Asian stocks extend rally; Hang Seng at 1-week high

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian equities put up an upbeat performance on the final trading day of the week, following an inspiring US lead overnight.

Wall Street rallied on Thursday, with the blue-chip Dow climbing more than 400 points for the first time in three years, as investors applauded the Federal Reserve’s pledge that it would be patient in increasing interest rates. Positive data showing jobless claims fell by 6,000 to 289,000 last week – the lowest since early November – also encouraged sentiment.

The Dow Jones Industrial Average rallied 2.4 percent, while the S&P 500 surged 2.4 percent. The tech-heavy Nasdaq added 2.2 percent.

Oil back in focus

Meanwhile, global crude prices fell again on Thursday, a day after a short-covering rally, as traders placed new bets that the market would resume a six-month rout on worries about a supply glut.

Brent’s front-month contract closed down USD 1.91 at USD 59.27 a barrel, after hitting a session low at USD 59.17. US crude’s front-month contract settled down USD 2.36 at USD 54.11, after having fallen to USD 54.05 earlier.

Nikkei jumps 1.9%

Wall Street’s upbeat performance overnight allowed Japanese shares to attain a one-week high on Friday, after the Nikkei 225 enjoyed its best day in six-and-a-half weeks in the previous session, as dollar-yen continued its march up toward the 119 handle.

Meanwhile, traders await the Bank of Japan’s last policy decision for the year. The central bank is widely expected to keep monetary settings unchanged and offer a slightly brighter view of the economy on tentative signs of recovery from recession, Reuters quoted sources as saying.

“USD/JPY will be the pair to watch today, given the Bank of Japan (BoJ) meeting,” wrote IG market strategist Stan Shamu in a note. “There have also been reports doing the rounds that freshly re-elected Prime Minister Shinzo Abe is planning a significant stimulus package to the tune of around USD 30 billion, which should help the Nikkei to extend gains today.”

Sony underperformed the bourse, losing 2.6 percent early Friday, on reports that North Korea was behind a cyber attack on Sony Pictures which has resulted in the studio pulling all plans to release its comedy “The Interview.”

Mainland bourses up

China’s benchmark Shanghai Composite index opened up 0.5 percent on Friday while Hong Kong’s Hang Seng index hit a one-week high of 23,185 points at the open.

Gaming stocks remain in focus ahead of Chinese President Xi Jinping’s visit to the city this weekend. Melco Crown and Sands China gained 2.9 and 3.1 percent.

Carmaker BYD Co rebounded 12.4 percent, after tanking more than 45 percent in the previous session amid concerns that it’s losing market share to foreign rivals in China’s auto market.

Meanwhile, BAIC Motor, partly-owned by Germany’s Daimler, opened flat at HK dollar 8.90 in its trading debut.

ASX rallies 2.2%

Australia’s benchmark S&P ASX 200 extended a Fed-fueled rally from the previous session to touch a one-and-a-half-week high early Friday, as the commodity sector dismissed pressure from falling metals and oil prices.

Oil and gas producers opened up, with Woodside Petroleum and Origin Energy bolstering 2.7 and 1.9 percent each. Santos, which was in focus after announcing that it had secured a 3-year USD 816.60 million bank loan from ANZ Banking, notched up 2.4 percent.

Iron ore miners were broadly higher; BHP Billiton and Fortescue Metals climbed over 3 percent, respectively, while BC Iron reversed opening gains to tank 2 percent after announcing changes to its Iron Valley deal with Mineral Resources.

Meanwhile, the Australian dollar continued to trade below 82 US cents, near multi-year lows.

Kospi up 1.6%

South Korean shares traded higher in the morning session, with blue-chips leading the gains. Samsung Electronics charged 4 percent while Hyundai Motor doubled gains to 2.4 percent.

The country’s largest utility Kepco rose 5.2 percent despite news that the South Korean government is considering to cut electricity rates following the fall in energy prices.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Stocks cheer Fed; best 2 days of 2014 for Dow, S&P

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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U.S. stocks rallied on Thursday, with the Dow industrials climbing more than 400 points for the first time in three years, as investors applauded the Federal Reserve’s pledge that it would be patient in increasing interest rates.

