BIG MARKET NEWS WEEK 25 JAN 2015 – 30 JAN 2015

Greece Sunday, January 25, 2015 n/a  
EUR Hellenic Parliament Elections
Germany Monday, January 26, 2015 10:00  
EUR IFO – Business Climate (Jan)
Australia Tuesday, January 27, 2015 01:30  
AUD National Australia Bank’s Business Confidence (Dec)
United Kingdom Tuesday, January 27, 2015 10:30  
GBP Gross Domestic Product (YoY) (Q4)Preliminar
United Kingdom Tuesday, January 27, 2015 10:30  
GBP Gross Domestic Product (QoQ) (Q4)Preliminar
United States Tuesday, January 27, 2015 14:30  
USD Durable Goods Orders (Dec)
United States Tuesday, January 27, 2015 16:00  
USD Consumer Confidence (Jan)
United States Tuesday, January 27, 2015 16:00  
USD New Home Sales (MoM) (Dec)
Australia Wednesday, January 28, 2015 01:30  
AUD Consumer Price Index (YoY) (Q4)
United States Wednesday, January 28, 2015 20:00  
USD Fed Interest Rate Decision
United States Wednesday, January 28, 2015 20:00  
USD Fed’s Monetary Policy Statement
New Zealand Wednesday, January 28, 2015    21:00  
NZD RBNZ Interest Rate Decision
New Zealand Wednesday, January 28, 2015    21:00  
NZD Monetary Policy Statement
New Zealand Wednesday, January 28, 2015 22:45  
NZD Trade Balance (YoY) (Dec)
Germany Thursday, January 29, 2015 09:50  
EUR Unemployment Change (Jan)
Germany Thursday, January 29, 2015 09:55  
EUR Unemployment Rate s.a. (Jan)
United States Thursday, January 29, 2015 14:30  
USD Initial Jobless Claims (Jan 23)
Japan Friday, January 30, 2015 00:30
JPY National Consumer Price Index (YoY) (Dec)
Australia Friday, January 30, 2015 01:30  
AUD Producer Price Index (QoQ) (Q4)
European Monetary Union Friday, January 30, 2015 11:00  
EUR Consumer Price Index – Core (YoY) (Jan)Preliminar
European Monetary Union Friday, January 30, 2015 11:00  
EUR Consumer Price Index (YoY) (Jan)Preliminar
United States Friday, January 30, 2015 14:30  
USD Gross Domestic Product Annualized (Q4)Preliminar
Canada Friday, January 30, 2015 14:30  
CAD Gross Domestic Product (MoM) (Nov)


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Here are some statistics underscoring the severity of the crisis now reaching into all aspects of Greek life

Greece is reeling from the effects of the biggest economic crisis in its recent history. Here are some statistics underscoring the severity of the crisis now reaching into all aspects of Greek life.

  • 25% The Greek economy has shrunk since its peak in mid-2008.

  • 25.8% Percentage of Greeks who remain out of work, according to the national statistics agency. This means that 1.2 million people are unemployed, according to the October figures.

  • 3rd The position Greece is ranked among its European partners for the percentage of population at risk of poverty and social exclusion, according to Eurostat.

  • 23.1% Percentage of Greeks living at risk of poverty in 2013, according to Eurostat figures.

  • 33.5% or €77 Billion ($89.38 Billion) The amount of nonperforming loans—those for which debtors have failed to make payments for more than 90 days, according to Greece’s central bank governor.

  • €70 billion The approximate value of outflows from Greek banks over the past five years, according to central bank figures.

  • 83.9% Percentage the Greek stock market has fallen since 2008.

  • 1 in 4 Closures of small and medium-sized enterprises since 2008, according to the Hellenic Confederation of SMEs, or GSEVEE, amounting to some 230,000 in total.

  • 9 times How much more self-employed professionals had to pay in 2014 in types of taxes, according to the Parliamentary Budget Office.

  • 7 times How much more in tax Greek employees and pensioners had to pay in 2014 compared with 2009, according to the Parliamentary Budget Office.

  • 23% Percentage Greeks pay as value-added tax on most goods. The average VAT paid in the eurozone is 21.5%, and in the European Union 20.5%, according to the Parliamentary Budget Office.

  • 100,000 The number of Greek scientists now working abroad, according to the Economics Department of the University of Macedonia.

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Why does the Central banks have a 2 per cent target?

(Source–not-welcome-it-9986726.html )

The UK isn’t in deflation yet. While central bankers know what to do about stopping inflation, they don’t know what to do about halting deflation. The Swiss National Bank last week abandoned its attempt to defend a currency floor, which caused a sharp appreciation in its currency, which will exacerbate the deflationary forces it has already been hit by. This was largely a response to the prospect of the European Central Bank doing large-scale quantitative easing after a positive ruling on its legality from the European Court of Justice. This caused funds to rush into Switzerland from the eurozone, which has also fallen into deflation, with the latest estimate showing prices falling at 0.2 per cent a year. There is deflationary contagion in the air.

