Industrial Production

UK Industrial Production, Construction Output Beats Forecasts as Economy Holds up Following Brexit Vote

7:33 AM, Feb 10, 2017 — Monthly UK industrial production and construction output rose by more than expected in December as Britain’s economy proved to be more robust than projected following the nation’s surprise vote to leave the European Union (EU) last year.

Industrial production rose by 1.1% in December from November, according to data published by the Office for National Statistics (ONS) on Friday. This beat expectations for a 0.2% monthly gain from economists in an investing.com survey but was below the 2% monthly gain reported in November, which was the fastest monthly increase since April 2016.

The increase, which includes oil and gas extraction, was attributed to gains in manufacturing, especially pharmaceuticals which increased by 8.3% from the previous month, and basic metals, where output rose by 4.5%, the ONS said. The statistics office added that output by drugmakers is “highly erratic”.

Manufacturing production, which strips out oil and gas production, increased by 2.1%, beating the average estimate of economists for a 0.5% increase, according to investing.com. It was also up from a 1.4% monthly increase in November.

From a year earlier, industrial output was up by 4.3% while manufacturing was 4% higher, the ONS data showed.

The UK economy has held up better than anticipated by most economists since the nation’s June vote to withdraw from the EU. The Bank of England (BOE) had expected gross domestic product to barely grow in the second half of last year when it cut rates to a record low 0.25% in August. In fact, the UK economy expanded by 0.6% in the final quarter of last year, the same pace as in the previous two quarters, data from the ONS subsequently showed.

The BOE left its monetary policy and benchmark interest rate unchanged earlier in the month while sharply upgrading its forecast for economic growth in 2017, raising it to 2% from a previous projection made in November for 1.4%.

In a separate report, the ONS said on Friday that construction output in the UK rose by 1.8% in December from November, when it gained 0.4% on the month. Economists in an investing.com survey predicted a 1% increase. From a year earlier construction work increased 0.6%, beating economists’ expectations for a 0.5% decline.

Stock market trading

Strong Earnings Results Propel European Equities Higher, Oil Advances

4:48 AM, Feb 9, 2017 — European equity benchmarks were trading higher on Thursday morning as oil prices advanced and financial services stocks rallied on on the heels of better-than-expected earnings for several companies.

West Texas Intermediate (WTI) crude oil futures, the main US oil benchmark, was 0.9% higher at $52.80 per barrel while Brent crude, the international gauge, was up by the same amount at $55.61 per barrel at the time of writing. These extended Wednesday’s gains of 0.3% and 0.1% for WTI and Brent crude, respectively, and came despite government data showing on Wednesday that US stockpiles of oil rose for the fifth consecutive week last week.

In equities, financial services providers Hargreaves Lansdown, Schroders and Barclays were 1.3%, 0.8% and 0.6% higher, respectively, on London’s FTSE 100 Index while British Land,a real estate company, was up by 1.2%. On Frankfurt’s DAX, pharmaceutical and chemical company Bayer was 2.2% higher, followed by exchange organization Deutsche Boerse, up by 0.9% and Henkel, a consumer goods and chemical company, 0.7% higher.

And, on Paris’ CAC-40, financial services companies Societe Generale and AXA were up by 2.0% and 0.3%, respectively, while health care company Sanofi was 1.4% higher. Societe Generale’s share price movement came after it posted better-than-expected results for its fourth quarter, with net banking income worth 6.13 billion euros ($6.56 billion), up 1.3% from the prior-year period and also ahead of the mean estimate of analysts polled by Capital IQ for 6.09 billion euros.

The pan-European Stoxx 600 Index was 0.26% higher, London’s FTSE 100 Index was up by 0.10%, Frankfurt’s DAX was up by 0.21% and Paris’ CAC-40 was 0.43% higher at the time of writing.

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Oil Market

Oil Prices Hold Onto Early Gains Despite Bigger-Than-Expected Build in US Stockpiles

12:13 PM, Feb 1, 2017 — Oil prices remained in positive territory on Wednesday afternoon despite government data showing that US inventories of crude oil had risen for a fourth consecutive week.

West Texas Intermediate (WTI) crude oil, the main US oil benchmark, was trading 0.6% higher at $53.10 per barrel recently while Brent crude, the international oil gauge, was 0.7% higher at $55.94 per barrel.

US inventories of oil rose by 6.5 million barrels to 494.8 million barrels in the week ended January 27, according to the Energy Information Administration’s (EIA) weekly oil report. This was more than the 5.8 million barrel weekly increase projected by the American Petroleum Institute (API) on Tuesday.

