In Brief – N.6 – February 8, 2015

The Ifo Business Climate Index for industry and trade in Germany rose to 106.7 points in January from 105.5 points last month, marking its third successive increase. Companies were far more satisfied with their current business situation and the majority was also optimistic about the business outlook. The German economy makes a good start to the year.

Financial chartist analysts believe that oil prices may have reached a bottom already with the Brent at $48 and the WTI at $45. Sources from the UAE made a similar statement, though one will never see a $100 barrel ever, they said. Taking an opposite stance, hedge funds are still bearish on crude oil price going forward.

The European Union is increasing its humanitarian assistance in Ukraine where the latest surge of violence has deepened an already desperate situation. The European Commission is pledging an additional € 15 million in humanitarian assistance. This will address the basic needs of the most needy in Mariupol and the other areas affected by the conflict.

Standard & Poor’s (S&P) downgraded Russia‘s credit rating to junk. S&P lowered Russia’s rating to double-B-plus from triple-B-minus and kept a negative outlook. The downgrade of Russia was the first in a decade.

The German government expects the economy to grow by around 1.5 percent this year, compared with its previous prediction for 1.3 percent, a government source told news agency Reuters.

“With stricter budgetary rules for euro area countries, a stability mechanism and banking union, the Monetary Union is in a considerably better position today that it was at the start of the crisis,” said Yves Mersch, Member of the Executive Board of the ECB.

“Now the prices are around $45-$55 and I think maybe they reached the bottom and will see some rebound very soon,” OPEC Secretary-General Abdullah al-Badri said in an interview. “If you don’t invest in oil and gas, you will see more than $200,” Al-Badri added. He was echoed by Saudi Aramco chief Khalid al-Falih who said oil price is “too low for everybody.”

As part of its ongoing economic surveillance, the Monetary Authority of Singapore (MAS) has assessed that it is appropriate to adjust the prevailing monetary policy stance. The Singapore economy remains on track to grow at a moderate pace of 2-4% in 2015. MAS will therefore reduce the slope of the S$NEER (Singapore dollar nominal effective exchange rate) policy band.

The Conference Board Consumer Confidence Index® (US consumer confidence), which had increased in December, rose sharply in January to 7 1/2 –year high. The Index now stands at 102.9 (1985=100), up from 93.1 in December.

The US government announced the next step in the development of the nation’s Outer Continental Shelf (OCS) Oil and Gas Leasing Program for 2017-2022. The Draft Proposed Program (DPP) includes 14 potential lease sales in eight planning areas – 10 sales in the Gulf of Mexico, three off the coast of Alaska, and one in a portion of the Mid- and South Atlantic. “The safe and responsible development of our nation’s domestic energy resources is a key part of the President’s efforts to support American jobs and reduce our dependence on foreign oil,” said Secretary of the Interior Sally Jewell.

The whisky industry contributes nearly £5 billion overall to the UK economy, according to a report commissioned by the Scotch Whisky Association (SWA). For every £1 million of value added, the industry generates another £520,000 across the UK, meaning Scotch Whisky is bigger than a number of industries, such as iron and steel, textiles, shipbuilding and computing.

Khalid Al-Falih, chief executive of Saudi Aramco, said Saudi Arabia is now pumping 9.8m barrels per day in bid to win oil price war with US shale frackers, according to a report by The Telegraph. This is around 300,000 barrels more than its output measured by the OPEC. “Supply and demand and the rules of economics will govern. It will take time for the current glut to be removed,” Al-Falih was quoted as saying at a conference.

Don Thompson will retire as President and Chief Executive Officer of McDonald’s Corporation and as a member of the Board of Directors after nearly 25 years of service to the company, effective March 1, 2015. The Board has elected Steve Easterbrook to replace Thompson as President and CEO. “McDonald’s results reflect a significant decline versus a year ago,” said recent data.

IBM researchers announced plans for a cloud-based technology called Identity Mixer that uses a cryptographic algorithm to encrypt the certified identity attributes of a user, such as their age, nationality, address and credit card number in a way that allows the user to reveal only selected pieces to third parties. IBM also “flatly denied” report of plans to lay off 1 in 4 of its workers, or 100,000 people.

Following a short-lived price increase in November, according to US Energy Information Agency (EIA), natural gas prices have dropped to their lowest levels since September 2012, reflecting strong domestic production and inventory builds. Since the end of December, both spot and futures prices have hovered around the $3 mark, and closed at $2.92 and $2.88, respectively, on January 26, 2015.

Shell has delivered where it counts in 2014. We are stepping up our drive for stronger capital efficiency, whilst being careful not to over-react to the recent fall in oil prices,” said CEO Ben van Beurden while updating on 2014 performance and his priorities for the company. Shell’s organic capital investment in 2015 is expected to be lower than 2014 levels, and has curtailed over $15 billion of potential spending over the next three years.

On January 28, 2015, the Baltic Dry Index (BDI) fell to 666 points, a 28-year low and a bad news for global growth. BDI is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides “an assessment of the price of moving the major raw materials by sea.”

US unemployment aid plummet to nearly 15-year low and made the biggest decline in 2 years as weekly applications dropped 43,000 to a seasonally adjusted 265,000, the US Labor Department said.

Last leader of the USSR, Mikhail Gorbachev, warned about tougher sanctions from the West against Russia that could further aggravate the situation in Ukraine into a hot war.