According to OECD data, inflation in Japan averaged minus 0.23 per cent between 1999 and 2013, compared with plus 2.2 per cent in the UK and plus 2.4 per cent in the US. Over that 15-year period Japan had eight years where there was deflation and two when price rises averaged zero. The UK had none where price rises were negative, while the US had one (2009). Once you have deflation it is extremely hard to get rid of it. Policymakers have no idea how to create any inflation.

In a famous speech* entitled “Deflation: making sure ‘it’ doesn’t happen here”, given in 2002, the former Fed chairman Ben Bernanke warned about the destructive nature of sustained deflation, which he argued should be strongly resisted. Prevention of deflation is preferable to a cure. America’s worst encounter with deflation was in the 1930s, when the price level fell about 10 per cent per year, which Mr Bernanke notes caused massive financial problems, including defaults, bankruptcies, and bank failures.

But he noted that a little bit of deflation is also bad. Speaking about Japan, he said: “Where what seems to be a relatively moderate deflation – a decline in consumer prices of about 1 per cent per year – has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors.”

He argues that deflation is in almost all cases a side-effect of a collapse of aggregate demand. The economic effects of a deflationary episode, he argues, for the most part, “are similar to those of any other sharp decline in aggregate spending, namely, recession, rising unemployment, and financial stress”. Do not enter here!

The latest Office for National Statistics release showed that the UK CPI had fallen from 1.0 per cent to 0.5 per cent, largely driven by the fall in the oil price, which has more than halved since the summer, but there is a broader story. The Bloomberg Commodity Index, which tracks exchange-traded commodity futures contracts on 20 commodities, including oil, but also food, metals and gold, is down by a quarter since the summer.

The Prime Minister in a tweet, though, celebrated the fall in inflation, which he said was “good news for families. Our long-term economic plan is on track and helping hardworking taxpayers”. It remains unclear how the Coalition’s long-term economic plan, which produced the worst recession in 300 years, and lowered real wages by around 10 per cent, was able to lower world oil and commodity prices.

In its latest report on global prospects, the World Bank has argued that “the global economy is still struggling to gain momentum as many high-income countries continue to grapple with legacies of the global financial crisis and emerging economies are less dynamic than in the past”. China, they argued, is “undergoing a carefully managed slowdown”. As a consequence, they lowered their forecast of world growth in 2015 to 3 per cent, down 0.2 per cent since June 2014. Of particular note is the lowering of their forecast for China, down from 7.7 per cent in 2013 to 7.4 per cent for 2014; 7.1 per cent in 2015; 7.0 per cent in 2016; and 6.9 per cent in 2017. China continues to export deflation, with factory prices falling at over 3 per cent per annum.

Mark Carney for some time has insisted that the UK isn’t heading to deflation, but this week in a BBC interview he conceded that it is a possibility. He apparently wants to draw a distinction between what he says is “the persistently low inflationary pressures” faced in the eurozone and the situation in the UK, where tumbling oil prices have pushed the inflation rate to its lowest level since 2000.

The chart, which plots comparable consumer price inflation rates in the eurozone and the UK since the start of the recession, suggests that is a highly complacent view. The two series move very closely together; for the technically minded, the correlation is 0.74. The UK series is approximately a percentage point above that in the eurozone, and both series have moved steadily downwards together since September 2011, although with a broad flattening in the UK between around June 2012 to September 2013.

Both have fallen in tandem since June 2013, well before the collapse in the oil price. The UK looks to be about 6 months behind the eurozone. Currently inflation is 0.5 per cent in the UK, and it was 0.5 per cent in the eurozone in June 2014. Deflation is coming. It may well be here just in time for the election in May.

The Chancellor will presumably insist that very low inflation is good for the economy and all part of his “long-term economic plan”. But if very low inflation was such a good thing, then it doesn’t make much sense for the Government to give the MPC a 2 per cent symmetric target. It would be better for it to have a 0.5 per cent target or even zero.

In its Review of the Monetary Policy Framework published in May 2013, the Treasury argued “the main reason why zero inflation is not pursued as a policy goal is because, in the event of shocks, it can result in deflation, or negative inflation, which is highly undesirable. For example, deflation can impose large economic costs, in the form of low growth and high unemployment, as experienced during the Great Depression of the 1930s. In addition, deflationary expectations can limit how effective monetary policy is in accommodating large negative shocks”.

Mr Carney insisted that the MPC has tools to deal with the problem of deflation. The main one he has is more quantitative easing. The prospects of a rate rise in the UK before 2020 look remote. The UK isn’t in deflation … yet.

