Oil rises as US output slowly returns after winter storms
Oil prices rose on Monday as the slow return of US crude output cut by frigid conditions raised concerns about supply, just as demand recovers from the depths of the coronavirus pandemic.
Brent crude was up 76 cents, or 1.2%, at $61.67 a barrel by 0104 GMT, after gaining nearly 1% last week. US oil rose 74 cents, or 1.3%, to $59.98 a barrel, having fallen 0.4% last week, Reuters reported.
Investment bank Goldman Sachs raised its forecast for Brent by $10, helping to boost the market, with expectations for Brent to reach $70 by the second quarter and $75 in the third quarter.
“We now forecast that oil prices will rally sooner and higher, driven by lower expected inventories and higher marginal costs – at least in the short run – to restart upstream activity,” Goldman analysts wrote.
Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (mpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.
Oilfield crews will probably take several days to de-ice valves, restart systems and begin oil and gas output. US Gulf Coast refiners are assessing damage and may take up to three weeks to restore most of their operations, analysts said, though hampered by low water pressure, gas and power losses.
“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.
“Longer term, the fall in capital expenditure at US shale oil companies this year will keep drilling activity subdued, leading to output remaining below pre-pandemic levels.”
For the first time since November, US drilling companies cut the number of oil rigs operating, due to the cold and snow enveloping Texas, New Mexico and other energy producing centers.
Asian shares mixed as investors await progress on stimulus
Asian shares were mixed on Monday, with Japan’s benchmark rising but others slipping, amid some hopes for a recovery from the coronavirus pandemic with the global rollout of vaccines.
Benchmarks rose in Japan but fell in South Korea, Australia and China. Investors remain focused on the future of global economies badly hit by COVID-19 and when and whether there will be enough stimulus to fix it, AP reported.
But the US $1.9 trillion economic package proposed by President Joe Biden also heralds hope for export-reliant regional economies.
Japan’s benchmark Nikkei 225 gained 0.6% to 30,203.61. South Korea’s Kospi dipped 0.8% to 3,082.45. Australia’s S&P/ASX 200 edged down 0.2% to 6,780.90. Hong Kong’s Hang Seng fell 0.5% to 30,479.73, while the Shanghai Composite dropped 1.0% to 3,658.59.
Japan began administering vaccines for COVID-19 last week. It was the last of the Group of Seven industrial nations to get started, beginning with health workers. Prospects for further shipments of vaccine remain uncertain, according to Taro Kono, the Japanese minister tasked with overseeing the effort.
Vaccination drives are set to start soon in other Asian nations, such as Malaysia, Vietnam and the Philippines.
Investors remain focused on the future of global economies badly hit by COVID-19 and the potential for more stimulus to fix it.
The US House of Representatives is likely to vote on Biden’s proposed package by the end of the week. It would include $1,400 checks to most Americans, additional payments for children, and billions of dollars in aid to state and local governments as well as additional aid to businesses impacted by the pandemic.
“But timing is everything,” Stephen Innes of Axi said in a commentary. He noted that inflation concerns are overhanging the market, as the economy heals from the pandemic downturn while the Biden administration strives to recover the millions of jobs lost.
“The next leg of the reflation will have to be carried more and more by a continued recovery in economic growth, as fiscal and monetary stimulus gets increasingly packed into the price,” he said.
One challenge is to keep inflation in check and minimize trauma to the markets from adjustments in the Federal Reserve’s ultra-supportive monetary policy.
After an impressive start to the year, bullish sentiment is wavering, said Jeffrey Halley of Oanda.
“At this stage the price action looks corrective and I expect equities to find a wall of buyers on any material dips,” he said.
Last week, the S&P 500 extended its losing streak to close 0.2% on Friday at 3,906.71. The Dow Jones Industrial Average and Nasdaq Composite closed essentially flat, while another strong showing by smaller companies pushed the Russell 200 index to a 2.2%
In currency trading, the US dollar rose to 105.66 Japanese yen from 105.47 yen late Friday. The euro cost $1.2120, down from $1.2125.
When COVID infection rates dip, inflation rates may well rise
By Larry Elliott
Andy Haldane caused quite a stir this month when he suggested the economy was like a coiled spring waiting to go off. As the Bank of England’s chief economist has discovered, it’s harder to be a Tigger than an Eeyore. Predictions of impending disaster tend to be forgotten even when they don’t come true. Much less slack is given to those predicting that things will turn out well.
Haldane could well be proved right. Consumer and business confidence is on the rise and if – a big if, admittedly – the government continues to support the hardest-hit sectors appropriately as the economy is unshackled, it is quite possible there will be an explosion of pent-up demand.
But even if Haldane is wrong, it’s important to have people making the upbeat case. It would be a much greater cause for concern if all nine members of the Bank’s Monetary Policy Committee (MPC) thought the same way.
The dangers of groupthink were well illustrated by the financial crisis of 2008-09. Central bankers, investment bankers, the International Monetary Fund and most of the media believed that liberalization of the financial system had made it safer, when the opposite was the case.
