Monday Digest #114

Weekly summary of finance, economic and tech news. Vision from DreamTeam. With 💜

Background for peak growth in oil production outside the OPEC

Goldman Sachs:

New production projects and the rerovered shale boom can increase world oil production by 1 million barrels per day on an annual basis and lead to overproduction in the market in the next couple of years.

In 2017–2019 there will be the greatest increase in the production of megaprojects in history as a peak of capital investment of 2011–2013 will bring the fruits.

OPEC’s landmark decision to “freeze” oil production for the first time in eight years to overcome the surplus supply of hydrocarbons in the world has led to a decrease in price volatility and increased stability, inadvertently helping shale producers. In our view, OPEC’s decision to cut production in November 2016 was rational and fits into its role as a reserve manager in the last instance. However, an unintended consequence was the maintenance of the activity of shale producers through the “bullish” credit market, while the deferred delivery of capital investments in 2011–2013 could lead to a peak growth in production outside OPEC in 2018.

Overview of Wood Mackenzie based on the plans of 119 oil companies in the world: for many companies 2017 will be the year of return to production growth. In total, the production of researched companies in 2017 will grow by 1 million barrels per day year-on-year or 5%. At the same time, companies located in the US intend to increase this figure by 800 thousand barrels or 15%.

Global investment in oil exploration and production in 2017 will grow by 11% year-on-year to $ 25 billion. Investments in exploration and production are planned to be increased this year by 99 companies out of 119. Most of all, budgets in the E&P sector (exploration and exploitation) will grow in US companies — by 60%, to $ 15 billion. At the same time, the greatest “appetite” for increasing production have such shale companies as Pioneer and EOG. Large budgets are also expected in Canada, Latin America and Russia. Investments in the Russian upstream sector will grow by 20%.


OPEC will be forced to expand its oil production to support price recovery, as “reviving” oil production outside the group could weaken its efforts to reduce the surplus of unused reserves, a survey of analysts showed last week.

The Wall Street loses confidence in the implementation of the economic agenda of Trump

This is evidenced by a sharp drop in the Dow Jones index, as well as an 8% increase in gold prices since the beginning of the year. In addition, the withdrawal of capital towards secure government bonds led to a drop in yield on 10-year Treasury securities to 2.39% from 2.62% just two weeks ago.

A negative signal was the difficulties that Trump’s team faced in Congress when adopting a health care system bill that would replace Obamacare.

Background: Trump signed a decree to commence the abolition of Obamacare immediately after the inauguration. During the campaign, he repeatedly criticized the health program of his predecessor and promised to cancel it. If the bill is adopted, 24 million Americans will have lost their insurance. At the same time, the replacement of the health program would save $ 337 billion from 2017 to 2026.

However, last week Donald Trump decided to withdraw from the Congress a bill to replace Obamacare.

Speaker of the House of Representatives of the Congress Paul Ryan declared that it was very close to the adoption of the bill, but this did not work. Work on the bill will continue: during the debate in the congress on this reform, the parties could not come to a consensus and gain the necessary 216 votes.”

Trump himself, commenting on the recall of the bill from the congress, said that most likely the Republicans will now direct efforts to tax reforms. He also said that the US authorities should allow Obamacare “to go its own way, albeit for a while”.

Given that Trump earlier promised to accept and sign the new law in the first two weeks of his presidency, investors fear that this delay will postpone or even disrupt the introduction of other measures aimed at supporting the business. Among them, the reduction of corporate taxes, the deregulation of the economy and the stimulation of spending on infrastructure.

The ECB closes free loans for the carry-trade

The European Central Bank offered banks long-term free liquidity from the “spring” (which feeds the world industry of operations of the carry trade) for the last time.

The final round of targeted long-term refinancing operations (TLTRO) — four-year loans at zero rate or lower was held on Thursday last week. Loans were taken by 474 euro zone banks for a total of 233.5 billion euros.

