90 seconds at 9 am: US dollar surge

Chinese consumer confidence high; bumps in Europe; ANZ joins with Swiss; supermarkets target fresh food; oil and gold lower; NZ$1 = US$0.849, TWI = 79.4

29th May 14, 7:36am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news our exchange rate fell overnight as the US dollar moved higher.

But first, the Chinese consumer is confident and buying, despite the mixed economic news there. Transitioning to a consumer-led economy is an important long-term goal in China and it seems they are on their way. And one area that will affect us is in tourism - the Chinese are traveling in huge numbers.

German unemployment unexpectedly increased for the first time in six months amid signs of a slowdown in Europe’s largest economy that could weigh on the fragile euro-area recovery.

The French government is facing a €14 bln "black hole" in its public finances after significantly overestimating tax collection.

Just when some are questioning the basis of Swiss banking, ANZ has announced a 'strategic partnership' with Swiss wealth and asset managers Vontobel. They are hoping to funnel $2 billion of private client wealth through the partnership.

Staying in this part of the world, supermarket buying pressures is likely to intensify especially in the fresh food category. The Australian Coles group has announced plans to target this sector with 'lower prices' and their main rivals including Woolworths will surely respond. Its going to be tough to compete if you are a smaller supplier. Expect to get more 'fresh' foods from China and other imported locations.

Yields on UST 10 by bonds fell overnight to 2.44%, a big 'bond rally', and a sharp fall from yesterdays' 2.53%.

Oil is also falling. It is down from $104.30/barrel yesterday to US$102.70 this morning, erasing all rises run up over the past week.

Gold is down even further. This morning it is at US$1,257/oz, another sharp fall on the day and back to where it was in February.

Equities are higher in New York and most indexes are at or near records.

On the exchange rate, we start today also lower because the US dollar is moving higher. The NZ dollar is currently at 84.9 USc and an eleven week low, at 92.0 AUc and the TWI is now at 79.4.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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3 Comments

by King of the whiners | 29th May 14, 9:25am 1401312339

Following the collapse of US shale hopes in California and the disappearance of 2/3rds of their shale reserves that never were (news released last week but seemingly ignored on this and other sites) there is an increasing realisation that the rest of the US 'shale revolution' may also be on shaky ground. This from Bloomberg:

http://www.bloomberg.com/news/2014-05-26/shakeout-threatens-shale-patch…

'''In a measure of the shale industry’s financial burden, debt hit $163.6 billion in the first quarter, according to company records compiled by Bloomberg on 61 exploration and production companies that target oil and natural gas trapped in deep underground layers of rock.''

''Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.''

“Interest expenses are rising,” said Virendra Chauhan, an oil analyst with Energy Aspects in London. “The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures.''

The big oil multinationals have largely abandoned US shale - looks like many of the smaller companies are just swapping rapidly depleting wells for a mountain of debt. How long can that go on for? If US interest rates ever do rise I suspect you can kiss goodbye to a swathe of these companies (and their production) in very sharp order. Of course some of us have been saying this for a while now, just nice to see it acknowledged by the likes of Bloomberg......

by steven | 29th May 14, 10:34am 1401316450

This Bloomberg piece reads like an industry in dire straights with no way out in sight and making substantial losses even before production declines. This of course has been commented upon for 2~3 years now yet ignored by financial types and others with fringe political beliefs, funny how political dogma of "I want it to be like this" rather than how it is can bite, and it looks like hard.

"“The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures.''

No sh***....all this and more has long been documented...

Roll forward to 2016 and the suggest peak output of shale and we'll see some serious company failures?

regards

by Simon | 29th May 14, 10:59am 1401317973

Thats smaller, start up shale companies in the US. Peak shale 2016???

I wouldnt read too much into the struggles of smaller companies that haven't discovered a 'sweet spot' and need to constantly stamp up capex for further exploration. early phase is extremely expensive and with such low gas prices in US will prob stop for a while, until gas prices go up significantly, then you'll see a return of a new bunch of explorers.

I own shares in westside corp ltd, an Australian shale gas company in queensland. They have just signed a GSA for 20 years to supply gas to LNG exporting it to the likes of china.

Westside has just had a take over offer from a chinesse company at more than double what I paid for it.

Before westside I owned arrow energy; again shale in queensland. Again taken over by chinesse. 50-odd % gain for me on that one.

And Dart energy, who are mainly coal seam gas, but happen to own licences on some of the biggest shale gas deposits in the UK. Another Au firm being aquired at the moment. More than doubled my money on that too.