Following the mysterious death of prosecutor Alberto Nisman, Argentina’s President Christina Fernandez has proposed plans to disband Argentina’s Secretariat of Intelligence (SI) that “has not served the national interests,” she said. Nisman was investigating the 1994 bombing of a Jewish community center in Buenos Aires.

Russian government sources confirmed Kim Jong Un, North Korea (DPRK)’s top leader, will likely visit Moscow in May 2015 to attend war victory ceremony. In what sounded like a reply, the US-Korea Institute warned the DPRK may be trying to restart the Yongbyon nuclear reactor capable of producing plutonium for atomic weapons.

The Bank of Russia Board of Directors decided to reduce the key rate from 17.00 to 15.00 percent per annum due to the shift in the balance of risks of accelerated consumer price growth and cooling economy.

The annual variation of Spain’s GDP in the fourth quarter 2014 was 2.0%, against 1.6% in the third quarter, the Instituto Nacional de Estadistica announced. By temporary aggregation of the four quarters, Spain’s GDP volume growth for the whole year 2014 was estimated to be 1.4%.

As part of efforts to enhance operations and strengthen existing commercial ties initiated through codeshare agreements with International Consolidated Airlines Group, SA (IAG) as well as its membership of the oneworld alliance, Qatar Airways has acquired a 9.99% stake in IAG.

Real GDP in the USA increased at an annual rate of 2.6 percent in the fourth quarter of 2014, according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.

Qatari Investment Authority and Canadian firm Brookfield Properties have taken over Canary Wharf Group in a 2.6 billion pounds deal. On its about us page, the Group prides itself of “turning a once derelict Docklands into 97 acres of London’s, and the world’s, most sought after office and retail space.”

The HSBC China manufacturing purchasing managers index inched up to 49.7 for January 2015 from 49.6 in December 2015, HSBC said. The data came a day after China’s official PMI dipped to 49.8 for January, the first reading below 50 since 2012. A reading below 50 indicates a contraction.

Oil prices jumped approximately 7% on January 30, 2015, realizing an intraday variation that has been unseen since June 2012. It seems analysis that said oil might have reached a strong support were right, at least in the short term. Below $44 for the WTI, it seems there are no more shorts.

According to the New York Times, the United States is open to new discussions about providing lethal assistance – “defensive weapons” – to Ukrainian forces. “Although our focus remains on pursuing a solution through diplomatic means, we are always evaluating other options that will help create space for a negotiated solution to the crisis,” said Bernadette Meehan, a spokeswoman for the National Security Council.

The start of 2015 saw a modest growth acceleration in the eurozone manufacturing sector. The final seasonally adjusted Eurozone Manufacturing PMI from Markit posted in line with the earlier flash estimate of 51.0 and slightly above December’s print of 50.6.

At 53.9 in January 2015, the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) remained well above the neutral 50.0 threshold, to signal a robust improvement in overall business conditions.

“We must build on (the current) momentum by continuing to invest in areas that will grow our economy and create good American jobs, including infrastructure, trade and workforce training,” said U.S. Secretary of Commerce Penny Pritzker.

The UK government has confirmed that the Bank of England’s Financial Policy Committee (FPC) will have new powers of direction over the housing market and a leverage ratio framework for Britain’s banks, to guard against any future risks to financial stability.

In a “constructive meeting” with Greek Finance Minister Yanis Varoufakis, UK Chancellor of the Exchequer George Osborne said the “standoff between Greece and Eurozone (is) fast becoming biggest risk to global economy.” He added that “in Europe as in UK now is time for competence over chaos.”

“The (oil) market is trying to find its footing. But the fundamentals of production haven’t changed. We’re in for a minimum year and probably several years of lower prices,” said BP Chief Executive Bob Dudley.

2,000 Chadian soldiers crossed the Nigerian border to hunt down Islamist militant of Boko Haram. This incursion took place after several days of Chadian bombing of the Nigerian city of Gamboru.

Geopolitical uncertainties, falling commodity prices, and divergence of monetary policy among major economies (are) the main reasons of heightened volatility in the global financial markets,” said People’s Bank of China Governor Zhou Xiaochuan.

“The Greek banking system remains adequately capitalized and fully protected under Emergency Liquidity Assistance,” the Greek Finance Ministry said. Meanwhile, the ECB decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by Greece.

Oil prices slumped again to as low as minus 9% in intraday session on February 4, 2015 as US inventories rose near 80-year highs at 413.1 million barrels according to the Energy Information Administration (EIA).

“Transporting customers with private or rented cars and accepting compensation is clearly illegal. The company is ignoring local laws by stating its intention to continue such operations,” the ROK Transport Ministry said after Uber Technologies Inc.’s new driver registration system was rejected.

German Chancellor Angela Merkel has again urged that a peaceful solution be found to the Ukraine conflict. “I am absolutely convinced that there can be no military solution to this conflict,” she said. Germany will not supply weapons to Ukraine, she declared.

For the first time since 2007, the economies of all European Union Member States are expected to grow again this year, according to the European Commission‘s winter forecast. Growth this year is forecast to rise to 1.7% for the EU as a whole and to 1.3% for the euro area. In 2016, annual growth should reach 2.1% and 1.9% respectively.

The European Commission proposed to make 1 billion euro from the Youth Employment Initiative available as early as this year. This change will increase by up to 30 times the pre-financing Member States receive to boost youth employment – reaching up to 650 000 young people and helping them get into work, faster.

US Treasury Under Secretary Nathan Sheets led a delegation to Beijing January 21, 2015 for the US-China Joint Economic Committee dialogue.  The JEC focused on macroeconomic, financial, and currency issues important to both countries.