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February 2015

February Metroscopia Poll Confirms Podemos Lead

February’s Metroscopia poll for El País, published on Sunday, showed that leftist upstart Podemos keep the lead to win Spain’s next general election for the third time in four months, and the second month in a row.


Podemos maintains Spain’s first political force with 27.7% of the estimated vote, but the vote is down by five tenths. Separately, Mariano Rajoy’s governing Popular Party increases its share slightly to 20.9%, from 19.2% in January and recover to second place while the PSOE, victim of internal fighting falls to third place with 18.3%. Finally, at the fourth place, Citizens’ party (Ciudadanos), led by Albert Rivera, has seen support increase from 8.1% to 12.2%.

The fragmentation has led to talk of pacts or a coalition, although there has been no coalition government since Spain’s return to democracy in the 1970s.

***Note: Spain has a general election due by the end of the year and a regional and municipal election expected in May.

U.S. January Employment Report: Comments from Christophe Barraud

Christophe Barraud, Chief Economist & Strategist at Market Securities, sent me his analysis concerning the U.S. January employment report:


1/ Despite negative temporary factors (adverse weather conditions, labor disputes at major West ports…), NFP rose 257K in January, well ahead of a consensus of ~230K. There was also a big net upward revision to November-December of 147K that left the three-month average growth at 336K (highest since Nov. 97).  With the latest revisions, the U.S. added 3.12 million jobs in 2014 (an upward revision to the prior estimate of 2.95 million), the best since 1999′s gain of 3.18 million jobs.


2/ Separately, the main event is the sharp rebound of average hourly earnings MoM (strongest increase since Nov. 2008) which pushes the YoY figure (+2.2%) to its highest level since Nov. 2013.


3/ Concerning the “Household Survey”, including the new population in the Current Population Survey (CPS) estimation process, the unemployment rate was estimated at 5.7% (not directly comparable with data for December 2014 or earlier periods) which remains close to the threshold defined by the CBO as the NAIRU (full employment), namely 5.6%.

4/ All in all, it was another very strong report which  downplayed doubts about the current wages’ growth. As a consequence, more than ever, I believe that the Fed remains on track to raise rates in H1 2015, more precisely in June .

The USD Will Pursue its Rally as Investors Underestimate the Pace with which the Fed Will Tighten its Policy

According to the Bloomberg, on January 30, Federal Reserve Bank of St. Louis President James Bullard said investors are wrong to expect the Fed to postpone an interest-rate increase beyond midyear, with the U.S. economy leading global growth and unemployment dropping and noted that:


The market has a more dovish view of what the Fed is going to do than the Fed itself…
… Markets should take it at face value from the Fed’s rate projections


In this context, I decided to take a look at both Fed fund futures and latest FOMC median forecasts (December) and the fact is that the gap between investor’s expectations and Fed guidance is simply HUGE. As a matter of fact, Fed officials expect the benchmark funds rate rise to 1.125% by the end of 2015 while investors are only betting on 0.410%.



Of course, Fed’s forecasts seem to be too agressive as they imply four rate hikes for 2015 in a context of 1) CPI’s weakness, 2) global slowdown and 3) geopolitical tensions, but a liftoff by midyear remains the base case scenario. Separately, according to Fed funds futures, investors see only a 15% chance that the Fed will raise its benchmark rate in June.


As a consequence, this situation implies that there is still a huge potential of appreciation concerning the USD especially as:

1) ECB will implement QE next month.

2) SNB has an unofficial corridor of CHF1.05-CHF1.10 against €.

3) BOJ will keep on implementing an accommodative monetary policy.

The Significant Decline of Oil Rig Count Suggests Downside Pressure on U.S. Oil Production

According to Baker Hughes, in the week ended January 30, the total number of rigs drilling for oil in the United States came in at 1,223, compared with 1,317 in the prior week and 1,422 a year ago. The 94 oil rigs laid down made up the biggest one-week drop since 1987, the earliest year for which the company has data available.



The two states losing the most rigs were Texas (down 58 and cutting the state’s count to 695 rigs vs 840 at the beginning of January) and Oklahoma (down 10). North Dakota and Wyoming each lost four and Ohio lost three. California and Pennsylvania were the only states to add to rig counts during the week, and each added just one.


Even if the outlook for U.S. oil production also depends on 1) the effciency of drilling (productivity), 2) the rate of decline in production from existing wells or 3) the changes in the amount of time between the start of drilling (called spudding) and the completion of the well, the sharp drop in U.S. oil rig count suggests downside pressure on U.S. oil production especially as the pace of decline exceeds latest EIA forecasts (Jan. 26).



Finally, it is important to note that this pattern also appears in data related to North America (including Gulf of Mexico and Canada). Over the same period, figures show that oil rig count fell 123 to 1,460 (the lowest level since Dec. 12).