Month: February 2016

China’s policymakers still have ammunition to counter the mainland’s slowing economy, including supply-side reforms and subsidized housing, HSBC said.

In a note released Tuesday, the bank’s economists said that runctions in China’s equities and currency markets pointed to fresh fears about deflation and a hard-landing for the world’s second-largest economy.

“It is increasingly clear that the concerns about economic growth has not gone away, but rather intensified over the past weeks, amplifying the already fragile sentiment,” HSBC said.

Data this month showed China’s economic growth rate slowed to a 25-year low of 6.9 percent in 2015, as the world’s second-largest economy shifts away from its manufacturing roots. Meanwhile, the Shanghai composite is down around 25 percent since its most recent high of 3,651.76 on December 22, leaving it in a “bear within a bear” market. The index is off around 47 percent from its 52-week high of 5,166.35, set June 2015.

“It is therefore high time for policy makers to come up with a convincing package to support growth, one that includes greater fiscal expansion, continued monetary accommodation and necessary reforms to improve the supply side of the economies,” HSBC said.

Depressed oil prices are likely to rally in the second half of the year – perhaps as high as USD 85 per barrel, energy analyst Michael Rothman said Monday. That said, he added any move higher won’t be a result of coordinated production cuts.

West Texas Intermediate crude tumbled around 5 percent in late morning trade to under USD 32 per barrel, as hopes for a deal among OPEC countries and Russia to reduce output dwindled.

Read More: Pickens: Oil already bottomed-here’s what’s next

An output cut “was never going to happen, the notion that [OPEC and Russia] would agree to reduce their output and help support prices was a nonstarter,” said Rothman, founder and president of the Cornerstone Analytics research firm.

an extended period of time,” he said. Rothman believes there are plenty of factors setting up the other side of the oil trade.

“Most budgets for the OPEC countries can’t be maintained at this level,” he continued. “Even the Saudi budget is built on almost USD 100 price for breakeven, which is why they’ve been dipping into their reserves.” So when will the reversal begin?

Rothman told CNBC’s “Worldwide Exchange” that USD 85 per barrel crude is just a few months away. “We’ll actually start to see it when we get past the winter. We’ll see inventories being drawn down, which most people you’re going to talk to aren’t expecting,” Rothman added.

“That’s really the bottom line of where supply and demand meet,” he said. “I expect that the sentiment is [then] going to shift.”

Over 12 months of buying starting in early January, Berkshire has picked up 10.8 million shares for USD 832 million, at an average price just under USD 77.

Berkshire’s 72.3 million share stake is now worth USD 5.7 billion. That’s about 13.5 percent of the share outstanding, making Buffett by far the largest shareholder. Number two Vanguard owns 31.8 million shares, about 6 percent of the available shares.

China’s official factory activity skidded to a three-year low point in January, adding to further gloom about the state of the world’s second-largest economy.

The government-compiled January manufacturing purchasing manager’s index (PMI) came in at 49.4, slightly missing Reuters consensus estimates for a 49.6 reading and ticking down from December’s 49.7 figure. It was the weakest result since 2012 and marked the sixth straight month in contraction territory.

The mood was worsened by a private survey by Caixin and Markit that showed January manufacturing activity shrinking for the eleventh straight month. Caixin’s survey, which tracks smaller firms than the official indicator, came in at 48.4, compared to December’s reading of 48.2.

A score below 50 indicates a contraction in the sector, while one above 50 means expansion.

“Chinese manufacturers signaled a modest deterioration in operating conditions at the start of 2016, with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months,” Markit said in a statement.

But helping to offset the disappointment was a separate survey also released on Monday, that showed growth in the Chinese services sector had held above the key 50 level. The January official non-manufacturing purchasing manager’s index came in at 53.5, versus 54.4 in December.

The Australian dollar, considered a proxy for China’s economy, edged down 0.4 percent following data release, while Asian equity markets were mixed. China’s benchmark Shanghai composite fell nearly 1 percent in early trade while Japan’s Nikkei led the region’s gains by more than 1 percent.

