OPEC's Vienna Surprise and the Global Debt Bomb...

The OPEC meet in Vienna took most of the headlines this week. The Organisation of Petroleum Exporting Countries (OPEC) met on 30 November to discuss a cut in crude output.

The OPEC agreed for a production cut starting January. The organisation, which accounts for a third of global oil supply, will reduce production starting in January by 1.2 million barrels per day (bpd) to 32.5 million bpd.

As a part of the OPEC deal, Russia has promised to gradually cut its crude output by up to 300,000 barrels per day in the first half of 2017.

All eyes are now set on Russia and other non-OPEC producers that are going to meet with OPEC on December 9.

While the above developments are final, the implementation depends on non-OPEC members such as Russia reliably committing to cut output at the meeting on 9 December. The decision also hinges on the speed at which American shale producers step up production.

Until a few years ago, US$100 per barrel was the new 'normal' for oil price. And then this capricious commodity proved everyone wrong. Early this year, crude oil prices hit US$30 per barrel for the first time in 12 years. The root of his turmoil has been the global supply glut.

Until now, OPEC had been pumping crude oil at record rates. Their goal was to drive down prices and drive out higher cost US producers.

But now, prospects for an OPEC deal have weakened. Oil prices continue to fall. The cartel's inability to stabilise prices come as no surprise. Asad Dossani, editor of Daily Profit Hunter, recently wrote that OPEC has lost control of oil prices. To know more on this, you can read his article titled OPEC Is Now Irrelevant.

In another news, the Bank of Japan (BoJ) board member Makoto Sakurai said the central bank will continue to buy a massive amount of government bonds. Mr Sakurai says the strategy would be followed even under a new policy framework targeting interest rates. The announcement shrugged off the view that BoJ's bond-buying program was nearing a limit.

Last month, the BoJ offered to buy an unlimited amount Japanese government bonds at fixed rates. The move was seen as an indication the central bank intends to take action to keep a lid on rising yields.

This move has raised concerns for the Japanese economy. Economists and market participants are questioning the BoJ's policy measures. The BoJ still has plenty of work to do to reach its 2% inflation target.

If there's one place on this planet that epitomises all the wrong kinds of growth, the place is Japan. Too much money printing...too much debt...too much government intervention...too much stock market manipulation.

So why bother about Japan, you may ask.

Because that's where the rest of the world's central banks appear to be heading. Central banks' ownership of the world's assets has increased to about 40% of global GDP. Along with this, we have the problem of a massive debt bomb in the global financial economy. As Bill Bonner lays down the facts before you, the entire world has a debt problem - with US$223 trillion in debt, about three times global GDP.

We don't know about the timing. But the end is going to be ugly.

If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book, Hormegeddon.

Global stock markets took a cautious stance before Italy's referendum on constitutional reform on Sunday and the US payrolls data later on Friday.

The strong US data have boosted interest rate expectations, which have already been running high due to anticipated inflationary pressures from rising oil prices and President-elect Donald Trump's promises of fiscal stimulus. The DJI Index was up marginally by 0.1% for the week gone by.

Market participants in Europe were seen nervous ahead of a constitutional referendum in Italy and a presidential election in Austria this weekend. Stock markets in Germany and France were down by 1.9% and 0.5% respectively for the week gone by.

China's economy was also in focus this week over the release of activity monitoring indices for the manufacturing and services sectors. China's manufacturing sector expanded more than expected in November, and at the fastest pace in more than two years, an official survey showed on Thursday. The PMI stood at 51.7 in November, compared with the previous month's 51.2. The Shanghai Composite Index was down by 0.5% for the week gone by.

Japan's Nikkei, which jumped to an 11-month high on Thursday, closed down 0.5% on Friday, but still posted a weekly gain of 0.2%.

Volatility Haunts Mr Market in India

Back home, Indian share markets faced volatility throughout the week and finished the week with marginal losses. The BSE Sensex was down 0.32% for the week, while the NSE Nifty was down 0.34%.

