May’s Brexit deal prospects ebb as top ally rejects i

 

FILE PHOTO: Conservative politician Michael Fallon arrives at the BBC in central London, Britain, July 10, 2018. REUTERS/Hannah McKay

LONDON (Reuters) – One of British Prime Minister Theresa May’s most trusted lawmakers said on Tuesday he will not back her Brexit deal, further stacking the odds against it passing through parliament next month. Under the deal secured with EU leaders on Sunday, Britain would leave the bloc in March with continued close trade ties. But the agreement has attracted criticism from lawmakers of all parties, both from supporters of a cleaner break with the EU and from opponents of Brexit. Michael Fallon, May’s former defence secretary who resigned last year after a journalist accused him of sexual harassment, told BBC radio that British negotiators should head back to Brussels to secure a better divorce agreement. Asked whether he would vote against the current deal, Fallon said: “As it stands at the moment, yes. I don’t think this gives us the certainty that we need and it is therefore a gamble.” Some Brexit-supporting lawmakers in May’s Conservative Party could support her deal if she sets out when she will quit, The Times newspaper reported. May told lawmakers on Monday that no better deal was available and that no one could predict what would happen if they rejected it. May has 314 active Conservative lawmakers in the 650-seat House of Commons and would need around 320 votes to ratify the deal under current attendance projections, when it goes to lawmakers on Dec. 11. Falling business morale points to weak German growth Her de facto deputy prime minister, Cabinet Office Minister David Lidington, told the BBC on Tuesday that no other plan was on the table. “There’s no plan B because the European Union itself is saying the deal that is on the table is the one that we have had to compromise over,” Lidington said. Asked if Britain could delay Brexit to get a better deal, he said: “It’s not government policy and I don’t really see that gets us anywhere because the EU has made its position very clear.”

Palladium Prices Soar, & Russia Has Plenty of the Precious Metal

Palladium has enjoyed the best market performance among major metals in 2018, thanks in large part to tough new Chinese car pollution standards which have pushed automotive producers to install catalytic converters which contain the metal in their cars. Palladium prices have appreciated over 9 percent on the New York Stock Exchange year-to-date, hitting just short of $1,170 per ounce on Friday, with futures jumping 5.2 percent last week alone and market analysts telling Bloomberg that the bull run is just getting started.  The silvery-white precious metal, used in pollution control devices, electronics, jewellery, groundwater treatment equipment, chemical applications and dentistry, has enjoyed a steady upward climb in value over the last decade, starting off at a low of $235 per ounce in November 2008. Close to 70 percent of demand is driven by the automotive market, according to CPM Group, a New York-based commodities research firm. And with car sales remaining steady despite fears of a decline in many other industries, investors are expecting palladium’s climb to continue over the short to medium term. “The market has a very positive fundamental outlook,” Maxwell Gold, director of investment strategy at Scotland-based investment firm Aberdeen Standard Investments told Bloomberg. “We’ve been dealing with supply deficits going on eight years, and that’s expected to continue. Supply has certainly been an issue on the mining front as well as the draw-down of existing stockpiles,” he added. With palladium prices climbing above those of its sister-metal, platinum (which closed at $843 per ounce on Friday), investors say its possible that platinum may replace palladium in many automotive and industrial applications. However, Standard Chartered Bank precious metals analyst Suki Cooper said it would take at least 18-24 months for manufacturers to make the switch, not to mention the costs and headaches associated with doing so. Where does Russia come into all this? Well, the country is rich in both precious metals, and enjoys the status of being the world’s largest palladium producer, mining some 81 tonnes of the precious metal in 2017. Norilsk Nickel alone accounted for 41 percent of total global palladium production the same year. Norilsk Nickel, which also engages in the extraction and refining of platinum, cobalt, silver, gold, tellurium and selenium, increased its palladium output by 6 percent in 2017, and platinum output by 4 percent. It is looking to continue growing its output amid market concerns about the closure of mines in South Africa, the world’s second-largest palladium producer. Zimbabwe, Canada and the United States round out the top five global palladium producers, with their total output amounting to just 27 percent of combined Russian and South African output in 2015.

