Outlook for the Global Economy

[Astronuc]

Japan Slides Into Recession as Tax Hike Takes Toll
http://abcnews.go.com/International/wireStory/japan-slides-recession-tax-hike-takes-toll-26960189

The world's third-largest economy contracted at a 1.6 percent pace in the July-September quarter, the government said Monday, contrary to predictions it would grow after a big drop the previous quarter. An economy is generally considered to be in recession when it fails to grow for two consecutive quarters.

This is not just bad news for Japan as it deepens uncertainty about China were growth is slowing and for the 18-country eurozone that grew only 0.2 percent in the same quarter. . . .
. . .
Monday's data is preliminary, with a revision due Dec. 8. Since some of the decline was due to reductions in inventory, things may not be as bad as the GDP reading suggests, economists said.
. . .

EU seems somewhat optimistic, at least about EU and US.
http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee2_en.pdf

The Economist is less optimistic - http://www.economist.com/blogs/graphicdetail/2014/11/european-economy-guide

A FEW months ago investors were feeling more optimistic about the euro zone. In July the Greek government could borrow money at an interest rate of 6%, a far cry from the near-40% it was paying in 2012. Economic growth in the first quarter of 2014 was 1.2% on an annualised basis—not great, but not terrible.

That has all changed. . . .

And there is Russia's incursion into Ukraine.

Back in October, the IMF cut the 2015 Global Growth Forecast to 3.8%, while indicating the Eurozone faces 38% probability of re-entering recession in next six months
http://online.wsj.com/articles/imf-...recast-0-2-percentage-point-to-3-8-1412686808

That was before the news from Japan.

Is there any good news?

 

[Bystander]

What's the Samuelson quotation? Something along the lines that economics has finally come of age as a true science, and correctly predicted seven out of the last five recessions?

 

[Dotini]

The fall in the price of oil is accelerating.
http://www.cnbc.com/id/102328757

U.S. stock markets will experience a pullback from their record highs at the end of February, according to David Kostin, Goldman Sachs' chief U.S. equity strategist, who believes that fund managers have become too bullish on the market.

Citing data from the U.S. Commodity Futures Trading Commission (CFTC), published on Friday, Kostin said he believes that positions have grown "extreme" in the past five weeks — but he did say the S&P 500 could still end the year higher.

"The U.S. equity markets are likely to experience a pull-back some time in the next 4-6 weeks and that would be pretty consistent with the magnitude of an extreme reading we see in the commodities futures trading corporation data," he told CNBC Monday.

 

[Astronuc]

Spillover effect: Oil price crash bankrupting 'small oil'
http://www.cnbc.com/id/102318531
Layoffs, cutbacks and likely M&As

Back in October - Oil price declines have small-cap shale investors scrambling
http://www.cnbc.com/id/102139211

Already, the share price of small-cap shale oil companies such as Forest Oil has fallen below $1 as a result of high debt levels. Analysts now say that with the price of oil now close to the point where it's no longer profitable to drill, small-cap energy stocks laden with high costs and little cash on their balance sheets could prove vulnerable to further price declines and may become acquisition targets if oil stays below $75 a barrel for six months or more.

This week Brent crude and West Texas Intermediate are near $45/bbl.

Russia faces wave of bankruptcies
http://finance.yahoo.com/news/russia-faces-wave-bankruptcies-120700044.html

 

[Bystander]

http://en.wikipedia.org/wiki/The_80s:_A_Look_Back_at_the_Tumultuous_Decade_1980-1989
Hopefully my copy is just buried somewhere in a closet ... includes a "Swiftian" prediction, "Economic upheaval caused by a global oil glut in 1986."

 

[Greg Bernhardt]

Russia faces wave of bankruptcies
http://finance.yahoo.com/news/russia-faces-wave-bankruptcies-120700044.html

I doubt Russia is sweating this. I have to believe this was something they predicted would happen. They are too smart to be caught off guard by this.

 

[MathAmateur]

I doubt Russia is sweating this. I have to believe this was something they predicted would happen. They are too smart to be caught off guard by this.

Ah right. LOL.

 

[Dotini]

I doubt Russia is sweating this. I have to believe this was something they predicted would happen. They are too smart to be caught off guard by this.

Russians are smart, but how deep are their pockets? This may be the time to squeeze them until something breaks - us, them or Europe.

 

[Dotini]

A pigeon, wafted on waves of natural gas, is coming home to roost in Europe.

http://www.bloomberg.com/news/2015-...e-gas-transit-to-turkey-as-eu-cries-foul.html

 

[nikkkom]

I doubt Russia is sweating this. I have to believe this was something they predicted would happen. They are too smart to be caught off guard by this.

