World’s Worst Performing Economies In 2016

Monday, April 18, 2016 @ 08:04 AM

The IMF last week made its second cut to global growth forecasts, predicting a rate of +3.2% this year and +3.5% in 2017, having previously forecast 3.4% and 3.6% respectively. They noted that downside risks to the global economic outlook have increased since October, “raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows.” Looking at the graph below showing the countries expected to be the worst performers, it’s pretty easy to draw some conclusions as to what the main trouble are – plummeting oil and commodity prices are a consistent theme for nearly all of the worst performers, joined by fiscal mismanagement and political turmoil. 

IMF forecast for GDP, year-on-year change

Morning Summary

Monday, April 4, 2016 @ 08:04 AM

U.S. stocks have enjoyed their sixth straight week of moving higher, while oil prices have now erased all of their gains on the year. Ironically, oil rig counts here in the U.S. are at the lowest levels since Baker Hughes started counting oil rigs back in 1944. The trade clearly seems tripped up by the glut of global oil production. Recent comments from Saudi Arabia saying they would only freeze production if all major oil producers, including Iran, commit to doing the same. Iran has steadfastly maintained they will not entertain a freeze until their crude production reaches pre-sanction levels of 4-million barrels per day. Over the weekend, Iran’s oil minister announced the country’s oil and gas condensate exports have now surpassed 2-million barrels per day for the first time since sanctions were lifted. That works out to an increase of around +250,000 barrels per day since March 1. In other words the world is still swimming in a glut of supply while Iran is in the process of trying to add more barrels. Traders here at home have been digesting a wave of economic data as of late, which most argue has been fairly positive. I have to admit myself, while I remain a bit apprehensive in regard to being an outright raging stock market bull, there is evidence and recent talk that the “shallow manufacturing recession” is starting to subside. Remember we had manufacturing numbers expanding for the first time in seven months last week. More positive news is the fact the U.S. dollar continues to weaken in 2016 on talk from a apparently more dovish Fed. Pending U.S. home sales are also starting to increase, and mortgage purchasing applications most recently are up over +20% compared to last year. Keep in mind mortgage rates haven’t made new lows in over 3-years, but purchasing applications are picking up momentum, meaning perhaps the housing market is stronger than many are currently forecasting? Another positive is the fact even though gas prices at the pump have risen form an average low of $1.69 per gallon to now over $2.05 per gallon, our average four-week usage year-over-year is up +5%. There’s also evidence that Consumer Spending is starting to gain a bit more traction. Like I said, I’m not wildly bullish, in fact I still only have about 30% of my current portfolio invested in long equity positions, but I do believe some of the fear has been eliminated or at least temporarily subsided as the market evolves and adjust to the changing dynamics. To some degree the dollar strength feels like it has been digested, the commodity price slide has somewhat stabilized, and consumers are starting to spend a bit more of their energy savings in the economy. The week ahead will bring a much lighter economic calendar, but with heavier focus being placed on the U.S. Fed. We will hear multiple speeches form Fed Presidents and key members, as well as digesting on Wednesday the “minutes” from their recent March meeting. On Thursday there’s a historic event in New York featuring Fed chair Janet Yellen and all her living predecessors: Paul Volcker, Alan Greenspan and Ben Bernanke. Don’t be surprised if this weeks Fed rhetoric helps push the market even higher…

Eggs Prices Up, Salad and OJ Down

Thursday, March 24, 2016 @ 11:03 AM

The American Farm Bureau Federation’s Spring Picnic Marketbasket Survey decreased from last year thanks to lower prices for several foods, including salad, orange juice, shredded cheddar, ground chuck, sirloin tip roast, vegetable oil, white bread, ground chuck, deli ham and orange juice. The informal survey shows the total cost of 16 food items that can be used to prepare one or more meals was $53.28, down $.59 or about 1 percent compared to a survey conducted a year ago. Of the 16 items surveyed, ten decreased and six increased in average price. Egg prices are up sharply from first quarter of 2015, a year ago but are down even more sharply from the third quarter of 2015. This shows the effect of the HPAI (High Pathogenic Avian Influenza) event last year. Prices on the beef items in the marketbasket – ground chuck and sirloin tip roast – peaked in early 2015 at record high levels. Since then, a combination of increasing beef production, weaker exports, and lower competing meat prices have led to modest price declines. Dairy product prices also remain relatively low. At $4.29 for a one-pound bag, shredded cheddar cheese price is at the lowest price in this survey since the third quarter of 2012. The whole milk price rose almost 3 percent from the third quarter of last year, but that third quarter price was the lowest price in the survey since 2010. (Source: American Farm Bureau Federation) Marketbasket Survey


Morning Summary

Monday, March 14, 2016 @ 10:03 AM

Macro traders are wondering if last weeks trend of crude oil moving higher and the U.S. dollar moving lower is only a brief anomaly or greater evidence of things to come? There’s a ton of moving parts this week so make certain you are paying very close attention. Below are the ones the trade seems most heavily focused on. These are also the headlines that will most directly impact the direction of the U.S. dollar and crude oil, hence ultimately deciding the overall direction of stocks and commodity prices:

  • Fed Meeting: Federal Reserve officials start their two-day meeting on Tuesday. Even though most inside the trade doubt we will see any type of rate hike, there’s a very strong chance we could see more hawkish type commentary and increased   thoughts of another rate hike between now and July. Keep in mind employment has strengthened as of late and inflation appears to have gained a little nearby momentum on higher prices at the pump. 
  • U.S. Presidential Campaign: The 2016 race is certainly heating up and drawing a ton of press and uncertainty amongst Wall Street traders. There’s a lot of talk as of late that the recent weakness in the U.S. dollar is a direct result of the uncertainty surrounding who will become the next U.S. president. With several “extreme” candidates still in contention the world is a bit on edge in regard to free trade, immigration, big banks, taxes, etc… The extreme “changes” being discussed make the trade nervous as nobody knows exactly how the worlds #1 economy will be altered during the next four years? Keep in mind there’s some huge presidential primaries this week in key states like Florida, Illinois, Missouri, North Carolina, and Ohio. Don’t forget some of these are “winner-take-all” states and could largely impact the race. 
  • Crude Oil & China: There’s a ton of Chinese economic data scheduled for release this week. IN fact over the weekend it was reported that China’s industrial production during the first two months of the year grew at its slowest rate since the global financial crisis. The figures were the weakest since November 2008.  Many insiders I speak with have had little confidence through the years in the accuracy of most Chinese data. This is why crude oil prices have been so heavily influential across the trade as of late. Many insiders believe the price of crude oil tells a more accurate story about the strength of the Chinese economy. Meaning the Chinese government can release whatever data they want and tell the world they are expecting +7% growth in GDP, but when crude oil prices are betting out and the world is seemingly swimming in a glut of over-supply, it’s tough to believe the numbers. Perhaps the recent turnaround and move higher in crude oil price is an indication the trade may have gotten a bit too bearish the Chinese economy and perhaps there are some signs of a recovery, or at least a chance their latest dovish policies changes by the government has stopped the bleeding? OPEC is scheduled to release its monthly oil market report today. Investors will be looking to see whether production increased in February and what the group’s projections are for full-year output. If you recall, Saudi Arabia and fellow OPEC members Qatar and Venezuela agreed with non-OPEC Russia to freeze output at January levels, with the stipulation that other oil exporters also agreed to it. Over the weekend, an Iran state news agency said their oil minister would join in discussions between members about a possible freeze, but only after their output returns to pre-sanction levels, which would be about 4 million barrels per day.
  • Bank of Japan is scheduled to announce tonight whether or not it will expand its quantitative easing program. 

Morning Summary

Monday, March 7, 2016 @ 11:03 AM

U.S. stocks are down slightly this morning as macro traders  digest headlines from over the weekend that China has cuts it’s economic growth target. The Chinese government however emphatically denies any rumors of a “hard-landing”. Crude continues to gain traction and is now trading at multi-month highs.  Emerging market equities just chalked up their biggest weekly gains since 2011. It’s also worth noting that both gold and iron ore, though down slightly this morning, are up nearly +20% on the year. All of which has some inside the trade arguing that the commodity markets have bottomed. Bottom-line, I suspect as oil stabilizes investors are going to continue to feel more at ease with adding “risk”. There seems to be more talk about the overall economic landscape becoming much more highly “fragmented” rather than negative across the board. In other words some pockets or areas of the economy are seeing sharp declines and have clearly moved into recessionary territory, while other areas remain strong and robust. Many analyst believe this is why the markets have become extremely difficult to forecast. It seems like whatever direction the  headlines and lights on the stage decide to shine can produce wildly different results. One thing for certain, we are finally seeing more sizable cuts in U.S. oil production as rig counts drop below 400. Keep in mind, U.S. crude production had jumped from just 5.4 million barrels a day back in early-2010 to a whopping 9.7 million barrels per day this past spring. We are also seeing more headlines about Saudi Arabia looking to borrow $10 billion dollars and talk their government may be starting to feel the pain of cheap oil. Russia is also talking more openly about possible production cuts. Here at home this week economic data will be very light, today’s only release being the Labor Market Conditions Index, which isn’t heavily watched by investors but seems to be  something the Federal Reserve officials monitor. Keep in mind the jobs report this past Friday was extremely strong, showing employers added +242,000 jobs in February, well above market consensus. The government also revised upward its estimates for job gains in December and January by a total of +30,000. The negatives in the report were a -0.1% decline in hourly wages and a slight reduction in weekly hours worked. I suspect the main event this week will be the European Central Bank’s latest policy decision, which will be announced on Thursday morning. The trade is expecting the ECB to move rates further into negative territory. Keep in mind that the whole “negative rate experiment” is eyed with a high degree of anxiety as investors and economists alike aren’t sure what the ultimate consequences might be. While central bank stimulus has historically been viewed by Wall Street as a positive, the deeper move into negative territory may not illicit that traditional response. It doesn’t help that the ECB’s stimulus efforts have so far failed to prop up their waning economy, as just last week data showed the the EU block has slid back into “deflation.” Analysts are also expecting the ECB to increase its bond buying by around $11 billion per month. Investors will also be watching the next round of U.S. presidential primaries that will be held in Hawaii, Idaho, Michigan and Mississippi, then the Virgin Islands on Thursday. Over the weekend, GOP candidate Ted Cruz won contests in Kansas and Maine, while frontrunner Donald Trump carried Louisiana and Kentucky. The results keep Trump solidly ahead in the delegate count: 384 for Trump; 300 for Cruz; 151 for Rubio and 37 for Kasich. On the Democratic side, Hillary Clinton won the state with the biggest delegates, Louisiana. Bernie Sanders won in both Kansas and Nebraska: Clinton now has 1,130 delegates; Sanders 499.