“OPEC Meeting…..”

combined image for website

OPEC Meeting

Concentrated efforts by producers to clear the surplus of oil are starting to pay off.    It has taken OPEC and Russia almost 11 months of production cuts to clear up some of the oversupply.  According to OPEC data, excess inventories in developed nations this year have been drained by 183 million barrel or more than half of the glut which now stands at about 154 million barrels. This has resulted in the London-traded crude futures, which was below $45 a barrel this summer to move to a two-year high of $64.65 on 7th November.    The improved performance of oil producers is reflected in the announcement made by Royal Dutch Shell plc wherein, it will pay its entire dividend in cash for the first time in two years.   According to delegates, in a meeting on Thursday, in Vienna, all OPEC members and Russia who is the biggest producer outside the group agreed to extend the oil production cuts until the end of next year.  Although the extension till end of 2018 is certain, the cartel plans to hold a regular ministerial meeting next June, to give it the flexibility to change the policy if it needs to.  According to people involved in the close-door negotiations, for Russia, reassurance about how the cuts would be wound down seemed to be as important as the duration of the extension.  Russia needs more of a clear picture in view that its economic policy is more complex and has a floating exchange rate that fluctuates with the oil price.

Germany

The political situation in Germany showed signs of easing as the Social Democrats started bargaining over terms of a renewed coalition with Chancellor Angela Merkel’s conservative bloc rather than outright blocking an alliance between the two biggest parties in Germany.  The possibility of the Social Democrats again joining a Merkel-led government has unfolded quickly, with the party opening the door only a week after the chancellor’s talks with the Free Democrats and Greens broke down.  Merkel has made it clear that her coalition partner would have to support a balanced budget and broad pro-business policies.  The list of demands from the SPD includes higher pensions and income tax cuts for low earners.  Merkel and SPD head Martin Schulz, her defeated election challenger, are due to meet Thursday at the invitation of German President Frank Walter Steinmeier who is urging party leaders to find a way to avoid new elections.

Brexit

Ahead of a 4th December deadline for Britain to improve its offer on the Brexit bill, UK Trade Secretary Liam Fox said his government has done enough to satisfy the EU’s demands for money and on the rights of European citizens living in the UK and the Irish border with the latter remaining the biggest hurdle.  Theresa May’s government is held up by the region’s pro-Brexit Democratic Unionist Party which insists there should be no special status for Northern Ireland after the UK leaves the EU.  Next Monday, EU chiefs are expecting May to offer more money towards liabilities such as pension promises and infrastructure projects that it had committed to but has yet to pay.  Furthermore the biggest threat is the disagreement with the Democratic Unionists over how far she can go on the border question.  Irish and EU officials have suggested that Northern Ireland be given a different status, implying the creation of a border between Northern Ireland and the rest of the UK however, the Democratic Unionist Party (DUP) is insisting it cannot happen. Ireland has the backup of the EU in wanting written assurances that the withdrawal of the UK from the EU will not lead to a return of checkpoints that would revive memories of decades of violence between Catholic and Protestant groups.    A policed frontier and customs controls will be needed somewhere as the UK is leaving the EU.  Furthermore the whole issue is complicated by the fact that May relies on the support of the pro-Brexit DUP.  The DUP is a party rooted in Protestant support for Northern Ireland’s place in the UK.  Meanwhile, UK and European negotiators reached an outline deal on the Brexit divorce bill increasing pressure to find a compromise on the issue of the Irish border.  As a result the pound surged.  The UK has until Monday to come forward with a proposal for how a hard frontier can be avoided on the island of Ireland when it becomes home to the UK’s new land border with the EU.  If EU governments accept the formal offer, the next step will be for them to declare at the summit on the 14th December that talks can now start on the future relationship between Britain and its biggest trading partner.

Euro Data

A Eurostat flash inflation estimate for November came in below expectations at 1.5 percent with core inflation (which excludes volatile items such as food, energy and tobacco) remaining unchanged at 0.9 percent.  Unemployment in the euro area slid to 8.8 percent in October, which is the lowest in almost nine years.  The jobless rate in Germany held at a record of 5.6 percent while retail sales unexpectedly declined 1.4 percent from a year ago. Although policy makers have acknowledged that this development warrants less additional monetary support, Mario Draghi has advocated a “patient and persistent” approach to exiting the ECB’s stimulus program.