*“Deflation: Making Sure ‘It’ Doesn’t Happen Here” speech to the National Economists Club, Washington, 21 November 2002

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BIG MARKET NEWS WEEK 19 JAN 2015 – 23 JAN 2015

New Zealand Monday, January 19, 2015 22:00
NZD     NZIER Business Confidence (QoQ) (Q4)
China Tuesday, January 20, 2015 03:00
CNY Gross Domestic Product (YoY) (Q4)
China Tuesday, January 20, 2015 03:00
CNY Gross Domestic Product (QoQ) (Q4)
Germany Tuesday, January 20, 2015 11:00
EUR ZEW Survey – Economic Sentiment (Jan)
New Zealand Tuesday, January 20, 2015 22:45
NZD Consumer Price Index (YoY) (Q4)
Japan Wednesday, January 21, 2015 n/a
JPY BoJ Monetary Policy Statement
Japan Wednesday, January 21, 2015 n/a
JPY BoJ Press Conference
United KIngdom Wednesday, January 21, 2015 10:30
United KIngdom Wednesday, January 21, 2015 10:30
United KIngdom Wednesday, January 21, 10:30
GBP BOE MPC Vote Unchanged
Canada Wednesday, January 21, 2015    14:30
CAD Wholesale Sales (MoM) (Nov)
United States Wednesday, January 21, 2015    14:30
USD Building Permits (MoM) (Dec)
       Canada Wednesday, January 21, 2015 16:00
CAD     Bank of Canada Monetary Policy Report
       Canada Wednesday, January 21, 2015 16:00
CAD BoC Interest Rate Decision
       Canada Wednesday, January 21, 2015 16:00
CAD BOC Rate Statement
       Canada Wednesday, January 21, 2015 17:15
CAD BoC Press Conference
European Monetary Union Thursday, January 22, 2015 13:45
EUR ECB Interest Rate Decision (Jan 22)
European Monetary Union Thursday, January 22, 2015 14:30
EUR ECB Monetary policy statement and press conference
United States Thursday, January 22, 2015 14:30
USD Initial Jobless Claims (Jan 16)
China Friday, January 23, 2015 02:45
CNY HSBC Manufacturing PMI (Jan)Preliminar
France Friday, January 23, 2015 09:00
EUR Markit Manufacturing PMI (Jan)Preliminar
Germany Friday, January 23, 2015 09:30
EUR Markit Manufacturing PMI (Jan)Preliminar
United Kingdom Friday, January 23, 2015 10:30
GBP Retail Sales (MoM) (Dec)
Canada Friday, January 23, 2015 14:30
CAD Consumer Price Index (YoY) (Dec)
Canada Friday, January 23, 2015 14:30
CAD     Bank of Canada Consumer Price Index Core (YoY) (Dec)



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How can inflation be good for you?

So, the governor of the Bank of England, Mark Carney, is filling his fountain pen, and looking for a stamp.

Now that inflation has fallen to 0.5% on the Consumer Prices Index (CPI) measure, he’s got to write a letter to the chancellor, explaining why inflation has missed the Bank’s target of 2% by more than one percentage point.

But why on earth should he be writing to George Osborne to apologise, when low inflation looks so attractive?

For example, falling oil prices will probably mean that the average British motorist will save around £140 this year. What he or she doesn’t spend on petrol – perhaps £4bn in total – is likely to be spent elsewhere, so boosting the economy in other ways.

So if falling prices are good for individuals and the economy, how can inflation also be beneficial?

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How does inflation stimulate the economy?

In the example of falling oil prices, the motorist probably doesn’t have much choice as to whether to buy petrol or not. But imagine if the price of the car itself were to start falling. Instead of buying yourself a new car this year, why not buy it next year, when it might be hundreds of pounds cheaper? A little inflation encourages you to buy sooner – and that boosts economic growth.

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Why should borrowers love inflation?

estate agent signs

Anyone with a mortgage or a loan benefits from inflation, as it has the effect of eroding debt. In the 1960s my father bought a house for £11,000. But with inflation peaking at around 13% in the late 70s, his wages were rising fast too – meaning the mortgage repayments were taking an ever smaller share of his income. By contrast, deflation – or falling prices – increases the real value of debts. Not a good place to be.

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What effect does inflation have on wages?

Rising prices make it easier for companies to put up wages. They also give employers the flexibility not to increase wages by as much as inflation, but still offer their staff some sort of rise. In a world of zero inflation some companies might be forced to cut wages.

That would not be good for morale, recruitment or productivity. For most of the last five years inflation has been running ahead of wage rises, but thanks to inflation, wages have also been rising, even if the money doesn’t go as far.

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Why does the government like inflation?


The government has a huge debt, which is getting bigger thanks to a deficit of £90bn. It would dearly love to see that eroded by inflation, which in turn would see its own income rising. As long as there’s a good dose of inflation in the system, tax revenue should go up, even if the economy is stagnant.

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But why is too much inflation bad?

When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. Indeed if inflation falls below 0.5% in the UK, savers will actually get a positive return on their money, and they will be less inclined to spend it.

High inflation – as Gordon Brown used to remind us when he was chancellor – is also a cause of boom and bust in the economy. It therefore produces low growth and higher unemployment.

If inflation in the UK exceeds that of other countries, it can also erode competitiveness.

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So what inflation rate is good?


Most central banks favour an inflation target that is in the region of 2% to 2.5%. The Bank of England’s target of 2% under the CPI measure is fairly typical. Some economists argue there should be a higher target in times of recession, such as 3%. This can promote higher growth, by keeping interest rates lower for longer.