Oil plunges nearly 8 percent despite talk of output cut

BOSTON (Reuters) – Oil prices slumped up to nearly 8 percent to the lowest in more than a year on Friday, posting the seventh consecutive weekly loss, amid intensifying fears of a supply glut even as major producers consider cutting output. Oil supply, led by U.S. producers, is growing faster than demand and to prevent a build-up of unused fuel such as the one that emerged in 2015, the Organization of the Petroleum Exporting Countries is expected to start trimming output after a meeting on Dec. 6. But this has done little so far to prop up prices, which have dropped more than 20 percent so far in November, in a seven-week streak of losses. Prices were on course for their biggest one-month decline since late 2014. A trade war between the world’s two biggest economies and oil consumers, the United States and China, has weighed upon the market. “The market is pricing in an economic slowdown – they are anticipating that the Chinese trade talks are not going to go well,” said Phil Flynn, an analyst at Price Futures Group in Chicago, referring to expected talks next week between U.S. President Donald Trump and his Chinese counterpart Xi Jinping at the G20 summit in Buenos Aires. “The market doesn’t believe that OPEC is going to be able to act swiftly enough to offset the coming slowdown in demand,” Flynn said.

Brent crude futures settled down $3.80 a barrel, or 6.1 percent at $58.80. During the session, the benchmark dropped to $58.41, the lowest since October 2017.

U.S. West Texas Intermediate crude (WTI) lost $4.21, or 7.7 percent, to trade at $50.42, also the weakest since October 2017. In post-settlement trade, the contract continued to fall. For the week, Brent fell 11.3 percent and WTI posted a 10.8 percent decline, the largest one-week drop since January 2016. Market fears over weak demand intensified after China reported its lowest gasoline exports in more than a year amid a glut of the fuel in Asia and globally. Stockpiles of gasoline have surged across Asia, with inventories in Singapore, the regional refining hub, rising to a three-month high while Japanese stockpiles also climbed last week. Inventories in the United States are about 7 percent higher than a year ago. Crude production has soared as well this year. The International Energy Agency expects non-OPEC output alone to rise by 2.3 million barrels per day (bpd) this year while demand next year was expected to grow 1.3 million bpd.

Adjusting to lower demand, top crude exporter Saudi Arabia said on Thursday that it may reduce supply as it pushes OPEC to agree to a joint output cut of 1.4 million bpd.

However, Trump has made it clear that he does not want oil prices to rise and many analysts think Saudi Arabia is coming under U.S. pressure to resist calls from other OPEC members for lower crude output. If OPEC decides to cut production at its meeting next month, oil prices could recover, analysts say. “We expect that OPEC will manage the market in 2019 and assess the probability of an agreement to reduce production at around 2-in-3. In that scenario, Brent prices likely recover back into the $70s,” Morgan Stanley commodities strategists Martijn Rats and Amy Sergeant wrote in a note to clients. If OPEC does not trim production, prices could head much lower, potentially depreciating toward $50 a barrel, argues Lukman Otunuga, Research Analyst at FXTM.

Mark Connors, global head of portfolio and risk advisory at Credit Suisse, told Reuters this week that the action among macro and CTA funds reflects a risk-aversion trade, as net long positions have dropped from near five-year highs to roughly even exposure between longs and shorts. Hedge funds and other money managers cut their net long positions in Brent by 32,263 contracts to 182,569 in the week ended Nov. 20, according to data provided by the Intercontinental Exchange (ICE) on Friday. That’s the lowest net long position since December 2015. Volatility, a measure of investor demand for options, has spiked to its highest since late 2016, above 60 percent, as investors have rushed to buy protection against further steep price declines. The decline in oil prices pulled U.S. energy shares lower. Oil majors Exxon Mobil Corp and Chevron Corp fell more than 3 percent and were the leading decliners on the Dow Jones Industrial Average Oilfield service providers Schlumberger NV and Halliburton Co also fell nearly 3 percent.