Total motor gasoline inventories increased by 3.9 million barrels, down from a 6.8 million barrel weekly gain in the previous week. Distillate fuel inventories increased by 1.6 million barrels compared to having been virtually unchanged in the prior week. Propane/propylene inventories fell by 5.6 million barrels, a bigger drop than the 4 million barrel fall registered in the prior week and commercial petroleum inventories increased by 5.3 million barrels, compared to an increase of 8.9 million barrels a week earlier.

Also feeding into oil pricing sentiment on Wednesday was a higher greenback. As a dollar denominated commodity, a higher US currency tends to make oil less affordable to international buyers. The Dollar Index, which tracks the value of the US currency, was 0.29% higher at the time of writing.

Price: 7.91 Price Change: +0.05 Percent Change: +0.64

gas pumps

Heard on Bloomberg Chat: Destination Tax on Crude May Benefit US Oil Companies, Raise Prices at the Pump, Goldman Says

8:16 AM, Jan 24, 2017 — A so-called destination-based tax on oil, if implemented by the Trump administration, likely would be a boon for US oil producers while costing consumers more at the pump, Goldman Sachs said in a report on Tuesday.

Tax reform appears to be near the top of Trump’s to-do list, but a scenario of “border adjustment” in which taxes on income from imports are raised while those on exports are lowered may push West Texas Intermediate, the US benchmark, to a $10-a-barrel premium to Brent futures, the global standard, Goldman said.

That, in turn, would bump US gasoline prices by about 30 cents a gallon at the pump upon implementation, the bank said. The global LNG market also would be negatively affected. Still, there’s only a 20% chance that the Trump administration will implement a destination-based tax, but if it happens it will have an immediate impact, Goldman said.

“The medium-term impact to absolute oil prices would depend on how quickly US production reacts to higher prices vs. how quickly the rest of the world reacts to make space for higher US production,” the bank said.

If 2017-18 WTI oil prices move to $68 a barrel, a $13 premium to 2018 forecasts, the resulting investment could mean another 1.5 million barrels a day in 2018 growth. Unless the Organization of the Petroleum Exporting Countries cut output further than it already has, the action could result in oversupply and another boom-bust cycle, Goldman said.

Rite Aid

Heard on Bloomberg Chat: Rite Aid’s Inability to Spin Off Stores to Fred’s in Timely Manner Hurts Stock

1:22 PM, Jan 20, 2017 — Investors had expected a deal to spin off 865 Rite Aid (RAD) stores to Fred’s by Walgreens Boots Alliance (WBA) to be completed by Inauguration Day, but that didn’t happen, and now investors are worried.

Rite Aid shares dropped more than 10% Friday as investors were disappointed no deal was complete amid concerns that the Federal Trade Commission will not approve the deal, Evercore said in a note to clients, citing a report from Bloomberg.

“Overall, if the deal were not completed, we would expect a massive downside for RAD (likely to trade to $3.50 or below) given its size versus CVS and WBA and the recent degradation in operating performance,” Evercore said. “For WBA, the transaction is a more modest negative given the synergy potential and time committed to deal closure (being one of the more obvious transactions for WBA), however we would not expect WBA to sit on the capital for very long and would look for a combination of share repurchases and additional M&A in the not-too-distant future.”

A lack of a deal would be good for McKesson Corp. (MCK) as it would keep its largest client that provides about $12 billion revenue. It would be negative to AmeriSource Bergen (ABC) that would see estimates lowered due to a lack of additional volume, Evercore said.

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Companies: Rite Aid Corporation
Price: 7.67 Price Change: -0.94 Percent Change: -10.87

Brexit flag combo

MT Newswires Exclusive: Orderly Brexit Would Support US Monetary Policy Decisions, Economic Growth – Stifel

6:28 AM, Jan 19, 2017 — An orderly exit of Britain from the European Union’s single market could have a supportive effect on US monetary policy decisions and economic growth going forwards, brokerage firm Stifel Nicolaus & Co has predicted.

In an exclusive telephone interview held on Wednesday, Lindsey Piegza, chief economist at Stifel Nicolaus & Co, told MT Newswires that the trickle-back effect of a smooth withdrawal of Britain from the world’s largest trading bloc could be beneficial to the US.

“Should the Brexit be smooth and systematic and the UK economy begin to gain momentum, it’s very likely that the Bank of England would eventually join ranks with the Fed toward a further removal of accommodation which in turn would make it easier for the Fed to also engage in a higher interest rate policy if there are other central banks around the world that are also engaging in that type of activity,” Piegza said. “It would help [to] perpetuate a more positive, more normal monetary policy environment if we did see a steady Brexit lead to a pick-up in UK economic activity.”

