The BRICS leaders in 2016. Left to right: Temer from Brazil, Modi from India, Xi from China, Putin from Russia and Zuma from South Africa.
The major news for the week, is the sputtering movement in world equity markets including in the United States. The descending trend is being caused by a number of factors which include stagnating corporate profits, speculation that the United States will raise interest rates by 0.25% at the end of the year and overall sluggish global economic growth.
Despite the repeated agreements to freeze or reduce crude production within OPEC (Organization of the Petroleum Exporting Countries) output is continuing to rise.
September saw an increase in oil production, up 220,000 barrels a day from the month before. Total production was recorded at 33.39 million barrels a day.
OPEC crude output is now at the highest level in eight years. Levels of production are now increasing in both Angola and Nigeria as facilities are being brought back online.
OPEC Flag
Crude prices are remaining above $50 USD (United States Dollar) on the fact that non-OPEC member Russia has committed to making an agreement to cut output. Russia remains the world’s largest exporter of oil. Russian production exceeds 10 million barrels a day.
Crude prices rose by 12% in August, 10.5% in September and 7.4% so far this month. Prices reached one year highs both in Europe and in the United States earlier this week.
Final levels of crude production for individual countries,will be worked at the upcoming meeting of OPEC in Vienna, Austria, scheduled to take place in late November. If successful, this will be the first time the cartel has been able to agree to output cuts since the financial crisis.
Silver price history
Another ongoing event is the drop in precious metals over the last few weeks. Gold had been slowly dipping in price, since reaching a high of $1,370.80 USD in August.
A major set back took place two weeks ago. The price dropped from $1256.90 from $1326.00, a decrease of $69.10 USD (5.50%) It was a drop of 9.06% from the recent high.
This week gold is listed for $1266.90 from $1253.90 USD last week an increase of 1.0%. Gold prices in 2016, are still up +20% in 2016.
The price for silver decreased to $17.57 USD from $19.43 USD over the past three weeks, a $1.86 USD dip which is an over 10% decline for the period.
International News
Longer term government bond yields are increasing on a global level,this week. The U.S. ( United States) 10 year bond is up to 1.81%.
“Stop TTIP” campaigners hand 3,284,289 signatures to Martin Schulz, President of the European Parliament, November 2015.
The German 10 year Bund is up 3.4 basis points (bps) to 0.093%. The Spanish bond spiked 11bps to 1.156%. United Kingdom (U.K.) bond surged 9bps to 1.09%. In Italy the rate increased 5.8bps to 1.439%. Only in Japan, did the 10 rate year remain flat at -0.055%.
Global trade is experiencing its weakest growth since 2007. Protectionist policies are on the rise and progress on two leading trade treaties have stalled.
Political support for the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership is declining in both Europe and the United States. These trends are ominous signs for world equity and bond markets.
The BRICS nations of Brazil, Russia, India, China and South Africa met in Goa, India this past weekend. They attempted to find ways to boost trade among their membership. Discord among them, threatens future cooperation. Together the BRICS represent more than half of the world population.
United States
The central bank in the United States known as the Federal Reserve (Fed), stated that bank officials are very near targets of full United States employment and 2% inflation. The concern has now shifted to historical low interest rates. Another sign that the Fed would like to raise interest rates by 0.25% in late December.
All three market exchanges in the United States (U.S.) saw losses reversing gains from earlier in the week. The Dow Jones Industrial Averages is between 18,000 and 18,100 today. The Standard & Poor 500 & the NASDAQ composite both has similar results.
Year to date, the major indexes have advanced the following. The Dow Jones Industrial Averages is up about 4.0%, the Standard & Poor 500 has climbed near 5.1% and the tech heavy NASDAQ has advanced about 5.2%.
The final estimate of GDP (Gross Domestic Product) for the 2nd quarter in the United States is 1.4% annual rate instead of the lower 1.3% level that was expected.
GDP projection for the 3rd quarter has been lowered by the Fed from 2.4% to 2.2%.
Europe
The European Central Bank left interest rates and the ongoing stimulus program unchanged this week.
Euro-zone business activity last month,dipped to its lowest level since January of 2015. The main reason is due to the slowdown in the economy of Germany.
