Daily Agenda: Oil Rises on Hopes for Production Caps

Japanese Q2 GDP weaker than forecast; Chinese stocks up sharply on news of new exchange link.


Michael Nagle

For the first time in weeks, front-month futures contracts for West Texas Intermediate crude climbed above $45 per barrel in trading overnight, continuing a rebound that started last week. Over the weekend, oil officials in Saudi Arabia and Russia signaled in public comments a willingness to consider taking action to support prices. This came as welcome news for smaller oil-producing nations, particularly Venezuela, where decades of social spending have come all but to a halt after oil revenues have dried up. With a special Organization of Petroleum Exporting Countries meeting in September, many market participants appear to be wagering that production caps are in the works. This might be welcome news for producers after a warning last week by the International Energy Agency that demand may decline during the rest of this year and the next, as well as confirmation by Baker Hughes that the U.S. active-rig count continues to rise modestly after a sharp pullback.

Japan GDP disappoints. Data released by the Japanese government’s Cabinet Office today revealed that the economy grew at a slower pace than economists’ consensus forecasts, with headline gross domestic product expanding at an annualized 0.2 percent. Decreased business spending was a primary catalyst for the shortfall that was not fully offset by a modest uptick in household consumption. Separately, industrial production data for June issued by Japan’s Ministry of Economy improved slightly over May levels, with the headline index still registering a year-over-year contraction of 1.5 percent. Some analysts noted that the soft data may add more pressure on leaders at the Bank of Japan to take further policy actions at the upcoming September meeting.

Chinese equities spike on exchange link news. The Shanghai Composite Index climbed by almost 2.5 percent, reaching multimonth highs, in response to media reports that a new crosstrading facility between the Hong Kong and Shenzhen exchanges may open this week. Investors snapped up shares of securities brokerages on speculation that trading volumes will increase as shares on both exchanges will be accessible to the exchanges’ participants. The link has been approved by the China Securities Regulatory Commission as an extension of the existing tie between the Hong Kong and the Shanghai exchanges.

Rental-focused REIT merger announced. The Wall Street Journal reported today that a deal will be announced shortly in which the real estate investment trust Mid-America Apartment Communities will acquire Post Properties in an all-stock transaction valued at more than $4 billion. Residential rental REITs have drawn increasing interest from income-focused investors recently, buoyed by a recovering housing market and relatively large yields.

Dalian Wanda to shift property listing to China. In a meeting today, shareholders of Dalian Wanda Commercial Properties in Hong Kong voted to accept a buyout offer from Chinese conglomerate Dalian Wanda Group, a related company. The deal, valued at more than $4.4 billion, will involve delisting the commercial property company from the Hong Kong exchange and relisting on a mainland exchange. Primary shareholders agreed to the buyout after the initial bid was increased by 10 percent. Higher domestic valuations have spurred interest among a number of Chinese companies in shifting their exchange-listing home in recent years.

Walker declares state of emergency. After a second night of violent protests in Milwaukee on Sunday, Wisconsin Governor Scott Walker mobilized the state’s National Guard after declaring a state of emergency. The protests were sparked by the shooting of an African-American man by Milwaukee police. Authorities maintain that the man was armed. Multiple businesses and automobiles were set aflame by protesters over the course of two nights.