Making sense of trends and data

Don and Angie's awkward meeting

Published 3.20.2017
Mondays are the days when LWRAS focuses on broader economic and political issues that can affect market analysis and predictions.

The US President met Germany’s Chancellor, and it does not seem to have gone well. Soon after Angela Merkel left, Trump took to Twitter (of course he did) to assert that the Germans owe vast sums to the US. The Germans denied this of course.

Traditional US allies have a problem. Watching the body language as they sit or stand next to Trump, it appears to this observer that many of them recognize that he is unqualified for the position. Yet they must still maintain relations with the US.

The two clashed on trade on Friday. “The negotiators for Germany have done a far better job than the negotiators for the United States,” Trump said. “But hopefully we can even it out. We don’t want victory; we want fairness.”

Merkel subtly corrected the U.S. president. “When we talk about trade talks, the European Union negotiates for all of the member states in the European Union,” she said. “In this spirit, I would be very happy if the European Union and the U.S. can take up talks again.”

Trump isn’t the first president to suggest that Europeans should should more of the cost of their defense, however, he may the first one who seems irrational enough that they may actually make changes, if only to keep him from doing something even worse.

Theresa May will invoke Article 50 to leave the European Union (EU) on March 29th. At least at this point, EU members are talking tough.

While May says “no deal for Britain is better than a bad deal for Britain," quitting the bloc without a pact or more time to negotiate one would leave the country exposed to World Trade Organization tariffs, putting duties of around 10 percent on car exports alone. Strengthening May’s hand to push for a so-called hard or clean Brexit is the British economy’s defying of predictions that voting to leave the EU would spark a recession.

There signs though, that Brits are starting to feel a bit of sting from Brexit. For example, prices in Britain have started to rise for consumers.

The sharp drop in the pound following Britain’s June vote to leave the EU has boosted the cost of imported goods as well as British-made products containing foreign ingredients or parts. Some companies have resisted passing on those higher costs to consumers, or have been protected by currency hedges. But in the more than nine months since the vote, many others have been raising prices.

Brits had been enjoying declining prices for a number of years, so the increases aren’t seen as painful… yet.

The Scots are still pushing for independence. There are a number of issues that make Scottish independence problematic. One is that the Scots primary source of revenue, North Sea Oil production is in decline because oil prices have plunged. Oil prices continue to decline despite Saudi efforts to cap OPEC* production and lower worldwide supply.

In August 2014, when the analyst previously assessed the implications of Scottish independence, the UKCS offshore industry was undergoing production under-performance, faltering exploration, and a very high cost environment.

Although the picture has improved since, various issues still remain, notably that the UK’s commercial reserves have decreased by around 30%. This is chiefly due to 1.6 Bboe produced being replaced with just 0.1 Bboe of new commercial discoveries.

Freeport MacMoran is having trouble in Indonesia, where it mines copper. The Indonesian government wants to earn more money from its mining assets.

Last month, the U.S. miner threatened to take Indonesia to arbitration, saying new rules the country imposed on miners in January violated the terms of an operating agreement struck in 1991 that runs through 2021.

The rules are part of a broad effort to gather more revenue from the mining sector. Under the rules, Freeport is banned from exporting a form of unrefined copper until it agrees to new operating rights that would eventually force it to cede control of Grasberg, the second-largest copper mine in the world, to Indonesian entities.

*Organization of Petroleum Exporting Countries
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