Oil prices hit year low as OPEC considers output cut

LONDON (Reuters) – Oil prices fell to their lowest in more than a year on Friday, on course for their biggest one-month decline since late 2014, even as oil producers considered cutting production to try to stem a rising global surplus. Oil supply, led by U.S. producers, is growing more quickly than demand and to ward off a build-up of unused fuel such as the one that emerged in 2015, the Organization of the Petroleum Exporting Countries is expected to start trimming output after a meeting planned for Dec. 6. But this has done little so far to prop up prices. The value of a barrel of oil has dropped by around 20 percent so far in November, in a seven-week streak of losses. “Oil bears have re-asserted their authority,” said Tamas Varga, analyst at London brokerage PVM Oil. “The weakness is the continuation of the prevailing bearish sentiment aided a little bit by the stronger dollar.” Volatility has spiked to its highest since late 2016, as investors have rushed to buy protection against further steep price declines. Volatility, a measure of investor demand for a particular option, has jumped above 60 percent for very bearish near-term sell options, double what it was two weeks ago. Oil production has surged this year. The International Energy Agency expects non-OPEC output alone to rise by 2.3 million bpd this year. Oil demand next year, meanwhile, is expected to grow by 1.3 million bpd.

Adjusting to lower demand, top crude exporter Saudi Arabia said on Thursday that it may reduce supply as it pushes OPEC to agree to a joint output cut of 1.4 million bpd. If OPEC agrees to cut production at its meeting next month, oil prices could recover sharply, analysts say.

“We expect that OPEC will manage the market in 2019 and assess the probability of an agreement to reduce production at around 2-in-3. In that scenario, Brent prices likely recover back into the $70s,” Morgan Stanley commodities strategists Martijn Rats and Amy Sergeant wrote in a note to clients.

U.S. Durable Goods Orders Plunge 4.4% In October, Much More Than Expected

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A report released by the Commerce Department on Wednesday showed a much steeper than expected drop in new orders for U.S. durable goods in the month of October, with the sharp decline largely reflecting a substantial decrease in orders for transportation equipment.

The Commerce Department said durable goods orders plunged by 4.4 percent in October following a revised 0.1 percent dip in September.

Economists had expected orders to slump by 2.5 percent compared to the 0.7 percent increase that had been reported for the previous month. The steep drop in durable goods orders was primarily due to the sharp pullback in orders for transportation equipment, which tumbled by 12.2 percent in October after climbing by 0.9 percent in September. Orders for non-defense aircraft and parts plummeted by 21.4 percent in October after plunging by 19.3 percent in September, while orders for defense aircraft and parts nosedived by 59.3 percent after soaring by 117.1 percent. Excluding the substantial decrease in orders for transportation equipment, durable goods orders inched up by 0.1 percent in October after a revised 0.6 percent decrease in September. Ex-transportation orders had been expected to rise by 0.4 percent compared to the 0.1 percent uptick originally reported for the previous month.

The uptick in ex-transportation orders came as notable increases in orders for electrical equipment, appliances and components and computers and electronic products were partly offset by a significant decline in orders for primary metals. The report also said orders for non-defense capital goods excluding aircraft, a key indicator of business spending, were nearly unchanged in October after falling by 0.5 percent in September. Shipments in that category rose by 0.3 percent in October, barely reversing the drop seen over the two previous months.”This report is another piece of evidence that suggests the sharp rise in interest rates is beginning to restrain economic growth,” said Michael Pearce, Senior U.S. Economist at Capital Economics. He added, “The weakness of business investment is particularly disappointing because it should have been boosted by the tax changes at the beginning of the year.” The Commerce Department also said shipments of durable goods fell by 0.6 percent in October after jumping by 1.0 percen

