Tuesday, 17 September 2019

As oil surges, stocks fall but “resilient” market “could rip up”

Markets mostly fell on Monday after a weekend attack on Saudi Arabia’s oil-production facilities.

The S&P 500 fell 0.3 percent and the STOXX Europe 600 fell 0.6 percent while the Shanghai Composite was little-changed.

Oil prices surged. West Texas Intermediate and Brent crude jumped 14.7 and 14.6 percent respectively.

“While U.S.-China trade and U.S. oil supply growth have been the primary price drivers we see a return of the political risk premium as the market has been arguably complacent about risk events,” said Jon Rigby, an analyst at UBS.

Other analysts remain sanguine though.

“It will take a lot to disrupt the bull case for U.S. stocks and today’s selloff that stemmed from the Saudi oil field attacks could see buyers eventually re-emerge,” wrote Edward Moya, senior market analyst at brokerage Oanda.

Doug Cote, chief market strategist at Voya Investment Management, suggested that the small decline in stocks showed how resilient the market is. “Any good news, and this market could rip up,” he said.

Monday, 16 September 2019

Oil prices surge after attack on Saudi oil facilities

Crude oil prices are rising after attacks against Saudi Arabian oil facilities over the weekend.

Yemen’s Iran-aligned Houthi group said it attacked two oil plants in Saudi Arabia on Saturday, knocking out more than half the latter’s oil output.

Brent crude surged as much as 18 percent at one point on Sunday, while crude-oil strategist Phil Flynn at Price Futures Group saying that the attack was a “big deal”.

“We could be dealing with a significant game-changer for oil markets over the short to medium term as security levels continue to flash red,” said Stephen Innes, Asia-Pacific market strategist for AxiTrader.

Saturday, 14 September 2019

Markets mixed as US retail sales rise

Markets were mixed on Friday.

The S&P 500 dipped 0.1 percent but the STOXX Europe 600 rose 0.3 percent and the Nikkei 225 rose 1.1 percent.

A report on Friday showed that US retail sales rose 0.4 percent in August.

“This morning’s number was above expectations but more importantly it’s the sixth straight month of positive growth for retail sales which is a really encouraging,” wrote Mike Loewengart, vice president of investment strategy at E-Trade Financial.

Also supporting markets on Friday was a report that China is adding US agricultural products like soybeans and pork to the list of imports exempted from tariffs.

This move follows reports on Thursday that the US could consider an interim agreement on the trade dispute with China, raising hopes for an eventual resolution.

Friday, 13 September 2019

Markets rise as Trump delays China tariffs, ECB increases monetary stimulus

Markets rose on Thursday.

The S&P 500 rose 0.3 percent, the STOXX Europe 600 rose 0.2 percent and the Nikkei 225 rose 0.7 percent.

Markets rose after US President Trump announced on Wednesday that, “as a gesture of goodwill”, he would delay the implementation of a tariff hike from 25 percent to 30 percent from 1 October to 15 October.

However, Tom Essaye, president of the Sevens Report, said that “just a delay won’t be a positive catalyst—the market already expects more” while James McCormack, global head of sovereign ratings at Fitch Ratings, said that “we’re some distance from real resolution”.

Markets were further buoyed on Thursday by news that the European Central Bank will cut its deposit rate from -0.4 percent to -0.5 percent and restart open-ended purchasing of long-term government bonds at a pace of €20 billion a month.

In a press conference following the decision, ECB President Mario Draghi urged governments to take fiscal measures to supplement the central bank’s monetary stimulus.

Indeed, ING Chief Economist Carsten Brzeski suggested that “without fiscal stimulus, Draghi’s final stunt will not necessarily lead to a happy end”.

Also, Artur Baluszynski, head of research at Henderson Rowe, said the ECB pushing rates further into negative territory is “essentially a tax on euro zone banks, and for the already weakened bank-financed economy like the euro zone, this move could spell more trouble”.

Wednesday, 11 September 2019

Markets little changed as US investors rotate into cyclicals

Markets were mostly little changed on Tuesday.

The S&P 500 was flat, the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.3 percent.

“The big story is the continuing rotation that we saw begin a couple days ago,” said Willie Delwiche, market strategist with RW Baird. “If we can actually move away from narrow, defensive leadership into cyclical and small-cap leadership, that would be a healthy development for the market.”

MarketWatch reported that over the weekend, Andrew Sheets, chief cross-asset strategist at Morgan Stanley, had written in a note that the global economy may be poised for an upside surprise.

“In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead,” he said.

Sheets added that “the market isn’t positioned” for a reacceleration in growth and that the resultant market movements “could be large”.

Tuesday, 10 September 2019

Markets “vulnerable to a pullback”, US economy entering “debt hole”

Markets were mixed on Monday.

The S&P 500 was flat, the STOXX Europe 600 fell 0.3 percent and the Nikkei 225 rose 0.6 percent.

The US 10-year Treasury yield rose 8 basis points to 1.632 percent, its highest since 13 August.

Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research, noted that “the fact that we’re this close to an all time high puts us in a dangerous situation and makes the market vulnerable to a pullback”.

Federal Reserve data released on Monday showed consumer borrowing in the US rose at the fastest rate in almost two years in July.

However, this comes at a time when total potential debt for the US is already running at 1,832 percent of GDP, based on calculations by AB Bernstein.

The debt measure included not only traditional levels of public debt like bonds but also financial debt as well as future obligations for so-called entitlement programs, some of which are not set in stone.

“While the picture is dire, such numbers don’t prove we are doomed or that a debt crisis is inevitable,” said Philipp Carlsson-Szlezak, chief US economist at AB Bernstein, in his report.

Still, many are worried about today's debt levels.

“We are quickly approaching a situation where we have dug ourselves a debt hole which is doing to have profoundly negative effects on the economy for probably decades going forward,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

“In the next credit cycle downturn, then, the generally lower credit quality of today’s speculative-grade population means that the default count could exceed the Great Recession peak of 14% of all rated issuers,” said Christina Padgett, a Moody’s senior vice president.