In Spain, the economic momentum has been kept strong in the third quarter boosted by investment as the Catalan crisis damaged tourism in the region.  According to the National Statistics Office, investment in machinery jumped 2.5 percent as output grew 0.8 percent in the third quarter.  Spain continued to outperform the euro area average, with growth from last year at 3.1 percent, putting the country at the forefront of the bloc’s recovery.  The Spanish government has warned that next year the Catalan crisis could hurt the economy if the downside risk materialises.  Catalans are due to vote in a regional election next month.

In the UK, according to Nationwide Building Society, house-price growth barely increased.   Values have increased by 0.1 percent from October leaving the annual gain at 2.5 percent.   Many have spoken about the slowdown in the UK property market, in particular in London. A bigger issue for many is trying to afford buying their first home.  Many years of surging values have made ownership difficult, and to add to this the situation was not helped with weak wage growth.

Bitcoin

As the Bitcoin defies bubble warnings, it hit the $9,700 threshold just a week after topping $8,000.  According to Coinmarketcap.com website the total market cap of digital currencies now sits north of $300 billion.  The surge in bitcoin’s value is forcing Wall Street banks to balance clients’ interest in speculating on the cryptocurrency with scepticism from executives about its future. Whilst bitcoin in the past two weeks has risen 45 percent, it took the S&P 500 Index since February 2014 to achieve the same increase.   On Monday bitcoin reached an intraday record high of $9,747.49. After eight years from its existence central banks are increasingly recognizing the potential upside and downside of the digital currencies.  In this regard, the issues to be addressed are what to do about the emergence and the growth of the private cryptocurrencies are increasingly grabbing attention as bitcoin reaches the $10,000 level.  The Bitcoin rally continued throughout the rest of the week as it passed the $10,000 level gaining $1,000 in less than 24 hours.

North Korea Missile’s Test

North Korea launched an intercontinental ballistic missile near Japan.    On a state run TV North Korea announced that it successfully fired a Hwasong-15 with improved technology that would put the entire US in range. Japan said that the missile flew for 53 minutes and may have reached an altitude of more than 4,000 kilometres before landing in waters about 250 kilometres from its northwest coast.  Finance Minister of South Korea after the launch said that the government will closely monitor changes in the economy and will take market-stabilizing steps if there are unusual movements.  Investors and analysts were untroubled by the latest provocation.  The benchmark 10 year sovereign bond yield was steady at 2.488 percent while the won rose 0.7 percent against the dollar to 1076.9.  The benchmark Kospi index edged higher by 0.4 percent with financial shares and automakers advancing, before the gauge ended the day little changed.

US – Tax Bill and the Risk of Government Shutdown

The Senate tax bill is being debated this week as Republican leaders plan to hold a floor vote as early as Thursday.  However, it has to go through the Budget committee, where key GOP lawmakers are  raising objections.  The addition of a provision called revenue trigger would implement automatic tax increases if the tax cuts in the bill don’t stimulate enough economic growth and hence avoid deficits.  The bill is estimated to boost deficits by $1.4 trillion over 10 years before accounting for any growth.

Congress is headed towards passing another stop-gap spending bill.  This will put off for two more weeks some hard choices on funding the government and other issues lawmakers are focusing on before the end of the year.  On a different note two Democratic leaders in Congress pulled out of a meeting with President Donald Trump on Tuesday after he tweeted that a budget deal with them was unlikely.  This raises the odds that the US government will partially shut down next week.

 

Antonella Mercieca

Client Relationship Manager

Source:

Bloomberg

Date:

December 1st, 2017


‘Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Timberland Finance has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Timberland Finance does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Timberland Invest Ltd.’

Subscribe To Our Newsletter

Be one step ahead with our latest news updates.

Timberland Finance,
CF Business Centre,
Gort Street,
St Julians STJ 9023
Malta