“You’ve got people that have underperformed that don’t want to be left behind. I didn’t understand why falling oil is bad for the stock market so I think part is the reversal of that,” said James Paulson, chief investment strategist at Wells Capital Management.
“The reality is markets were hit with we’re not sure what’s happening and why, as oil has been acting as something akin to a global interest rate. The good news is the Fed is aware of what is going on, and they want to be friendly, so people are hopefully in better cheer,” said Jack Caffrey, equity portfolio manager at J.P. Morgan.
“Seasonally it’s a time of good flows into equities. If anything, seasonally the behavior over the last two weeks was an anomaly,” said Caffrey of the market’s recent slide.

The CBOE Volatility Index, a measure of investor uncertainty, fell nearly 14 percent to 16.81.

Thursday data had jobless claims falling by 6,000 to 289,000 last week, the lowest since early November. And, the Conference Board’s index of leading indicators advanced in November for a third consecutive month, signalling the U.S. economy is picking up steam heading into the new year.

Oracle rallied after the software marker reported fiscal second-quarter profit and sales that exceeded estimates; Hertz Global Holdings jumped after investor Carl Icahn reported hiking his stake in the car-rental company.

The Dow Jones Industrial Average rose 421.28 points, or 2.4 percent, to 17,778.15, with Microsoft and International Business Machines leading blue-chip gains that included all 30 components.

The S&P 500 advanced 48.34 points, or 2.4 percent, to 2,061.23, with technology leading gains and all 10 of its major sectors rising.

The Nasdaq added 104.08 points, or 2.2 percent, to 4,748.40.

For every share falling, more than four rose on the New York Stock Exchange, were 976 million shares traded. Composite volume approached 4.7 billion.

 The U.S. dollar gained against the currencies of major U.S. trading partners and the yield on the 10-year note used to figure mortgage rates and other consumer loans gained 7 basis points to 2.2068 percent.

After rising to $58.73 a barrel, West Texas Intermediate turned lower, losing $2.36, or 4.2 percent, to $54.11 a barrel. Gold futures for February delivery added 30 cents to $1,194.80 an ounce on the New York Mercantile Exchange.

American motorists are paying less than $2.50 a gallon at the pump for the first time in more than five years, with retail gasoline prices falling to an average $2.477 a gallon Wednesday night, according to the AAA.

U.S. stocks surged on Wednesday, with the Dow marking its best session of the year, as investors celebrated a rally in the energy sector and the Federal Reserve’s pledge to be patient in raising interest rates.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

How Russian crisis could be like 1998, but worse

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The fall of the Russian rouble portends rough seas ahead for multinational corporates. It is the kind of crisis that will separate the effective risk managers from the rest — rewarding those corporates that can manage through intense volatility, and punishing those that can’t.

Sanctions have cut off Russia’s access to foreign capital at the same time that falling oil prices (down almost half from their 2014 peak) make that access even more essential – so Russia can refinance its debt.

Read More The collapse of Russia in 3 charts

The rouble’s slide picked up speed at the end of November and intensified this week. Intended to mollify markets, Russia’s rate hike to 17 percent had the opposite effect, accelerating the run on the ruble. While the rate hike itself wasn’t particularly surprising – the central bank has been raising interest rates – its size, and its timing, did send the message “We’re in trouble.”

The downward spiral of the Russian rouble has exacerbated global currency volatility and it has a contagion effect. For example, the combination of a falling rouble and Japanese Prime Minister Shinzo Abe’s re-election will likely re-embolden Abe’s commitment to devalue the yen. The threat of a race-to-the-bottom, beggar-thy-neighbor currency war is very real.

The contagion also exposes continuous fundamental weaknesses in global markets. Structural weaknesses in the euro zone, for instance, portend further declines for the euro. According to Deutsche Bank, the euro should be heading to 1.16 to the US dollar based on the current trend in the price of oil and economic fundamentals in Europe – that is 6.5 percent lower than where the euro is today.

Read More Op-ed: Beware: Putin the wounded animal

A key move Russia could and should make to aid in stopping the ruble’s free fall is to work with the Ukrainian government to end the conflict there, so that the US and Europe would lift sanctions. If Russia doesn’t come to the table – and soon – then we will likely see a repeat of the 1998 collapse of Russia’s economy. This time, it would be worse. Russia’s 1998 default hit investors hard, and that memory is still fresh, so it will be far more difficult this time for Russia to entice foreign capital – no matter where the interest rate is set.

