Wednesday, December 10, 2014

Markets tumble as OPEC reduces forecast for oil demand in 2015

Dow lost 123, decliners over advancers 5-2 & NAZ fell 15.  The MLP index sank 15 to the 443s, new low in almost a year, & the REIT index was up pennies to 327.  Junk bond funds saw selling & Treasuries prices went up.  Oil dropped to a new 5 year low, under 62, & gold was little changed.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM...Crude Oil Jan 15...61.96 Down ...1.86  (2.9%)

GCZ14.CMX...Gold Dec 14....1,230.20 Down ...1.30  (0.1%)

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The People's Bank of China (PBOC) has more room to free up the world’s biggest central-bank balance sheet now that it’s scaling back purchases of foreign exchange.  Where US, Japanese & euro-region counterparts injected record liquidity thru interest-rate cuts & asset purchases in recent years, the PBOC mopped up some of its trade-surplus spurred inflow of funds by buying dollars & selling yuan.  To prevent the extra yuan from fueling inflation, the PBOC requires banks to set aside 20% of deposits as reserves.  China has basically halted regular currency intervention, according to PBOC Deputy Governor Hu Xiaolian.  That removes pressure to soak up liquidity, giving the PBOC room to follow up last month’s interest-rate cut by lowering banks’ reserves.  Foreign-exchange holdings, which make up about 80% of the PBOC’s total assets, have hovered around 27T yuan ($4.4T) this year, after doubling since mid-2008.  Total assets expanded 9 times in US dollar terms since 2002 to $5.5T.  The Federal Reserve’s assets expanded 6½X in the same period to $4.5B.  A slowdown in GDP growth & inflation suggest scope for easing.  Consumer prices rose 1.4% in Nov from a year earlier, the slowest pace since 2009.  China’s leaders have stressed the need for structural change rather than stimulus to deal with what pres Xi Jinping describes as the “new normal” of a slower economic growth rate.  The ruling politburo this month set the tone for “prudent” monetary policy next year.

PBOC Balance-Sheet Surge Gives Room to Ease on Bank Reserves

Photo:   Bloomberg

OPEC cut the forecast for how much crude oil it will need to provide in 2015 to the lowest in 12 years amid surging US shale supplies & lower demand estimates.  It lowered its projection for 2015 by about 300K barrels a day, to 28.9M.  That’s about 1.15M less than the group’s 12 members pumped last month, & the 30M barrel target they reaffirmed last month.  Prices now are below what 10 out of OPEC’s 12 members need for their annual budgets to break even.  Demand for OPEC’s crude will slump to 28.9M barrels a day next year, according to the report.  That’s below the 28.93M required in 2009, & the lowest since the 27.05M level needed in 2003.  Non-OPEC supply, driven the US, Canada & Brazil, will expand next year by 1.36M barrels a day to 57.3M a day.  Production from non-OPEC nations will increase this year by 1.72M barrels a day, about 580K a day more than the organization’s initial estimates.  Total oil inventories in the world’s most advanced economies remained 15M barrels higher than their 5-year average in Oct, at 2.7B barrels, even as they declined by 5.1M barrels.

OPEC Sees Weakest Demand for Its Crude in 12 Years in 2015

JPMorgan, a Dow stock, already facing the highest capital surcharge under intl rules, may need more than $20B in additional capital by 2019 to meet a new Federal Reserve (FED) requirement.  The FED laid out a plan yesterday for boosting surcharges for 8 large US firms beyond those already levied on the world’s biggest banks by global regulators.  While the FED stopped short of specifying the buffers for each company, it said they probably will range from 1-4.5% based on last year’s data, exceeding the maximum of 2.5% set internationally.  The 8 banks would need a total of $21B, Fed officials said.  JPM “was the firm that is actually going to have to come up with more capital,” FED Vice Chairman Stanley Fischer said.  He said one bank was $22B shy & “that seemed a pretty impressive shortfall.”  “We are well capitalized and intend to meet their requirements and time frames while continuing to deliver strong returns for our shareholders,” JPM said.  The stock dropped1.37.  If you would like to learn more about JPM, click on this link:

JPMorgan May Need More Than $20 Billion to Meet Fed Capital Rule

J P Morgan Chase (JPM)

Another dreary day in the stock market as lower oil prices are weighing down all stocks.  However, the breadth of the decline today was less severe than it could have been.  MLPs are taking the bear market in oil especially hard.  There is not much to do now but grin & bear it because oil prices will probably keeping dropping & may stay low for months, if not longer.
Dow Jones Industrials

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