Warning signs from the US housing market were ignored. Dangerous levels of risk-taking was permitted. All sorts of nonsense was peddled about how sophisticated financial instruments that few actually understood would make everybody better off. There was a collective failure to recognize that something could go seriously wrong with a supposedly foolproof model. Eventually it was recognized that herd mentality had led to the near-implosion of the banking system, but only after the event.
The MPC’s maverick voice back then was David Blanchflower, who called for much tougher action to deal with the looming crisis. He got it right.
Currently, there is quite a lively debate among MPC members about what is likely to happen to the economy. Jan Vlieghe, for example, published a speech last Friday in which he envisaged the possibility of negative interest rates should growth fail to meet the Bank’s expectations.
Vlieghe has doubts about whether the economy is going to have a light-switch moment. He is worried that the pandemic will continue to affect activity, either directly through restrictions affecting specific sectors or indirectly by making consumers more cautious. “It is perfectly possible that we have a short period of pent-up demand, after which demand eases back again,” he said.
Haldane takes a different view, pointing to a pot of excess savings accumulated over the past year. This stands at an estimated £125b, and according to the Bank’s chief economist it could double by the end of June. The MPC’s growth projections assume that only 5% of these extra savings will be spent.
“I think there is the potential for much more, perhaps even most, of this savings pool to leak into the economy, fueling a faster recovery,” Haldane said, in his article for the Daily Mail. “Why? Because people are not just desperate to get their social lives back, but also to catch up on the social lives they have lost over the past 12 months. That might mean two pub, cinema or restaurant visits a week rather than one. It might mean a higher-spec TV or car or house.”
If Haldane is right, inflation is going to resurface as a headache for central banks much sooner than they – or the financial markets – envisage. Vlieghe said in his speech that he would prefer to keep the current monetary stimulus – 0.1% interest rates and bond buying through the Bank’s quantitative easing program – in place until 2023-24. Even if the economy performs more strongly than the MPC collectively expects, he would not support tightening policy until well into 2022.
Financial markets have got the message. Inflation is not an imminent threat and stimulus will not be withdrawn by central banks until they are sure their economies are well clear of recession.
The IMF agrees with that approach. Its chief economic counsellor, Gita Gopinath, said in a blog last week: “The evidence from the last four decades makes it unlikely, even with the proposed fiscal package, that the United States will experience a surge in price pressures that persistently pushes inflation well above the Federal Reserve’s 2% target.”
Now, it is possible that the bullishness of stock markets is justified. Headline inflation rates are low and there is enough slack in labor markets caused by higher unemployment to reduce the chances of a wage-price spiral. As far as central banks and finance ministries are concerned, the risks of doing too little outweigh the risks of doing too much, which is why Rishi Sunak will be pumping more money into the UK economy a week on Wednesday, in the budget.
Yet global share prices are already at record levels after a decade-long run only briefly interrupted by the shock delivered when the pandemic arrived early last year. Much of the money created by central banks over the past 12 months has found its way into asset markets, driving up share and property valuations. Joe Biden’s $1.9 trillion stimulus package, mentioned by Gopinath, is viewed by the financial markets as another reason to buy shares.
Now imagine that the global economy starts to motor as a result of tumbling infection rates and policy support. Central banks are supposed to remove the punch bowl before the party really starts to swing, but delay doing so. Inflation takes hold and the central banks are forced to respond anyway.
This would be the trigger for a bear market, perhaps quite a severe one. The idea that financial markets are a one-way bet because central banks can always be relied on to bail them out is groupthink pure and simple. A gentle warning, that’s all.
Source: The Guardian
Rupee bounces from worst Asia currency on flood of stock inflows
The Indian rupee is turning a corner, as massive inflows into the nation’s stock markets help the currency break past the central bank’s intervention barrier.
Asia’s weakest currency last year is now among its best performers. The rupee has gained 0.6% this year against the dollar, and there are signs it could keep rallying, Bloomberg reported.
A recovering economy and an expansive budget are luring global funds to India’s equities, with investors buying almost $4b of stocks this month, the most in Asia’s emerging markets after China. That’s posing a challenge to the Reserve Bank of India (RBI), which has been intervening in currency markets to keep the rupee competitive.
The rupee rose to 72.57 per dollar last week, its highest since March. That’s likely to clear the path for its advance to 72 per dollar, technical charts suggest. Analysts surveyed by Bloomberg see the currency hitting that level by the fourth quarter.
Moreover, bullish momentum for the rupee could pick up if the exchange rate breaks past the 100-week moving average barrier that’s held since April 2018.
Impetus for more gains could come this Friday with the latest economic growth figures. Economists expect the data to show that India exited a recession with a 0.5% expansion year-on-year in the fourth quarter.
The RBI’s accumulation of dollars in 2020 had held back the rupee, as it built up a record foreign reserves. Nomura Holdings Inc. estimated that the central bank purchased $126 billion from the currency market in 2020, or about 4% of its GDP, mostly offsetting inflows.
The tussle between the central bank and bullish traders though is set to continue, with Governor Shaktikanta Das signaling last month that the RBI won’t relent on building up its foreign-exchange reserves.
SoftBank’s $100b Vision Fund is poised to have a new number-one asset in its portfolio with the upcoming floatation of top South Korean e-tailer Coupang, Reuters reported.