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Developed economies

  • Greece concluded its bailout programme on Monday. The country’s deficit is now a surplus and the jobless rate is below 20%. To receive the country’s third and most recent bailout package in 2015 severe public expenditure cut backs and tax increases were enforced by creditors. Opposition by Eurozone creditors blocked IMF attempts to write off a substantial part of Greece’s debt. The country’s debt-to-GDP ratio sits at 178%, the highest in the Eurozone. From today (21-August) Greece’s will be the first Eurozone economy that is subject to enhanced surveillance to ensure compliance with EU fiscal objectives.
  • British inflation was slightly higher in July coming in at 2.5% YoY vs 2.4% for April to June. This is below the 3% we saw towards the end of last year and much of this comes down a relative stabilization of commodity prices. The Bank of England interest rate was hiked to 0.75% this month which might see inflation subside unless this is outweighed by a weaker pound increasing input prices.
  • South Korea’s preliminary GDP growth was 2.9% annualized in Q2. This is slightly higher than the actual 2.8% YoY growth seen in Q1. Forecasters expected a 3% growth rate for Q2. The lower than expected growth is due to a reduction in capital investment and slower export growth. 

Emerging markets

  • Thomson Reuters Emerging Market’s equity index stabilized last week after the thrashing emerging market economies received from the Turkey currency crisis. The index stands just above the 270 level. To put this in context the index is down 4% since early August, flat on early July, down 20% on early Jan highs and roughly where it was in Q2 2017. On an aggregate level this mean’s that emerging market equities are roughly where they were from 2011 to 2015, or, to put it another way, the markets have reverted to their longer-term mean.
  • Venezuela took out five zeros from its currency – i.e. 5,000,000 Bolivars are now 50 bolivars – as part of a raft of economic measures which commenced this week. This price change comes with a 3,000 percent minimum wage hike and tax increases to boost government revenue. Some economists say the measures will serve to instead reduce production and thus bolster inflation further. Hyperinflation is notoriously difficult to bring under control and often the best strategy is to abandon the hyper inflating currency all together…
  • … Much like Zimbabwe did by switching to the use of US Dollars, South African Rands, Botswanan Pula’s and Mozambican Meticais. That switched help stabilize the Zimbabwean economy but did not bring a return to economic growth. However, Zimbabwe turned a new leaf, so to speak, with electing Robert Mugabe ouster and old guard insider Emmerson Mnangagwa to the presidency earlier this month. The country, which was once the bread basket of southern Africa, posted a 2.9% GDP growth figure for 2017.   

Agricultural

  • Chicago corn futures dropped last Friday on the back of the USDA WASDE report that revised US corn production for this season up from 361.46 to 370.51 metric tonnes. Non-US production was also revised lower from 692.85 to 690.54 metric tonnes on the back of a forecast of reduced European production. Corn futures were expecting a more bullish WASDE report and rose steadily throughout July into August. The market dropped last Friday, but rose again throughout last week and is currently trading at $3.60/bushel.
  • Sugar futures have continued to fall with the front month Sugar 11 future hovering just above 10c/lb for the first time since 2015. Refined Sugar No. 5 is just above $300/tonne, the lowest level since the bottom of the 2008/2009 market. The recent dip comes as the Brazil Real weakened on the back of a general emerging market currency bear market in a very much well supplied sugar market.
  • Soybean futures pushed higher last week on news that the US and China were working on a plan to resolve their trade dispute. China is a major consumer of the US soybean crop. Front month Chicago Soybeans are trading at $8.84/bushel. Soybeans were also briefly sold off last Monday on the WASDE report showing an increase in predicted US output from 119.52 to 217.19 metric tonnes.

Energy 

  •  US natural gas production continues to push higher. Production in the lower-48 states exceeded 83,000 MMcf last week for the first time. Contextually so far this US gas production has increased 14.8% vs an increase of 11% for the whole of 2017 and a decrease of 2% for 2016. This growth is being caused by increased shale drilling, which in turn is being encouraged by higher crude oil prices. Much of this new gas is being liquefied and exported – mainly to South Korea, China and Mexico. The additional gas is keeping a lid on US gas futures. Apart from some weather driven spikes Henry Hub is holding below $3/MMBTu. Above that price level gas is uneconomical for power stations.
  • Brent crude oil prices rose towards the end of last week and are trading above $72/bbl on Monday.
  • WTI crude oil prices followed suit to trade around $66.40/bbl on Monday.

Metals

  • On the back of the sell off in emerging market equities and commodities last week (excluding agriculturals which moved to their own beat) gold futures also fell. Chicago Gold futures touched $1,185/troy ounce last week but have moved higher to trade $1,195/troy ounce. Gold has been a poor investment this year as investors have had little reason, yet, to buy gold as a flight to safety. Though we’ve seen volatility and lower equity markets in developing economies there hasn’t been a sell-off of developed economy equities.
  • A new contract signed on Friday by workers at BHP Billiton’s Escondida copper mine has averted a strike there. Last year a 44-day strike at the mine pushed copper prices higher. Currently front month Chicago Copper is trading at $2.66/lb.
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