Acknowledging that the US currency’s relative strength against the euro has been a competitive disadvantage to the US’ exporting sector of late, Piegza said that a further weakening of the euro could yet occur in the event that financial woes among other EU member states were to escalate.

“The biggest reaction that we’re expecting to see from the euro over the near term even as these [Brexit] negotiations are going on, is [to] any indications or further clarity regarding the underlying health of member countries that potentially could be next in line for an exit strategy; so what’s happening with Greece, what’s happening with Italy, Spain,” she said.

“Regardless of the reason, any further currency weakening, be that of the pound or the euro, certainly will serve to only exacerbate the fact that we cannot compete on a global stage from an export standpoint. And weak exports, [a] strong dollar, [and a] hard-hit manufacturing sector – these are three points that very clearly kept the Fed, or at least helped to keep the Fed, on the sidelines through 2016.”

Greece was rescued from the brink bankruptcy in 2015 with a third bailout, worth approximately 85 billion euros ($90.66 billion at current currency rates) from the International Monetary Fund, European Central Bank and European Commission. Since then, the Greek government has faced the challenging task of implementing a series of harsh austerity measures and economic reforms which were required in return for the three-year loan.

Spain, currently in the midst of an economic recovery and continuously grappling with secessionist movements in regions such as the Basque country and Catalonia, endured almost a year without a proper government following two inconclusive elections in December 2015. Political deadlock was only broken last October with Prime Minister Mariano Rajoy being elected for a second-term. Italy’s banking sector is in a vulnerable state and the nation also faces the prospect of an early election. Paolo Gentiloni was appointed as Italy’s new prime minister by Italian President Sergio Mattarella last December following former premier Matteo Renzi’s resignation after Italians voted against constitutional reform in a nationwide referendum the same month.

In the long-term though, Piegza projected that the euro could rally even following changes to the composition of the EU: “It’s a very real scenario that some of these countries [in the EU] facing extreme fiscal difficulties will have to resort to going back to their own domestic currencies in order to inflate the debt away,” she said.

“Near-term, you could see continued weakening of the euro, but I think longer term, if we did see some of these weaker links actually exit and drop out of the euro area, and we see the stronger economies banding together like France, Germany, the Benelux countries, I think ultimately that would be a net benefit for Europe. And once we see a more stable composition, I think the euro would rally through that longer term.”

On Tuesday, British Prime Minister Theresa May confirmed plans for Britain to leave the single market and pursue a new free trade agreement. In a speech delivered before diplomats more than six months after Britons voted to leave the shared currency union in a nationwide referendum, May outlined objectives for what she described as a “phased approach, delivering a smooth and orderly Brexit”.

“I want to be clear. What I am proposing cannot mean membership of the Single Market,” May said. “We seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU. Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out.”

May’s comments triggered a rally in the value of the pound although the nation’s key benchmark index, the FTSE 100 finished the day lower.

stock data

European Equities Mixed as Oil Prices Edge Lower, Pharma Stocks Advance

5:22 AM, Jan 18, 2017 — European equities were mixed on Wednesday morning after British Prime Minister Theresa May confirmed on Tuesday that the UK will leave the European Union’s single market, oil prices crept lower and pharmaceutical companies advanced.

In economic news, Germany’s inflation rate posted its highest level of the year in December. The consumer price index rose by 1.7% in the final month of 2016, according to fresh data published by the nation’s statistics office Destatis. The last time that a higher level of annual inflation was recorded in Germany was in July 2013, when the index advanced by 1.9%. On an annual average in 2016, the consumer prices in Germany rose 0.5% on 2015. The year-on-year rate of price increase, thus, was slightly above previous year’s level of 0.3%.

Across the Eurozone, annual inflation was 1.1% in December, according to data published by Eurostat, the statistical office of the European Union. This was up from 0.6% in November and well above the level registered in December 2015 of 0.2%.

And, oil prices were lower, with West Texas Intermediate crude oil, the main US oil benchmark, down by 1.5% at $51.69 per barrel and Brent crude, the international oil gauge, down by the same amount at $54.64 per barrel at the time of writing.

In equities, British American Tobacco led the gainers on London’s FTSE 100 Index, up by 2.3% the morning after it publicly disclosed that it had agreed to acquire US rival Reynolds American for $49.4 billion. Hikma Pharmaceuticals, 1.9% higher and Compass Group, a provider of food and support services, was up by 1.6%. High street bank HSBC was 1.3% higher and beverages maker Diageo was up by 1.2%.

