According to experts, the plunge in oil prices renews weaknesses within the already worrying global economy, which could shake up governments that depend largely on oil-based revenue. At the same time, reduced oil prices could provide benefits to consumers, giving individuals more money for other things and lowering corporate costs.
The combination of the outright deflation in the Eurozone and the seemingly immunity of the US economy to the poor global developments has encouraged investors to extend the dollar’s gains. The euro has been pushed below $1.18. Sterling neared $1.50. And the dollar, which was at three week lows against the yen on Tuesday, near JPY118, is knocking on JPY120 again.
Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2% more crude oil supply than demand and the price of gasoline is under $2.00/gallon in Texas. If oil supply falls too far, we could see gasoline prices doubling within 18 months. For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive up the price.
With the resounding Republican victory in November’s midterm elections, most pundits are despairing that Congress and President Barack Obama will find any areas for cooperation in the coming two years. If there is a potential bright spot of mutual interest, though, many believe it must be in international trade.
The issue of increasing obesity levels throughout the world is gaining weight as an economic issue. Today, approximately one third of the world’s population is obese or overweight. As a result, the plague of obesity is creating an economic drain that rivals issues such as smoking, and even armed conflicts, according to research conducted by McKinsey consultants.
Amidst a declining currency and lower revenue from an oil glut, energy-exporter Russia continues to boost production.
The US dollar began the New Year with strong gains against both major and emerging market currencies. Comments from the BOJ’s Kuroda and ECB’s Draghi underscore the divergence between the US and other high-income countries. The former discussed other tools useful to help achieve the BOJ’s 2% inflation target.
French economist Thomas Piketty rejected an honor from the French government, dismissing the award and urging French policymakers to focus on growth.
Saying that it is not government’s role to decide who is honorable, Piketty rejected the Legion d’Honneur, an award founded by Napoleon Bonaparte at the beginning of the 19th century. The French government announced the winners of the prestigious award, which recognizes achievements in economics, research, culture, and public works.
American home prices fell slightly in the latest data, but consumer confidence has reached a yearlong high as cheap oil spurs higher consumption.
The S&P Case-Shiller index saw a 4.5% year-over-year rise in home prices, but that included a 0.1% month-over-month decline in October prices compared to September levels. While the data was in-line with economists’ expectations, some analysts say that the slowdown may continue in 2015 as the real estate recovery slows to a more normalized rate of growth.
The approaching New Year thins market participation. This makes for some choppy price action. The result is weaker equity markets and a softer US dollar. The greenback is lower against the euro and sterling. Sterling held just above $1.55 in Asia before recovering a bit in Europe. The euro slipped to a new low of $1.2125 in Asia before steadying in Europe, and recovered toward $1.2185. The biggest mover was the yen. The dollar hit an air pocket and slid to JPY119.20 before recovering back to JPY119.80 in Europe, but it is not clear that the move is over.