The banks of Italy showed special activity:

  • UniCredit took from the ECB a long-term loan amounting to 24.4 billion euros,
  • BPER Banca SpA — 4.1 billion euros,
  • Banco BPM SpA — 3.1 billion euros.

Analysts on average expected much less demand from banks, at € 125 billion.
Alan McQuaid, economist at Merrion Capital in Dublin thinks that the demand this time will be higher than before on TLTRO-2, because this is the last opportunity to get cheap liquidity for four years.

Background: The European Central Bank launched the TLTRO-II program on June 22, 2016, in total four rounds of the program took place.

#Interesting Bloomberg: current forecasts suggest a significant pause between the winding down of the bond repurchase program (which will occur around mid-2018) and the first increase in ECB rates.

#Macro #Finance

Bloomberg: Individuals and households in Greece hastily withdraw money from accounts. Since the beginning of 2017, € 3.6 billion has gone from accounts. The stock of banknotes is decreasing every day. In addition, some Greeks transfer their funds to the accounts of foreign banks.

Because of these problems, the European Central Bank for the first time in the last year and a half has decided to increase the liquidity ceiling within the framework of the Emergency Liquidity Assistance (ELA) program.

The ECB Board of Directors on March 22, 2017 did not object to raising the maximum amount of emergency liquidity provision to Greek banks to € 46.6 billion until April 5, 2017 at the request of the Bank of Greece.

In addition, the government of the country can not agree with its international creditors on the allocation of the next tranche of assistance, and on July 1, the deadline for the payment of € 7 billion to the International Monetary Fund.

Negotiations between Greece and international lenders have been going on for more than three months, regularly interrupted due to disagreements over labor market reforms, pensions and the privatization plan insisted on by creditors.

Pantheon Economics analyst Klaus Wistesen thinks that now the Greek economy is burdened with tax control by the EU, while it does not gain any advantages of the monetary union. The insoluble aspect of Greece is that its economy is too small to cope with the amount of debt it is asked to pay.

Major problems include large pension payments in Greece. Although the government of Alexis Tsipras carried out a number of economic reforms and privatized some industries, Tsipras did not get off the ground in terms of reducing pensions. They make up 13.3% of Greece’s GDP — much more than in other countries. It seems that Greece does not know what to do about it: the country has already reduced pension payments to citizens, putting many on the brink of poverty, and the government simply can not cut costs even more.

Background: The crisis in Greece lasts from 2008. During this time, one year was fixed, when GDP went into a plus (2014, + 0.4%). Last year, according to Eurostat, the growth of the Greek economy was zero. Unemployment in the country though has decreased from record 27,5%, but remains the highest in EU: in 2016 its level has made 23,5%.

Stories about the crisis in Greece periodically appear and disappear from the news headlines. However, the problem is not solved. Every time creditors have a question: to give money to bankrupt later, or to go bankrupt now.

Head of the European Commission Jean-Claude Juncker has declared that The European Commission will invoice London for about 50 billion pounds sterling ($ 62 billion), and the UK will be able to finally leave the EU only after paying it.

British Prime Minister Teresa Mei expects to officially launch negotiations on Brexit on March 29, and the question of the amount that the British must pay to cover their obligations will be one of the key negotiations. The amount includes such obligations as the payment of pensions to EU officials, the financing of infrastructure facilities, etc.

Background: The British Parliament on March 14 approved a bill to launch Brexit by March 31. The bill was approved without amendments by both chambers of the British Parliament — the House of Commons and the House of Lords — after 70 hours of debate. The day after this, Queen Elizabeth II signed it. Thus, the law came into force, and Prime Minister Teresa May received the right to send to the EU a request for the withdrawal of Britain from the union in accordance with Article 50 of the Lisbon Treaty. This will be followed by two-year talks.

More than a year after the beginning of hyperinflation in Venezuela, the authorities stopped publishing official data on inflation and the money supply, depriving the public of the latest and the best tool for determining the level of price growth in one of the worst economies in the world.

