Agreeing to shoot yourself. If you look at oil markets, the “agreement” to freeze production reached by Russia, the Saudis, Qatar and Venezuela (and dependent on whether Iran and Iraq join in) is a done thing. Especially with the optimistic ignoring the simple fact that while Iran said it was a good idea, it didn’t endorse the idea of a freeze and maintained its right to lift production. And no one is talking about cutting production,which has to happen for any agreement to be meaningful. But there is another reason to be very sceptical of the deal and the market reaction, and that is what the US shale sector will do if prices continue rising.

Its next move is easy to anticipate — an increase in production at worst, at best, maintaining output to keep US daily output above 9 million barrels a day. Unlike previous attempts to manipulate production (the last was 15 years ago), there was no big producer outside of OPEC. This time the US shale sector is the big producer OPEC can’t manipulate, even if it is under rising financial pressure — a third of US energy companies could go bankrupt this year if prices continue at US$30 a barrel or less. But if this “agreement” pushes prices higher, pressure on the shale sector eases, thereby undermining the freeze or whatever it is. Over time, demand and supply will come back into balance as marginal oil production disappears from the market and the plethora of new projects abandoned by companies large and small, do not bring more oil to market. But if prices rise and are sustained, that will lower the impact of cheap oil on consumers and demand, and remove some of the stimulus that might boost demand and growth, especially in the major economies. That then will add renewed downward pressure on oil prices. — Glenn Dyer

Japan joins China on the slope. China this week reported a record trade surplus of more than US$63 billion as imports fell 18.8% in January and exports fell more than 11%. Yesterday Japan said exports slumped 12.9% in January from the same month in 2015. Imports were down 18% in January, unchanged from December, and the Financial Times pointed out that the fall of 18% in both months was the biggest decline since October 2009, when imports fell by 35.5% from the same month in 2008. The fall in imports was the biggest fall since October 2009, and was driven by a nasty 17%-plus slump in shipments to China and the sharp fall in the value of oil and LNG imports (which is maintaining deflationary pressures on the Japanese economy and helping frustrate the Bank of Japan’s attempts to stimulate the economy).

Japan on Monday revealed that fourth-quarter GDP contracted by 1.4% (annual) or around 0.4% quarter on quarter. Although that could be revised in the next estimate, it will still point towards the failure of the Bank of Japan and Abe government’s attempts to drag Japan from its deflationary rut. China’s consumer price inflation rose to an annual 1.8% in January (Japan’s is running at 0.1% or lower), and producer prices fell 5.3% and have been negative now for almost four years. And this matters to Australia — China is our biggest export market, Japan is No. 2. The sharp slide in the value of imports of commodities is dragging revenue from commodity exporting countries such as Australia, hence our still-sliding terms of trade and falling national income. — Glenn Dyer

The man who should have run Woolworths. Greg Foran is his name. He lost out when Grant O’Brien was chosen to run Woolies (O’Brien and the board then gave us the multibillion-dollar Masters disaster and weak supermarkets). Foran was head of supermarkets at Woolies when he missed out, and he was headhunted in 2011 to run Walmart in China. When the world’s biggest retailer needed someone to shake up Walmart’s underperforming US heartland, Foran was moved to HQ in 2014, where he has stopped the rot and now has the huge business ticking over. Overnight Walmart produced weak figures and the first fall in annual sales in 35 years — blamed not on US, but on weak trading in China, Brazil, the UK and the impact of the stronger greenback (Canada and Mexico also did very well).

In the US there was solid growth, despite deflation in food and petrol (sounds like Australia) — net sales up 2.5% to US$81.5 billion and traffic improving by 0.7%. Same-store sales rose 0.6% in the quarter, the sixth consecutive quarterly rise. However, the sales figure was blunted by deflation in certain groceries, such as meat, as well as the impact from lower petrol prices, something Foran said he was sceptical would change this quarter. Foran and the company continue to revamp the US operations, spending more on staff (raising wages to the minimum wage), battling Amazon by lifting its online performance and closing weak stores, especially smaller outlets (154 in the US this year alone). — Glenn Dyer

Peter Fray

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