The big economic news for the week, is the surge in the price for crude oil this week. American West Texas Intermediate (WTI) increased from $44.38 USD (United States Dollar) last Friday to $48.27 this morning. This is a gain of 8.77%. International Brent during the same period went from $46.71 USD to $50.74 USD. This indicates a 8.63% increase in the price for the week. Prices are now at 7 week highs.
The surge in valuation in the United States equity markets, which reached all time highs last week on Monday moved even higher. For the second time since 1999, all three major composites reached life time highs. On Monday,the Dow Jones Industrials peaked at 18,722.61. The exchange is up 6.73% for the year.
The Standard & Poor 500 which is up 7.0% this year, topped at 2,193.81 and the NASDAQ increased to 5,271, an addition of 4.65% in 2016.
The United States equity markets were able to maintain most of the gains for the week. This was mostly due to the ongoing price surge in crude oil.
The upward rise in oil is mostly due to hollow comments by Saudi Arabia, about possible cuts in output. This is despite the record production produced by the kingdom. The total yield has moved from 10.67 million barrels a day in July, to between 18.8 and 18.9 million in August.
This increases the influence of Saudi Arabia at the upcoming meeting of OPEC (Organization of Petroleum Exporting Countries) nations in September. Ecuador, Kuwait and Venezuela all want to reduce crude production to help support prices.
The countries of Iran, Iraq and Saudi Arabia on the other hand, are still battling for global market share and are therefore interested in raising output even further.
The question is, can this level be sustained? The headwinds are growing against the American equity markets, despite the flight to safety by global investors.
In Europe, it has been reported that the exit of the United Kingdom from the European Union (EU) known as Brexit, could well be delayed until 2019. The government is in no position to begin negotiations for this momentous event anytime soon.
Inflation in the United Kingdom picked up last month. The weaker currency led to the biggest spike in import costs, since 2011. Consumer price index rose 0.6% from 0.5% in June. Meanwhile, unemployment remained steady at 4.9% and average weekly earnings rose by 2.4%.
Retail sales in the United Kingdom grew more than expected last month. The total volume increased 1.4% month to month and 5.9% year to year. A lower valuation in the pound, is causing tourists to spend more money. British pound sterling is now valued back above $1.30 USD.
Russia insists it will abide by the Minsk Protocol signed in September 2014, which is an agreement to halt the war in Eastern Ukraine. However, this week tensions are rising with Russia accusing the Ukraine of sending saboteurs into Crimea. The area is a former territory of Ukraine, that was annexed by Russia in early 2014.
Turkey insists that if the EU does not grant its citizens visa free travel to Europe by October, the migrant deal to stem the flow of refugees coming from the Middle East by way of Turkey to the EU, will end.
The Turkish government issued more emergency orders this week. A total of 2,360 police officers were discharged, the TIB telecoms authority was closed and President Erdogan appoints a new chief to be in charge of the armed forces. The country is increasingly moving towards a one party state and a political dictatorship.
In South America, suspended Brazilian President Dilma Rousseff claims that her impeachment without a proven crime, is tantamount to a coup. She has been accused of manipulating government fiscal accounts, in order to be re-elected in 2014. Rousseff is calling for early elections, to unite the nation. It is likely she will be formally removed from office soon.
After two years of recession, Brazil is predicting an expansion in GDP (Gross Domestic Product) of 1.6% next year. This forecast is the result of rising business and consumer confidence. Inflation is expected to remain unchanged, at 4.8% in 2017.
In Asia, stocks in China reached a seven month high,with the announcement of the successful conclusion of the Shenzhen-Hong Kong Stock Connects. The action increases outside access to the Chinese market.
Chinese housing prices have risen 7.9% year on year last month. It is the fastest increase, since February of 2014. Home prices in Shenzhen and Xiamen for example, surged 40%. New fears about a housing market bubble in China have returned.
The Japanese economy neared recession in the second quarter, with growth at only 0.2%. Exports continue to fall and corporate investment remains moribund. Growth for the first quarter was 2% in comparison. The announcement of a large stimulus package by the government, is failing to excite investors.
Japanese exports plunged last month at the fastest pace, since the financial crisis of 2008 and 2009. It can be attributed to the strength of the yen and declining global demand. Exports are down 14% on the year. This is the tenth consecutive month of decline. Imports have tumbled 24.7% during the same period. It leaves a Japanese trade surplus of $5.15 billion USD.
Negative interest rates in Japan, will reduce profits of the three biggest banks there by at least $3 billion USD, through the first quarter of 2017.
The sour economic news presents further challenges to the Japanese government, which has been pulling out all the stops, to try to bring the country back to economic growth
The new government of Mongolia elected in a landslide vote in late June, is facing an economic crisis.
The central bank in Mongolia, raises its main interest rate by 4.5% bringing it up to 15%. The government there is attempting to stabilize a currency, that has been collapsing in value. The tugrik which has lost 8% in valuation against the American dollar this month alone, is the worst performing currency globally.
In international business news, BHP Billiton the largest miner globally by market value experienced the worst annual loss ever. The $6.4 billion USD write down and a 77% cut in the corporate dividend is the result of the low prices for shale oil, a dam disaster in Brazil and a general overall drop-off for commodities.
Gold has reversed some earlier declines, after reaching a high of $1,370.80 last month. The price is now listed at $1346.00, a decrease of $6.80 USD from last week. Gold is still up 27% in 2016. The price for silver decreased 3.97% on Friday to $19.40 USD, a -$0.77 dip for the week.
Crude oil has reversed the previous 3 month lows and has escaped bear territory. The price per barrel has dropped from $52 USD in June to $39.51 USD in early August. The price now has once again surpassed the $48.00 USD benchmark. This is a +20% increase from the low.
On Friday, American West Texas Intermediate (WTI) oil listed for $44.38 USD. Prices are $3.69 USD or 8.31% higher over last week. International priced Brent is up by +8.18% at $50.53 for the week. This is a $3.82 USD increase in valuation from last Friday.