But whatever the precise level, most do agree that a little dose of inflation is absolutely essential.

“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague,” said the Austrian philosopher and economist Ludwig von Mises.

“Inflation is a policy.”

( Sources : )

Read also :


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BIG MARKET NEWS WEEK 13 JAN 2015 – 16 JAN 2015



China Tuesday, Jan. 13, 2015 03:00
CNY Trade Balance (Dec)
China Tuesday, Jan. 13, 2015 03:00
CNY New Loans (Dec)
United Kingdom Tuesday, Jan. 13, 2015 10:30
GBP  Core Consumer Price Index (YoY) (Dec)
United Kingdom Tuesday, Jan. 13, 2015 10:30
GBP Consumer Price Index (YoY) (Dec)
United States Wednesday, Jan. 14, 2015 14:30
USD Retail Sales (MoM) (Dec)
United States Wednesday, Jan. 14, 2015 14:30
USD Retail Sales ex Autos (MoM) (Dec)
Australia Thursday, Jan. 15, 2015 01:30
AUD Employment Change s.a. (Dec)
Australia Thursday, Jan. 15, 2015 01:30
AUD Unemployment Rate s.a. (Dec)
United States Thursday, Jan. 15, 2015    14:30
USD Producer Price Index (MoM) (Dec)
United States Thursday, Jan. 15, 2015    14:30
USD Initial Jobless Claims (Jan 9)
United States Thursday, Jan. 15, 2015    16:00
USD  Philadelphia Fed Manufacturing Survey (Jan)
European Monetary Union Friday, Jan. 16, 2015 11:00
EUR Consumer Price Index – Core (YoY) (Dec)
European Monetary Union Friday, Jan. 16, 2015 11:00
EUR Consumer Price Index (YoY) (Dec)
United States Friday, Jan. 16, 2015 14:30
USD Consumer Price Index (YoY) (Dec)
United States Friday, Jan. 16, 2015 14:30
USD  Consumer Price Index Ex Food & Energy (YoY) (Dec)
United States Friday, Jan. 16, 2015 14:30
USD Consumer Price Index Ex Food & Energy (MoM) (Dec)
United States Friday, Jan. 16, 2015 15:55
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Why Is Deflation Bad?

A number of readers have asked me to explain why deflation is a bad thing; and the truth is that while I’ve alluded to the issue a number of times, I’m not sure if I’ve ever laid out the whole case. So here goes.

There are actually three different reasons to worry about deflation, two on the demand side and one on the supply side.

So first of all: when people expect falling prices, they become less willing to spend, and in particular less willing to borrow. After all, when prices are falling, just sitting on cash becomes an investment with a positive real yield – Japanese bank deposits are a really good deal compared with those in America — and anyone considering borrowing, even for a productive investment, has to take account of the fact that the loan will have to repaid in dollars that are worth more than the dollars you borrowed. If the economy is doing well, all this can be offset by just keeping interest rates low; but if the economy isn’t doing well, even a zero rate may not be low enough to achieve full employment.

And when that happens, the economy may stay depressed because people expect deflation, and deflation may continue because the economy remains depressed. That’s the deflationary trap we keep worrying about.

A second effect: even aside from expectations of future deflation, falling prices worsen the position of debtors, by increasing the real burden of their debts. Now, you might think this is a zero-sum affair, since creditors experience a corresponding gain. But as Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation.

Finally, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines. See Estonia and Latvia, cases of.

Now, alert readers will have noticed that none of these arguments abruptly kicks in when the inflation rate goes from +0.1% to -0.1%. Even with low but positive inflation the zero lower bound may be binding; inflation that comes in lower than borrowers expected leaves them with a worse debt burden than they were counting on, even if the inflation is positive; and since relative wages are shifting around all the time, some nominal wages will have to fall even if the overall rate of inflation is a bit above zero. So the argument that deflation is a bad thing is also an argument saying that some economic problems get worse as inflation falls, and that too low an inflation rate may actually be economically damaging. That’s why the fact that inflation, while still positive, is below the Fed’s target is bad news; and it’s why respectable people like Olivier Blanchard(pdf) have suggested that a higher target, something like 4 percent inflation, might make sense.

And no, 4 percent inflation wouldn’t turn us into Zimbabwe. I remember when we had stable inflation of around 4 percent – and it was morning in America.

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What To Expect From NFP?


The following are the expectations for today’s US December jobs reports as provided by the economists at 15 major banks.

Goldman: Change in Nonfarm Payrolls (Dec): 230k Unemployment Rate (Dec): 5.7%.

Deutsche: Change in Nonfarm Payrolls (Dec): 200k Unemployment Rate (Dec): 5.7%.

Morgan Stanley: Change in Nonfarm Payrolls (Dec): 240k Unemployment Rate (Dec): 5.7%.

Nomura: Change in Nonfarm Payrolls (Dec): 232k Unemployment Rate (Dec): 5.7%.

SEB: Change in Nonfarm Payrolls (Dec): 230k Unemployment Rate (Dec): 5.7%.

