Finance Friday 13.11.2015

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finance friday Di Nikola Kedhi

Greece receives a deadline by the Troika to finish the previously agreed reforms. Things don’t look so good for oil prices (again), while the OECD has some somber news regarding world economy growth.

Finance Ministers from the Eurozone gathered on Monday evening to discuss Greece’s economic condition and the progress it has made. They repeated their previous assessment that there is a certain improvement, but the Tsipras government has not implemented all the reforms needed. Up to now, Greece has introduced less than one third of the required changes out of a total of 48. The President of the Euro group, Jeroen Dijsselbloem, declared that Greece had 5 days to finish the necessary reforms in order to receive the first installment of €2 billion from the aid package as was previously agreed.

One of the main problems of the Greek economy is the high number of bad loans, which at around €107 billion represent 50% of all the bank loans issued in the country. According to the European Central Bank this is a very troubling situation that needs to be addressed as soon as possible.

It is no news that oil prices have reached some of the lowest levels in years. They dropped from a peak of more than $140 a barrel in 2008 to below $40 this summer. What is unsettling is that industry experts do not expect prices to increase for at least several years. This is due to a global oversupply of oil: slow economic growth in Europe decreases demand for oil, while increased shale oil production in America generates excessive supply. According to recent reports, this year alone oil and gas industry has cut plans for $200 billion of investments as low prices discourage financing new projects.

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At the beginning of the week, OECD made public some key figures in its global economic forecast for 2015. According to their projections global GDP should grow by around 2.9%, while China’s GDP by nearly 6.8% and US’ GDP by around 2.4%. World trade is predicted to increase by only 2%.

According to OECD’s chief economist, Catherine Mann, this decline in global trade is deeply concerning. She added that such low rates have been associated with global recessions in the past. Moreover, copper, which is seen as an indicator of economic health, has been on a downward slope ever since China and other emerging markets began slowing down a few months ago. Recently, some economists have urged market participants not to consider copper strongly linked with economic growth.

However, the facts are that whenever the economy contracted — like in 2008 — copper followed the same trend.

The latest jobs report came out last Friday and showed that unemployment in the US has dipped to 5%. This is close to levels that economists consider to be full employment. 271.000 new jobs were added during October, significantly more than the 185.000 predicted. After this report was made public, the dollar jumped to a seven-month high, rising around 1%. On Monday, Fed funds futures indicated that the probability of a rate rise next month had increased to 72%. However, if the dollar strengthens too rapidly, the Fed may consider spring as a more suitable time for an interest rate hike. November jobs report will be very important in predicting the Federal Reserve’s next move.

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