Category Archives:

Commodities

How severe is the current energy sector default cycle?

To date the defaults we’ve seen in the US high yield market have largely occurred in the energy/commodity sectors. To see whether this trend is likely to persist I spent some time comparing the current default cycle with that of the US telco sector in the early 2000’s (see also James’ recent blog for the parallels between today’s high yield market and that of 2001).

The telco bust occurred slig…

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The US economy is not heading for recession, as it’s not FIRING on all cylinders!

There is currently a lot of concern regarding the US economy and its ability to withstand the collapsing price of oil and mined commodities, the Chinese slowdown, and the recent quarter (yes, quarter) point rate rise – or given the current market mood, its ability to cope with a doubling of the Fed funds rate! Whilst high yield spreads are close to recessionary levels, this is skewed by the ene…

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Inflation expectations at lowest level in last three years – M&G YouGov Inflation Expectations Survey Q4 2015

We recently blogged about the marked effect the collapse in commodity prices, particularly oil and energy, have had on global inflation rates across the world. Headline inflation rates in major western economies have been in, or have flirted with, deflation throughout the year in spite of ongoing economic growth and a steady recovery in labour markets.

An interesting issue is whether this, seem…

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The El Niño effect

Need motivation for your New Year diet? M&G’s cake index shows that cake is getting more expensive

I blogged in 2014 with good news for cake lovers; falling soft commodity prices indicated that the cost of baking cakes was getting cheaper.  Unfortunately (and in contrast to hard commodity prices, notably oil recently hitting new post global financial crisis lows), the final quarter of 2015 depicted a reversal in trend with soft commodity prices on the rise.

In September we discussed the pote…

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Oil is everywhere. But what matters most are the idiosyncratic stories. Within this context, it is fair to say that an emerging market bond portfolio is unlikely to be fully immune to oil. Looking into 2016, this is good news if you are bullish oil: any significant oil price increase will in most cases drive a rally in emerging market assets. If you are bearish oil, you may still find interesting investment opportunities: the Oil & Gas sector in emerging markets generated a negative return of -3.0% in 2015 but the dispersion of corporate bond returns was huge and not necessarily correlated to oil prices. For instance, the fall in Petrobras bonds was more driven by the ongoing corruption scandal in Brazil and the group’s debt levels than the actual decline in oil prices. On the other hand, despite their country exposure, PDVSA (Venezuelan state-owned oil company) or LUKOIL (Russia-based oil producer) bonds had double-digit total returns in 2015. In what might be a good lesson for 2016, it shows that in emerging markets, in many cases, macro and credit idiosyncratic stories matter more than oil.

Oil price slump is a drag on emerging markets. But wait, why?

Oil price moves and their impacts on emerging markets will continue to be a hot topic in 2016. It is true that economies which rely heavily on oil exports and fiscal revenues, such as Saudi Arabia, Russia or Venezuela, have been facing an extremely challenging macro environment with the decline in oil prices. But, overall, there are more net oil importers than exporters amongst the developing e…

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