The rouble’s fall will hit hard the earnings of multinationals doing business in Russia. As an example of the losses that multinational corporations could face in Russia – and the uncertainty that still remains about the future of the rouble and the Russian economy – Apple halted all online sales in Russia on Tuesday. The company attempted to keep pace with the rouble’s fall, increasing prices by 25 percent in November, but gave up the effort this week as the rouble’s fall continued to erode the value of Apple’s sales.

Read More Cashin: This is not 1998 all over again

In talking with the CFO of a multinational company with 4 billion euros (USD4.93 billion) in revenue, his company lost at least 200 million euros as the ruble slid, but he was most worried about how much more they had lost that he didn’t yet know about. Because this CFO doesn’t have visibility into his rouble risk, he can’t manage expectations with his CEO and board around how the company should expect to be impacted by the ruble’s fall. “200 million euros – or worse” is not the kind of uncertain answer that a CEO or board wants to hear.

The implications of the rouble’s slide extend to other central banks as well. The rouble crisis has made Federal Reserve Chair Janet Yellen’s job more difficult. It’s still unclear what impact the rouble’s slide and its spreading contagion will have on a strengthening US economy.

In the aftermath of a crisis, people tend to scrutinize the effectiveness (or lack thereof) of risk-management controls that corporates had in place. Currency risk is just one of many risks (though likely the largest financial risk) a corporate must manage, of course, but analysts and investors often interpret the lack of a modern currency risk-management program as a lack of effective risk management in other areas as well.

Read More Have investors beaten up Russia too much?

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Stocks rally on oil turn as Fed vows rate patience

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks surged on Wednesday, with the Dow marking its best session of the year, as investors celebrated a rally in the energy sector and the Federal Reserve’s pledge to be patient in raising interest rates.

Stocks rose after the Federal Reserve retained the phrase “considerable time” in its policy statement, and also introduced another word, “patient,” as the central bank readies to raise interest rates next year.

The subtle change in wording could be a “compromise between keeping it in there and pulling it out completely, or that’s my reading of the tea leaves,” said Tom Kersting, principal and fixed income investment strategist for Edward Jones.

“The Fed will continue to be supportive of the economy, which is ultimately good for equity markets, at least in the short term. Longer term, equities are driven by earnings growth, and an economy that continues to improve will help earnings growth,” Kersting said.

Addressing a televised news conference, Fed Chair Janet Yellen said the new language was not a change in policy, and that a rate increase was unlikely for the next several meetings.

“The equity markets are celebrating this as less hawkish than anticipated,” said Art Hogan, chief market strategist at Wunderlich Securities.

“If we walked in today concerned about anything other than the price of a barrel of oil and Russia imploding, it was a more hawkish Fed statement, and that didn’t happen,” Hogan added.

“It’s hard to separate what’s going on with the Fed and what’s going on globally, the issues with energy and the Russian currency crisis. The information that the Fed provided today doesn’t really change much. It sounds like they are still thinking sometime in the middle of next year,” RogerBayston, senior vice president of Franklin Templeton’s fixed-income group.

Energy producers led Wall Street gains, and the price of oil turned higher.

“West Texas has stabilized a bit here. Maybe that’s enough to stop the precipitous decline in oil shares, as that sector was completely washed out,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

FedEx dropped after the shipper’ posted disappointing second-quarter earnings; competitor United Parcel Service also fell.

The cost of living declined in November as energy prices fell, with the Labor Department’s consumer price index falling 0.3 percent, the largest drop since 2008. Low inflation gives the Fed more reign to take its time in increasing rates.

The core rate, which excludes food and energy, climbed at a slower pace than last month.

After a 320-point jump, the Dow Jones Industrial Average rose 288 points, or 1.7 percent, to 17,356.87, with Chevron leading gains that included all 30 components.

The S&P 500 added 40.15 points, or 2 percent, to 2,012.89, with energy pacing gains among its 10 major sectors, all of which advanced.

“It’s too soon to say whether this is a dead cat bounce or whether it’ll go lower, as nothing has changed. It may just be a pause, and the energy sector is in an oversold rebound,” said Luschini.

The Nasdaq gained 96.48 points, or 2.1 percent, to 4,644.31.

For every share falling, nearly seven rose on the New York Stock Exchange, where a billion shares traded. Composite volume cleared 4.9 billion.

The CBOE Volatility Index, a measure of investor uncertainty, fell nearly 18 percent to 19.44.

