- Oil Leading Putin Back to Debt as 20% Yields Seen: Russia Credit. The days when Russia could comfortably cancel weekly bond auctions are coming to an end as crude oil tumbles toward $40 a barrel. While the Finance Ministry scrapped the first sale of the year yesterday, citing “unfavorable market conditions,” the government will eventually need to start selling short-dated debt at yields as high as 20 percent if crude prices stay depressed, according to Raiffeisen Capital. The rate on five- year ruble notes surged 2.22 percentage points this month, the most in emerging markets, as oil slumped to the lowest since 2009. The surge in Russian borrowing costs -- the result of the plunging ruble, sanctions over Ukraine and plummeting oil -- prompted the ministry to pull four auctions in December alone. With the economy verging on a recession amid a stand-off over President Vladimir Putin’s actions in Crimea and east Ukraine, the budget deficit will increase to 3 percent of gross domestic product this year, Finance Ministry data show. “Russia’s key source of income is shrinking,” Oleg Popov, a money manager at Allianz Investments in Moscow, said by phone yesterday. “The government will be forced to borrow.”
- Ruble Falls Fourth Day on Oil as Russia Says Junk Rating Likely. The ruble weakened for a fourth day as Russia’s economy minister acknowledged the government risks losing its investment-grade rating amid a slump in oil that is tipping the economy into a recession. The currency lost 1.3 percent to 66.1170 per dollar by 6:32 p.m. in Moscow, bringing its four-day decline to 8.8 percent. The ruble trimmed a drop of as much as 2 percent after Finance Minister Anton Siluanov said Russia could convert as much as 500 billion rubles ($7.58 billion) of its $88 billion rainy-day Reserve Fund to support the currency, which he called “undervalued.”
- Freeport Leads Plunge in Mining Stocks After Copper Slump. (video) Freeport-McMoRan Inc. (FCX), the largest publicly traded copper producer, and other suppliers of the metal plunged after the metal fell the most in six years. Freeport declined 9.5 percent to $19:05 at 9:51 a.m. in New York and traded at the lowest since April 2009. Glencore Plc (GLEN), the third-biggest producer, dropped 12 percent in London and First Quantum Minerals Ltd. slid 27 percent in Toronto.
- Crude Oil Futures Gain on Speculation Losses Excessive. Crude oil advanced from the lowest level in more than 5 1/2 years on speculation that futures prices fell more than justified. Oil rebounded as much as 6.2 percent in New York and 5.1 percent in London. The market shrugged off an Energy Information Administration report that showed U.S. crude and fuel stockpiles increased last week.
- European Stocks Fall as Drop in Miners, Oil Shares Outweigh ECB. European stocks fell from a five-week high as energy and mining shares followed commodity prices lower on global-growth concern. The Stoxx Europe 600 Index dropped 1.5 percent to 339.67 at the close of trading.
- Treasury Bond Yield Drops to Record Low Amid Fear of Global Deflation. Treasury 30-year bonds yields are tumbling to record lows as the collapse in oil and commodity prices fuels speculation the global economy may drop into a deflationary spiral and stifle growth. Global sovereign yields fell to records in the U.K., France, Canada and Japan as a report showed retail sales in the U.S. slumped in December by the most in almost a year, reflecting a broad-based retreat that may prompt economists to cut growth forecasts. The slide prompted traders to push back expectations for the timing of the first Federal Reserve interest-rate increase into December less than a month after speculating that rates could rise as soon as April.
- Fed Saw Consumer Spending Rise Amid Concern on Lower Oil Prices. A Federal Reserve survey showed most regions saw “modest” or “moderate” economic growth driven by gains in consumer spending, while the energy-rich Dallas district slowed as oil prices plunged. “Consumer spending increased in most districts, with generally modest year-over-year gains in retail sales,” the Fed said today in its Beige Book, based on reports from its 12 districts gathered on or before Jan. 5. “Auto sales showed moderate to strong growth.”
- Goldman Cuts Profit Estimates for Chemical Makers on Oil. Goldman Sachs Group Inc. cut earnings estimates at seven U.S. chemical makers to reflect a stronger dollar and product prices that are falling with crude oil.
