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German Cooling, Italy Rebound Keep Euro-Area Growth at 0.3%

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Euro-Area Economy
  • German Cooling, Italy Rebound Keep Euro-Area Growth at 0.3%

German economic growth slowed to the weakest pace in a year last quarter, a reminder of the fragility of the euro area’s recovery in a time of rising uncertainty.

The slowdown in Germany to 0.2 percent, along with a resumption of growth in Italy and France, left expansion in the 19-nation currency region at 0.3 percent, in line with an initial estimate and matching the pace of the three months through June.

As Europe’s biggest economy, Germany’s fortunes are key to the recovery of the euro region, where the economy’s expansion is stuck at mediocre levels. That backdrop will color the European Central Bank’s review of its stimulus program in less than four weeks, when it will also have to factor in a global outlook characterized by the rise of populists critical of international trade deals.

“The economy is growing in the euro area but still not quite helping the ECB meet its price-growth target of 2 percent,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “It’s probably not enough to satisfy them, and we think they will have to extend stimulus in December.”

Economists forecast that the euro area will maintain its current pace of growth through the first half of 2017, then see a slight pickup to 0.4 percent.

Germany’s growth in the third quarter marked a slowdown from 0.4 percent and fell short of the median forecast of economists. Italy’s economy, the euro region’s third largest, grew 0.3 percent, resuming expansion after stagnation in the three months through June. In the Netherlands, growth was unchanged from the previous quarter at 0.7 percent. Previously published figures put French growth at 0.2 percent.

Domestic Demand

In Germany, domestic demand drove growth last quarter as both government and private consumption spending rose, the statistics office said. The global economy dragged on growth, with exports contracting slightly. Investment in equipment also slipped while construction climbed.

The Bundesbank has already noted that the economy cooled in the summer months — a phase it said was probably temporary — and recent data has showed a pickup in momentum. Business confidence rose to the highest level in more than two years and unemployment dropped to a record low. A separate report on Tuesday showed the ZEW German investor confidence rising more than estimated in November.

Even so, risks may be mounting. Donald Trump won the U.S. presidential election on a platform that included a pledge to renegotiate or cancel trade deals, and the U.K. looks on track for a hard exit from the European Union and its single market.

Bundesbank President Jens Weidmann said in a speech after Trump’s election that “pronounced political uncertainty” was weighing on growth prospects, raising the “question of how much protectionism and isolationism will determine the future political agenda.” On Monday, ECB Vice President Vitor Constancio said the world economy “faces once again an abnormal degree of uncertainty.”

ZEW noted in its survey of investors that responses after the U.S. vote were less optimistic than earlier ones.

“The election of Donald Trump as U.S. president and the resulting political and economic uncertainties, however, have made an impact,” ZEW President Achim Wambach said in a statement. “After the election, the economic sentiment has been less positive than before.”

The ECB’s Governing Council will meet on Dec. 8 to decide whether to extend its program to buy 80 billion euros ($86 billion) a month of debt through March. The Frankfurt-based central bank will also publish fresh economic forecasts that extend to 2019.

The European Commission cut its 2017 projections for the euro area last week, to 1.5 percent from 1.8 percent seen in May. It also warned of instability caused by Brexit and the surge of anti-globalization and populism around the world.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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