Citi: Stay long USD into payrolls. With 240k the median expectation (Citi 220k), we think pressure points touch on both the headline print and revisions with 250k + 40k revisions and 200k – 40k revisions respectively sensitive levels. For policy, wages (0.2%MoM e) and unemployment (5.7% e) could matter more. Undershoots on unemployment and ticks up in wages will be very positive USD and potentially hit higher beta FX.

RBS: Market focus is obviously on US NFPs. Consensus is ~240k; RBS estimate is 225k with upside risks on holiday hiring. Unemployment rate likely to fall by 0.1pp to 5.7%. short EUR/USD and long USD/ZAR on a strong number (225k+). Long AUD/USD on a disappointment.

BNPP: Our economists are more optimistic than the market, expecting a 275k gain in December nonfarm payrolls, just below the impressive three-month trend of 278k. The unemployment rate should fall to 5.7% and as labour market slack is eroded we suspect the Fed and market participants will increasingly focus on measures of wage growth. The bar for the employment data to alter the Fed’s plans to hike in mid-year appears quite high – a stronger reading is unlikely to rush the Fed into move in Q1 given the low CPI profile, while one weak report would do little to alter the picture of what has been a very robust trend. The USD rally appears set to continue in 2015, but with markets already positioned for the move, tactical flexibility if warranted in our view.

SocGen: All the forward indicators we have seen point to the main themes being maintained – strong NFP, falling unemployment and subdued wage growth. We’re looking for 305k 5.6% and a +0.1% hrly earnings increase which should keep the annual rate at 2.1%. That of course, is much better in real terms now, than it was a year ago! The 2013 monthly average NFP gain was 194k, the average so far in 2o14 (Jan-Nov) is 241k, an indication of the acceleration we have seen.

BTMU: Our NFP model predicts an NFP print today of 210k, which is a little less than the consensus 240k – which coincidentally is exactly the discrepancy for the whole of 2014. The model average for 2014 is at 211k while the actual NFP average for 2014 stands at 241k. So our model is pointing to something around consensus which would certainly help confirm steady jobs growth in the US and would confirm that nearly 3mn jobs were created in 2014. Other employment variables are also pointing to continued strength.

Credit Suisse: The recent payroll trends look impressive, with ten consecutive increases of at least 200K, the longest such streak since the mid-1990s, and the 6- and 12-month averages at cycle highs. We project another strong month for nonfarm payrolls at 250K (Consensus: 240K). We expect the unemployment rate to remain steady at 5.8% (Consensus: 5.7%). We look for a 0.2% mom improvement in average hourly earnings (in line with consensus), which would push the year-on-year rate to 2.2%, the high end of the 1.9%-2.2% range of recent years.

BofA: While we look for another strong jobs report, we do not expect a repeat of November which showed job growth of 321,000. We look for nonfarm payrolls to increase 250,000 in December, which is in line with the 6-month average of 258,000. We look for private payrolls to increase 240,000 and the public sector to add 10,000 jobs. The leading indicators suggest continued strength in the labor market with the conference board labor differential narrowing two points to -10.6, initial jobless claims continuing to fall and manufacturing surveys showing further growth. Among the components, we anticipate a slowdown in retail hiring after the growth of 50,000 in November. It seems that the holiday shopping season started earlier this year, prompting greater hiring in November, but likely less in December. We also see risk of a slight slowdown in manufacturing job growth as suggested by the regional surveys. Along with solid job growth should come a decline in the unemployment rate. We look for the unemployment rate to slip to 5.7% from 5.8%. Household job growth is extremely noisy, increasing only 4,000 in November after average growth of 458,000 in September and October. We think we should see a bounce higher in December, which will likely push the unemployment rate lower. We also look for little change in the labor force participation rate, which has been moving sideways in a choppy fashion in recent months.

Standard Chartered: ‘Regression to the mean’ is our expectation for Friday’s employment data (08:30 ET). November’s 321,000 non-farm payroll (NFP) print is unsustainable, in our view. We look for a drop to 240,000 in December, closer to trend (the one-year average in payrolls is 228,000/month). This would be consistent with recent US data, such as softer ISM surveys and durable goods data, which suggest that Q3-2014’s GDP outperformance (5.0% q/q SAAR) may not have been repeated in Q4-2015 and may not be sustained in Q1. Still, a 240,000 payroll reading would be interpreted as robust. The unemployment rate is likely to resume its downtrend after plateauing at 5.8% in the past two months. We see a 0.1ppt drop to 5.7%, but note that a planned annual revision to the household survey introduces higher-than-usual uncertainty.

Credit Agricole: We look for a 215K rise in December nonfarm payroll employment, with the unemployment rate holding steady at 5.8%. Based on data at hand, nonfarm payroll growth likely moderated in December, rising 215K following a 321K advance in November. Initial unemployment claims fell to 289K in the week ending 13 December, down 6K from the November average. This is supportive of +200K payroll gains. Employment indexes on the Empire State and the Philly Fed manufacturing surveys are consistent with solid manufacturing employment, with both remaining at positive levels in December. However, manufacturing jobs likely rose by less than the 28K pick-up in November. Private service-providing payroll growth also likely softened from the previous 266K increase (the strongest since January 2012), though we will confirm our projection on incoming service-sector survey data.

