Category: Markets

Why is N-America expected to become a net exporter of liquid fuels?

  • Higher US output due to boom in shale oil (fracking) from areas such as Eagle Ford (Texas) and Bakken (N. Dakota).
  • Higher Canada output (natural gas + heavy crude from oil sands).
  • Outcome: North America expected to become net exporter of liquid fuels in next 10 yrs off this higher output and slower US/Canada demand (off energy efficiency improvements).
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Why is China reducing holdings of US Treasury bonds?

  • China has huge foreign currency reserves ($3.9tn) due to current account surplus (exports > imports) and over the last decade approx 30% of it has been held in US Treasury bonds.
  • China demand for US Treasury bonds keeps US interest rates low and hence helps US growth (low interest rates are good for growth).
  • Due to narrowing China current account surplus + geopolitical reasons, China's strategy is now to buy fewer US bonds and instead spend on supporting domestic demand and developing overseas markets.
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Why is there a structural move away from US$ to Chinese renminbi?

  • China demand for US Treasury bonds waning (cornerstone for global economy for > 10 yrs).
  • Strategic (redeployment of surplus China savings into capital investment around the world) and fundamental (China current account surplus shrinking).
  • Geopolitical promotion of renminbi as international currency (weaning China off US$ dependency).
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Why did the gold price rise in Dec. 2014?

  • Prompted by: Global equity sell-off + weaker USD + change in India import rules.
  • Big buying from retail investors in US + India.
  • Investors have moved to bullish (hence closing off gold shorts) + India demand after govt. ends restrictions on gold imports.
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Why did the Greece stock-market fall in Dec. 2014?

  • 09 Dec 2014 - biggest drop since 1987 global stock market crash, triggered by PM Samara's announcement of snap Presidential election.
  • Chance of radical left Syriza party coming to power, which would cause problems for Greece's place in EU monetary union.
  • Syriza want to renegotiate Greece's sovereign debt, i.e. would mean debt write-off or the euro's first exit.
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What is Abenomics?

  • Economic policy of Japan PM Shinzō Abe, introduced in his second term commencing Dec. 2012.
  • Based on "3 arrows" of [1] fiscal stimulus, [2] monetary easing and [3] structural reforms (i.e. reflation + government spending aimed to kill the 20 year recession Japan has suffered).
  • As of Dec. 2014, mixed results as worse than expected recession but strong current account (due to weaker yen, strong exports and resurgent tourism receipts).
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Why did the oil price fall in 2014?

  • Oil price fell nearly 40% between mid-June and December 2014 due to low demand and high supply.
  • Low demand: Stagnant economy in Europe, slower growth in China, flat gasoline consumption in the U.S.
  • High supply: Continued increased US production + OPEC's decision to not cut output.
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