid the oil market meltdown. But any assurance quickly dried up on Monday, when the London-based company announced that it would cut about 10,000 workers.
BP's chief said it costs about $22 billion a year to run BP, and more than one-third of that budget is allocated to personnel. "The oil price has plunged well below the level we need to turn a profit," he said in a memo published on LinkedIn. "We are spending much, much more than we make — I am talking millions of dollars, every day."
U.S. Shale Oil, Energy Sector ETFs Are Still at Risk
Exchange traded funds that track the U.S. shale-oil industry could continue to come under pressure from the depressed crude prices due to the ongoing coronavirus pandemic.
According to the Institute for Economics and Peace, the COVID-19 pandemic has dragged down the price of oil, which will affect political regimes in the Middle East, especially in Saudi Arabia, Iraq and Iran, and it may “result in the collapse of the shale-oil industry in the U.S. unless oil prices return to their prior levels,” MarketWatch reports.
While oil prices have quickly recovered after recently trading in the negative territory for the first time ever, Goldman Sachs warned that the rise in the oil price has been overdone and projects declines in Brent crude prices to $35 a barrel, from around $43 a barrel, in the weeks ahead.
Meanwhile, shale oil, which is produced through fracking or the controversial process of pumping high-pressure water and sand underground to fracture rock and release valuable new energy reserves known as shale, may be particularly affected due to the high cost of extracting oil through this method.
The IEP pointed out that warned that the combined weakness in commercial, travel and industrial activity contributed to the rapid price decline in global oil markets. “These markets were already affected by an oversupply, emanating from Russia and Saudi Arabia who could not agree on production curbs,” it added.
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