On the news from demonetisation drive, one of the biggest grouse has been the acute shortage of the Rs 500 note. With this, people are seen questioning whether the government was prepared to execute the demonetisation.

Ankit Shah answers this question in a recent edition of The 5 Minute WrapUp. As he writes...

    If reports are to be believed, then the government planned to bring the Rs 2,000 notes first to expedite the replacement of the void 500 and 1,000 rupee notes. This is because four 500 rupee notes would have to be printed for every one 2,000 note. Even the government resources for printing do not seem adequate. The two printing presses, The Security Printing and Minting Corp. of India Ltd (SPMCIL) and Bharatiya Reserve Bank Note Mudran Pvt. Ltd (BRBNMPL) have a combined capacity of 24 billion pieces a year or roughly 2 billion pieces a month. The SPMCIL has printed only 15 million pieces of the new Rs 500 note. And with 22 billion of Rs 1,000 notes and Rs 500 notes to be replaced, it will be a while before the money supply is restored.
The above scenario is just a part of the puzzle. While demonetisation is being hailed as the panacea to suck out the black money from the system, the move comes at a cost to the economy in many terms. As a recent edition of The 5 Minute WrapUp says, 'We have all been caught up in what is seen. There's not enough attention being paid on what is unseen.' The article explains some of the unseen effects of demonetisation on corporate profitability, real estate, interest rates, stock markets, etc.

The current economic situation in India is unprecedented. The need of the hour is competent, honest, and unbiased views on the government's war on cash aka demonetisation.

We believe Vivek Kaul has done an excellent job in this regard. You could do no better than read his insightful little report on this subject, Demonetisation: The Good, Bad and Ugly. It has some great information on how demonetisation could impact things like your investment and your property.

In the news from the initial public offering (IPO) space, the IPO of mattress maker Sheela Foam received bids five times the issue size on the last day of the bidding process.

As per the news, the IPO attracted brisk buying by qualified institutional investors (QIBs), whose quota limit was subscribed over 14.5 times.

The price band for IPO stood at Rs 680 to 730. The company is one of the leading manufacturers of mattresses in India marketed under its flagship brand 'Sleepwell'. In addition, it manufactures other foam-based home comfort products targeted primarily at Indian retail consumers, as well as technical grades of polyurethane foam ('PU Foam') for end use in a wide range of industries. As part of its international footprint, it manufactures PU Foam in Australia through its wholly owned subsidiary, Joyce Foam Pty Ltd.

IPOs have kept the Indian markets busy of late. Listing gains and over subscription of the issues have caught the eye of market participants. And there are many more IPOs lined up in the coming days.

Our friends at Equitymaster have made choosing the right IPO stock simpler for you. To give you a great shot at identifying the right IPOs, they've come up with The Handbook of IPO investing. Besides providing a checklist on how to identify the right IPOs, the report has a special focus on analysing insurance stocks and how to value them. Also, The 5 Minute WrapUp offers two ways to think about IPOs and explains how to profit from them.

Volatile Trades for Nifty

The Nifty started the week positive and continued to show strength for the next two days, aiming to test the resistance level of 8300 offered from 200 EMA. On Thursday, the index opened with an upside gap, but was unable to sustain up there and slid down during the session. The selling pressure continued on the final day of the weak after registering a bearish gap on the daily chart. On a weekly basis, the index ended flat with a nominal loss of 27 points. The negative momentum is likely to continue in the following week as well. The 8000 zone is the strong support zone to watch out for in the coming week.


Gold Weighed by Expectations of a December Rate Hike

Gold traded on a mixed note during the week. On Monday, it opened its session on a negative note and extended its third weekly decline seen during the previous week. Losses were seen on the back of a firm dollar overseas. Also, weak global trend weighed on gold. Some gains were seen midweek on the back of a weak dollar overseas. However, the rally didn't last till the end of the week. Gold dropped to its lowest price in nearly 10 months during the end of the week. This was seen as the dollar held firm around nine-month-highs. Also, growing expectations of a US interest rate hike in December weighed on gold.