 

U.S. Consumer Sentiment Deteriorates More Than Initially Estimated November

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Consumer sentiment in the U.S. unexpectedly deteriorated by more than initially estimated in the month of November, according to a report released by the University of Michigan on Wednesday. The report said the consumer sentiment index for November was downwardly revised to 97.5 from the preliminary reading of 98.3. Economists had expected the consumer sentiment index to be unrevised at 98.3, which was still down slightly from 98.6 in October. “Although the data recorded a decline of 2.8 Index points following the election, the drop was related more to income than political party,” said Surveys of Consumers chief economist Richard Curtin. “Among those with incomes in the bottom third, the Sentiment Index rose by 10.4 points and fell by 6.6 points among those in the top third of the income distribution,” he added. “In contrast, the Sentiment Index remained unchanged among Democrats and Republicans.” The report said the current economic conditions index for November was downwardly revised to 112.3 from 113.2 and is now below the October reading of 113.1. The index of consumer expectations dipped to 88.1 from 89.3. On the inflation front, one-year inflation expectations slipped to 2.8 percent in November from 2.9 percent in October, while five-year inflation expectations rose to 2.6 percent from 2.4 percent.

Oil rebounds after previous session’s slide, but glut worries persist

NEW YORK (Reuters) – Oil prices rose more than 1 percent on Wednesday, recovering from the lowest levels in months, after U.S. government data showed strong demand for gasoline and diesel, but gains were limited by concern over rising global crude supply. U.S. crude stocks USOILC=ECI rose 4.9 million barrels last week, the Energy Information Administration said. More than expected. Crude inventories have risen for nine straight weeks, the longest streak of increases since March 2017. [EIA/S] Crude stocks at the Cushing, Oklahoma, delivery hub for WTI USOICC=ECI fell 116,000 barrels, the first drop in nine weeks, EIA said. Gasoline stocks USOILG=ECI fell 1.3 million barrels to the lowest level since December 2017, while distillate stockpiles USOILD=ECI dropped by 77,000 barrels, the EIA data showed. “The report was somewhat bearish due to the large crude oil inventory build, but the drawdown in refined product inventories and the big jump in refinery activity could signal the end of the recent string of mostly bearish reports,” said John Kilduff, a partner at Again Capital Management in New York. However, Wednesday’s gains did little to reverse overall market weakness. Crude fell more than 6 percent in the previous session, while world equities tumbled as investors grew concerned about economic growth prospects. Brent has fallen by more than 25 percent since reaching a 4-year high of $86.74 on Oct. 3, reflecting concern about forecasts of slowing demand in 2019 and ample supply from Saudi Arabia, Russia and the United States.

Worried by the prospect of a new supply glut, the Organization of the Petroleum Exporting Countries is talking about reducing output just months after increasing production.

OPEC, Russia and other non-OPEC producers are considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a Dec. 6 meeting, sources familiar with the issue have said. However, Saudi Arabia may find taking action to support prices harder, analysts said, with U.S. pressure to keep them low. U.S. President Donald Trump on Wednesday praised Saudi Arabia for helping to lower oil prices. Riyadh could feel more inclined to heed U.S. demands after Trump promised on Tuesday to be a “steadfast partner” of Saudi Arabia despite saying Crown Prince Mohammed bin Salman may have known about a plan to murder journalist Jamal Khashoggi. “It’s fair to say that the price of oil is going to continue to be pretty volatile between now and Dec. 6 when OPEC meets,” said Brian Kessens, managing director at Tortoise. “There’s going to be a lot of different rhetoric and anticipation of what will actually transpire.