Danske: The main event is the US employment report for December. We expect total payrolls to show a gain of 195,000 in December, which is below consensus expectations of 240,000. The main reason for our below-consensus call is that we expect some payback from the strong November gain of 321,000

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The Real Cause Of Low Oil Prices: Interview With Arthur Berman

Submitted by James Stafford via,

With all the conspiracy theories surrounding OPEC’s November decision not cut production, is it really not just a case of simple economics? The U.S. shale boom has seen huge hype but the numbers speak for themselves and such overflowing optimism may have been unwarranted. When discussing harsh truths in energy, no sector is in greater need of a reality check than renewable energy.

In a third exclusive interview with James Stafford of, energy expert Arthur Berman explores:

• How the oil price situation came about and what was really behind OPEC’s decision
• What the future really holds in store for U.S. shale
• Why the U.S. oil exports debate is nonsensical for many reasons
• What lessons can be learnt from the U.S. shale boom
• Why technology doesn’t have as much of an influence on oil prices as you might think
• How the global energy mix is likely to change but not in the way many might have hoped

OP: The Current Oil Situation – What is your assessment?

Arthur Berman: The current situation with oil price is really very simple. Demand is down because of a high price for too long. Supply is up because of U.S. shale oil and the return of Libya’s production. Decreased demand and increased supply equals low price.

As far as Saudi Arabia and its motives, that is very simple also. The Saudis are good at money and arithmetic. Faced with the painful choice of losing money maintaining current production at $60/barrel or taking 2 million barrels per day off the market and losing much more money—it’s an easy choice: take the path that is less painful. If there are secondary reasons like hurting U.S. tight oil producers or hurting Iran and Russia, that’s great, but it’s really just about the money.

Saudi Arabia met with Russia before the November OPEC meeting and proposed that if Russia cut production, Saudi Arabia would also cut and get Kuwait and the Emirates at least to cut with it. Russia said, “No,” so Saudi Arabia said, “Fine, maybe you will change your mind in six months.” I think that Russia and maybe Iran, Venezuela, Nigeria and Angola will change their minds by the next OPEC meeting in June.

We’ve seen several announcements by U.S. companies that they will spend less money drilling tight oil in the Bakken and Eagle Ford Shale Plays and in the Permian Basin in 2015. That’s great but it will take a while before we see decreased production. In fact, it is more likely that production will increase before it decreases. That’s because it takes time to finish the drilling that’s started, do less drilling in 2015 and finally see a drop in production. Eventually though, U.S. tight oil production will decrease. About that time—perhaps near the end of 2015—world oil prices will recover somewhat due to OPEC and Russian cuts after June and increased demand because of lower oil price. Then, U.S. companies will drill more in 2016.

OP: How do you see the shale landscape changing in the U.S. given the current oil price slump?

Arthur Berman: We’ve read a lot of silly articles since oil prices started falling about how U.S. shale plays can break-even at whatever the latest, lowest price of oil happens to be. Doesn’t anyone realize that the investment banks that do the research behind these articles have a vested interest in making people believe that the companies they’ve put billions of dollars into won’t go broke because prices have fallen? This is total propaganda.

We’ve done real work to determine the EUR (estimated ultimate recovery) of all the wells in the core of the Bakken Shale play, for example. It’s about 450,000 barrels of oil equivalent per well counting gas. When we take the costs and realized oil and gas prices that the companies involved provide to the Securities and Exchange Commission in their 10-Qs, we get a break-even WTI price of $80-85/barrel. Bakken economics are at least as good or better than the Eagle Ford and Permian so this is a fairly representative price range for break-even oil prices.

Related: Low Prices Lead To Layoffs In The Oil Patch

But smart people don’t invest in things that break-even. I mean, why should I take a risk to make no money on an energy company when I can invest in a variable annuity or a REIT that has almost no risk that will pay me a reasonable margin?

Oil prices need to be around $90 to attract investment capital. So, are companies OK at current oil prices? Hell no! They are dying at these prices. That’s the truth based on real data. The crap that we read that companies are fine at $60/barrel is just that. They get to those prices by excluding important costs like everything except drilling and completion. Why does anyone believe this stuff?

If you somehow don’t believe or understand EURs and 10-Qs, just get on Google Finance and look at third quarter financial data for the companies that say they are doing fine at low oil prices.

Continental Resources is the biggest player in the Bakken. Their free cash flow—cash from operating activities minus capital expenditures—was -$1.1 billion in the third- quarter of 2014. That means that they spent more than $1 billion more than they made. Their debt was 120% of equity. That means that if they sold everything they own, they couldn’t pay off all their debt. That was at $93 oil prices.

And they say that they will be fine at $60 oil prices? Are you kidding? People need to wake up and click on Google Finance to see that I am right. Capital costs, by the way, don’t begin to reflect all of their costs like overhead, debt service, taxes, or operating costs so the true situation is really a lot worse.