The money supply indicator suddenly stopped appearing on the central bank’s website on February 24. According to the central bank, the M2 money supply grew by almost 180% in mid-February, compared to the same period last year, before the regulator stopped publishing weekly data without explanation last month. For comparison: the money supply in the neighboring Venezuela of Colombia grew by 7% over the same period, and in the USA by 6%.

Despite the cessation of publication of data on the consumer price index (CPI), its growth is widely viewed in tripartite terms, which is facilitated by the disintegrating socialist system in which many people are trying to get food and medicine.

Reuters: The central bank and the Ministry of Communications of Venezuela did not react to the request for comment.

The reason: The increase in M2, the amount of cash along with checks, savings and other deposits means that more foreign currency than bolivar is circulating in the country. This can accelerate inflation coupled with a decline in the volume of production of goods and services in Venezuela, which is in the fourth year of the recession.
Interesting: Venezuela is gradually stopping publishing economic data. In addition to the money supply and the consumer price index, the government stopped distributing data on gross domestic product (GDP) more than a year ago. Prior to this, the authorities stopped issuing indicators of the balance of payments and the deficit index of consumer goods.

In the absence of official data and underlining the conflict between the Venezuelan authorities, the National Assembly (the country’s parliament), led by the opposition, publishes its own inflation indicators, which reached 741% in annual terms by February. Critics of the authorities accuse the government of reducing data in an attempt to hide the scale of economic turmoil and price increases due to constant printing of money and cost overruns.

The struggle between OPEC and the USA

American investor Jim Rogers expects that oil prices will fall:

“After a peak fall in previous years, there was a powerful rally. This is a rebound of a dead cat. Now a lot of oil goes from the shale.”

Jefferies Investment Bank says that intervention by OPEC in the market situation has not yet led to significant results, while the financial markets are already losing patience.

At this point, it is not entirely clear whether OPEC will extend the deal at a meeting in May — this expansion is likely to affect the stabilization of prices and even provoke their growth above $ 50 per barrel. If the deal does not last, oil could fall to $ 40 a barrel.

According to Goldman Sachs, the volume of oil shale production will increase faster than OPEC will have time to balance the market. In addition, mega-projects of past years will soon be implemented, which will only exacerbate oversaturation. The only thing that will prevent another decline in prices will be the continuation of OPEC cuts. But OPEC should weigh the relative benefit of continuing the reductions, taking into account the risk of long-term share loss.


Netflix gaming: the new business model of Sony and Microsoft

From a business point of view, a monthly subscription for music and video has become much more profitable than a piece selling films or albums. 
Now such a scheme has come to the games industry: Microsoft first announced that soon an impressive library of games for Xbox One will be available for $ 9.99 per month. Sony responded in a few weeks: the Japanese company is going to add PS4 games to the PS Now service library (previously there were only PS3 titles).

The goal pursued by both companies is clear: the model of involving an impressive layer of users who do not buy new games is sustainable. The relationship between the client and the seller is evolving.

Adobe, CISCO, Oracle, even Microsoft itself in terms of Office — many large IT companies either add to their arsenal of business model “subscription instead of product”, or completely switch to it and state the profitability of such a scheme. Thus, Netflix gaming can really become our future, gamers and companies will only benefit from this.

13years for the 14 years ols crime

Shanghai Daily: A man named Wu Jianguo previously worked as a stockbroker at China Eagle Securities. In the late 1990s and early 2000s, he had access to 200 million yuan of client funds.

In 2002, he lost several tens of millions of yuan of client funds on the stock exchange and fled Shanghai with 3.6 million yuan (about 521 thousand dollars) to Zhumadian City in Henan Province, where he made a fake identity card. Later he had moved to the city of Yantai in Shandong Province, where he opened a restaurant that was closed after a year due to losses.

After that, the former broker became a courier. In June 2016, 14 years after he left Shanghai with stolen client money, the police succeeded in arresting him. The court of Shanghai at the meeting held this week found him guilty.

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