Trump thanks Saudi Arabia for lower oil prices

US President Donald Trump sees Saudi Crown Prince Mohammed bin Salman as a key strategic partner in the Middle East (AFP Photo/MANDEL NGAN)

Washington (AFP) – US President Donald Trump on Wednesday ignored criticism that he gave Saudi Arabia a free pass on the murder of a dissident journalist, instead praising the Islamic kingdom for keeping oil prices low. Trump, on holiday at his Florida Mar-a-Lago Club, doubled down on an unusually worded statement from Tuesday that he was essentially ignoring the killing of Jamal Khashoggi because of what he said were more important US strategic and commercial interests.

“Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82,” he tweeted. “Thank you to Saudi Arabia, but let’s go lower!”

The fulsome praise for Saudi Arabia’s help in maintaining cheap oil built on comments he made Tuesday at the White House, saying that “if we broke with them, I think your oil prices would go through the roof.””They’ve helped me keep them down,” he said.The focus on oil prices is one strand of Trump’s argument against punishing the US ally for Khashoggi’s death, even though the CIA reportedly found strong evidence that de facto Saudi leader, Crown Prince Mohammed bin Salman, was involved. Khashoggi, a US resident who wrote for The Washington Post and had been critical of Prince Mohammed, was lured to the Saudi consulate in Istanbul on October 2, killed and reportedly dismembered. After lengthy denials, Saudi authorities admitted responsibility and said 21 people had been taken into custody. However, a CIA analysis leaked to the US media went further, reportedly pointing the finger at Prince Mohammed, who has especially close contacts with the Trump White House. In a formal statement Tuesday — released just after nearly the entire White House press corps had left to cover the lighthearted annual ritual of the president sparing a turkey from the Thanksgiving table — Trump said the prince “could very well be” in on the crime. But he then went on to flatly reject any suggestion of punishing the Saudi leader, saying Washington “intends to remain a steadfast partner.” Trump’s reasoning was that Saudi Arabia and the United States are partners in opposing Iran and the Saudis have committed to $450 billion in weapons contracts and other investments, as well as being a major oil producer. “Very simply it is called America first!” Trump concluded. This was in contrast to previously stated positions where Trump promised a tough response, warning in an October interview with The Wall Street Journal, for example, that the US-Saudi relationship “would take a while to rebuild.” Trump’s posture has provoked rare dissension among the ranks of senior Republicans. Senator Lindsey Graham said on Fox News that Prince Mohammed is “crazy.” “It’s not too much to ask an ally not to butcher a guy in a consulate,” he said. And Senator Bob Corker, the Republican leader of the foreign relations committee, tweeted scathingly: “I never thought I’d see the day a White House would moonlight as a public relations firm for the Crown Prince of Saudi Arabia.” Corker and the senior Democrat on the committee, Bob Menendez, demanded that the Trump administration issue a clear statement on whether Prince Mohammed was involved. Another prominent Republican, Senator Rand Paul, added “Let’s put America first, not Saudi Arabia,” while Khashoggi’s old employer the Post said in an editorial that Trump’s position meant “a world where dictators know they can murder their critics and suffer no consequences.” Secretary of State Mike Pompeo pushed back in a radio interview Wednesday, saying: “We are going to make sure that America always stands for human rights. We’ve watched the Saudis actually move in that direction during our time in office as well. “It’s not an unblemished record, but there certainly have been steps forward.”

WTI Crude Oil Price Plunge

From its 2018 peak on October 3 to November 13, the price of a barrel of West Texas Intermediate crude oil fell by 27%. In the later stage of its decline, it closed at a lower price for 12 consecutive days, something it’s not done in at least 35 years. This of course has significant first order implications for the energy industry and for the economy at large. Perhaps less intuitive, however, is the effect that a falling oil price may have on Fed policy. As the price of oil has fallen, so too have inflation expectations. Over last six weeks, the 5-year breakeven inflation rate has fallen from 2.07% to 1.88%. Regressing the breakeven rate against the price of oil from the beginning of 2009 through November 13 generates this relationship:

5yr BE = 0.932+0.01*WTI, with an R square of nearly 40%.

