Tags: opec | oil | production | cut

Brent Below $80 Economically Pressures Gulf States

dollar sign attached to a ball and chain symbolizing the constraints on the dollar by the oil markets
(Paul Fleet/Dreamstime)

Thursday, 06 December 2018 08:30 AM Current | Bio | Archive

OPEC Looks for Agreement on Cutting Oil Production

OPEC is still looking for an agreement on cutting oil production. That agreement has further to be debated. Russia will join the OPEC meeting tomorrow.

There are suggestions that the cuts could be as large as 1 percent of global oil production but that there are pressures for the cuts to be somewhat less from some members of OPEC.

In the meantime, oil prices are lower than at yesterday’s close.

Investors should keep in mind that oil below $80 a barrel for Brent creates fiscal pressure on the Gulf States economically. A higher oil price would create some pressure for a stronger dollar and would reduce pressure for OPEC countries to sell U.S. dollar denominated assets.

China-U.S. Trade

China’s commerce ministry spokesman Gao Feng said today in a weekly briefing China has confidence in striking a trade deal with the United States within their 90-day ceasefire period and pledged to quickly implement policy changes for trade on areas where there is a consensus with the United States.

Gao added that China’s ultimate goal during the 90-day trade talks is to remove all U.S. tariffs imposed on Chinese goods but did not give details on any specific measures.

Investors’ nerves have been rather shredded by President Trump’s repeated threats to tax American companies and American consumers more and more. And so, signs that the trade taxes (tariffs) might be avoided will be met with some relief.

Nevertheless, it would be unwise to get carried away however. It is not clear what areas there is a consensus on, and investors seem unwilling to depend on guidance from the Trump Twitter feed on this particular point.

It is likely that China, and not the United States, will take the lead in signaling where changes can happen.

Huawei’s Chief Global Financial Officer is Arrested

The daughter Meng Wanzhou of Huawei’s founder, who is Huawei's global chief financial officer, has been arrested in Canada in relation to a violation case of U.S. sanctions and is facing extradition to the United States.

This situation puts serious a stumbling block from the Chinese side on the state of the planned Sino-U.S. trade talks and has rocked global stock markets so far today.

Huawei is one of the world's largest makers of telecommunications network equipment.

U.S. Trade Balance (Revised)

The U.S. monthly international trade deficit increased in October.

The deficit increased from $54.6 billion in September (revised) to $55.5 billion in October, as exports decreased and imports increased. The previously published September deficit was $54.0 billion.

The goods deficit increased $0.9 billion in October to $78.1 billion. The services surplus decreased $0.1 billion in October to $22.6 billion.

Meanwhile, the U.S. trade balance for October is due. This is not expected to show a dramatic change in the deficit in spite of the trade tariffs. The headline will get a little attention from markets but the detail will allow economists to examine how easily companies are finding ways to evade these U.S. trade tariffs.

U.S. Productivity and Labor Costs (Revised)

U.S. labor productivity increased 2.3 percent during the third quarter, as output increased 4.1 percent and hours worked increased 1.8 percent.

From the third quarter of 2017 to the third quarter of 2018, productivity increased 1.3 percent, reflecting a 3.7 percent increase in output and a 2.3 percent increase in hours worked.

Unit labor costs in the nonfarm business sector increased 0.9 percent in the third quarter, reflecting a 3.1 percent increase in hourly compensation and a 2.3 percent increase in labor productivity.

Fed’s Beige Book

The “Beige Book” of economic gossip anecdotes was published yesterday and amid a general upbeat tone for the economy, did note that labor shortages are starting to become a problem for production in parts of the country.

The Beige Book reads: “Most Districts reported that wage growth tended to the higher side of a modest to moderate pace.”

Employment growth is expected to slow because of this lack of labor supply.

Now, it would certainly seem rather “loco” for the Fed to contemplate halting rate rises just at the point when labor market pressures are threatening some inflation, but the unit labor cost data should reassure things are not out of hand yet.

New York Fed President Williams gave an interesting remark this week: “Given this outlook of strong growth, strong labor market and inflation near our goal and taking account all the various risks around the outlook, I do expect further gradual increases in interest rates will best sponsor a sustained economic expansion.”

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investors should keep in mind that oil below $80 a barrel for Brent does create fiscal pressures on the Gulf States economically.
opec, oil, production, cut
Thursday, 06 December 2018 08:30 AM
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