Central bank tightening, high oil prices, Chinese deleveraging and a worsening trade war… Darlings, what could possibly go wrong?!
“The case for $150 oil is based on the fact that major oil companies slowed capital spending devoted to the search for new sources of supply to their lowest point in a generation, mostly outside of the U.S., when crude oil moved as low as $30 in 2016, Bernstein analysts led by Neil Beveridge wrote. Companies like ExxonMobil and Chevron curtailed capital spending to protect their share prices with stock buybacks and dividends, the report said, and that means a shortage of new supply…
““If we do get oil prices of $100, $125 or $150, you reach a severe pain threshold, and not just for the U.S.” said Bernard Baumohl, chief economist of the Economic Outlook Group in Princeton, New Jersey. “There’s nothing vague or ambiguous about it. You reach a pain threshold in the triple digits, and there is a much higher probability of a global downturn. … It would be cataclysmic.’’”
https://www.cnbc.com/2018/07/13/risks-rising-that-oil-prices-will-cause-next-recession.html
““There was an implosion in major project investments, and exploration spending has evaporated,” said Bill Herbert, a senior energy analyst at Piper Jaffray & Co. in Houston. That’s an ominous sign for crude oil supplies in the few years ahead, starting as soon as 2019, he added. “The elephant in the room that people aren’t paying attention to is the rapidly decreasing spare productive (oil) capacity,” Herbert said.”
Higher oil prices are inflationary. The Fed may be tempted to put up rates more aggressively to ‘cool off’ that inflation. Which is what happened in 2008.
“Despite two hikes of the Federal Funds rate this year, ranging between 1.75 percent and 2 percent, long-term rates have not kept pace, causing the yield curve to flatten and stoking fears of a recession. Just about every time the U.S. Treasurys yield curve has flattened in the past, the U.S. economy has tanked shortly afterwards.”
https://www.cnbc.com/2018/07/23/flattening-of-yield-curve-is-stoking-fears-of-a-recession.html
“The year is only halfway through and already 2018 is on track to be the most volatile since the financial crisis, Morgan Stanley analysts wrote in a note published Monday.”
https://www.cnbc.com/2018/07/23/global-markets-on-track-to-have-most-volatile-year-since-2008.html
“The US has angered not only China but its allies in Europe by imposing tariffs on steel and aluminum. Trump has said he is also considering adding a new tariff on automotive parts, which would hit the EU and Japan particularly hard. In retaliation, Europe has placed tariffs on US goods such as blue jeans, motorcycles and bourbon.”
https://www.dw.com/en/g20-warns-that-trade-tensions-are-hindering-worldwide-growth/a-44780480
“Platinum is caught in a speculative sell-off fuelled by a supply surplus, demand concerns due to the threat of a global trade war and a strengthening dollar, which makes metals more expensive for buyers using other currencies.”
“The first telltale sign of trade war stress on the global economy is now visible. Copper prices, which were trading at four-year highs a month ago, have shed 20 percent and are close to their lowest levels in a year. Copper is considered a proxy for the global economy on account of its usage in multiple industries…”
“We don’t know what precise effect these massive reductions in trade and UK exports [in the event of a no-deal Brexit] would have on the British economy, but it’s fair to say it would not be good.”
“Millions of “just about managing” families [in the UK] are no better off today than those in 2003, new research from the Resolution Foundation indicates. The remarkable income stagnation for so many reveals that the economy has been failing to generate income for people over many years despite record levels of people in work.”
https://www.bbc.com/news/business-44926447
“Turkey will more than likely soon have to ask the IMF for financial help. This scenario would not only impact Turkey itself but also have consequences for Europe, because many Turkish companies are highly indebted to European financial institutions.”
https://www.dw.com/en/is-erdogans-turkey-on-the-edge-of-a-crash/a-44768540
“Total debt at the [South African] power utility went from R387 billion to R600 billion over the past four years. That’s the equivalent of South Africa’s entire budget for healthcare and education, plus another R60 billion. Eskom’s debt burden is also much larger than South Africa’s entire income from personal income tax (R556 billion).”
https://www.businessinsider.co.za/what-you-need-to-know-about-eskoms-annual-report-2018-7
“Voters in Pakistan headed to the polls on Wednesday, but no matter who wins, the South Asian nation looks to be headed for an economic and currency crisis.”
“Sri Lanka is drawing up proposals to get around international sanctions on Iran by paying its oil debt with the Middle East country in tea, according to a report.”
“Small banks in Chinese provinces affected by Beijing’s efforts to slash excess industrial capacity and reduce pollution are being hit by a spate of non-performing loans, according to reports from Chinese credit rating agencies. Some small lenders in provinces such as Henan and Guizhou have seen their capital adequacy ratios fall to near zero or even negative due to the increase in bad loans, the reports say.”
“Amid the financial and humanitarian crisis in Venezuela, the country is expected to see hyperinflation reach epic proportions: a million per cent a year by the end of 2018, the International Monetary Fund said Monday.”
