Last week was a rather quiet one with light economic calendar despite a number of meetings among policymakers. The EU and the Ecofin meetings held earlier in the week failed to add new ingredient to the sovereign debt problems in the Eurozone although the ESM was officially launched on Monday. World lenders, namely the World Bank and the IMF revised lower global economic forecasts for this year and 2013 as Chinese slowdown will probably be more serious than previously anticipated.
The World Bank in its latest economic report forecast that GDP growth in developing East Asia, (excluding Japan and India) would drop +7.2%, the slowest pace since 2001, this year from +8.3% in 2011. The lender’s forecast made in May was +7.6%. The World Bank indicated room for easing measures in the region as “external demand has further moderated and inflationary pressures recede, there is some space for accommodative policies in most countries, and in case of a major external slowdown, sufficient fiscal space for stimulus” while fiscal stimulus would “be more effective in keeping up demand, as policy rates are already low and liquidity relatively abundant in most East Asia-Pacific countries”. Meanwhile, the IMF stated in its Fiscal Monitor report that fiscal shortfalls in advanced economies would fall to an average of 5.9% of GDP in 2012 and 4.9% in 2013, from 6.6% last year. While the figures were revised modestly higher from July’s estimates of 5.8% and 4.7% respectively, the trend of narrowing deficits is positive news for the market. According to the IMF, "most countries have made significant headway in rolling back fiscal deficits” and "the improvement in fiscal balances is most pronounced in advanced economies, where the fiscal shock was larger, followed by emerging market economies and to a lesser extent by low income countries”. However, the IMF in another report lower estimates of global GDP to +3.3% for this year and +3.6% for 2013, stating there’s a one-in-six chance of growth to fall below +2%.
In the US’ latest Beige Book survey, the Fed indicated that the US economy 'expanded modestly', compared with the reference 'expanded gradually' used in the August report. While most districts showed modest growth, the New York District had 'a leveling off' in economic activity and Kansas City showed 'some slowing in the pace of growth'. Overall, improvement was seen in the housing market and the automobile sector. Consumption was 'generally flat to up slightly' while the manufacturing sector was 'somewhat improved'. The report appeared to be inline with Fed Chairman Ben Bernanke’s earlier comments that the pace of economic growth is insufficient to bring the employment conditions back to normal.
For the coming week, the RBA and the BOE will release minutes for the October meeting while China would release the latest set of economic data including CPI, industrial production and retail sales.
Crude Oil: Crude oil gained last week especially driven by geopolitical tensions between Turkey and Syria. The latest headline is that Turkish civilian flights are banned in Syria. The issue affects oil supply to European countries more, thus boosting Brent crude more than WTI crude. Meanwhile, the supply side problem is exacerbated by cargo delays in the North Sea. The WTI-Brent spread widened to as much as 23.7 at close last Thursday.
Natural Gas: the Doe/EIA reported that natural gas inventory increased +72 bcf to 3725 bcf in the week ended October 5. Stocks were +236 bcf higher than the same period last year and +269 bcf above the 5-year average of 3456 bcf. Separately, Baker Hughes reported that the number of gas rigs fell -15 units to 437 in the week ended October 12. Oil rigs increased +13 units to 1 411 and miscellaneous rigs stayed unchanged at 2 units and the total number of rigs slid -2 units to 1 835. Directionally oriented combined oil, gas, and miscellaneous rigs stayed at 194 units while horizontal rigs decreased -20 units to 1 112 and vertical rigs rose +18 units to 529 during the week.
Oil and Gold Reports contributed by Oil N' Gold