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Global oil surplus stands at 1.8m bpd, says Kuwaiti minister
Kuwait-Mubasher: The oil surplus in global markets amounts to 1.8 million barrels a day, Kuwait’s oil minister Ali Al-Omair said, adding that the problem revolves around the lack of commitment by non-OPEC producers to offer what could make prices stable.
Kuwait’s production of oil stands at 2.8 million barrels per day, and the production capacity reaches below 3 million barrels each day.
Oil prices cannot be predicted currently, stated the Kuwaiti minister.
Al-Omair noted that his country is always welcoming megaprojects like Al-Zour refinery and Clean Fuel Project, despite the fall of oil prices.
VIDEO: Can Central Banks Handle Global Economic Pressure?
Adrian Wooldridge, managing editor at The Economist, discusses the role of central banks in the global economy and their ability to handle individual nations' economic pressures. He speaks on "Bloomberg Surveillance." (Source: Bloomberg)
Global stocks, commodities pulled lower on growth worry
Global equity markets and commodities slumped on Monday, pulled lower by worry over the economic health of China and other big emerging markets in a week filled with key economic data.
An 8.8 percent drop in Chinese industrial firms' profits and a plunge of nearly 30 percent in miner Glencore's (GLEN.L) London-traded shares sparked the latest round of worry, sending copper CMCU3 back below $5,000 a tonne.
Market participants have been cautious ahead of a week of key economic data, including euro zone inflation on Wednesday, Chinese industrial and service sector PMIs on Thursday and U.S. jobs figures on Friday.
In addition, a raft of U.S. Federal Reserve officials are scheduled to speak, including Chair Janet Yellen on Wednesday.
New York Federal Reserve President William Dudley added to expectations of an early rate increase, suggesting the central bank could pull the trigger as soon as in October. [
"Regardless of what the Fed does, we’re being set up for more volatility in the fourth quarter," said Mohannad Aama, managing director at Beam Capital Management LLC in New York.
"You have increasing fears about a global slowdown and the economic reports out of China have only increased those fears."
The Dow Jones industrial average .DJI fell 312.78 points, or 1.92 percent, to 16,001.89, the S&P 500 .SPX lost 49.57 points, or 2.57 percent, to 1,881.77 and the Nasdaq Composite .IXIC dropped 142.53 points, or 3.04 percent, to 4,543.97.
The S&P 500's fall was its biggest daily percentage drop since Sept. 1.
Along with data that may shed more light on China's economic health, Friday's U.S. non-farm payrolls release will be watched for clues on whether rates might rise this year.
The Fed recently delayed a widely anticipated rate hike on concerns over sluggish Chinese growth and market volatility.
Data on Monday showed U.S. consumer spending grew briskly in August and a key measure of inflation firmed a bit, signs of strength in America's domestic economy that could lead the Federal Reserve to tighten policy despite weakness abroad.
The flash reading of annual euro zone inflation is due on Wednesday, with a Reuters poll forecasting a zero reading in September. A slip into negative territory would fuel speculation about more European Central Bank stimulus, six months after the central bank began a massive asset-purchase program.
The FTSEuroFirst .FTEU3 index of 300 leading European shares closed down 2.2 percent. MSCI's all-country world index .MIWD00000PUS dropped 2.1 percent after hitting its lowest level since October 2013.
The U.S. 10-year Treasury note US10YT=RR rose 20/32 in price to yield 2.0967 percent as global concerns reduced investor appetite for risk and increased demand for safe-haven U.S. bonds.
Commodities markets were also pressured, and U.S. crude oil futures CLc1 settled down 2.8 percent to $44.43 a barrel while Brent crude LCOc1 settled off 2.6 percent to $47.34 a barrel as worries about the global economy outweighed an increase in U.S. investors' crude holdings.
Emerging markets remained a key pressure point due to fears that U.S. interest rates could soon start heading higher even as global growth is tepid and commodities markets battered. MSCI's emerging market index .MSCIEF fell 1.3 percent.
Saudi Arabia Withdrew Billions From Markets, Estimates Show
Saudi Arabia has withdrawn as much as $70 billion from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit, according to financial services market intelligence company Insight Discovery.