Smart people don't willingly go into a confrontation with two most powerful economies on the planet (EU and US) whose combined economy is nearly 20 times bigger than theirs, and whose population is five times bigger that theirs.

 

[Czcibor]

Is there any good news?

It seems that ECB is preparing a QE.

http://www.bbc.com/news/business-30810137

I treat it as a good news, because it seems as good idea to start the economy and so far Germans were blocking such ideas.

 

[lisab]

It seems that ECB is preparing a QE.

http://www.bbc.com/news/business-30810137

I treat it as a good news, because it seems as good idea to start the economy and so far Germans were blocking such ideas.

I hadn't heard that. I agree, that is good news. But some time ago, I read the ECB didn't have the authority to do such a thing. Did things change, or did I read/understand what I read incorrectly? (Sorry I don't remember where I read it -- it was a long time ago, when the Euro crisis started.)

 

[Czcibor]

I hadn't heard that. I agree, that is good news. But some time ago, I read the ECB didn't have the authority to do such a thing. Did things change, or did I read/understand what I read incorrectly? (Sorry I don't remember where I read it -- it was a long time ago, when the Euro crisis started.)

We hired W. Bush legal experts to reassure us that all we want to do is legal ;)

And more seriously, according to rules:
-EU countries are not liable for each other debt
-ECB is to maintain low inflation

When we (OK, I technically live outside eurozone) face deflation then, ECB can claim that in such extraordinary situation does everything according to rules. Especially when negative interest rates turned out not to be powerful enough.

Rumour:
"What appears to be shaping up, according to a report in Der Spiegel, is that each national central bank would be able to purchase up to 20%-25% of its outstanding national debt. That would spread the risk around the Eurozone and assuage some of Germany’s concerns."

 

[Czcibor]

We have QE in EMU:

http://www.wsj.com/articles/u-s-government-bonds-lifted-by-ecb-bond-buying-program-1421936542

 

[Astronuc]

http://finance.yahoo.com/news/bananas-phones-cheaper-yuan-could-094346891.html

HONG KONG (AP) -- China's unexpected move this week to lower the value of its tightly-leashed currency, the yuan, sent shockwaves through global financial markets. The impact on consumers around the world and China's neighbors will take longer to play out but possible winners and losers are already emerging.

Euro ministers give blessing to Greek bailout, wooing IMF on debt
http://finance.yahoo.com/news/euro-ministers-blessing-greek-bailout-080323057.html

Greece's euro partners approve billions in new loans
http://news.yahoo.com/greece-night-debate-bailout-043559778.html

Greece gets third bailout
http://www.bbc.com/news/world-europe-33934238

 

[Astronuc]

I was listening to a radio program this afternoon. One of the economists being interviewed discussed the slowdown in China, the collapse of the Chinese equities markets, and the ongoing commodity glut.

I was searching various programs trying to find the interview. Meanwhile I found:

How The Price Of Oil Caused A Downturn In The Recycling Business
http://www.npr.org/2015/04/03/39721...l-caused-a-downturn-in-the-recycling-business

BHP Billiton warns global commodity supply glut to persist (CANBERRA, June 3, 2015)
http://www.reuters.com/article/2015/06/03/australia-minerals-bhp-billiton-idUSL3N0YN2JW20150603

World Bank Sees Commodities Headed for Another Bad Year on Glut (July 22, 2015)
http://www.bloomberg.com/news/artic...ther-bad-year-for-commodites-as-supplies-jump

China's Tricky Economic Transition: From Steel Mills To E-Commerce
http://www.npr.org/sections/paralle...transition-from-steel-mills-to-shopping-mallsWith Futures Tied To Mining, Some Montana Towns Seek New Ways To Get By
http://www.npr.org/2015/08/29/43585...ng-some-montana-towns-seek-new-ways-to-get-by

Even a modest slowdown in China sacks the global commodities market
http://www.washingtonpost.com/busin...760144-4cce-11e5-bfb9-9736d04fc8e4_story.html

Shaky Stocks And A Global Correction
http://onpoint.wbur.org/2015/08/25/global-stock-market-correction-black-monday

and now

Italy's Eni finds 'supergiant' natural gas field off Egypt
http://news.yahoo.com/eni-says-found-supergiant-natural-gas-field-off-133441315--finance.html

Great for Eni, great for Eqypt, great for the EU wanting to get off Russian natural gas. Not so great for the gas industry, which like other commodities markets is experiencing a glut of gas, which necessarily drive prices down.

Update - Israel also has gas fields, apparently yet undeveloped
http://news.yahoo.com/egypt-gas-sparks-panic-israel-israeli-reserves-174120594.html

plans to develop Leviathan are suddenly up in the air after Italian energy company Eni SpA said Sunday it had found the "largest-ever" gas field in the Mediterranean Sea off Egypt's shores.