So, how do I see the shale landscape changing in the U.S. given the current oil price slump? It was pretty awful before the price slump so it can only get worse. The real question is “when will people stop giving these companies money?” When the drilling slows down and production drops—which won’t happen until at least mid-2016—we will see the truth about the U.S. shale plays. They only work at high oil prices. Period.

OP: What, if any, effect will low oil prices have on the US oil exports debate?

Arthur Berman: The debate about U.S. oil exports is silly. We produce about 8.5 million barrels of crude oil per day. We import about 6.5 million barrels of crude oil per day although we have been importing less every year. That starts to change in 2015 and after 2018 our imports will start to rise again according to EIA. The same thing is true about domestic production. In 2014, we will see the greatest annual rate of increase in production. In 2015, the rate of increase starts to slow down and production will decline after 2019 again according to EIA.

Why would we want to export oil when we will probably never import less than 37 or 38 percent (5.8 million barrels per day) of our consumption? For money, of course!

Remember, all of the calls for export began when oil prices were high. WTI was around $100/barrel from February through mid-August of this year. Brent was $6 or $7 higher. WTI was lower than Brent because the shale players had over-produced oil, like they did earlier with gas, and lowered the domestic price.

U.S. refineries can’t handle the light oil and condensate from the shale plays so it has to be blended with heavier imported crudes and exported as refined products. Domestic producers could make more money faster if they could just export the light oil without going to all of the trouble to blend and refine it.

This, by the way, is the heart of the Keystone XL pipeline debate. We’re not planning to use the oil domestically but will blend that heavy oil with condensate from shale plays, refine it and export petroleum products. Keystone is about feedstock.

Would exporting unrefined light oil and condensate be good for the country? There may be some net economic benefit but it doesn’t seem smart for us to run through our domestic supply as fast as possible just so that some oil companies can make more money.

OP: In global terms, what do you think developing producer nations can learn from the US shale boom?

Arthur Berman: The biggest take-away about the U.S. shale boom for other countries is that prices have to be high and stay high for the plays to work. Another important message is that drilling can never stop once it begins because decline rates are high. Finally, no matter how big the play is, only about 10-15% of it—the core or sweet spot—has any chance of being commercial. If you don’t know how to identify the core early on, the play will probably fail.

Not all shale plays work. Only marine shales that are known oil source rocks seem to work based on empirical evidence from U.S. plays. Source rock quality and source maturity are the next big filter. Total organic carbon (TOC) has to be at least 2% by weight in a fairly thick sequence of shale. Vitrinite reflectance (Ro) needs to be 1.1 or higher.

If your shale doesn’t meet these threshold criteria, it probably won’t be commercial. Even if it does meet them, it may not work. There is a lot more uncertainty about shale plays than most people think.

OP: Given technological advances in both the onshore and offshore sectors which greatly increase production, how likely is it that oil will stay below $80 for years to come?

Arthur Berman: First of all, I’m not sure that the premise of the question is correct. Who said that technology is responsible for increasing production? Higher price has led to drilling more wells. That has increased production. It’s true that many of these wells were drilled using advances in technology like horizontal drilling and hydraulic fracturing but these weren’t free. Has the unit cost of a barrel of oil gas gone down in recent years? No, it has gone up. That’s why the price of oil is such a big deal right now.

Domestic oil prices were below about $30/barrel until 2004 and companies made enough money to stay in business. WTI averaged about $97/barrel from 2011 until August of 2014. That’s when we saw the tight oil boom. I would say that technology followed price and that price was the driver. Now that prices are low, all the technology in the world won’t stop falling production.

Many people think that the resurgence of U.S. oil production shows that Peak Oil was wrong. Peak oil doesn’t mean that we are running out of oil. It simply means that once conventional oil production begins to decline, future supply will have to come from more difficult sources that will be more expensive or of lower quality or both. This means production from deep water, shale and heavy oil. It seems to me that Peak Oil predictions are right on track.

Technology will not reduce the break-even price of oil. The cost of technology requires high oil prices. The companies involved in these plays never stop singing the praises of their increasing efficiency through technology—this has been a constant litany since about 2007—but we never see those improvements reflected in their financial statements. I don’t doubt that the companies learn and get better at things like drilling time but other costs must be increasing to explain the continued negative cash flow and high debt of most of these companies.

The price of oil will recover. Opinions that it will remain low for a long time do not take into account that all producers need about $100/barrel. The big exporting nations need this price to balance their fiscal budgets. The deep-water, shale and heavy oil producers need $100 oil to make a small profit on their expensive projects. If oil price stays at $80 or lower, only conventional producers will be able to stay in business by ignoring the cost of social overhead to support their regimes. If this happens, global supply will fall and the price will increase above $80/barrel. Only a global economic collapse would permit low oil prices to persist for very long.

OP: How do you see the global energy mix changing in the coming decades? Have renewables made enough advances to properly compete with fossil fuels or is that still a long way off?