Gold Extends Downtrend

Silver Trades in Tandem with Gold

Silver traded in tandem with gold during the week. While it opened its session on a positive note, it failed to maintain the momentum during the week. Gains during midweek were seen on the back of a firm trend in precious metals overseas. During the end of the week, silver witnessed losses on increased expectations of a December rate hike by the Federal Reserve. Finally, on Friday, it ended its weekly session with losses.

OPEC Deal Brings Volatility for Crude Oil

Crude oil witnessed most of the volatility during the week. The commodity opened its session on a negative note on Monday. Losses were seen on the back of speculation over the OPEC meet during the end of the week. Some respite was found midweek as Iraq delegate indicated a consensus towards an OPEC deal. However, crude oil witnessed sharp losses during the end of the week. Prices slightly fell on Friday on concerns whether major producers would implement an OPEC-Russia deal to cut production. However, crude oil managed to witness buying interest and ended its session on a positive note.

Crude Oil Ends Higher

EIA Report Fuels Natural Gas Rally

Natural gas traded on a positive note during the week. It opened its session on a positive note and extended the uptrend throughout the week. Most of the gains came after the US Energy Information Administration (EIA) reported that supplies of the commodity fell by 50 billion cubic feet (bcf) for the week ended 25 November. This sparked optimism for a higher natural gas demand and aided the rally in natural gas prices. On Friday, natural gas continued its uptrend and ended its session with weekly gains.


Dollar Touches Nine-Month High against the Yen

The dollar traded on a mixed note during the week. It opened its session in the green on Monday and maintained momentum during the start of the week. Gains were seen ahead of month-end dollar demand from importers. During midweek, the dollar witnessed selling pressure. Losses were seen on the back of a weak trend in global financial markets. However, dollar recovered most of the losses during the end of the week. It touched a nine-month high against the yen after OPEC agreed for output cuts. The deal lifted inflation expectations and US bond yields which in turn meant gains for dollar on Friday. Despite these above gains, the dollar stood lower against the rupee on Friday and ended its session in the red.

As regards the rupee versus the US dollar, it looks like it has fallen in November. However, a comparison with other major currencies quickly dispels this myth.

In fact, the rupee has actually appreciated versus most other currencies, including the euro and the Japanese yen. This makes it clear that it is more a dollar rally that we are looking at rather than a direct hit to the rupee's value.

Volatile Trades for Dollar

Euro Ends with Marginal Losses

The euro traded on a mixed note during the week. On Monday, it opened its session on a positive note. Slight gains were also seen midweek. However, a firm dollar coupled with weak global cues weighed on the euro during the end of the week. On Friday, the euro continued to witness selling pressure and ended its session with marginal losses against the rupee.

Pound Ends in the Red

The pound traded on a mixed note during the week. It opened its session on a positive note and extended the rally during the start of the week. During the end of the week, the pound witnessed slight losses on the back of a firm dollar overseas. Finally, on Friday, it stood lower against the rupee and ended its session with losses.

Yen Worst Hit by Dollar Rally

The yen traded on a negative note during the week. It opened its session on a negative note on Monday and went on to extend downtrend during the week. Losses were seen on the back of global economic events in the financial markets and a firm dollar overseas. Also, the announcement to buy massive amount of government bonds by the Bank of Japan (BoJ) weighed on the yen. Finally, on Friday, the yen extended the sell-off and ended its session in the red.

Commodities 25th Nov 2nd Dec % Change
Gold/10 gms 28,598 28,427 -0.60%
Silver/kg 40,498 40,327 -0.42%
Crude Oil/barrel 3,198 3,500 9.44%
Natural Gas/mmBtu 220.40 233.70 6.03%
Currencies 25th Nov 2nd Dec % Change
INR / USD 68.60 68.37 0.34%
INR / EUR 72.72 72.83 -0.15%
INR / GBP 85.48 86.24 -0.89%
INR / JPY 60.88 60.14 1.22%

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