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Posts Tagged ‘GDP’

0 Jan 14 2011 @ 10:55am by Matt Smith in Crude Oil, Economy, Global Energy, Natural Gas

Burrito bites

Good day, one and all! This week has seen supply stoppages, storage swings, and sovereign scares; and now, the solace of the weekend…phew! The Alaskan pipeline has held a good deal of influence over WTI crude oil this week, while Brent crude (= UK-based price) is knock, knock, knocking on a hundred’s door ($100 that is). Meanwhile, natural gas has taken a John Daly-like swing from a deficit to a triple-digit surplus as comparatively lower storage withdrawals are improving storage fundamentals, and deteriorating prices. A back-loaded end of the week for economic data has brought a mixed bag, with weaker sentiment and retail sales, but stronger industrial production. As is increasingly the case, the headlines have been stolen by China, and their further measures to rein in inflation. Anyhoo, with the weekend in sight, let’s relax and eat some snacks:   » read more

0 Sep 9 2010 @ 10:55am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy, Natural Gas, risk management

No Alarms and No Surprises

Sometimes it is very easy to get whirlwinded up in capital markets, believing we are at an absolute tipping point, an extremity of extremities, a turn signal the likes of which we have never seen before, only for prices to continue on and on. And on. Markets, like humans, are not dictated wholly by logic, and we need to remember: they too provide tales of the unexpected.

So despite the utter brilliance of the turbulence they provide, sometimes we need – and wish – for an anti-outlier: an expected outcome. So it is with that in mind, I present three such hopes:

First up, we hit the peak of hurricane season tomorrow (September 10th), with all but a half-hearted fanfare. Although the Atlantic hurricane season runs from 1 June to 30 November, the below image illustrates how activity ramps up in late August, only to fall off just as precipitously by the start of October:

This reason for such apathy of late with this hurricane season is not due to it being less active than normal (we’ve had 9 named-storms thus far – from Alex to Igor, via Bonnie and ferociously-named Colin – compared to the average of 11.3 for the entire season), but because it was projected to be one of the the most active in recent times. All this said…it ain’t over ’til it’s over. (Lenny Kravitz said so. And so did Yogi Berra, come to think of it).

Next up, we have Opec set to meet in mid-October, for only the second time this year. It is not that surprising that we haven’t heard much mumblings and grumblings from the cartel of late, in a past year that has had them declaring prices to be ‘perfect’, stuck solidly in their sweet-spot of $70 – $80 a barrel.  That said, their continued non-compliance with production quotas has been causing unrest within the group, and will once again be addressed next month in Vienna. Any formal production cut would be a ginormous surprise, and would likely only occur should crude prices fall precipitously below the aforementioned sweet spot (the chart below illustrates the adaptive nature of Opec production to price moves):

 

The third and final chart wishing for no alarms is the outlook for US GDP (gross domestic product a.k.a economic growth). This chart reflects the lowest view from 68 economists on Bloomberg. The reason I’m showing the low-balled view and not the average is simply because consensus appears too optimistic. In the same fashion that last quarter saw growth revised down from an initial 2.4% reading to 1.6%, we will likely see continued downward revisions so that forward projections converge  to meet reality. And the hope is that this low-end view will become reality, and not any worse….  

So in the choppy seas of this current economic environment, I place my hope in the above three anti-outliers to be a place of calm within this current storm. As for my current spate of music-related blog posts, I’m gradually becoming more current; last week the Beatles, this week Radiohead…next week maybe I’ll feature Katy Perry. In the meantime, no alarms and no surprises…..please.

1 May 13 2010 @ 9:58am by Matt Smith in Capital Markets, Crude Oil, Economy, Global Energy

A Little Trouble in Big China

Strike that, reverse it.

It’s a funny thing. China’s economic situation is like one of those salacious rumors you see on the cover of a glossy magazine at the grocery store; you never quite know if it’s true or not. Like the relationship of Brangelina, no-one really has a good handle on whether China is as perfect as everyone thinks. Sometimes we have to work from the facts that are available, while holding ourselves back so as to not fill in the blanks. So through proof and not the paparazzi, let’s take a look at the sleeping dragon. 

What has put China on the burrito chopping board in the first place was one of the ten simple points I outlined in last week’s post – about how Chinese oil demand will represent 10% of global oil demand this year, and how this will likely double by 2020 to 20% (and potentially surpass the US). While to truly understand this phenomenal rate of growth is a pinch unfathomable, the below chart provides a crystal clear picture of the trend for Chinese oil demand: 

 Just as celebrities inevitably face a backlash, China is receiving some negative attention from key market commentators, who are calling for a market crash in the next nine to twelve months. And this view isn’t completely without merit; cracks are appearing in the economy. This has recently manifested itself in Chinese stocks; the Shanghai SE Composite Index has now fallen over 20% from its highs made in August 2009 – statistically classifying it in a bear market. Then there are signs of slowing in data such as car sales, which are only up 34% year-on-year for April, when the previous month was up 63% (on the flipside, the number of households earning sufficient funds to buy a no-frills car, is estimated to nearly double over the next four years to 65.6 million). The manufacturing sector is also showing signs of slowing, although again it also remains expansionary. And then there is GDP, which is likely to have peaked for this year (albeit it at a nosebleed rate of 11.9% for Q1). The downside to China’s success means you essentially become a coconut shy for critics. 

As is common for fast-growing emerging market economies, inflation remains an ever-present threat. And China is well aware that an inflation rate at an 18-month high is a worry. But it is a tightrope that the Chinese authorities walk; the effect of raising interest rates or revaluing their currency is difficult to predict – it could quash growth rather than rein it in. Hence their enthusiasm to try such slowly slowly catchy monkey techniques such as incrementally raising the reserve requirements for banks (=essentially restricting bank lending), while trying not to halt expansion. It is easy to criticize China, but their reality is a case of tempering inflation while encouraging growth – like trying to open a can of soda with a hammer and a nail – it’s possible, but pretty darn hard. 

So, meanwhile, back at the chopping board, data show China to not be in bad shape, but with a clear need to remain vigilant on their economy. And like Brangelina, China needs to avoid the paparazzi and focus instead on themselves, because, afterall, we are all secretly envious of them.