Wednesday , January 26 2022

A week ahead: Quarter, Oil, Trade and Stocks


Source: ESO / M. Korn Messer

Confidence in the economy and the need to gradually raise interest rates stand in stark contrast to most of the other major central banks. The European Central Bank is expected to complete asset purchases at the end of the year, but there is no room for normalization. In fact, risk may feel compelled by another target long-term report that allows the Borrower to extend the expiration of existing funds. A 20% drop in oil prices after the peak of four years in early October will slow down headline inflation and make it more difficult for some countries to raise interest rates. In the United States, you may have experience with tax cuts that increase unilateral household spending and prolong business cycles.

Some critics accuse Powell of feared market participants by pointing out that there was some distance before the monetary policy was still eased and neutralized last month. When the Federal Reserve chairman of Greenspan intentionally tried to obfuscate, should we always really listen to good old days? According to legend, his office has a "misunderstanding" when he thought he understood what I said.

The Fed has become clear. It is expected that there will be four hiking this year. The market is not convincing. In fact, if you supplement the Federal Reserve's futures trading, the market is not convinced that the Fed will raise interest rates more than once. In some ways this is not new. Throughout the diocese, the Fed officials had to lead the market with the help of the nose for urgent and urgent preparations. Even the market will raise interest rates next month and at another rate on Q1.19, during which time only the Canadian banks of the major central banks and Riksbank in Sweden will raise interest rates.

Certainly, differences in monetary policy reflect economic and / or financial discrimination. Consider future industrial production figures from the US, EMU, and Japan. By September, US industrial production increased by an average of about 0.3% per month. It is expected to rise by 0.2% in October. EMU's September IP is expected to rise 0.2%, but average 0.2% decline Japan will announce its final industrial production figures in September after eight years and a half. Using preliminary data, including a 1.1% reduction in September, Japan's IP fallen This year's average rose 0.4%.

Separately, the eurozone expects GDP to rise 0.2 percent in the third quarter. This is followed by 0.4% expansion of Q1 and Q2. The eurozone economy grew 0.7 percent in the past year. Growth in the last three quarters is the slowest since 2014.

If the 20% collapse of oil prices continues, it will have a broad impact on the investment climate. A combination of weaker growth and a major backlash against prices (a weak euro exchange rate could slow this down) could encourage investors to think twice about a nearly 10bp hike (via OIS) since next summer.

Some critics of the US Fed's line will argue that inflation expectations are so low that actual interest rates may be higher than assuming that the Fed has made policy mistakes that could lead to a recession. But for policy purposes, why is the Fed aiming for prices other than food and energy? Over the past half-century, headline inflation is likely to converge to core inflation. US officials predicted oil prices would be similar to tax cuts that could increase discretionary spending.

Drivers of falling oil prices are important in assessing their importance. Along with the downturn in the Chinese economy, soft industrial production in Europe and Japan means weak demand. However, this was a gradual process and fell sharply after reaching its four-year high in early October.

The supply factor seems to be the most important than the demand. The world's largest producers – the United States, Russia, and Saudi Arabia – are producing tremendous amounts of oil in all three countries. Iraq, the second largest producer of OPEC, has announced plans to continue increasing production capacity. The EIA raised US oil production forecasts this year (2019bnd bpd vs. bpd 995 million in 2017). Production next year was raised from 11.76 to 12.06 mln. In the first week of November, half of the oil produced by the United States appears to be stored (stock up). Russia has produced more oil since the Soviet era. Thanks to the United States, Saudi Arabia has seen results that seem to be record-breaking.

OPEC met on November 10th. Member states have "over-adhered" to the initial agreement to reduce production. According to OPEC's technical view, OPEC production was 4% fewer than agreed on in October despite the increase in Saudi production. In September, production fell 11% from the agreed value. The goal is definitely 100% compliance, which will still increase supply. But next year, a consensus appears to have been formed with a production cut of about 1 million barrels. Saudi Arabia is able to make an official decision despite its intention to reduce its oil exports to 500k bpd next month. Russia has not shown its hands, but Saudi movements can help support the price in the future. This can increase technically overpriced prices after 10 days and 5 consecutive losses. Weekend decisions can provide a fundamental stimulus for the technical bounce we anticipated.