On Frankfurt’s DAX, Merck, a company engaged in the pharmaceutical industry, was 0.8% higher, followed by athletic apparel retailer adidas, up by 1.7% and Commerzbank, 0.5% higher. Infineon Technologies, a semiconductor company, and Bayer, a pharmaceutical and chemical company, were also both up by 0.5%. And, on Paris’ CAC-40, CapGemini, a provider of consulting, technology and outsourcing services, was down by 1.9%, Bouygues, a telecommunication, media and construction conglomerate, was 1.0% lower and aircraft manufacturer Airbus was down by 1.4%.

The pan-European Stoxx 600 Index was 0.11% lower, London’s FTSE 100 Index was up by 0.10%, Frankfurt’s DAX was 0.13% higher and Paris’ CAC-40 was 0.35% lower at the time of writing.

Netflix

Heard on Bloomberg Chat: Netflix Has Room to Grow Internationally Even Without Asian Gains

11:37 AM, Jan 17, 2017 — Netflix (NFLX) has room to grow its international subscriber base and profitability even without material gains in Asian markets, Mizuho said in a note to clients.

The company also will likely be a beneficiary of cord-cutting — the move to get away from cable — by consumers, said analysts at the bank, which upgraded Netflix stock to a buy rating. Mizuho said it now expects net-subscriber additions from 3.5 million to 4.6 million as subscriber growth improves. On-demand streaming services such as Sling TV and DirecTV could benefit the company as those who decide to cut the corn turn to Netflix.

“Finally, Comcast (CMCSA), Charter (CHTR) and TiVo deals should drive more sub growth,” Mizuho said. “In our revised international subscriber analysis, we believe that Netflix can continue to gain share in key European and LatAm markets. Also, if Netflix can show share gains in key Asian markets like Japan, South
Korea, and India, that could provide material upside.”

Companies: Netflix, Inc.
Price: 133.25 Price Change: -0.46 Percent Change: -0.34

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Oil pump, industrial equipment

Heard on Bloomberg Chat: Oil Production In Asia To Drop Sharply

4:34 AM, Jan 17, 2017 — Falling oil production in Asia could lop off a million barrels per day (bpd) by 2020 from about 7.5 million bpd in 2016 with demand expected to rise steadily led by China at the same time boosting imports into the region, a Wood Mackenzie report this week said.

“We estimate 2016 production of 7.5 million barrels per day will fall by over a million barrels per day by 2020,” said Angus Rodger, the energy consultancy’s Asia-Pacific upstream research director.

China, Indonesia, Malaysia and Thailand are among the biggest producers, but output has waned on a drop in spending to maintain existing fields, or find new ones, Rodger said.

“Lower oil prices and the severe cuts to upstream capex (capital expenditure) to mature assets has increased decline rates,” he explained in a new video published on Wood Mackenzie’s site.

Recently, global prices have staged a rebound as the Organization of the Petroleum Exporting Countries (OPEC) and other producers move to implement a supply cut of nearly 1.8 million bpd for the first half of 2017.

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Oil Pipelines

Concerns Grow Of Venezuela Financial, Crude Output Collapse

4:05 AM, Jan 13, 2017 — Analysts are increasingly concerned by rumored slumps in crude production by Venezuela’s state-owned energy company PDVSA with unconfirmed reports suggesting that 2017 will see production at nearly quarter-century lows.

For the past year food shortages linked to a sharp drop in the bolivar currency have led to looting and nearly daily protests against a socialist government that has resisted calls for economic reforms as oil revenues, the mainstay of the economy, continue to fall. Economists estimate the gross domestic product shrunk at least 10% in 2016, though official figures on the economy or oil production have not been released in more than a year.

Internally, PDVSA has forecast production at 2.501 million barrels per day (bpd) in 2017 and has said it will abide by an output cut with other OPEC members that aims to trim 1.2 million bpd from global markets led by Saudi Arabia.

However, the country is a net importer of refined products and has substantial commitments to China to ship crude in payment of loans and other aid such as medicines and food. China has lent Venezuela more than $50 billion through a decade-long oil-for-loans program, according to reports, with shipments to the country to reach 550,000 bpd in 2017 as part of payment terms.

Oil shipments to Indian firms that pay cash at the same time are expected to fall 15.5% to 360,000 bpd, likely making the cash crunch severe and preventing badly needed maintenance and expansion work on oil fields, analysts said.