June Employment Data (U.S. and Canada)

Good for stocks and bonds,

Not so good for people, apart from the lower gasoline prices.


Karim writes:

June Employment Data (U.S. and Canada)
U.S.

  • Headline payroll growth of 80k in line with other Q2 employment readings and a clear loss of momentum in job gains from Q1.
  • The report was a positive from a personal income standpoint, however, as the components of the income equation, Hourly Earnings (+0.3%) and Aggregate Hours (0.4%) were both strong.
  • The hours data in particular suggests demand was running at reasonable levels but forward uncertainty may have restrained hiring.
  • Weather related sectors did bounce back: Net change in construction of +33k in particular. There may have been some seasonal issues in education as that sector had a net change of -55k.
  • Other key metrics were generally stable: The unemployment rate was unchanged at 8.2%, the labor force participation rate was unchanged, the median duration of unemployment fell from 20.1 weeks to 19.8 weeks, and the Diffusion Index dropped from 59.8 to 57.9
  • This is the last payroll number before the next Fed meeting. In what should be a close call, Twist 2 will likely be maintained.

Canada

  • Very modest growth in employment in June (7.3k). Equivalent to about 75k in the U.S., population-adjusted.
  • Y/Y growth in Canadian employment is exactly 1%. Combined with modest productivity growth, current GDP trends appear similar to the U.S., about 1.5-2.0%.

Japan economy may run out of cash by October

Monkey see, monkey do:

Japan economy may run out of cash by October

July 6 (VANCOUVER SUN) — Japan’s government could run out of money by the end of October, halting all state spending including salaries, pensions and unemployment benefits, because of a standoff in parliament that has blocked a bill to finance the deficit.

The deficit financing bill, which would allow the government to sell bonds needed to fund almost half of the budget, has languished in parliament as the ruling Democratic Party tussles with opposition parties that can use their control of the upper house to reject legislation.

Norway Oil Industry Calls Lockout to End Strike

This could send crude up to whatever price it takes to immediately reduce world consumption by the amount of the cutbacks.

In addition to the additional anticipated Iranian cutbacks.

Releasing strategic reserves could contain prices until production resumed.

Norway Oil Industry Calls Lockout to End Strike

By Vegard Botterli and Nerijus Adomaitis

July 5 (Reuters) — Norway’s oil industry moved to lock out all offshore workers on the Norwegian continental shelf on Thursday, aiming to get the government involved and put an end to a near two-week strike that has hit crude exports and helped push up prices.

While a lockout would mean a complete shutdown of oil and gas production in Norway, the world’s eighth-biggest crude exporter, analysts expected the government to intervene, end the strike and prevent a full closure.

“The conflict is deadlocked, and the demands are unreasonable … Unfortunately, we see no other course than to notify a lockout,” the Norwegian oil industry association (OLF) said in a statement.

Some 6,515 workers covered by offshore pay agreements will be locked out from their workplaces with effect from July 10.

The strike, which began June 24, has already slowed crude exports, cut Norway’s oil production by around 13 percent and its gas output by around 4 percent. News of the lockout sent Brent crude futures up to as high as $102.34 a barrel. They were trading at $101.03 at 1458 GMT.

“The likelihood is that the strike will end sooner than expected,” Commerzbank analyst Carsten Fritsch said.

State-controlled Statoil said the lockout would cause a production shortfall for the company of around 1.2 million barrels of oil equivalent (boe) per day and 520 million Norwegian crowns ($86.6 million) in lost revenues per day.

The Norwegian government declined to say whether it would intervene but called the lockout legitimate.

“A lockout is still a part of the legal strike. We are continuing to follow the situation closely,” Gro Oerset, senior adviser at the labour ministry, told Reuters.

Several North Sea oil traders on Thursday were in agreement in expecting the strike to end soon.

“It seems like Statoil is trying to get the government to settle it,” said one.

INTERVENTION?

The government has the authority to force an end to strikes if it believes that safety is being compromised or vital national interests could be harmed and has done so in the past to protect Norway’s image as a reliable energy exporter.

Analysts expect the government to intervene. In 2004, it intervened one day after the oil industry called a lockout.