On the New York Mercantile Exchange, West Texas Intermediate for January delivery closed 54 cents higher at $56.47 a barrel. Gold futures for February added 20 cents to $1,194.50 an ounce.

Russia repeated that it would maintain its crude production in 2015, echoing OPEC’s approach of trying to maintain market share.

Russia on Wednesday again attempted to halt a rout in the ruble, which climbed after the Finance Ministry said it had purchased the currency, with the nation veering towards recession as oil prices fall and the ruble tanks, and the US readying new sanctions over the Ukraine conflict.

The US dollar gained against the currencies of major U.S. trading partners; the yield on the 10-year Treasury note used to figure mortgage rates and other consumer loans rose 8 basis points to 2.1384 percent.

On Tuesday, US stocks fell for a sixth session in seven, after another day of gyrations as equities tracked the price of oil and pondered the impact of lower energy costs and Russia’s economic troubles on policy decisions by the Federal Reserve.

Read More: Stocks close at day’s lows; hit by Fed uncertainty

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asian markets rally on Fed, recovery in oil

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian equities rose on Thursday, as investors took heart from a turn in oil prices and an inspiring performance on Wall Street overnight after the Federal Reserve said it was confident on the US economy.

Overnight, US stocks surged, with the blue-chip Dow marking its best session of the year following a rally in the energy sector and the Federal Reserve’s decision to be patient in raising interest rates. The Dow Jones Industrial Average rose 1.7 percent, while the S&P 500 added 2 percent, with energy pacing gains among its 10 major sectors. The Nasdaq gained 2.1 percent.

On Wednesday, Fed Chair Janet Yellen said in her last news conference of 2014 that the Fed is unlikely to start its rate hike process for “at least the next couple of meetings.”

Another positive boost for markets comes in the form of a recovery in oil prices, after US data showed falling crude inventories. WTI crude closed higher at USD 56.47 per barrel after surging to a session high of USD 58.98. Front-month Brent was last up USD 1 to USD 61 a barrel shortly on Wednesday.

Mainland bourses mixed

Chinese stocks opened modestly lower on Thursday following the release of weak new home prices for the month of November, but quickly rebounded 0.1 percent after that. The benchmark Shanghai Composite index finished near a one-week session high on Wednesday, chalking up a two-day winning streak.

China’s home prices posted a third consecutive annual drop in November, fueling speculation that the government will need to undertake further measures to avert a sharp slowdown in the economy.

In Hong Kong, the key Hang Seng index rallied 1 percent, shrugging off the bearish sentiment that has taken the bourse to the lowest levels since October 3 in the previous sessions.

Gaming stocks are in focus ahead of Chinese President Xi Jinping first official visit in five years to Macau this weekend. Sands China plunged 1.5 percent at the open while Galaxy Entertainment rose 1.4 percent.

Nikkei jumps 2.4 percent

Japan’s benchmark Nikkei 225 got a fillip from a weaker currency at Thursday’s open, as dollar-yen marched towards the 119 handle.

As a result, blue-chips majors like Toyota Motor, Toshiba and Sony made gains of 1.6 to 3.6 percent.

Meanwhile, the Bank of Japan kicks off its two-day monthly meeting today and will release its last policy decision for the year on Friday. The central bank is widely expected to keep monetary settings unchanged and offer a slightly brighter view of the economy on tentative signs of recovery from recession, Reuters quoted sources as saying.

ASX surges 1.4 percent

Australia’s S&P ASX 200 index doubled gains an hour into trade to hit a one-week high, on the back of rallying commodity plays.

Oil and gas producers got a boost from an uptick in energy prices; Santos climbed 6.5 percent while Oil Search bolstered 4.7 percent. Resource miners Rio Tinto and BHP Billiton advanced nearly 3 percent, respectively, while Fortescue Metals raked in a 6.6 percent gain.

Gold stocks were also higher early Thursday, with Newcrest Mining rising over 4 percent, as spot gold touched positive territory after the Fed’s statement.

Meanwhile, the Australian dollar moved off multi-year lows to trade at 8,129 to the dollar, seemingly unaffected by the deceleration in China’s new home prices.

Kospi up 0.3 percent

South Korean shares trimmed gains early Thursday, losing momentum as blue-chips turned mixed an hour into trade. Posco reversed a 1.4 percent opening gain to creep down 0.2 percent while Samsung Electronics added 0.4 percent. Hyundai Motor plunged 2 percent.