In the United Kingdom the Consumer Price Index is at its highest level in almost two years. Last month saw a rise of 1.0% from 0.6% in August. Some analysts surmise this is a result of a weakening British pound. Investor anxiety over the Brexit decision continues.
The unemployment rate in the United Kingdom is at an 11 year low of 4.9% in the 3 month period to the end of August.
Latin America
The central bank of Brazil has cut its key interest rate. This will be the first time in more than 3 years. The bank lowered the rate by 0.25% to 14%. The new center right government is hoping this will help economic growth as the deepest recession in decades comes to an end.
Argentina the second largest economy in South America, lowered interest rates for loans to most businesses. The government is expecting inflation to slow further in the months ahead.
Middle East
The IMF (International Monetary Fund) warns the Gulf States of the Persian Gulf, that non-oil economic growth will only be 1.75% this year. Growth averaged 7% from 2000 to 2014.
Flag of Saudi Arabia
Saudi Arabia is tapping capital markets in order to plug a budget deficit that topped 15% of GDP in 2016 and over 13% this year. The deficit now stands at $97 billion USD.
Saudi Arabia raised $17.5 billion USD this week in a bond sale.
Asia
China’s GDP growth in Quarter 3 remained at 6.7% according to officials there. This was the result of higher government spending, record bank lending and an overheated real estate market in major cities. This type of economic growth is unsustainable.
The massive spending spree in China by national and local governments are adding to an already massive debt level, that is reaching dangerous levels.
Chinese trade data showed a 10% drop in USD terms in last month. Imports dropped only 1.9%. This provided China with a narrowing trade surplus of $42 billion USD.
The Chinese yuan is now at its lowest level versus the American dollar in 2016. This was after lower than expected drops in Chinese foreign exchange reserves. They have dipped by $18.79 billion in September, to $3.17 trillion USD. It is the largest monthly drop since last May.
The Bank of Japan may well move the previous date forward for 2% inflation from 2018 to next year.
The unemployment rate in Australia, dipped from 5.7% in August to 5.6% last month.
Business News
British American Tobacco is attempting to acquire the 58% of Reynolds American for a total of $47 billion USD in cash and shares.
Microsoft reached another life time high today at $60.45 USD today after shares advanced over 5%. The stocks price is up 9% this year and some 27% in 52 weeks.
Time Warner surged over 12% today, reaching $94.44 USD a 15 year high. It is reported that a $100 billion USD plus merger talk with AT&T has commenced.
Netflix
Netflix shares spiked over 27% this week reaching a high of $127.72 on Quarter 3 earnings. The entertainment company saw an increase in profits from $29.4 million USD to $51.5 million USD. Revenues jumped 32% to $2.3 billion USD. This was due to a 3.2 million increase in subscribers, bringing the total number to 86.74 million globally.
Disney decided this week not to buy Twitter. All other possible suitors have now declined a possible purchase or merger. Although Twitter still has a market capitalization of $12 billion USD, the firm continues to lose money.
American West Texas Intermediate (WTI) has increased from $50.11 USD last week to $50.64 USD today. International Brent during the same period went from $51.78 last week to $51.61 USD today.
American priced and Brent crude oil is now up more than +30% in 2016.
The Investment Newsletter had 6 target fill to report this week, and 0 early stock target fills.
Rosetta Stone $RST at $7.38, bought as a short at $8.19 on 08/09/16, Short Term Target Fill on 10/17/16 for $7.44, a 10.08% return for investors.
Tesla $TSLA bought as a short on 07/25/16 for $221.99. Medium Term Target Fill at $193.03 on 10/17/16, a 15% return for investors.
Advanced Auto Parts $AAP bought as a short on 06/22/16 for $154.99. Short Term Target Fill on 10/18/16 at $140.90, a 10% return for investors.
GameStop $GME bought as a short on 02/16/16 for $26.99, Short Term Target Fill on 10/19/16 at $24.53, a 10.03% return for investors.
Yelp $YELP bought as a short on 09/06/16 for $38.99,Short Term Target Fill on 10/19/16 at $35.44,a 10.02% return for investors.
Yelp $YELP Bought as a short on 09/06/16 for $38.99, Medium Term Target Fill on 10/20/16 at $33.90, a 15.01% return for investors.