"Fund managers we’ve spoken to estimate SAMA has pulled out between $50 billion to $70 billion from global asset managers over the past six months," Nigel Sillitoe, chief executive officer of the Dubai-based firm, said by telephone Monday. "Saudi Arabia is withdrawing funds because it’s trying to cut its widening deficit and it’s financing the war in Yemen," he said, declining to name the fund managers.
Saudi Arabia is seeking to halt the erosion of its finances after oil prices halved in the past year. The Saudi Arabian Monetary Authority’s reserves held in foreign securities have fallen about 10 percent from a peak of $737 billion in August 2014, to $661 billion in July, according to central bank data. The government is accelerating bond sales to help sustain spending.
"Foreign-exchange reserve depletion, rather than accumulation, is the new reality for Saudi Arabia," Jason Tuvey, Middle East economist at Capital Economics, said in an e-mailed note Monday. "None of this should come as much surprise," given the current-account deficit and risk of capital flight, he said.
Saudi Arabia’s attempts to bolster its fiscal position contrast with smaller and less-populated nations in the Arabian peninsular such as Qatar. The world’s richest nation on a per capita basis plans to channel about $35 billion of investment into the U.S. over the next five years as it seeks to move away from European deals. That’s on top of plans to set up a $10 billion investment venture with China’s Citic Group.
With income from oil accounting for about 80 percent of revenue, Saudi Arabia’s budget deficit may widen to 20 percent of gross domestic product this year, according to the International Monetary Fund. SAMA plans to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year as it seeks to diversify its $752 billion economy, people familiar with the matter said in August.
While foreign-exchange reserves could sustain the country for years, analysts have said that using them to avoid further cost-cutting could put its credit rating at risk. The Saudi government, so far, has been short on specifics on how it will reduce spending, though planners are said to be considering measures long viewed as off-limits or unnecessary, including phasing out fuel subsidies and investing in renewable energy.
The country has a population about 30 million people, with spending forecast to reach 1,082 billion riyals this year according to Riyadh-based Jadwa Investment Co. The kingdom’s finances are depleted by continued subsidies, hand-outs to public sector workers and the Yemen conflict. The International Monetary Fund predicts the budget deficit will exceed 400 billion riyals this year.
By contrast, Qatar has about 2.4 million people and isn’t forecasting a deficit this year. If low oil prices persist, fiscal deficits could occur in 2016 and 2017, the Ministry of Development Planning and Statistics said in June.
The Financial Times previously reported the news of the Saudi withdrawals.
VIDEO: Fed, jobs could drop more rate clues in week ahead
Strong or weak, September's jobs report could sway the debate in the week ahead about when the Federal Reserve will hike rates, while markets also watch Washington to see if the budget battle is going to get any worse.
There is also a flock of Fed speakers making about a dozen appearances. That includes the core of the Fed: Fed Chair Janet Yellen, New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer.
"I think the hawks will be important, but to get a nod from Dudley and Fischer that they're ready [to hike rates], too, that's the signal you need," said John Canally, investment strategist and economist at LPL Financial. "They're the center of gravity, along with Yellen."
Yellen re-emphasized Thursday that the Fed could hike rates this year and said that she was personally in agreement with that. Those and other remarks helped clarify her comments from the week earlier when the Fed held off on a rate hike, and spooked the markets by highlighting its concerns about a slowing China.
Stocks bounced on Yellen's comments but were mixed by the end of the day Friday, as biotechs sold off. For the week, the S&P 500 was down 1.4 percent at 1,931. Futures markets were still pricing in low odds for an October Fed rate hike, at less than 20 percent, while the odds for December were just below 50 percent, as of Friday, according to RBS.
"For years, we obsessed about how the Fed was going to hike rates and that's going to be bad. And they had a chance to hike rates, they didn't do it, and now that's bad," Canally said.
Markets will also be focused on Washington, where House Speaker John Boehner Friday announced his resignation as speaker and from Congress. Boehner was facing "turmoil" within the Republican Party over whether funding for Planned Parenthood should be tied to the federal budget. If the budget does not pass, the government would shut down as of Thursday.
"The government shutdown will be less likely, but what it does is it raises the prospect of a much harder deal because this is a three-month extension of the budget," said Dan Clifton, head of policy research at Strategas. "You go into the fall and they have to raise the debt ceiling…. This is what the new house leadership is going to deal with, a conservative group of members that removed the speaker of the House."