Shinsegae and E-Mart appeared unaffected by sharp decreases in their November operating profits. Shares of the retailers traded 0.5 and 1.1 percent higher each.

Cheil Industries, which is the holding company of Samsung, opened up nearly 100 percent to 104,000 won, compared to its issue price of 53,000 won, in its market debut on Thursday. The IPO is said to be the third biggest ever in South Korea and shares were over-subscribed 195 times.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why Fed will do nothing: Dennis Gartman

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The real reason behind mayhem in emerging markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Forget fears of a US interest rate hike, the current emerging market selloff has a new narrative, according to one analyst.

“[Tuesday`s market selloff] in Asia has a lot more to do with broader global disinflationary fears,” than with the Federal Open Market Committee (FOMC), Adarsh Sinha, head of Asia Pacific G-10 FX strategy at Bank of America Merrill Lynch, told CNBC.

“Nowhere is that more evident than inflation break evens across the developed markets,” he said, referring to soft growth in European consumer prices and Japanese inflation hitting a one-year low in October.

MSCI`s Emerging Markets Index (: @MEM14H) fell to new 10-month low on Tuesday, with Thailand`s benchmark index once again leading declines in Asia. The SET index (The Stock Exchange of Thailand: .SETI) traded at six-month lows for the second straight session, down 3 percent by the afternoon after sinking as much as 9 percent on Monday.

Read More: Despite risks, Thailand may consider rate cut

Other experts said Sinha`s argument wasn`t groundless with lower oil prices driving global disinflation. Crude prices fell to new five-year lows on Tuesday, with Brent crude down 45 percent year-to-date.

“It looks like a valuation trade. The biggest reason for the EM rout is volatility spiking higher, triggered by oil and now ballooned into a broader equity market selloff,” said Vishnu Varathan, senior economist at Mizuho Bank.

“It`s difficult to isolate and eliminate factors, there are no convenient attributions. You have EM carry trades coming off as long bets are unwound, while year-end dollar demand is also playing a role,” he added.

This week`s selloff also spread to energy importing nations, like Indonesia and India, which many view as a catch up to the selling seen in exporter peers.

Indonesian stocks (Jakarta Stock Exchange: .JKSE) fell 2 percent to a one-month low on Tuesday, while the rupiah (Exchange: IDRUSD=) hit a fresh 16-year low against the greenback for the second straight day. Meanwhile, India`s rupee (Exchange: INR=) tumbled to a 13-month low and the Nifty index lost 1 percent.

“Nobody`s thinking anymore about which Asian country benefits from lower oil prices and which don`t. When the market prices in disinflationary fears, that`s an environment which historically tends to be really bad for Asian currencies, particularly those that are high-yielders and have current account deficits,” Sinha said.

Read More: Why Russia`s monster rate hike spells trouble ahead

Some believe the steep market declines in importers could even be a buying opportunity.

“If you look at major importers, like India or China, you have to start thinking this will be an opportunity for a longer-term investment. We do need to get through the Fed comments on Wednesday in order to have a clearer view on what emerging markets will look like in the next few weeks, but I think if someone has a year-long horizon, this may prove to be a very good buying opportunity for energy importing countries,” said David Riedel, president and founder of Riedel Research.

The selloff comes a day before the outcome of the Federal Reserve`s monetary policy meeting on Wednesday. Traders are debating whether the bank will drop the phrase that benchmark rates will remain low “for a considerable period of time.”

“If they did remove that phrase, I think you`re going to see all those usual suspects that have gotten hurt during taper tantrums in the past decline again, like Indonesia, Malaysia, South Africa, Turkey,” Riedel added.

He dismissed possibilities that bad news could be priced in this time around.

Read More: The silver lining to cheap oil in the Middle East

“I`m not big believer that emerging markets price in a lot of things ahead of the news. Look at the Brazilian elections and sanctions on Russia… Markets do tend to wait until the news is confirmed before reacting. If you think rates will rise in the U.S. earlier rather than later, I would wait until that`s digested by the market because we could see another leg down,” he said.

Weak Chinese data on Tuesday also played a role, with the latest HSBC manufacturing purchasing manager`s index (PMI) print dropping into negative territory for the first time since May.

