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Major Firms Are Saying the Stage Is Set for Another Crisis in the Bond Market

An accident could be on its way. Silver coins are melted in order to be re-used again at the Mexican Mint, or Casa de Moneda, in San Luis Potosi, Mexico, on Thursday, Feb. 5, 2015. Companies in Mexico are on pace to sell the most peso-denominated debt in 14 years as they capitalize on a tumble in benchmark borrowing costs. (Bloomberg) — The stage is set for another financial crisis to unravel years of relative calm in debt markets. At least that’s how firms from UBS Group AG to Invesco Ltd. see it. Here’s why: Prices in the world’s biggest bond market are swinging and the plunge in oil is sinking the economies of nations from Venezuela to Nigeria. To top all that off, the fundamental structure of the bond market has changed in a way that makes it difficult for regulators to gauge exactly where risks are building. […]

Posted On : Published By : Tom Whipple
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Growth in Slow Start as U.S. Factories Curb Output: Economy

(Bloomberg) — Factory production rose less than forecast in January and home construction fell, showing the U.S. economy is off to a slow start in 2015. Output at factories climbed 0.2 percent and figures for the previous three months were revised lower, data from the Federal Reserve showed Wednesday in Washington. Total industrial production, which also includes mining and utilities, climbed less than projected as oil-well drilling slumped. Housing starts dropped 2 percent, according to the Commerce Department. “It’s not weak, but it’s not great either,” said Thomas Costerg, an economist at Standard Chartered Bank in New York, who correctly estimated the gain in factory output. “There are some downside risks, clearly.” The data bolster Fed concern that struggling economies from Europe to Asia, a stronger dollar and the sluggish recovery in housing pose obstacles that warrant keeping interest rates low for longer. Additionally, while consumers benefit from an […]

Posted On : Published By : Tom Whipple
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U.S. retail sales weak, consumer spending gauge barely rises

WASHINGTON (Reuters) – U.S. consumer spending barely rose in January as households cut back on purchases of a range of goods, suggesting the economy started the first quarter on a softer note. The Commerce Department said on Thursday retail sales excluding automobiles, gasoline, building materials and food services edged up 0.1 percent last month after a 0.3 percent drop in December. The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. "Overall, the tone of this report was disappointing as it points to a weak start to spending activity this year, despite the significant boost to disposable income from lower gasoline prices," said Millan Mulraine, deputy chief economist at TD Securities in New York. Wall Street had expected core retail sales to increase 0.4 percent last month. The soft reading could see economists trim their forecasts for first-quarter GDP growth. The economy […]

Posted On : Published By : Tom Whipple
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Here’s a $9 Trillion Question

(Bloomberg) — When Group of 20 finance ministers this week urged the Federal Reserve to “minimize negative spillovers” from potential interest-rate increases, they omitted a key figure: $9 trillion. That’s the amount owed in dollars by non-bank borrowers outside the U.S., up 50 percent since the financial crisis, according to the Bank for International Settlements. Should the Fed raise interest rates as anticipated this year for the first time since 2006, higher borrowing costs for companies and governments, along with a stronger greenback, may add risks to an already-weak global recovery. The dollar debt is just one example of how the Fed’s tightening would ripple through the world economy. From the housing markets in Canada and Hong Kong to capital flows into and out of China and Turkey, the question isn’t whether there will be spillovers — it’s how big they will be, and where they will hit the […]

Posted On : Published By : Tom Whipple
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Kemp: US Businesses Brace For Oil Investment Downturn

John Kemp is a Reuters market analyst. The views expressed are his own LONDON, Feb 10 (Reuters) – Oil and gas production is fundamental to the U.S. economy. The sharp downturn in prices will have a negative impact on business investment in the short term before the positive impact on consumer spending takes over further down the line. Oil and gas producers accounted for almost $1 in every $8 of new business investment in the U.S. economy in 2013, according to new data published by the Census Bureau. Businesses engaged in oil and gas extraction invested $159 billion in wells, structures and equipment in 2013, according to the Annual Capital Expenditures Survey, the latest edition of which was published on Feb. 5 ( http://link.reuters.com/dur93w ). Companies engaged in oil and gas production support activities invested a further $20 billion, taking the oil and gas sector’s share of economy-wide new […]