Clifton said the best scenario for markets would be if Boehner could get the debt ceiling issue resolved before he leaves at the end of October.
"The record of market trading with government shutdowns, it's not entirely clear that it is an unequivocal market negative. If people perceive that it puts pressure on the Republicans to get something done, both in the near term and more importantly in December, it will be a positive," said Julian Emanuel, equity and derivatives strategist at UBS.
Important for markets, too, will be economic reports, especially the jobs data, expected to show creation of 203,000 jobs, up from 173,000 last month.
"I think if we get another print below 200,000, (the market) might look a lot like this week," Canally said, adding that investors might think the Fed knows something negative about the economy. "That's what this week was about. 'The Fed knows something we don't.' "
Emanuel said Yellen managed to improve the message on the U.S. economy Thursday, so it's important the jobs number does not miss expectations. "I think at this point, the market would not take that well," he said.
Other data in the coming week includes personal consumption data Monday, with the PCE, the Fed's preferred measure of inflation. ISM manufacturing data and vehicle sales are Thursday.
"The China spillover story is big next week," said Canally. "For ISM, vehicle sales, even the jobs report, were people spooked by what happened in August: the first 10 percent (stock market) selloff in four years. Did that slow hiring?"
Traders will also stay hyperfocused on any economic or market news out of China, as well as the action in emerging markets, where currencies continued to weaken against the dollar in the past week. China does have PMI manufacturing data Wednesday.
As for the Fed speakers, Yellen makes opening remarks at a St. Louis Fed conference Wednesday, and Fischer speaks on monetary policy at a Boston Fed conference Friday. Dudley speaks Monday on monetary policy and again on Wednesday.
The More Yellen Talks Up Inflation, the Less Traders Believe Her
The bond market isn’t buying what Federal Reserve Chair Janet Yellen is selling on inflation.
While she reiterated last week that the Fed expects inflation to gradually rise back near 2 percent, long- and short-term market forecasts for price gains have plunged to their lowest levels since 2009.
That’s even though oil prices remain about 16 percent above their lows from late August. The difference between yields on inflation-linked Treasuries and those on nominal securities plunged by the most in four years Monday.
“We’ve had so many years of accommodative policy, I think the market is losing faith in the Fed,” said Priya Misra, the head of global interest-rate strategy in New York at TD Securities, one of the 22 primary dealers that trade with the central bank. “You’re not really seeing the impact of policy end up in inflation.”
Falling energy prices have contributed to keeping inflation low, a trend that should be transitory, according to Yellen. But she cited another force behind cooling inflation -- the stronger dollar, which depresses import prices, as shown in a chart accompanying her speech.
Monetary stimulus by international central banks props up the greenback, complicating Fed policy makers’ efforts to boost inflation.
"They’re utilizing a monetary policy that’s not designed to influence what’s going on right now," said Jack McIntyre, a portfolio manager with Brandywine Global Investment Management, which oversees $67 billion in Philadelphia.
In the press conference following the Fed’s Sept. 17 decision to hold its benchmark rate near zero, where it’s been since 2008, "she talked a lot about global, external influences, and that’s going to take some time to resolve itself," McIntyre said.
It isn’t clear how much weight Fed officials assign to market forecasts for inflation.
Yellen said Thursday that declining demand for inflation compensation may indicate that traders have very low inflation forecasts.
"Although the evidence, on balance, suggests that inflation expectations are well anchored at present, policy makers would be unwise to take this situation for granted," she said in her remarks.
Traders’ bets following the Fed decision indicate they see interest rates only rising to 0.68 percent by the end of 2016, about half as high as the median forecast from Fed policy makers. The gap is the widest since Yellen started her term in early 2014.
Because of that gulf, if the Fed does raise rates, short-term Treasuries could be at risk of losses, according to Aleksandar Kocic, an interest-rate derivatives analyst with Deutsche Bank AG in New York.
"By making it more complacent, you have more and more people in one position, which means that every unwind is going to potentially be explosive," said Kocic. “It always ends in tears."
Wall Street braces for grim third quarter earnings season
NEW YORK (Reuters) - Wall Street is bracing for a grim earnings season, with little improvement expected anytime soon.
Analysts have been cutting projections for the third quarter, which ends on Wednesday, and beyond. If the declining projections are realized, already costly stocks could become pricier and equity investors could become even more skittish.
