Great Unwinding sees dollar rise, oil prices fall

Uncategorized

SHARE THIS STORY

UnwindingThe day after our China Economic Transformation webinar last week, Premier Li Keqiang confirmed its key message:

There’s already a lot of money in the pool, and we can’t rely on monetary stimulus to spur economic growth…Facing the New Normal state of the Chinese economy, we have remained level-headed and taken steps to tackle deep-seated challenges….in the latter half of the year and beyond, we will accelerate the transformation of the development model.

As the blog has argued ever since publishing its major Research Note on China in February, there will be no repeat of the panic stimulus measures taken by the previous leadership after 2008.  China is, in fact, reversing course, in order to move onto a more sustainable path for future growth.

Already, there are clear signs that 6 of the 7 key directions outlined in the Research Note are underway, and we can expect the 7th to follow in the medium-term.  It is impossible to overestimate the impact this Transformation is already having on the global economy.  And, of course, it is only just getting underway.

We had a record turnout for the webinar, and an excellent debate in the Q&A.  Many thanks to all who joined us.  If you missed the webinar, and would like a copy of the slides, please click here.

US$ IN LONGEST WINNING STREAK FOR 17 YEARS, OIL PRICES TUMBLE
This was the Wall Street Journal’s headline at the weekend, confirming that the Great Unwinding of policymaker stimulus is now well underway.  And the market data confirms this is no ‘flash in the pan’:

  • The US$ is at its highest level versus the Japanese yen since 2008
  • The euro is at its lowest level for 14 months
  • Brent oil prices are down 14% since mid-June
  • US Treasury yields have risen to 2.61%
  • Liquidity is disappearing in emerging markets as the dollar rises, and China scales back lending

New readers may like to look back at the blog’s key forecasts for the Great Unwinding

August 18:  The Great Unwinding of policymaker stimulus has begun
August 27:  Oil prices break out of their triangle – downwards
September 3:  US dollar rises as investors worry low-cost money may disappear
September 10:  Great Unwinding of policymaker stimulus creates interest rate risk

On Wednesday, the blog will look at the likely impact of this Unwinding on US equity markets.

What we are seeing is markets starting to refocus on their true role of price discovery.  They have been dominated by central bank and policymakers stimulus since 2009, as these have mounted a vain attempt to turn back the tide of demographic change.  But as the blog has noted, “You can’t print babies”.  So, in the end, this stimulus cannot return the global economy to the BabyBoomer-led growth levels of the SuperCycle.

Instead, new opportunities are opening up for companies and investors, due to the appearance for the first time in history of the New Old 55+ generation, as we describe in ‘Boom, Gloom and the New Normal’.  If policymakers had accepted this logic in the past, the Great Unwinding now underway would not have been necessary.

 

WEEKLY MARKET ROUND-UP
The blog’s weekly round-up of Benchmark price movements since January 2014 is below, with ICIS pricing comments:
Brent crude oil, down 10%
Naphtha Europe, down 8%. “Prices fell to a yearly low this week as upstream ICE Brent crude oil futures declined on rising supply and slow demand”
Benzene Europe, down 7%. “Prices dropped to a three-month low this week, with bearish downstream sentiment, tumbling upstream energy numbers and lower US pricing weighing down on the market”
PTA China, down 6%. ”Average operating rates of China’s PTA facilities has increased slightly during the week to around 55-56%”
US$: yen, up 2%
S&P 500 stock market index, up 8%
HDPE US export, up 13%. “Ongoing production problems at a few key suppliers are keeping the market tight”

 

 

PREVIOUS POST

Global stock markets still depend on low-cost money for support

12/09/2014

The blog’s 6-monthly review of global stock markets highlights the narrow ...

Learn more
NEXT POST

US PVC exports tumble as demand weakens in key markets

16/09/2014

The US PVC industry is hitting new problems, to add to the post-2006 collapse o...

Learn more
More posts
Day of reckoning approaches for US polyethylene expansions, and the European industry
08/09/2019

Planning for future demand in petrochemicals and polymers used to be relatively easy during the Baby...

Read
China’s renminbi and the global ring of fire
01/09/2019

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Read
Oil market weakness suggests recession now more likely than Middle East war
11/08/2019

Oil markets remain poised between fear of recession and fear of a US attack on Iran. But gradually i...

Read
Smartphone sales continue their decline, whilst $25 smart feature phones open up new markets
04/08/2019

Global smartphone sales have now been falling for 8 consecutive quarters, since Q3 2017. They are no...

Read
UK, EU27 and EEA businesses need to start planning for a No Deal Brexit on 31 October
28/07/2019

New UK premier, Boris Johnson, said last week that the UK must leave the EU by 31 October, “do or ...

Read
London house prices edge closer to a tumble
21/07/2019

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their...

Read
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more