90 seconds at 9 am: Italy back in recession

US trade deficit falls; EU stocks drop; German orders fall; Italy back in recession; Beijing pollution action; UST 10yr 2.46%; NZ$1 = US$0.847, TWI = 79.3

7th Aug 14, 7:24am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news of a falling oil price, even as tensions mount in key parts of the oil world.

The US trade deficit fell 7% to $41.5 bln in June after a sharp drop in imports, data out overnight shows. Their exports rose while their imports decreased, especially for oil.

In fact, oil storage levels were higher than expected in the US and the price of oil fell to below US$97/barrel. Local production is rising fast. The Brent benchmark is also still below US$105/barrel.

European stocks dropped to their lowest level in more than three months as concerns mount about a buildup of Russian troops along the border with Ukraine, and a report showed German factory orders unexpectedly fell.

And in an overnight surprise, Italy has said it has fallen back into recession after the country's economy contracted by 0.2% in the second quarter of the year.

In China, reputation matters to the central government. Beijing today ordered official vehicles off the road for 16 days and urged people to take public transport to ensure smog-free skies for a key advance meeting ahead of an APEC summit in November. Some factories will be ordered shut as well.

Equity markets are level-pegging today in New York, not making back yesterday's losses; UST 10yr yields fell back to 2.46%. Gold however jumped and is now at US$1,308/oz.

We start today with the NZ dollar up somewhat following the dairy price drop. The better than expected employment data has helped add back some confidence. We are now at just over 84.7 USc, just under 90.7 AUc. The TWI is at 79.3.

If you want to catch up with all the changes on 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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7 Comments

by MortgageBelt | 7th Aug 14, 8:24am 1407356681

South Africa appears to be another developed country keen to hike interest rates (like NZ) to prop up their currency - under the premise of suppressing inflation, while their economy is weak. Sound familiar?

Is the 'Inflation threat" genuine or an excuse that analysts are looking through? http://blogs.ft.com/beyond-brics/2014/07/16/will-south-africa-raise-interest-rates/

by Boatman | 7th Aug 14, 9:22am 1407360134

@Mortgagebelt ....Two hugeley different scanarios , NZ has a problem of possible overheating the economy because we are growing .

South Africa on the other hand , is in trouble ....... again.

The SA Rand currency is in massive freefall , the economy is on its knees , reeling due to rampant and violent strikes that have crippled the SA economy, and its mining sector in particualr .

They have ben dowgraded by S&P

Economic growth borders on negative

They run a huge budget defifict

The have stagflation , with Inflation around 7% , a stagnant economy

Like Italy , they could go back into recession .

by MortgageBelt | 7th Aug 14, 10:49am 1407365353

Sure different situation, but is NZ really needing to fight inflation? Or does the govt & rbnz just want to keep the nz dollar high?

Is the NZ economy really overheating?

by Neven911 | 7th Aug 14, 11:31am 1407367917

David

I can't see where you get local production of US Oil is 'rising fast', It more looks like their refinary capacity has increased and actually their crude stocks are at a low, there has always been a large trans Atlantic trade in refined product (Europe takes excess US diesel and US Europes excess gasoline) and from what I can see the depression in the crude price is a temporary state caused by a rebalancing of global refining/export/consumption profiles impacting on european crude demand. I think a combination of and extra 2 mil bpd crude production and a depressed local US market has meant they have more to export thats putting pressure on a depressed europe - hence the Brent fall.

by steven | 7th Aug 14, 1:27pm 1407374836

"tight oil" production does seem to be rising fast. The Q is how long before it peaks and how fast will the drop be. So Im not sure what you are saying here?

Currently a peak in 2016~2020 for tight oil and a fast drop, ie 10%+ per year seem probable.

Anywaty, the US is pumping around 1mbpd and the price is still $100.

and ven the EIA sees not much fo a price change despite US output climbing in 2015.

http://www.ogj.com/articles/2014/06/eia-us-oil-production-in-2015-expec…

oh boy....does that signal the era of cheap oil is over.

What happens when the US's output nose dives?

regards

by profile | 7th Aug 14, 1:10pm 1407373804

A 60% increase in domestic oil production in the last three years would surely put it in the 'rising fast' category?

The US isn't taking as much of Europe's gasoline. On the contrary the US is exporting it's gasoline surplus to Africa and cutting Europe's lunch. Hence all the refinery closures in Europe.

by steven | 7th Aug 14, 1:38pm 1407375499

Indeed, but so?

"OIL production in the United States rose by a record 992,000 barrels a day in 2013, the International Energy Agency estimated this week."

Once production falls, and that is a near term event (inside 5 years), then what investment will be put in to minimalise the decline rate? answer with no profit, not enough. So the EIA's decline rate is currently less with tight oil than it was with conventional crude oil, that should be raising an eyebrow.

and meantime "American consumption of oil also rose last year, by 390,000 barrels a day, or 2.1 percent, to 18.9 million barrels a day."

ie the USA uses more and more every day.

but how long does that 20% year on year continue for? Looks like that stellar rise may indeed be slowing,

http://online.wsj.com/news/articles/SB100014240527023037959045794333309…

regards