The major news for the week, is the movement in the global oil market in response to the meeting in Algiers this week. OPEC (Organization of the Petroleum Exporting Countries) has agreed in principle to limit oil output to 32.5 million barrels a day. This would be from a high of 33.24 million barrels a day.
Levels of crude production for individual countries,will be worked out at the upcoming meeting in Vienna. This is scheduled to take place in November. If successful this will be the first time the cartel has been able to agree to output cuts since the financial crisis.
The basis of the agreement is to allow a partial exemption for OPEC members Iraq, Iran, Libya and Nigeria.
OPEC is responsible for 40% of global output and 60% of the world trade in oil.
Deutsche Bank Twin Towers, the Headquarters of Deutsche Bank in Frankfurt, Germany
The big news in equities was the drop in the markets,that began earlier in the week on a global scale. This was in response to the declining fortunes of Germany’s largest financial institution Deutsche Bank .
In addition, the United States Department of Justice wanted to fine the bank $14 billion USD (United States Dollar) for its part in the selling of toxic mortgage back securities.
The payment would end the government legal liability facing the bank in the United States. The Bank has stated it would accept a penalty of $5.4 billion USD for dealing with fraudulent investments that helped lead to the financial crisis of 2008 and 2009.
All three market exchanges in the United States (U.S.) saw losses reversing gains from earlier in the week. The Dow Jones Industrial Averages remains at 18,300 level again, with a rally today. The Standard & Poor 500 & the NASDAQ composite both has similar results. Last week the latter reached a new all time at 5,342.88.
Year to date, the major indexes have advanced the following. The Dow Jones Industrial Averages is up 4.1%, the Standard & Poor 500 has climbed 5.2% and the tech heavy NASDAQ has advanced 5.2%.
The final estimate of GDP for the 2nd quarter in the United States is 1.4% annual rate instead of the lower 1.3% level that was expected.
The United States Congress overrode a presidential veto of legislation this week, that permit the families of 09/11 victims to sue Saudi Arabia for any role in the 2001 terrorist attacks.
The United States Congress avoiding a government shutdown this week, by agreeing to a continuing resolution until December 09.
Janet Yellen, the Federal Reserve Bank chair, the central bank of the United States is opening the door for a new direction in monetary policy. As the bank begins to reach a ceiling, on how much government debt to purchase, other assets would need to be considered. This would include corporate bonds and stocks.
International News The World Bank has reappointed Jim Yong Kim to a new 5 year term. No other serious contenders had come forth to challenge his nomination.
The World Trade Organization (WTO) cuts its forecast for global trade growth this year, by more than a third. In April the projection was 2.8%, but has now been reduced to 1.7%. This is the first time in 15 years, that international commerce is lower than the growth in the global economy.
Europe The preliminary results from Eurostat indicated a doubling of the inflation rate this month. Part of this can be explained by the fading impact of lower energy prices overall. The annual rate is now up to 0.4%. Unemployment on the other hand remains stubbornly high at 10.% in August.
The end result for the European economy at large is that little additional economic growth will be expected for the rest of the year.
The Greek Parliament approved a new set of austerity measures and the transfer of major state assets to a new privatization fund. This will unlock the next round of loans ($3.14 billion USD) for Greece, when Euro-zone finance minsters meet in October.
Matteo Renzi
In the United Kingdom, it is estimated the economy grew by 0.7% in the second quarter an upward revision of 0.1%.
Italy has set December 04th for a referendum on constitutional reforms. The purpose is to restructure the political system to add stability. Prime Minister Matteo Renzi has threatened to resign, if the measure fails to pass. At present, the vote is 55% to 45% against the proposal.
Latin America In Brazil, the IMF (International Monetary Fund) is asking the new conservative government to close the growing central government fiscal gap, that threatens to derail any economic recovery there.
Middle East In response to the lower oil prices, Saudi Arabia is cutting salaries and some financial benefits of public employees. These workers make up near two thirds of workers in the kingdom.
Asia The central bank of Japan (BOJ) decided to keep the key interest rate unchanged at -0.1% last week. The BOJ did announce other modifications to its expansive monetary policy, that will provide more stimulus to the economy.
The failure of the central bank becomes obvious, with the release of August inflation numbers which remained negative. The overall consumer rate is down -0.5% from a year ago. Japan remains the only major world economy caught in deflation. The core rate of inflation, is at the lowest level in 18 months.
Although small and medium sized Chinese businesses expanded in September,it was only slightly and did not stop the loss of jobs with manufacturers.
In China’s industrial sector, earnings growth accelerated. Profits were up 19.5% from a year ago, at $80.2 billion USD. This is the fastest rate of expansion, since August of 2013.
There is rising tensions along the border between India and Pakistan. Following skirmishes in Kashmir, Pakistan has threatened to use tactical nuclear weapons to destroy India. The 2003 ceasefire is now threatened. In response, foreign investors are selling assets in both countries.
Srinagar, the largest city of Kashmir
The joint military exercises between the Philippines and the United States in October will be the last ones for now. President Duterte wants to foster better relations with China and Russia.
Business News Shares of Amazon reached $838.02 today, another life time high. This more than doubles the price of the stock in 17 months. Market capitalization is now close to $398 billion, an increase of $10 billion USD in a week.
This makes Amazon the 4th most valuable company in the United States. Only Apple at $598 billion USD, Google at $539 billion USD and Microsoft at $444 billion USD remain larger.
Salesforce is pushing for regulators in Europe and the United States to block Microsoft’s acquisition of Linkedln for $26.2 billion USD. The argument presented is that is hurts competition.
Wells Fargo was until this month, the largest bank in the United States. It had engaged in a massive buying of smaller banks, to reach this status. As a result of the scandal, it is now the second largest bank after JP Morgan.
The trouble for Wells Fargo has arisen because of the creation of some 2 million counterfeit bank and credit card accounts, to boost sales numbers. The bank has already been penalized $185 million USD by the government, but more lawsuits are already in the process. The bank has lost some $20 billion USD in market capitalization already.
United States DOJ is calculating how large a fine to levy on Volkswagen, without putting the German automaker out of business.
Roughly 100 gas and oil companies in North America, have filed for bankruptcy in the last two years. It is a result of the plunge in energy prices on a global sale. More will follow, if crude prices do not show some recovery.
American West Texas Intermediate (WTI) has increased from $42.93 USD two weeks ago, to $44.40 USD last week. Today crude oil is at $48.15 USD. This is an increase of 8.45% in a week and 12.16% in two weeks. International Brent during the same period went from $45.83 USD last week, to $49.25 today. This indicates an advance in price of 7.46%.
American priced crude oil is up +29% in 2016.
Gold had been stagnating of late, after reaching a high of $1,370.80 last month. A reversal took place this week. The price is now listed at $1326.00, a increase of $16.40 USD from last week. The price for silver decreased to $19.43 USD, a $0.43 dip for the week.
Gold prices in 2016, have increased +25% in 2016.
The Investment Newsletter had 2 target fill to report this week, and 0 early stock target fills.
BJ’S Restaurants (BJRI) bought as a short on 10/14/15, with a buy fill on 10/23/15 for $43.99 USD. Long Term Target Fill at $36.65 USD on 09/27/16. The $7.34 drop in the share price, brought a 20.03% return for investors.
Pengrowth Energy (PGH) bought as a short on 08/01/16, with a buy fill on 08/04/16 for $1.55 USD. Short Term Target Fill at $1.40 USD on 09/27/16. The $0.15 drop in the share price,brings a 10.17% return for investors.