Arthur Berman: The global energy mix will move increasingly to natural gas and more slowly to renewable energy. Global conventional oil production peaked in 2005-2008. U.S. shale gas production will peak in the next 5 to 7 years but Russia, Iran, Qatar and Turkmenistan have sufficient conventional gas reserves to supply Europe and Asia for several decades. Huge discoveries have been made in the greater Indian Ocean region—Madagascar, offshore India, the Northwest Shelf of Australia and Papua New Guinea. These will provide the world with natural gas for several more decades. Other large finds have been made in the eastern Mediterranean.

There will be challenges as we move from an era of oil- to an era of gas-dominated energy supply. The most serious will be in the transport sector where we are thoroughly reliant on liquid fuels today —mostly gasoline and diesel. Part of the transformation will be electric transport using natural gas to generate the power. Increasingly, LNG will be a factor especially in regions that lack indigenous gas supply or where that supply will be depleted in the medium term and no alternative pipeline supply is available like in North America.

Related: Economic Inefficiency Means Low Oil Prices Are Here To Stay

Of course, natural gas and renewable energy go hand-in-hand. Since renewable energy—primarily solar and wind—are intermittent, natural gas backup or base-load is necessary. I think that extreme views on either side of the renewable energy issue will have to moderate. On the one hand, renewable advocates are unrealistic about how quickly and easily the world can get off of fossil fuels. On the other hand, fossil fuel advocates ignore the fact that government is already on board with renewables and that, despite the economic issues that they raise, renewables are going to move forward albeit at considerable cost.

Time is rarely considered adequately. Renewable energy accounts for a little more than 2% of U.S. total energy consumption. No matter how much people want to replace fossil fuel with renewable energy, we cannot go from 2% to 20% or 30% in less than a decade no matter how aggressively we support or even mandate its use. In order to get to 50% or more of primary energy supply from renewable sources it will take decades.

I appreciate the urgency felt by those concerned with climate change. I think, however, that those who advocate a more-or-less immediate abandonment of fossil fuels fail to understand how a rapid transition might affect the quality of life and the global economy. Much of the climate change debate has centered on who is to blame for the problem. Little attention has been given to what comes next namely, how will we make that change without extreme economic and social dislocation?

I am not a climate scientist and, therefore, do not get involved in the technical debate. I suggest, however, that those who advocate decisive action in the near term think seriously about how natural gas and nuclear power can make the change they seek more palatable.

The great opportunity for renewable energy lies in electricity storage technology. At present, we are stuck with intermittent power and little effort has gone into figuring out ways to store the energy that wind and solar sources produce when conditions are right. If we put enough capital into storage capability, that can change everything.

By James Stafford of


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The (Real) Bank of America

David Matsuda had never been a mariner or an administrator before he became the head of the U.S. Maritime Administration in 2009. He had been a government lawyer and a congressional staffer, focusing on railroad issues; the ringtone on his phone was the choo-choo of a train. Matsuda had never been a banker, either. This was relevant because MarAd, in addition to its basic duties involving vessels and ports, ran a perennially troubled $2 billion credit program that had propped up U.S. shipbuilding since the Great Depression. When Matsuda took the helm, the program was sinking again, heading for its worst defaults since a massive loan to help the billionaire investor Sam Zell build cruise ships had gone bust in 2001. Whatever Matsuda’s Washington career had prepared him for, it hadn’t prepared him to be Uncle Sam’s repo man on the high seas.

“It was like walking into a nightmare,” says Matsuda, 42, a former transportation adviser to the late Democratic Senator Frank Lautenberg. “I looked around and said, ‘Guys, what’s happening?’”

The Bush administration’s last MarAd loan guarantee, a $140 million deal to help a politically connected firm build two “superferries” to shuttle passengers around Hawaii, imploded shortly after Matsuda arrived. MarAd got stuck with the ferries, which it eventually offloaded to the Navy. Then a marine services outfit with a MarAd loan went bankrupt, prompting panicky meetings about whether seizing its collateral—a supply boat at work in Nigeria’s offshore oil industry—would spark an international incident. Then another dying shipping company missed a payment on a loan secured by four double-hulled oil tankers. After weeks of confusion, MarAd’s lawyers informed Matsuda he needed to arrest the four football-field sized ships.

“Honestly, I didn’t even know you could arrest ships,” he recalls.

MarAd struggled just to locate the tankers, which were scattered around the Gulf of Mexico and the Eastern Seaboard. One captain apparently turned off his transponders to evade detection. “They were moving from port to port to avoid us,” an official recalls. “We’d go looking for a ship, they’d be gone before we got there.” The four ships were finally tracked down in three states; federal marshals had to board them, place them under arrest and claim them for the government. MarAd ended up selling them for scrap, recovering just $7 million of the $88 million it was owed.

This is what can happen, Matsuda says, when a little marine agency like MarAd is assigned to evaluate big-money credit deals. “It’s never going to lure financial talent away from Wall Street,” says Matsuda, who left the government in 2013 and is now a transportation consultant in Washington. “It’s not a bank.”

No, MarAd is not a bank. It’s more accurate to say it runs the shipbuilding-loan division of a much larger bank—in fact, America’s largest bank.

 Read more:

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