Fundamental events review for Apr 18, 2016

Europe The prospects for global economic growth declined, while risks have increased, including the risk of a general slowdown. These findings are contained in the final communiqué of the next meeting of the governing bodies of the International Monetary Fund and the World Bank. The world economy is recovering too slowly, and there are new risks. This was reported by representatives of the IMF and the World Bank ahead of the spring session of the governing bodies of both the organizations in Washington. By tradition, before the session, the International Monetary Fund unveiled a new downgraded outlook on the global economy. One problem, according to IMF chief economist Maurice Obstfeld, is that in many countries a view spreading against the background of the lack of wage growth and increasing inequality that economic growth benefits only the elites. In the US, economic growth is more dynamic than in Europe, but this year, according to the IMF, the development of the world’s leading economies will slow down, as a stronger dollar will adversely affect exports and because lower oil prices will deter investment in the energy sector. Compared with its own January forecast, the IMF lowered expectations for GDP growth in America for this year from 2.6% to 2.4%. For the euro zone, the forecast is revised from 1.7% to 1.5%. Among the main threats to Europe, the IMF sees a possible exit of Great Britain from the European Union, but the IMF is preparing a separate report on this issue. The second threat is problems associated with the migration crisis or, more accurately, its political and social consequences. Another negative factor is Greece, whose debt problems once again are hovering over Europe. At the talks with Athens, IMF took a tougher stance than other international lenders. Lenders believe that Greece must prepare an additional package of economic measures in the event of problems with the implementation of agreements on debt and reforms, the newspaper Sueddeutsche Zeitung said. After a series of meetings that began in Washington, Greece and its creditors from the EU and the IMF hope to resume negotiations on the final review of financial assistance. It is expected that in the course of these meetings creditors will discuss Greek debt and reform. According to the Sueddeutsche Zeitung, lenders are going to get from Greece a «backup» plan of economic reform, which will come into force if the main reform project does not fulfill its previously reported task – ensuring primary surplus of 3.5% in 2018. Oil OPEC and non-OPEC states were unable to reach an agreement on the freezing of production during the meeting in Doha this past Sunday, after Saudi Arabia demanded that Iran join in. The failure of the talks will revive fears that the largest oil producers once again are going to fight over market share, especially after warnings by Riyadh on the possibility of a drastic increase in production if the production freeze deal is not concluded. Representatives from nearly two dozen countries, including the non-OPEC Russia, gathered in the capital of Qatar for the meeting, which had been expected to be no more than a formality. It had been planned that the participants would formulate on paper the previously announced initiative to freeze production at January levels until October 2016. However, OPEC’s de facto leader Saudi Arabia said it wanted all of OPEC’s participants to sign the decision to freeze production, including Iran, whose representatives did not arrive in Doha. Tehran refused to freeze production, hoping to regain market share after the cancellation of international sanctions in January this year. After five hour’s worth of difficult negotiations, in which participants debated the wording of the final communiqué, the delegates and ministers announced that an agreement had not been reached. The failure of the negotiations in Qatar can stop the recent rebound in oil prices. The price of a barrel of Brent oil reached nearly $45, up almost 60 percent from January’s lows on the optimistic expectations that the deal will help solve the problem of market saturation, which had resulted in a plunge in the price of black gold from the mid-2014 level of $115 per barrel. Oil’s reaction to the news has of course been bad. At the opening of trading, Brent futures lost just about 6% and tested the mark of $40.84 per barrel. Currently, the price is around the level of $41.36 per barrel. fundamental-ny-j-obzor-18-04-2016 (1) Saudi Arabia has taken a tough stance against Iran – the only OPEC member that refused to freeze the volume of production. Deputy Crown Prince Mohammed bin Salman said to the Bloomberg agency that the kingdom would limit oil production only in conjunction with other oil producers, including Iran. Iranian Oil Minister Bijan Namdar Zanganeh said on Saturday that the other countries should just accept the fact that the Islamic republic had returned to the oil market: «If Iran were to freeze oil production … it would not be able to benefit from the lifting of sanctions.» Of Interest — In the first quarter, China’s GDP growth was the lowest in seven years but no worse than the expected 6.7%. In presenting the quarterly report, the National Office of Statistics of China said that «downside risks should not be underestimated.» The index that reflect the state of the key sector indicate at least a stabilization of the situation in the world’s second-largest economy. Retail sales (+ 10.5%), an increase in industrial production (+ 6.8%) and fixed investment (+ 10.7%) exceeded analyst forecasts. Earlier this week, encouraging foreign trade numbers came out of China. — According to Bloomberg experts, the best currency in 2016 was the Zambian kwacha, RBC reports. It is this currency that got ahead of the remaining 150 currencies by growth rate in 2016. Since the beginning of the year, the national currency of Zambia rose against the dollar by 19.9%. In contrast, gold rose in price by 16.3%. Growth of the Zambian kwacha is associated with an increase in copper prices, as the country’s reserves of copper ore are among the biggest in the world. Last year, the Zambian currency fell by 42%. However, in mid-January, the price of copper reached a seven-year low and then started to grow. — A referendum in Italy: citizens should express their views on offshore drilling platforms in the 12-mile zone off the coast of the country. Prime Minister Matteo Renzi calls to boycott the referendum. If it is attended by less than 50% of Italians with the right to vote, the plebiscite will be declared invalid. Proponents of the «yes» vote in the referendum initiated by the authorities in 9 coastal areas oppose Renzi’s decision to provide energy companies with the right to exploit these platforms till the full development of deposits, i.e. even until after the existing licenses expire. Greenpeace is another irreconcilable opponent to such plans. Observers are saying that the turnout in the referendum will be a barometer less of the attitude to drilling rigs than of the attitude to Renzi himself and his government following the recent oil scandal. Because of him, Minister of Economic Development Federica Guidi resigned. In early April, in Italy, the materials of a criminal investigation into irregularities in the transportation and disposal of waste oil in the Basilica of the south of the Apennines became the matter of public domain. Opposition accused the government of colluding with the oil lobby and submitted to the Senate of the National Parliament a resolution of no confidence in the Cabinet. The vote on this resolution will take place in both the Houses of Parliament on April 19 when the results of the referendum become known. Its failure would have played into Renzi’s hand. The analysis above does not constitute direct trading instructions and is of purely informative nature.

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