“A repeat is likely, and if not there will be some SPR (Strategic Petroleum Reserve) release, but the most likely outcome is now a Norway government intervention,” Switzerland-based Petromatrix energy consultancy said in a note.

The Labour-led coalition government has been reluctant to intervene as it faces general elections in a year, and labour unions are important partners.

“I can’t imagine they can accept that the entire production on the Norwegian shelf is shut down for even a minute,” SAFE trade union leader Hilde-Marit Rysst told Reuters.

No new talks are planned between the parties, the state mediator said.

The International Energy Agency said on Thursday it was monitoring the summer oil supply situation very closely.

“We really hope that the sides can reach an agreement by Monday night in order to avoid a prolonged and more widespread outage,” IEA executive Maria van der Hoeven said in a webcast.

EXPORTS SLOWED

The strike initially shut production at the Oseberg and Heidrun fields. Oseberg in particular is significant for oil prices, because it is part of the North Sea Brent benchmark used as the basis for many of the world’s trades.

Oil traders said on Thursday the loading of Oseberg cargoes would be delayed by at least a few days in July, although exact loading dates were unclear because Statoil has not issued a revised July export programme.

An Oseberg cargo scheduled to load on July 1-3 has yet to do so, a source familiar with the matter said. The delay, as reported by Reuters on Monday, was the first sign of an impact of the strike on exports.

An August export plan for Oseberg was expected to be released on Friday, but trade sources said this would not appear until production resumed.

In an apparent expectation of business as usual, however, Statoil on Thursday issued an August loading programme for oil from its Troll field, scheduling a normal export rate. A trading source provided a copy of the loading plan.

Wage talks broke down on June 24 after the OLF refused to negotiate an early retirement scheme for the sector’s 7,000 workers. A second attempt at reaching a deal ended unsuccessfully on Wednesday over pensions.

Hays Oil & Gas said in a recent report Norwegian oil and gas workers were the best paid in the world, followed by Australia, Brunei and the Netherlands. They earn more than twice the average salary of all countries surveyed and more than double workers in Britain.

Harsh working conditions mean that offshore workers, in particular, are among the best paid industrial workers in Norway. Their 12-hour shifts last for two weeks and are followed by four weeks of leave, making for a total of 16 weeks of work a year, excluding overtime.

But the main sticking point for unions is an early retirement age for offshore workers of 62, below the standard 67. Top executives at Statoil are currently eligible for retirement at 62.

The OLF has argued their demands are not in line with government pension reforms.

In May Norway produced 1.6 million barrels of oil per day, and 8.9 billion cubic metres of gas in total.

Saudi price setting

Interesting dynamic at work.

Saudis set a spread vs other grades.

But there is a ‘market spread’ that reflects ‘quality’.

So if they set their spread too low, demand for Saudi crude is higher than otherwise, which causes prices to fall for the other producers as they always sell all of their output at ‘market prices’. That is, a ‘too tight’ price spread puts downward pressure on prices.

Likewise, if the Saudis set their spread ‘too wide’, that increases demand for the other producers who are all at full capacity, and therefore drives up prices. So a ‘too wide’ spread puts upward pressure on crude prices.

And, with ‘market spreads’ continuously fluctuating, any given spread set by the Saudis can shift between bullish to bearish at any time.

Very clever, those Saudis!

July 4 (Bloomberg) — Saudi Arabian Oil Co., the world’s largest crude exporter, raised the differentials used to set official selling prices for August of its main grades to Asia, and boosted them for Medium and Heavy crudes to the U.S.

The state-owned producer, known as Saudi Aramco, increased the premium for Arab Light crude to buyers in Asia by 70 cents a barrel to $2.05 more than the average of Oman and Dubai grades, the company said in an e-mailed statement today.

Aramco raised the Arab Extra Light crude formula for Asia by 50 cents a barrel to a $2.70 premium to the average of the Oman and Dubai grades. The company set differentials for Medium and Heavy crudes to the U.S. at narrower discounts for August loadings against the Argus Sour Crude Index, the benchmark Aramco uses for sales there.

The company raised the price for Arab Light from the Egyptian port of Sidi Kerir, two people with the knowledge of the matter said, declining to be identified as the information is confidential.