This has had the effect of pushing one measure of the real fed funds rate (fed funds rate minus 5-year breakeven rate) up to its highest level since January 2009. While the market’s expectation of a December rate hike remains largely unchanged, its outlook on subsequent hikes in 2019 has become less clear. If oil continues to fall, and inflation expectations with it, the Fed’s efforts to normalize policy may involve an earlier-than-expected intermission.

Oil slumps 7 percent as equities slide fuels demand worries

NEW YORK (Reuters) – Oil prices tumbled about 7 percent on Tuesday, with U.S. crude plunging to its lowest level in more than a year, caught in a broader Wall Street selloff that was fed by rising concerns about slowing global economic growth. U.S. West Texas Intermediate (WTI) crude futures were down $3.90, or 6.8 percent, at $53.30 per barrel by 2:01 p.m. EST (1901 GMT). The contract fell as much as 7.7 percent earlier in the session to $52.77 a barrel, the lowest since October 2017. So far in the session, more than 868,000 front-month WTI contracts had changed hands, exceeding the daily average over the last 10 months. Brent crude futures fell $4.50, or 6.7 percent, to $62.29 a barrel. The international benchmark fell as much as 7.6 percent to $61.71, the lowest level since December 2017. Tuesday’s drop extended a slide that has been largely unimpeded since early October. WTI prices have fallen more than 30 percent from their near-four-year peaks in early October, weighed down by surging supply and the selloff in risk assets worldwide. “For the time being it’s more about risk,” said Jim Ritterbusch, president of Ritterbusch and Associates. “When the stock market comes off 8 or 9 percent, it tends to conjure up images of a weak global economy and that feeds into expectations of weaker-than-expected oil demand.”The S&P 500 index .SPX hit a three-week low on Tuesday as weak results and forecasts from big retailers fanned worries about holiday season sales, while tech stocks continued to slide on concerns about iPhone sales. Global stock markets have suffered a shakeout in the past two months, pressured by worries of a peak in corporate earnings growth, rising borrowing costs, slowing global economic momentum and international trade tensions. Amid the uncertainty, financial traders have become wary of oil markets, seeing further downside risk to prices from the growth in U.S. shale production as well as the deteriorating economic outlook. Prices ticked lower after U.S. President Donald Trump said the United States intends to remain a “steadfast partner” of Saudi Arabia even though “it could very well be” that Saudi Crown Prince Mohammed bin Salman had knowledge of the killing of journalist Jamal Khashoggi last month in Turkey. Oil markets have been concerned about potential supply disruptions amid heightened tensions between the United States and Saudi Arabia over the killing.But experts said any threat to supplies were limited to begin with. “I never really understood the premium behind some kind of friction between U.S. and Saudi Arabia from a policy standpoint … It really is a too-big-to-fail relationship,” said Joe McMonigle, senior energy policy analyst at Hedgeye Risk Management in Washington. Apple gives stocks the holiday blues “I think today what’s driving oil is the continued equity selloff, and oil is really collateral damage.” Meanwhile, the United States was considering adding Venezuela, one of its biggest crude suppliers, to Washington’s list of state sponsors of terrorism but no final decision has been made, a person familiar with the deliberations said late on Monday. Expectations for a ninth straight week of U.S. crude inventory increases also weighed on prices. Analysts polled ahead of weekly data forecast crude stocks rose about 2.9 million barrels last week. U.S. crude production has soared almost 25 percent this year, to a record 11.7 million barrels per day (bpd). The Organization of the Petroleum Exporting Countries is pushing for a supply cut of 1 million bpd to 1.4 million bpd when it meets on Dec. 6. The OPEC envoy for the United Arab Emirates said it was very likely that the group would reduce its output but the exact level had yet to be decided.

The International Energy Agency (IEA), however, warned OPEC and other producers of the “negative implications” of supply cuts, with many analysts fearing a spike in crude prices could erode consumption.

“We are entering an unprecedented period of uncertainty in oil markets,” IEA Executive Director Fatih Birol said on Monday.