“Oil prices skid downward….”

Oil prices skid downward….

Oil prices have come under pressure over the past month from rising production in the United States, Libya and Nigeria.  In the US data released on Friday showed a record increase in the number of oil rigs bringing the number to 747 which is the most since April 2015.  Indicators show that the growth in the demand for oil in Asia which is the biggest oil consuming region is stalling.  Although China increased its oil import quotas for its refineries, oil demand growth has been slowing for some time.  The customs cleared crude imports of Japan fell 13.5 percent in May from a year earlier, while India took 4.2 percent less crude in May when compared with the year before.  The sign of a growing glut sent the Brent crude future to $45.50 a barrel.  The slide in energy costs boosted bond prices and flattened the yield curves as investors priced lower inflation for longer.

Market Roundup

On Monday, the Dow Jones Industrial Average hit a record high as investors took up beaten down technology stocks. The European stocks headed for the biggest increase in two months as investors picked up retail and tech stocks.  Emerging markets climbed with stocks enjoying their biggest daily gains in nearly four weeks. Gold touched a 3 ½ week low earlier in the session and was trading down at $ 1,250 an ounce ahead of US trading.

On Wednesday weakness among financial and retail stocks sent European shares on lower grounds as a profit warning sent Provident Financial sharply down. Financial services, insurance and banking stocks were amongst the worst performing sectors affected by heavy losses of British subprime lender Provident Financial.  On the France CAC 40 and Germany DAX, banks experienced the top downfalls.

On Thursday European stocks fell for a third straight day as oil prices weakened near lows on worries over a supply gut and falling demand. Due to oil prices energy stocks fell and dampened investors’ expectations for higher inflation that would pave the way for tighter monetary policies among major central banks. While crude oil tumbled into a bear market, by falling more than 20 percent from its highest close this year and equities are weaker, the demand for gold is increasing as a safe haven.   The gap between yields on US 5 year notes and 30-year bonds has flattened.  A flattening yield curve is viewed as a negative economic indicator as it shows concerns about the future pace of growth and inflation.  When buying long dated bonds investors would demand higher yields if they expect higher costs.

The Launch of the Brexit talks

Brexit Negotiations started on Monday in Brussels and will set the terms on which Britain leaves the EU and the future relationship with the EU. Brexit secretary David Davis on Monday met the chief EU negotiator Michel Barnier who is a former French minister at the European Commission’s headquarter.

Brussels is resisting demands by the British to immediately negotiate about a future trade arrangement, however, the EU is insisting it should wait until there is an outline agreement on divorce terms. EU leaders are also determined not to make concessions to Britain that can encourage others to follow.   On Thursday May was at the European Union summit in Brussels and outlined how the UK proposes to deal with the issue of EU citizens’ rights after Brexit.

Greece

The IMF is participating in the rescue program and asked for more clarity on the future relief measures in order to make the 315 billion euros of obligations sustainable. Although all creditors say Greece has completed all the necessary economic reforms to receive more aid, euro-area nations are reluctant to further ease repayment terms on bailout loans. While the final measures should only be decided and triggered at the end of the program in mid-2018, the IMF and Greek Prime Minister Alexis Tsipras have called for more details now to help find out the long-term path of the Greece’s debt sustainability.  Despite the move to come up with a deal and the need for an accord, the risk of failure is still present.

Emmanuel Macron’s majority victory

Emmanuel Macron won 350 votes out of the 577 seats, the biggest majority in 15 years that will easily allow him to pass his reform program. There was a record low turnout.  The LREM (Republic on the Move) party which is barely a year old, obtained the largest margin of any party since 2002.

The ECB and the Eurozone

In a regular economic bulletin, the European Central Bank (ECB) said that “Overall incoming data point to solid growth in the second quarter of 2017” and “Domestic demand is expected to be buoyed by a number of favourable factors”. “Very favourable financing conditions and low interest rates continue to promote a recovery in investment in the context of rising profits and lower deleveraging needs”, continued the ECB.

Saudi Arabia

The king of Saudi Arabia King Salman appointed his son next in line to the throne on Wednesday handing the 31 year old powers as the kingdom seeks radical overhaul of its oil dependent economy. Deputy Crown Prince Mohammed bin Salman replaced his cousin Prince Mohammed bin Nayef as heir to the throne.  The news was a shock to the world’s biggest oil exporter.  He is expected to continue the present oil policies.

China

US index provider MSCI will add “A” shares to its Emerging Markets Index. This is a key milestone for the Chinese government.  The MSCI has been in discussions with Chinese regulators and global investors for four years to add yuan-denominated shares to the Emerging Markets Index which were excluded because of restricted access to China’s equity markets.  The company said that China had made enough progress to open up its markets for MSCI to add a selection of 222 large-cap stocks.  The stocks which represent a weighting of just 0.73 percent in the benchmark will be included through a two-phase process in May and August next year.  This step will see around $17 to $ 18 billion of global assets move into Chinese stocks initially which in the long-term the China market could see more than $340 billion of foreign capital flow into the country according to executives at MSCI.

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