“In a week where the Federal Reserve is expected to take a hawkish shift in tone, the last thing emerging markets need is some unsettling economic data. While some would have hoped to see disappointing China data result in growing calls for stimulus, this has not been the case today and we`ve actually seen investor concerns heighten. China activity generally ramps up heading into the back end of the year but it doesn`t seem like this will be the case this time,” Stan Shamu, market strategist at IG, said in a note.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Brent below $60: Prepare for ‘dramatic’ investment cuts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Brent crude prices fell below USD 60 per barrel for the first time since July 2009 on Tuesday, prompting analysts to warn of a “dramatic” cut in investment – which could hit future supply.

Brent for January delivery was trading at USD 59.15 on Tuesday morning and WTI crude was trading at USD 54.27, continuing a slide in global oil prices that began in June on the back of a glut in supply and lack of global demand.

Gloomy Chinese data published Tuesday showing a slump in factory activity did nothing to support prices and heightened expectations that demand for oil will continue to ebb.

Read More: Brent near 4-year low after OPEC decides against output cut

Despite the price of benchmark Brent crude falling almost 50 percent since June, the Organization of Petroleum-Exporting countries (OPEC) decided not to cut production in November and there has been continued swell of supply from non-OPEC countries, including Russia and the US

Now, there are growing concerns that the oil industry could be about slash spending on infrastructure projects. This could, in theory, lead to a shortage of supply in the future – despite that scenario seeming far off right now.

“We’re as surprised as anyone that the oil price has gone this low, but what you can say for absolute certain is that this level…is going to mean a dramatic cut in capital expenditure in the oil industry,” Max King, portfolio manager at Investec Asset Management, told CNBC Europe’s “Squawk Box” on Tuesday.

Read More: Oil battle is sticky, but OPEC may be forced to act

“(This) is going to mean that major economies will have to radically cut spending, whatever they say (to the contrary),” he said, adding that this could lead to a shortage of supply in four or five years’ time.

As differences within OPEC become more apparent, analysts at research firm Energy Aspects said that next year “cash-strapped producers” – such as Russia, Iraq and Venezuela – would be forced to “divert funds from upstream investment to plugging holes in government budgets, particularly on social spending.”

Despite this, Russian Energy Minister Alexander Novak insisted on Tuesday that the country would not cut production, and would maintain its 2014 oil output level into 2015, Reuters reported.

In their outlook for oil in 2015, Energy Aspects analysts Amrita Sen, Robert Campbell and Richard Mallinson, also warned that various militant groups were threatening to take permanents holds on oil-rich territories, such as Islamic State in Iraq and Syria, which could also hit investment.

“As well as disrupting current supplies this basically rules out investment in exploration and future capacity,” they wrote. “An extended period of underinvestment would translate into a gradual decay of productive capacity. While this is hardly on the market’s mind right now, the seeds of this can be sown in 2015, adding to the tightness in the coming years.”
Saudi stocks slide

The move lower in oil prices is certainly taking its toll on markets in the Middle East, with Saudi Arabia’s stock index down around 10 percent over the last week and Abu Dhabi’s main stock index close to 8 percent lower. Despite the fall, however, government officials have brushed off any potential threat to their economies.

An official from Abu Dhabi said on Tuesday that the fall in oil prices would not affect economic development projects in the country, while the chairman of Dubai’s fiscal committee said the country’s economy was doing well despite the difficult global environment.

Read More: OPEC needs to ‘wake up’ to shale revolution

While OPEC members like Saudi Arabia appear to be challenging US shale oil producers to cut production by saying that they can withstand lower oil prices, not every member of the 12-country group has that luxury. The economies of countries like Venezuela are close to collapse, and Saudi’s neighbor Iran is keen for production cuts in an effort to support prices.

Barclays’ commodities research team said that, “something has to give: time structure; price; or production.”

Read More: ‘Be cool’: OPEC head plays down US shale threat

They added that OPEC’s inaction would have “massive implications” for the health of the global economy.

“Given the speed and magnitude of the price move in the fourth quarter of 2014, we question OPEC’s willingness to stick to its mandate,” the Barclays team said.
“Furthermore, the instability in several key oil export nations means that the risk of potential supply disruptions is still present and arguably more dangerous.”

– By CNBC’s Holly Ellyatt, follow her on Twitter @HollyEllyatt.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asian shares rebound as investors eye Fed meeting

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asian equities opened higher early Wednesday, brushing off a poor finish in the US overnight and continued weakness in the oil markets, as investors look ahead to the Federal Reserve’s monthly meeting.

