Weekly Overview (13 – 17 August 2018): Russia’s oil industry remains virtually intact despite the latest US sanctions
The most recent US sanctions on Russia’s oil and gas ventures left senators perplexed as the country now gears towards besting its record-high barrel output in July. What is keeping Russia’s oil economy afloat at a time of growing economic uncertainty?
On August 2, US senators introduced a series of sanctions that stifled the operations of state-owned Russian banks, introduced restrictions on holding Russian sovereign debt, and limited the Western powers’ ability to take part in the country’s oil and gas projects.
Nicknamed the “bill from hell”, the restrictions were to leave a serious dent in Russia’s oil manufacturing industry. Yet the end result seems to be negligible at best seeing that Russia is on the verge of improving its record-high July output of 11.2 million barrels per day. And there is a good reason for that.
Ever since 2014 when the West introduced heavy sanctions in response to Russia’s annexation of Crimea, the country has done its best to steer clear from Western institutions, quietly adopting a self-reliant approach.
Gradually, Russia successfully replaced foreign services and technology with government-funded alternatives, and financed the growth of its oil industry using nothing but its own cash flow and loans from state-owned banks.
This oil independence is the main reason why the US sanctions, which were originally designed as a punishment for Russia’s interference in the 2016 US elections and its activities in Syria and Ukraine, did little to curtail Russian oil companies (in fact, oil shares have climbed by an extra 2% at the time of publication). They did, however, disrupt the price of the Rouble (a decline of 10%) and that of banking stocks (a decline of 20%).
The 12-month Consumer Price inflation (including owner occupiers’ housing costs) was 2.3% in July, essentially remaining unchanged when compared to the month before. The rising prices of computer games and transport fares contributed to the CPI growth the most, which were offset by the diminishing prices for clothing and footwear.
In Australia, the unemployment rate sat at a stable 5.4%, or a 0.2% decrease on a year-over-year basis. Employment increased by about 27,000 persons, out of which over 18,000 were working full-time. According to chief economist for the ABS Bruce Hockman, this is the lowest unemployment rate the country has seen since 2012.
The US reported a small boost in retail sales after a disappointing 0.1% dip in June. Excluding automobiles, gasoline, building materials and food services, US retail sales went up by 0.5% for July, supported by strong sales of motor vehicles and clothing.
The CPI for Canada rose by 3.0% on a year-over-year basis in July, and on a 2.5% on a month-over-month basis—a steady growth boosted by increasingly growing energy expenses, air transportation, travel tours, and other services.
J.C. Penney lost an adjusted 38 cents per share for the second quarter, or much more than the 6 cents a share expected from Wall Street. Revenue also came short of expectations.
Walmart reported an adjusted EPS of $1.29 for the second quarter, topping estimates by 7 cents a share. Revenue also outperformed general consensus due to a significant boost in sales (4.5% on a year-over-year basis).
Best Buy purchased the health services provider GreatCall for $800 million in cash in the electronics retailer’s largest-ever acquisition. At the time of publication the company is already selling products and services formerly provided by GreatCall.
First Data received a status upgrade from Atlantic Equities, which changed the credit card processing company from “overweight” from “neutral” due to “emerging revenue streams”. As a result, the price target per share increased to 30$ per share from the initial $18 per share.
Kimberly-Clark stocks were upgraded by J.P. Morgan to “neutral” from “underperform” after the former announced on Wednesday that it would hike prices for certain products.
Boeing received a “buy” rating from UBS, with the latter seeing a potential 50% increase in stock prices due to accelerated profit margins and cash flow.
According to Reuters, Toyota is looking into ways to increase its production in China by an additional 20%.
Beijing postponed the approvals of several video game licenses, causing Tencent Holdings, Nexon, and Nintendo shares to tumble on Wednesday.
The S&P 500 closed at 2,850.13 on Friday, followed by the NASDAQ (7,377.54), the Dow Jones (25,669.32), and the NIKKEI 225 (22,270.38).
Last week, the price of gold declined by an additional 2.8%, further reinforcing to the biggest weekly loss rate since May 2017. On Thursday, the noble metal touched $1,159.96 lows—the worst performance since January 2017.
Silver, on the other hand, enjoyed a slight boost of 0.2%, trading at $14.64 an ounce. Despite this rally, on Thursday the precious metal still managed to drop to its lowest price since February 2016.
Platinum was 0.7% lower and sold at $771.9, hitting a 10-year low on Thursday. Palladium gained 0.5% and reached a price of $771.99, while copper tumbled 2.7% to reach $5,881.50 a ton.
The Canadian dollar is still edging marginally lower against the USD, falling below 0.76 US cents due to declining oil prices. The Euro rallied against the Greenback on Friday, rising from 1.1360 to 1.1409.
The Pound Sterling defended its position against the USD thanks to the positive UK Retail Sales report earlier that week. As a result, the GBP/USD pair moved from lows of 1.2690 to touch highs of 1.2753—well above consensus expectations of an 0.2% increase.
The AUD rallied against the Greenback by jumping to 0.7271, riding the waves of an overly positive labor market report. The Kiwi also trumped the Greenback by touching 0.6584 on Friday morning. The USD/RUB pair closed at 67.02417 on Friday.