Saudi Arabia and other Persian Gulf oil producers sell most of their crude under long-term contracts to refiners. Most of the Gulf region’s state oil companies price their oil at a premium or discount to a benchmark.

The following table shows differentials for the regions into which Aramco sells crude in relation to benchmark prices, the month-on-month change and the degrees of gravity as defined by the American Petroleum Institute. Prices are in U.S. dollars a barrel.

More hints deficits are high enough for stability?

Headlines:
U.K. House Prices Rise for a Second Month in June, Halifax Says
U.K. Pay Growth Accelerates to 10-Month High, VocaLink Says
German Factory Orders Unexpectedly Rose on Euro-Area Demand
Eurozone PMI rises in June but still signals steep rate of contraction
Euro-Region Retail Sales Unexpectedly Increased in May on France
Italy First-Quarter Deficit Rises to Highest in Three Years
Italy Plans More Than 8 Billion Euros of Spending Cuts This Year

Libor Criminal Investigations Will Happen: Diamond

Libor Criminal Investigations Will Happen: Diamond

By Catherine Boyle

July 4 (CNBC) — Bob Diamond, the recently-departed chief executive of Barclays, told U.K. politicians that there would be criminal investigations into the manipulation of the London interbank offered rate (Libor) scandal which led to his resignation.

From my 2009 proposals here:

2. US banks should not be allowed to contract in LIBOR. LIBOR is an interest rate set in a foreign country (the UK) with a large, subjective component that is out of the hands of the US government. Part of the current crisis was the Federal Reserve’s inability to bring down the LIBOR settings to its target interest rate, as it tried to assist millions of US homeowners and other borrowers who had contacted with US banks to pay interest based on LIBOR settings. Desperate to bring $US interest rates down for domestic borrowers, the Federal Reserve resorted to a very high risk policy of advancing unlimited, functionally unsecured, $US lines of credit called ‘swap lines’ to several foreign central banks. These loans were advanced at the Fed’s low target rate, with the hope that the foreign central banks would lend these funds to their member banks at the low rates, and thereby bring down the LIBOR settings and the cost of borrowing $US for US households and businesses. The loans to the foreign central banks peaked at about $600 billion and did eventually work to bring down the LIBOR settings. But the risks were substantial. There is no way for the Fed to collect a loan from a foreign central bank that elects not to pay it back. If, instead of contracting based on LIBOR settings, US banks had been linking their loan rates and lines of credit to the US fed funds rate, this problem would have been avoided. The rates paid by US borrowers, including homeowners and businesses, would have come down as the Fed intended when it cut the fed funds rate.

Peter Stella on QE

The base money confusion

By Izabella Kaminska

Peter Stella, Fromer head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund:

Naturally, this stunningly incorrect conceptualization of the lending process and how it interacts with bank reserves leads people to think how to entice banks to “get this money out the door” including to thoughts of “negative” deposit rates as an incentive.

My frustration lies in my inability to explain to “sophisticated” people why in a modern monetary system–fiat money, floating exchange rate world–there is absolutely no correlation between bank reserves and lending. And, more fundamentally, that banks do not lend “reserves”.

China Official Services PMI Rises to 56.7 in June

The move to shift to a domestic demand driven service economy seems to be well underway?

China Official Services PMI Rises to 56.7 in June

July 2 (Reuters) — China’s official purchasing managers’ index (PMI) for the services sector rose t o 56.7 in June from May’s 55.2, reversing two months of softening readings, data from the National Bureau of Statistics showed on Tuesday.

The services sector index follows two PMI surveys of China’s vast manufacturing industry that showed factory activity fell to a seven-month low in June, raising expectations for further policy easing to boost growth in the world’s No 2 economy.

A reading below 50 indicates contracting activity and one above 50 means expansion according to the survey methodology.

The China Federation of Logistics and Purchasing conducts the survey on behalf of China’s National Bureau of Statistics.

China’s fast-growing services industry has so far weathered the global slowdown much better than the factory sector, with the PMI consistently signaling healthy expansion and hitting a 10-month high of 58.0 in March.