Here is a useful image from The Economist and some comments that accompanied it:
Last 3 years has seen the lowest levels of price volatility in oil markets since the supply shocks of 1973 – (400% increase – 1979 – 200% increase. Partly due to stable production.
The reductions in oil supply with the sanctions against Iran and unrest in the Arab world have been offset by the increases in output from the shale boom in the USA.
Even with the take over off the largest oil refinery in Iraq by Islamist militants the price went to $114 a barrel compared to $147 during the financial crisis.
New Zealand Dairy farmers are bracing themselves for some tough times ahead with 3 pieces of bad news. There are as follows:
1. Last week saw a 8.9% drop in the Global Dairy Trade (see graph below) which has meant that prices have dropped 35% since February – their lowest level since December 2012. Farmers can expect revised payout forecasts of less than $6 a kilogram of milksolids to follow the 35% fall.To give you an idea of how the lower payout will influence the rural economy – a forecast of a $6.25/kilogram of milksolids would take $3 billion out of dairy incomes – Con Williams ANZ Bank.
2. The high NZ$ is still hindering farmers revenue. With the latest drop in the GDT you would expect some sort of relief to farmers with a fall in the value of the NZ$. However the NZ$ only fell from US$0.88 to US$0.87
3. On Thursday RBNZ Governor is making an announcement on the OCR (Official Cash Rate) and famers are hoping that Graeme Wheeler will not hike interest rates as originally indicated in the June Monetary Policy Statement. Inflation has been somewhat benign but interest rates seem to be influenced more by Auckland house prices and the Christchurch rebuild.
Why have prices dropped?
There has been a world supply shock especially in Europe. It is estimated that if Europe’s 27 milk-producing countries maintained their current volume increase this could knock New Zealand off the perch of top dairy exporter. Below are some supply figures which show that approximately 16bn litres will be added to the market:
New Zealand – 2013 production up 2bn litres
Europe - with the removal of milk quotas, European milk production is forecast to be 7.5bn litres more
China – Milk production is said to have recovered and could be up 15% this year which adds 4.5bn litres to the market
USA – higher milk prices and lower feeds costs are said to add another 2bn litres this year.
Therefore big surpluses accompanied by weaker demand would hit NZ dairy export earning considerably.
Source: The NZ Farmers Weekly July 21, 2014
There has been much talk of the Chinese currency the Renminbi becoming the reserve currency of the world. If you were to look at the trading volumes you would think that they are not far off the mark. However the growth has been so large in the last few years mainly because it has come from such a low base. But the following points put it in perspective:
* The Renminbi is the 7th most used currency according to SWIFT a global transfer system
* The Renminbi accounts for only 1.4% of global payments – US dollar is 42.5%
* When you look at assets open to international buyers there are just $0.3 trillion of Chinese assets available compared to $56 trillion of American – this is one reason why the US dollar is liked as a global currency.
For the Renminbi to become a more dominant it has to become global. An easy way for this to happen is for China to run trade deficits as this will add to the global holdings of Renminbi on a daily basis. However China has traditional run surpluses which means that more foreign currency is coming into the economy. On the other hand the USA has run trade deficits which in effect adds to the global holdings of US$. However even if China did run deficits what could the holders of Renminbi do with it? China could open the Capital Account of the Balance of Payments which would encourage investment. There is still a long way to go before the Renminbi becomes the reserve currency.
Many thanks to past student Shelalé Mazari for an article in The Express Tribune on the Sunday Bazaar – one of the largest thrift markets in Karachi. Essentially a flea market there is a section know as Lunda which is home to some of the most convincing new, used and defected designer items from across the world – Louis Vuitton, Prada, Coach, Gucci, Michael Kors etc. There are four main sections: new and used bags, new and used shoes, cheat perfumes and cosmetics, and hair appliances. To give you an idea of prices: LV bag is between $1,200 – $4,000 normally but in the market it sold for Rs1,200($20).
The bags are from China but they appear authentic: some inner pockets even carry the brand envelopes and cards found in originals. Stall holders said that they get these bags from containers that come into port from America, China, and France. Some private dealers do the initial sorting and take the best of the lot before others are allowed to even look at it.
Following on from a previous post on the Chinese Property Market. Property is the principle source of investment for most Chinese, who do not trust their banks or the stock market. But fears of a serious real estate slump are growing as about 50 million homes are empty. Chinese investors are therefore looking to invest in property markets overseas – Australia, New Zealand, USA to name a few. See video below from Al Jazeera.
London Business School Professor Alex Edmans has written an academic paper with Diego Garcia and Oyvind Norli which shows that international football defeats lead to declines in the national stock market index.
Edmans on his blog looked at how this theory has played out in the 2014 World Cup. There has been evidence of stock market declines after defeats in this World Cup. Across all countries with a stock market index, a defeat has led to the index falling by 0.2% faster than the MSCI World index. Moreover, defeats by the “big seven” countries (notably England, Spain, and Italy) have led to declines of 0.5%. Out of the 36 defeats by countries with an active stock market, 24 have been followed by market declines faster than the MSCI World. Below is data from Edmans’ blog and a humourous talk about his paper.
Many thanks to Kanchan Bandyopadhyay for this graphic showing transoceanic commerce between Pacific Islands before Columbus was even born.
Blue lines show where Samoan-manufactured lithics were EXPORTED to and red shows where Tongans IMPORTED their stone goods from. Pohnpei is 2,500 miles (4,000 km) from Samoa, and Tahiti is 1,700 miles (2,700 km) from Tonga – and the ancestors were sailing these routes intentionally for commerce, conflict, marriage and vacation.