Article / 13 January 2015 at 10:30 GMT

Daily Shot: Venezuela, Russia and Iran are on the brink

TradingFloor.com Team / Saxo Bank
Denmark
  • CAD getting hammered on energy sector weakness
  • Industrial commodities continue to struggle
  • Bitcoin drops another 10%
By Walter Kurtz

Once again the story of the day is crude oil, as WTI futures approach $45 per barrel in after-hours trading. This is on the back of Goldman Sachs and Societe Generale cutting price forecasts.

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The damage to some producer nations is becoming increasingly pronounced: 
1. Venezuela’s debt is trading at deep distressed levels, as restructuring approaches.

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In desperation Nicolás Maduro together with President Rouhani of Iran have tried to get other OPEC members to change their minds and cut production. But no such luck. 
Venezuela default probability is above 96% and now it’s just a matter of months. Quite amazing for a nation with the largest oil reserves in the world. Viva el Socialismo! 

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2. Conditions are worsening for Russia as well. Inflation has spiked after the currency collapse.

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And government bonds are under pressure again, as capital flight continues.

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The devaluation is hurting some key ex-Soviet republics who depend on trade with Russia. The revenue from those ruble-based transactions is collapsing.

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Related to the Russia situation (above), the Ukrainian foreign reserves have collapsed to the lowest level in a decade. 

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Ukrainian hard currency bonds are pricing in near-term restructuring – once again it’s only a matter of months. 

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The Canadian dollar is getting hammered on energy sector weakness, as the markets price in a substantial slowdown. Weaker CAD – something the Bank of Canada is quite happy about –should help blunt the economic shock. 

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Source: Investing.com
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One of the reasons for the ongoing bearishness in the energy sector has been the rising efficiency of US production. The oil rig count decline may not immediately translate into lower production, as efficiency per rig rises.


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When domestic energy production does begin to decline, US trade deficit will worsen. That’s because petroleum trade balance is what helped reduce the deficit in recent years. Ex-energy deficit has been worsening.

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Confidence in US labour markets continues to improve – now the highest since 2007. Once again, without the strength in wage growth, the US Federal Reserve is unlikely to act even if the unemployment rate falls to new lows.

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Industrial commodities continue to struggle. Here is copper – which I think should stabilise shortly. China is not falling off the cliff and the demand, while moderating, should still be there.

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Bitcoin gapped another 10% today, as the race with oil to the bottom continues. I don’t understand how something this volatile can possibly be used as a currency.

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Now some food for thought. The unemployment spread between those without a high school diploma and those with one remains quite wide.

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– Edited by Oliver Morrison

* Walter Kurtz is an alias

** This is an abridged version of the Daily Shot. For the full version, subscribe to the Daily Shot and select the appropriate command. E-mail addresses are NEVER shared with anyone.

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