Forecasts for third-quarter S&P 500 earnings now call for a 3.9 percent decline from a year ago, based on Thomson Reuters data, with half of the S&P sectors estimated to post lower profits thanks to falling oil prices, a strong U.S. dollar and weak global demand.
Expectations for future quarters are falling as well. A rolling 12-month forward earnings per share forecast now stands near negative 2 percent, the lowest since late 2009, when it was down 10.1 percent, according to Thomson Reuters I/B/E/S data.
That's further reason for stock investors to worry since market multiples are still above historic levels despite the recent sell-off. Investors are inclined to pay more for companies that are showing growth in earnings and revenue.
The weak forecasts have some strategists talking about an "earnings recession," meaning two quarterly profit declines in a row, as opposed to an economic recession, in which gross domestic product falls for two straight quarters.
"Earnings recessions aren't good things. I don't care what the state of the economy is or anything else," said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston.
The S&P 500 is down about 9 percent from its May 21 closing high, dragged down by concern over the effect of slower Chinese growth on global demand and the uncertain interest rate outlook. The low earnings outlook adds another burden.
China's weaker demand outlook has also pressured commodity prices, particularly copper.
This week, Caterpillar slashed its 2015 revenue forecast and announced job cuts of up to 10,000, among many U.S. industrial companies hit by the mining and energy downturn. Also this week, Pier 1 Imports cut its full-year earnings forecast, while Bed Bath & Beyond gave third-quarter guidance below analysts' expectations.
"We are continuing to work through the near-term issues stemming from our elevated inventory levels and have adopted a more cautious and deliberate view of the business based on our first-half trends," Jeffrey Boyer, Pier 1 chief financial officer, said in the earnings report.
On the other hand, among early reporters for the third-quarter season, Nike shares hit a record high after it reported upbeat earnings late Thursday.
Negative outlooks from S&P 500 companies for the quarter outnumber positive ones by a ratio of 3.2 to 1, above the long-term average of 2.7 to 1, Thomson Reuters data showed.
"How can we drive the market higher when all of these signals aren't showing a lot of prosperity?" said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta, Georgia, who cited earnings growth as one of the drivers of the market.
To be sure, the vast majority of companies usually exceed their earnings forecasts when they report real numbers.
"This part in the earnings cycle is typically the low point for estimates," said Greg Harrison, Thomson Reuters' senior research analyst. In the first two quarters of 2015, companies went into their reporting season with analysts predicting a profit decline for the S&P 500, and in both quarters, they eked out gains instead.
In the last two weeks, analysts have dropped their third-quarter earnings predictions by about 0.3 percentage point. There was no change in estimates in the final weeks of the quarter in the first two quarters of 2015.
And companies may be snapping their streak of squeezing profits out of dismal revenues. For the first time since the second quarter of 2011, sales, seen down 3.2 percent in the third quarter from a year ago, are not projected to fall as fast as earnings. Companies have been bolstering their earnings per share figures by buying back their own shares and thus reducing their share counts, and that may happen again this quarter.
Even with the recent selloff, stocks are still expensive by some gauges. The S&P 500 index is selling at roughly 16 times its expected earnings for the next 12 months, lower than this year's peak of 17.8 but higher than the historic mean of about 15. The index would have to drop to about 1,800 to bring valuations back to the long-term range. The S&P 500 closed at 1,931.34 on Friday.
Moreover, forward and trailing price-to-earnings ratios for the S&P 500 are converging, another sign of collapsing growth expectations. The trailing P/E stands at about 16.5, Thomson Reuters data shows. Last year at this time, the forward P/E was also 16 but the trailing was 17.6.
The last period of convergence was in 2009 when earnings were declining following the financial crisis.
The 3.9 percent estimated decline in third-quarter profits - down sharply from a July 1 forecast for a 0.4 percent dip - would be the first quarterly profit decline for the S&P 500 since the third quarter of 2009.
Energy again is expected to drag down the S&P 500 third-quarter forecast the most, with an expected 64.7 percent decrease in the sector. Without the energy sector, the forecast for third-quarter earnings shows a gain of 3.7 percent.
Earnings for the commodity-sensitive materials are expected to fall 13.8 percent, while industrials' earnings are seen down 3.6 percent.