Solidarity of Oil Producers Lifts Oil Prices by More Than 4.0%

December 12, 2016

The price of West Texas Intermediate crude oil leaped 4.2% to $53.68 per barrel. At a meeting on Saturday, the Saudis showed a readiness to cut production even more than agreed previously, and non-cartel producers are supporting the effort to reduce global output and lift the price of oil.

This oil news has reinforced the rise in long-term interest rates around the world, sending the 10-year Treasury yield to a 26-month high of 2.50% and lifting other 10-year sovereign yields by five basis points in both Germany and the U.K.. The 10-year Japanese JGB rose 3 bps to 0.08%.

The currencies of major energy exporters rallied. The ruble rose over 2.0%, and the Mexican peso and Norwegian krone climbed around 1%. Other commodity-sensitive currencies were well-bid too.

The dollar, which had been very buoyant since the U.S. election, retreated 0.7% versus sterling, 0.6% against the euro and Aussie dollar, 0.5% versus the kiwi and loonie, and 0.2% vis-a-vis the Swiss franc.

The Shanghai Composite index dived 2.5%, its greatest daily drop in six months. Stocks elsewhere in the Pacific Rim fell by 1.4% in Hong Kong and 0.9% in India but rose 0.8% in Japan. European equities are so far down 0.7% in the U.K., 0.6% in Switzerland, and 0.3% in Germany. U.S. share prices edged slightly higher in the first half hour of trading. However, President-Elect Trump again exhibited the communication  power of the tweet, sending Lockheed lower with a complaint about the excessive cost of the F-35.

Four Japanese economic indicators were reported:

  1. Private domestic goods prices (akin to the PPI) increased 0.4% in November. The 12-month 2.2% decline was only half as deep as that last May. Import prices fell only 1.7% on year versus a plunge of 19.4% in the year to November 2015. What a difference the yen’s turn downward has made.
  2. The tertiary index of service sector activity recovered 0.2% in October following no change in August and a 0.3% slide in September. The tertiary index was still 0.1% lower than a year earlier.
  3. Core private domestic machinery orders climbed 4.1% in October, easily beating the expected increase, due to a 4.6% advance in demand for non-manufactured goods. Public-sector machinery orders soared 23.5% on month and 31.2% on year, and even foreign orders went up 1.9%.
  4. Machine tool orders recorded a smaller on-year decline of 5.6% in November versus 12-month slides of 8.9% in October and 19.7% as recently as June.

Turkish real GDP fell 3.1% in the third quarter, sliding for the first time since 2009. The downturn was led by consumption and investment. Turkey posted a similarly-sized current account deficit of $1.675 billion in October to that in September.

After spiking to a 7-month high in October, Ireland’s construction purchasing managers index fell back 2.5 points to a 2-month low of 59.8 in November.

In the year to November, consumer prices rose 0.4% in Denmark and were unchanged in Poland.

Mexican industrial production edged 0.1% higher in October but was 0.6% below its year-earlier level.

The British indices of leading and coincident economic indicators rose by 0.1% and 0.2%, respectively, in October according the the Conference Board.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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