 

[Czcibor]

In Poland I've seen jokes that we just saw butterfly effect, how fracking in the USA made Belarus to release political prisoners.

(fracking and unconventional oil prices -> oil glut and falling oil prices -> damage to Russian economy, not enough money for supporting vassal states -> Belarus has to look for money in the West, so tries in hurry to improve its human rights record)

 

[mheslep]

Not so great for the gas industry, which like other commodities markets is experiencing a glut of gas, which necessarily drive prices down.

A glut perhaps in N. America from shale gas, not Europe/Africa. Gas is expensive to push across oceans, unlike oil.

 

[Astronuc]

A glut perhaps in N. America from shale gas, not Europe/Africa. Gas is expensive to push across oceans, unlike oil.

Well, gas goes wherever the market is, and it's most likely Europe. There is precedent for undersea natural gas pipelines.

http://www.offshore-technology.com/...he-worlds-longest-offshore-pipelines-4365616/
https://www.gassco.no/en/our-activities/pipelines-and-platforms/langeled/
https://en.wikipedia.org/wiki/Langeled_pipeline [1,166 kilometres (725 mi)]
https://en.wikipedia.org/wiki/Nord_Stream [1,222 kilometres (759 mi)]

The distance from Port Said, Egypt to Taranto, Italy is only ~ 1050 miles (1700 kilometers), or from Alexandria to Taranto the distance is ~ 952 miles (1533 kilometers) and one could move closer from the border with Libya.

Otherwise, one ships LNG.
https://en.wikipedia.org/wiki/LNG_carrier
http://www.shell.com/global/future-energy/natural-gas/liquefied-natural-gas/lng-shipping.html

 

[mheslep]

Well, gas goes wherever the market is,

Gas goes mostly to wherever the pipeline takes it, and the small remainder goes wherever liquefied gas infrastructure takes it. The only LNG that leaves the US currently goes out of Alaska to Japan, about 0.05% of total US production. US exports of LNG to Europe are currently zero, even though Europe probably qualifies as the worlds best, large, high gas price market.

...and it's most likely Europe. There is precedent for undersea natural gas pipelines.

http://www.offshore-technology.com/...he-worlds-longest-offshore-pipelines-4365616/
https://www.gassco.no/en/our-activities/pipelines-and-platforms/langeled/
https://en.wikipedia.org/wiki/Langeled_pipeline [1,166 kilometres (725 mi)]
https://en.wikipedia.org/wiki/Nord_Stream [1,222 kilometres (759 mi)]

The distance from Port Said, Egypt to Taranto, Italy is only ~ 1050 miles (1700 kilometers), or from Alexandria to Taranto the distance is ~ 952 miles (1533 kilometers) and one could move closer from the border with Libya.

Otherwise, one ships LNG.
https://en.wikipedia.org/wiki/LNG_carrier
http://www.shell.com/global/future-energy/natural-gas/liquefied-natural-gas/lng-shipping.html

Yes, no doubt the new gas find off Egypt will find its way to Europe, a large market with gas prices triple that of the US, and just as certainly the new find will have little to no effect on the US gas industry in the way that oil finds do. Your earlier statement that there is a "glut of gas" only applies in N. America; there's no glut in the European and Asian markets, hence the high price of gas in those markets. The Egyptian field may curtail Russia's Gasprom sales to Europe a bit, but that seems unlikely given Europe is still under-supplied.

 

[Astronuc]

Gas goes mostly to wherever the pipeline takes it, and the small remainder goes wherever liquefied gas infrastructure takes it. The only LNG that leaves the US currently goes out of Alaska to Japan, about 0.05% of total US production. US exports of LNG to Europe are currently zero, even though Europe probably qualifies as the worlds best, large, high gas price market.

True - however - the pipeline usually goes from the source (production) to the market (demand). Apparently there was some export to China, but according to the EIA site, it was only 2011. The US apparently exports LNG to Mexico and Canada by truck. Go figure. As for exports to Europe, it was only about 7 or so years ago that US companies considered importing LNG - but then fracking took off.

Looking back - Cheniere bet wrong (2008) on an import terminal, but is now building export terminals and trying to line up customers in Europe. Similarly, Freeport LNG is looking at customers in Europe.