As Beijing attempts to reorient its economy away from investment-fueled industrial growth and towards domestic consumption, services such as real estate and health care are becoming important indicators for policymakers; the services sector already accounts for half of Chinese gross domestic product. This new focus has led many strategists to question the value of manufacturing PMIs as lead economic indicators.

“China has been a two-track economy for the past five years. We have services growing very nicely and the lower track of the economy, which is the industrial sector, remains in a difficult position and it’s not going to get out of it quickly,” explained Erwin Sanft, head of China strategy at Macquarie.

Cutting over-capacity in heavy industries was key to resolving the current slump, Sanft warned.

“There’s a realization that for a lot of these industries, there has to be a big downsizing,” he said. “Rather than avoiding that issue, plans are now being made as to how workers can be laid off and looked after. We expect there’ll be some funding from the central government.”

Monday’s reports were the latest catalyst pushing global investor sentiment deeper into risk-off mode, following a month of wild market swings amid sharp losses in crude oil prices and protracted worries about a Chinese hard landing. Earlier this month, data showed China’s economy grew 6.8 percent in the fourth quarter of 2015 compared to the same period a year earlier and 6.9 percent for the full year, hitting a 25-year low.

“More than just concerns of a slowdown, market reforms in China have caused sharp falls in its stock and currency markets, resulting in some clumsy and disappointing policy moves which has shaken confidence in the ability of Chinese policy makers,” Vasu Menon, vice president of wealth management at OCBC Bank, said.

“It will take time for China to restore confidence in its markets, currency and economy and uncertainty could cause significant volatility in the year ahead.”

Monday’s data will likely give the People’s Bank of China (PBOC) more ammunition to ease monetary policy further, analysts argued.

ING has forecast two 25 basis point interest rate cuts by mid-year, noting that further injections into money markets via reverse repo rates were likely as the PBOC increased the frequency of its open market operations to daily from twice a week in order to meet demand ahead of the week-long Lunar New Year holiday, which begins next week.

Saudi Arabia has managed to buy itself a couple of months.

The global rout of oil prices is taking its toll on the kingdom’s bottom line. The country has been forced to cut government spending in its upcoming budget and increase production of crude oil-even though its hardly worth pulling it out of the ground.

Still, the world’s largest producer of oil appears on a crash-course for bankruptcy as early as of 2018, according to a new Big Crunch analysis.

Many oil-dependent nations are having to dig deep to balance budgets, with crude oil fetching so little on the global market. Money-rich nations like Qatar and Kuwait look to be getting by, while poorer nations like Libya have descended further into strife and civil war. Oil would need to be selling for USD 269 a barrel for Libya to balance its budget, according to the IMF.

Read More: ‘Urgency’ for oil exporters to adjust spending: IMF

Saudi Arabia is somewhere in between: A stable nation with a sizable backup of reserve assets, somewhere around USD 624 billion as of December. But much of that stability is bought with government jobs and generous public spending and with falling oil prices, the country has had to dip into its reserve assets to make up the difference.

Of course, the analysis depends on no major economic changes or events effecting Saudi Arabia. It also assumes oil prices remain low, which experts consider likely for the time being.

If the dark predictions are going to come true — that the market turmoil out of China will lead to “another 2008” — it will have to be a very different kind of crisis than the original.

Six months after sell-offs in Shanghai began to reverberate through markets worldwide, bond-rating agencies continue to rate Chinese banks’ credit as investment grade, suggesting that if China does lead the world into recession, it will be a different affair than the sudden, sharp downturn catalyzed by the collapse of Lehman Bros.

A measure of default risk used by Moody’s Investors Service puts the risk of any of the Big Four Chinese banks — Bank of China, the Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China — defaulting in the next year at no more than 1.5 percent, and for some as little as 0.5 percent, said Samuel Malone, director of specialized modeling at Moody’s Analytics, the economic forecasting and risk-modeling unit of Moody’s.