- Mortgage-Bond Slump Builds After Worst Start to Year Since 1997. Government-backed U.S. mortgage bonds are off to their worst start relative to Treasuries since at least 1997 as investors in the $5.5 trillion market brace for a surge in homeowner refinancing. Returns on mortgage securities guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae were 0.6 percentage point less than those on similar-duration government debt this month through yesterday, according to Bank of America Merrill Lynch index data. Ginnie Mae securities, which package Federal Housing Administration loans, have underperformed Treasuries by 0.9 percentage point.
- Obama Sets Plan to Cut Methane Leaks From Oil, Gas Industry. The Obama administration said it plans to require the oil and gas industry to cut methane emissions by as much as 45 percent over the next decade, the president’s latest step to curb greenhouse gases tied to climate change. The U.S. Environmental Protection Agency will issue rules this year targeting new production and transmission systems to reduce methane leaks by 40 percent to 45 percent by 2025, the administration said Wednesday. The EPA also will expand voluntary programs with states and industry on equipment already in use, a step that falls short of what environmentalists sought.
- JPMorgan(JPM) CEO Dimon Says Banks ‘Under Assault’ by U.S. Regulators. Jamie Dimon, grappling with multibillion-dollar legal costs and rising capital requirements at JPMorgan Chase & Co. (JPM), lashed out at U.S. regulators for putting his bank “under assault.” “We have five or six regulators or people coming after us on every different issue,” Dimon, 58, said today on a call with reporters after New York-based JPMorgan reported fourth-quarter results. “It’s a hard thing to deal with.”
- In a Record Year for Skyscrapers, China is Miles Above Everyone Else. In China, polluted skies aren’t the limit – at least for skyscrapers. The world built a record 97 buildings that were 200 meters (656 feet) or taller in 2014, and for the seventh year in a row, the Middle Kingdom completed the greatest number of them, according to a new report (pdf) from the U.S.-based Council on Tall Buildings and Urban Habitat. China’s output of 58 skyscrapers was a 61% increase from its previous record of 36 buildings in 2013, according to the report. Tianjin, the eastern sister city of Beijing, completed the most 200-meter-plus skyscrapers, totaling six. That’s more than all such skyscrapers built in the Philippines, the world’s No. 2 builder behind China with five. Within China, there was a four-way tie for second place between Chongqing, Wuhan and Wuxi, all with four buildings each. If you were to stack all of China’s new skyscrapers on top of each other, they would reach 13,548 meters (44,449 feet) into the sky — close to the upper altitude limit for most commercial airliners. The Philippines, meanwhile, built a total of 1,143 meters’ worth of skyscrapers. Asia dominated sky-high construction in 2014, with 76% of all 200-meter-plus buildings being completed in the East. The United Arab Emirates and Qatar tied for third after China and the Philippines.
- The Dead Mortgage Cat Bounce Is Over. (graph)
The Bakken:
- Breakeven targets, future ND production in low oil price reality. According to the DMR, breakeven price points—the price at which new drilling would cease—vary across the Williston Basin. With McKenzie county being in the heart of the Bakken, new drilling wouldn’t cease until oil prices dropped to $30 per barrel. Counties that are on the outer-edge of the Bakken—such as McLean and Divide—will be the first to discontinue drilling new wells with breakeven prices at $77 and $73 per barrel, respectively. The price at which production from existing wells would be shut-in occurs when the oil prices drop to $15 per barrel. Production projections show that as the oil prices decrease, the number of rigs will too. But, the review showed that by the third quarter of 2015, if oil prices reach $25 per barrel, the state’s bopd will still be around the 1 million bopd mark. If oil prices were to reach $25 per day by the third quarter of 2016, the state would still be able to produce 800,000 bopd, and 700,000 bopd by third quarter 2017. To view the presentation in its entirety, click here.
- ECB Governing Council member Ignazio Vasco says in interview with MNI that "there is a macroeconomic risk that we may get to a downward spiral of stagnation and low inflation, or outright deflation."
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