Exports of American Natural Gas May Fall Short of High Hope, by CLIFFORD KRAUSS, JAN. 4, 2013
http://www.nytimes.com/2013/01/05/b...s-of-us-gas-may-fall-short-of-high-hopes.html
http://topics.nytimes.com/top/news/business/companies/cheniere-energy-inc/index.html

There is only one way domestically (US) produced gas can get to Europe and of course that is by LNG tanker. The U.S. is building up LNG port terminals. There are currently four LNG export terminals under construction, with an additional one scheduled to start shortly.

and

Of the five terminals under construction, only Corpus Christi has signed contracts targeted for Europe.
http://www.forbes.com/sites/kenrapo...te-with-russia-in-europes-natural-gas-market/

https://www.stratfor.com/analysis/how-us-lng-production-will-ultimately-exploit-global-markets

http://energypolicy.columbia.edu/us-lng-exports

http://www.usatoday.com/story/news/world/2015/07/02/ozy-us-export-russia-gas/29580505/

U.S. Natural Gas Exports Will Fire Up in 2015 (but it appears delivery may be 2016 and later)
http://www.bloomberg.com/bw/articles/2014-11-06/u-dot-s-dot-natural-gas-exports-will-fire-up-in-2015

Cheniere is now poised to become one of the most important exporters in the global LNG market. “The impact we’re having on the rest of the world sometimes surprises us,” says Souki. “We’re going to represent 25 percent of the gas sold to Spain. We’re going to feed enough gas to England to heat 1.8 million homes.”

Cheniere says it will be the largest buyer of U.S. natural gas by 2020. Its liquefaction plant in Louisiana and another planned for Texas will allow it to ship about 6 percent of all the gas produced in the U.S. It’s locked buyers into 20-year contracts based on the cost of natural gas within the U.S., which averaged $4.47 per million BTUs for the first nine months of 2014. For a new customer in Asia, a delivery based on September prices would cost about $11.64, after fees. A customer in Europe would pay about $9.64.

Let's see if that happens.

On Cheniere's site -
http://www.cheniere.com/terminals/sabine-pass/trains-1-4/project-schedule/
4Q 2015* – Liquefaction Project In-Service
http://www.cheniere.com/terminals/corpus-christi-project/liquefaction-project-trains-1-3/cc-schedule/
May 13, 2015 – Commence Construction
2018* – Liquefaction Project In-Service
*dates are estimates and are subject to change

Meanwhile - http://www.texasmonthly.com/the-culture/liquid-assets/

Cheniere isn’t alone. Freeport LNG, also based in Houston, has been on the same roller coaster. It too got burned by investing a billion dollars in an import facility, on Quintana Island, just down the coast from Galveston. Last year Freeport got approval to export LNG to nations that haven’t signed Free Trade Agreements with the U.S. (The DOE usually fast-tracks approval for exports to countries that have trade agreements with us, but many of them don’t need the gas. Japan and Europe, which don’t have FTAs, are among the most lucrative LNG markets.) Next month, Freeport expects to receive approval to convert its terminal to handle those exports. It already has contracts in place that will last for the next twenty years.

http://www.reuters.com/article/2015/07/28/europe-lng-usa-russia-idUSL5N1082YU20150728

http://www.prnewswire.com/news-rele...natural-gas-liquefaction-train-300073350.html

HOUSTON, April 28, 2015 /PRNewswire/ -- Freeport LNG Expansion, L.P. (Freeport LNG) today announced that its subsidiary, FLNG Liquefaction 3, LLC (FLIQ3), successfully closed on senior and mezzanine debt financing commitments of approximately $4.56 billion in capital required for the construction of the third train of Freeport LNG's natural gas liquefaction and LNG loading facility on Quintana Island near Freeport, Texas. The construction cost for the combined three-train project is expected to be $12.5 billion, including owner's costs and interest during construction. An additional $3.0 billion in funds were raised for refinancing and acquisition costs associated with the existing LNG import facility, letters of credit facilities, and a special contingency fund.

With closing on financing, Freeport LNG has completed all milestones and issued a full notice to proceed to CB&I, Inc., Zachry Industrial, Inc. and Chiyoda International Corporation to construct the third train of the Freeport LNG liquefaction project. Full three-train operation is expected by the third quarter of 2019. LNG production from the first liquefaction train is expected in early 2018, with commercial operation of the first train expected to commence by the third quarter of 2018.

 

[Astronuc]

Steel CEO Who Called China Slowdown Bewildered by Cheery Miners, i.e., Mining and Mineral Suppliers.
http://www.bloomberg.com/news/artic...ed-china-slowdown-bewildered-by-cheery-miners

Steel demand in China, consumer of half the world’s supplies, is expected to fall this year for the first time since 1995. Output declined 1.3 percent in the first half and will drop to 807 million tons for the full year from 816 million tons in 2014, according to the China Iron & Steel Association.

“I do not have a clue how they drew up these figures or what the background for this optimism is,” said Wolfgang Eder, chief executive officer of Austria’s Voestalpine AG and chairman of the World Steel Association.