Posted On : Published By : Tom Whipple
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Charts showing the long-term GDP-energy tie

In Part 1 of this series , I talked about why cheap fuels act to create economic growth. In this post, we will look at some supporting data showing how this connection works. The data is over a very long time period–some of it going back to the Year 1 C. E. We know that there is a close connection between energy use (and in fact oil use) and economic growth in recent years. Figure 1. Comparison of three-year average growth in world real GDP (based on USDA values in 2005$), oil supply and energy supply. Oil and energy supply are from BP Statistical Review of World Energy, 2014. In this post, we will see how close the connection has been, going back to the Year 1 CE. We will also see that economies that can leverage their human energy with inexpensive supplemental energy gain an advantage over other […]

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US jobs growth beats expectations

The US labour market recovery gathered momentum in January as employers added more jobs than expected and wages rebounded, raising the odds of an interest-rate hike in the middle of the year. The dollar jumped against the euro after official figures showed US employers added more than a million jobs in the past three months alone, the most since 1997. More On this story On this topic IN US Economy The data were coupled with improved earnings figures that reversed surprisingly weak wage numbers for December. “The US economy is looking better and better,” said Torsten Sløk, chief international economist at Deutsche Bank. US Treasury Secretary Jack Lew told Congress this week that the American economy was in a “self-sustaining” recovery. The latest figures support that verdict, and sharpen the contrast between the robust US recovery and gloomier prospects in many economies overseas. The US has now seen eleven […]

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U.S. factory orders fall sharply, order books shrinking

WASHINGTON (Reuters) – New orders for U.S. factory goods fell for a fifth straight month in December, but a smaller-than-previously reported drop in business spending plans supported views of a rebound in the months ahead. Other data on Tuesday showing fairly brisk sales in January by the country’s leading automobile manufactures also offered a silver lining for a sector that has taken a hit from weak global demand and falling crude oil prices. "It suggests that activity will pick up in coming months," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. The Commerce Department said new orders for manufactured goods declined 3.4 percent as demand fell across a broad sector of industries. That followed a 1.7 percent decrease in November and exceeded economists expectations for a 2.2 percent drop. The department also said orders for non-defense capital goods excluding aircraft – seen as a measure […]

Posted On : Published By : Tom Whipple
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Commodities crash: Bad news for the world economy, but is anyone listening?

Depression: Unemployed;destitute man leaning against vacant store:photo by Dorothea Lange http://commons.wikimedia.org/wiki/File:Depression,_Unemployed,destitute_man_leaning_against_vacant_store-photo_by_Dorothea_Lange_-_NARA_-_195825.tif Reading the general run of financial headlines might lead one to believe that price declines in those commodities which are highly sensitive to economic conditions such as  iron ore ,  copper ,  oil ,  natural gas ,  coal , and  lumber  are good on their face. Obviously, the declines aren’t good for those who  sell  these commodities. But, those of us who  buy  these commodities in the form of cars, houses, utility bills and other products and services ought to be helping the world economy as we buy more stuff with the freed up income. As true as that may be, these commodity price declines also signal something else: exceptional weakness in the world economy. It is no secret that economic growth in Europe has been stalled for some time and is now receding. The European Union’s confrontation […]

Posted On : Published By : Tom Whipple
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American CEOs Most Bearish on Earnings Since 2008 Crisis

Drilling for oil in the Bakken shale formation on July 23, 2013 outside Watford City, North Dakota. (Bloomberg) — U.S. chief executive officers are more pessimistic about corporate earnings than any time since the financial crisis, according to research from Bespoke Investment Group LLC. The percentage of companies cutting profit forecasts during this earnings season has outpaced those with upward revisions by 8.6 percentage points, the widest margin in six years, according to data compiled by Bespoke. Consumer companies and drugmakers are the most bearish among 10 major industries, with at least 18 percent of each group providing lower guidance, the data show. Plunging oil and a strengthening dollar are wreaking havoc on earnings this month as Procter & Gamble Co. to Caterpillar Inc. and Pfizer Inc. joined an increased number for companies to announce disappointing forecasts. While the reduction in projections sets a lower bar for companies to […]

Posted On : Published By : Tom Whipple