Collective wisdom in the market supports trade between the United States and China and two compromises in Brexit at the end of the month when Trump and Xi meet. In both scales, we doubt that we will be confident and there will be more and more opposition. The risk is that many investors exaggerate American rhetoric (Trump, Fence, Pompeii, Nabarro) but are not ready to dismiss as part of the negotiation strategy. Brexit negotiations look like a classic scissors dilemma. The closer you are to one side (ie the UK and EU), the broader the other side (May and Parliament).

In fact, the risk of the May strategy is that she does not satisfy both the EU and Congress. It looks like it is appearing now, and it may be likely to focus on Sterling next week, the week after the end of the week before the end of the week for the first time last week, under $ 1.30. British Transport Minister J. Johnson has resigned and four other Cabinet ministers are considering resigning following media reports protesting the May plan. At the weekend, senior European Union officials have rejected a May plan for an independent mechanism for how Britain could stop if the Brexit talks fail. The collapse of the $ 1.2940 area could signal a return to the annual low of $ 1.2660 at the end of last month.

In three different ways, US policy is destructive. First, the US policy mix is ​​absorbing world savings, making it more difficult for other current account deficits to raise funds smoothly. The cost of hedging exposure to US bonds has prompted journalists and analysts in the cottage industry that there is no foreign interest. We resisted our short-sighted view and underestimating the dynamics of global investors.

In August, TIC data showed the strongest overseas demand (US $ 13.2 billion) for long-term US assets since September 2014, which was itself a record. The September performance of TIC reported this weekend may not match the strength of August. The 10-year US yields rose more than 20 basis points in a month, while US equities remained flat (+ 0.4%). On the other hand, Japan 's balance of payments announced in September that Japanese investors will buy $ 2 billion and more than two life insurers plan to increase foreign bond purchases of bonds.

Second, US embargo on Iran is destructive. The exemption is for a limited time and many countries have begun the adjustment process without wanting to cause anger in the United States. The news that SWIFT will honor the embargo as it has done before demonstrates its willingness to take advantage of US capabilities and benefits. However, SWIFT is thought to be a utility function, and it is expected that it will take some time for US policy to act as a policy arm and it will usually take some time to get it done, but the investigation (for example, France) is ahead of function.

Third, the US's active trade attitude is also destructive. NATFA 2.0 is almost ready to sign when the details are complete at the last minute. The United States is reportedly demanding further concessions and might have weighed the Canadian dollar at the end of last week. But the focus is on US-Chinese trade. Both sides are taking measures to cope with the long-term confrontation. Indeed, the risk of being at the cutting edge of the new Cold War is not taken seriously enough by investors.

There are camps that simply want to be about trade imbalances, and many hope to negotiate. Trump's chief trading advisor, Navarro, criticized criticism by former White House economist Cohen. Navarro said he would receive a "criticism of Goldman Sachs" if the deal is concluded later this month. He says the "globalist billionaires" are pressuring Trump to compromise, and if it does, the convention is "malicious." Navarro began to charge this "full court press" as treason against China as part of China's "influence".

After the dramatic decline in October, most stock markets began to make a stronger start than in November. The MSCI Emerging Markets Index rose 6% last week, down 2% from last week. The MSCI World Index (advanced countries) rose 1.3%, up 2.7% from the previous week. Last week, the S & P 500 index rose 2.1%, up 2.4% from the previous week. But the three benchmarks all fell in the second half of last week.

Before the weekend, the S & P 500 index dropped nearly 1% to test the 200-day moving average of the day before the US election and the FOMC meeting. This interval was entered but not populated (extends to approximately 2756.8). The S & P 500 index was lower than the weekend. The gap is small (2794.1-2795.0), but it differs from where the gap in technology theory occurs and relatively quickly closed.

It is suspected that the ability of S & P and MSCI to rethink industry classifications to integrate Internet and media companies into the "communications sector" benchmarked is part of the sale of some of America's most famous technology names. The idea that rising interest rates and profit growth will be in the vicinity of the cycling peak has probably played an important role. The drop in oil prices means the transition from producer to consumer. Despite the loss, the S & P 500 was firmly closed before the weekend, but investors would like to see what happens before making a new commitment.

expose: I / We have no status on the shares mentioned and are not planning to start in the next 72 hours.

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