A below-view trade report from Japan weighed on Japanese shares at the open, but stocks soon rebounded. Japanese exports rose 4.9 percent on year, below expectations for a 7 percent rise in a Reuters poll and down from October’s 9.6 percent increase. Imports decline 1.7 percent, below expectations for a 1.7 percent rise and down from October’s 2.7 percent rise.

Meanwhile, Bank of Thailand is due to announce its policy decision later in the session and is expected to hold rates steady.

Wall Street overnight

US stocks fell for a sixth session in seven overnight, as traders tracked the price of oil and pondered the impact of lower energy costs and Russia’s economic troubles on the Federal Reserve’s policy decisions. The Dow Jones Industrial Average dropped 0.7 percent while the S&P 500 shed 0.9 percent. The tech-heavy Nasdaq declined 1.2 percent.

Wall Street will hear from the Fed on Wednesday, with focus on whether the central bank reiterates its vow to maintain rates low for a considerable period.

“The US has been immune to events abroad so far, but perhaps [the Russian rouble’s collapse] will worry the Fed enough to exercise caution,” wrote IG market strategist Stan Shamu. “The fact the US dollar has been quite subdued this week could suggest traders are not overly convinced the fed will take a hawkish shift in language.”

US crude futures fell nearly 1 percent on Wednesday to stay below USD 56 a barrel after industry data showed stockpiles unexpectedly rose last week, and as Russia failed to halt more steep falls in the value of the ruble. London Brent crude for January delivery was untraded yet, after settling down USD 1.20 at USD 59.86.

In other news, at least 130 people, mostly children, were killed on Tuesday after Taliban gunmen broke into a school in the Pakistani city of Peshawar and opened fire, witnesses said, in the bloodiest massacre the country has seen for years.

Nikkei rises 0.6 percent

Japan’s benchmark Nikkei 225 bounced back from a brief six-week low at the open, shrugging off a stronger yen and a softer than anticipated trade report.

Exporters largely turned positive an hour into trade; Honda Motor reversed opening losses to add 0.7 percent despite a local newspaper said the carmaker is set to add over USD 168 million to expenses for air bag related recalls this financial year. But Panasonic and Nikon remained lackluster, losing 0.4 percent each.

Mainland bourses mixed

Chinese equities reversed opening losses to creep up 0.4 percent early Wednesday. The benchmark Shanghai Composite index outperformed the region to rocket up 2.3 percent in the previous session, on speculations of more stimulus measures.

The mainland could stop setting loan-to-deposit ratios as mandatory requirements for banks, which can provide another boost to liquidity, reported China Securities Journal. Meanwhile, state researcher Peng Xingyun wrote that the central bank should gradually cut the reserve requirement ratio (RRR) to reduce market lending rates and promote interest rate reform.

In Hong Kong, the key Hang Seng index inched up 0.2 percent, moving off its lowest levels since October 3 attained on Tuesday.

Trading in Li Ning shares, which were suspended on December 12, resume today. The Chinese sports brand plunged 8.1 percent after announcing plans to raise up to HKUSD 1.69 billion (USD 218 million) in a open offer of shares..

ASX adds 0.7 percent

Australian stocks saw a positive start on Wednesday, as a rebound in the resources sector helped the benchmark S&P ASX 200 index to shake off bearish sentiment that has dogged the market for the past six sessions.

Miners overlooked iron ore prices at five-year lows to rise; Rio Tinto and BHP Billiton gained 1.5 and 1 percent each. After extensive losses for the past sessions, Santos and Woodside Petroleum advanced 4 percent each while Oil Search climbed 3.4 percent.

Meanwhile, the Australian dollar hovered near multi-year lows early Wednesday, pinned at 8213 U.S. cents after minutes of the Reserve Bank of Australia’s December policy meeting revealed on Tuesday that the central bank felt a further decline in the local currency was needed to help cushion the economy from falling resource prices.

Kospi up 0.1 percent

South Korean shares crept up modestly early Wednesday as the utility sector pared gains. Kepco rose 1.8 but Kepco Plant S&E threw away early gains to lose 0.5 percent on speculations that there may be a cut in electricity fees.

Meanwhile, the won retreated from Tuesday’s five-week high to trade at 1,084 against the greenback.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow