Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web.
There's news this morning but the overall market tenor is one of indifference as the dog days of summer take hold. Most of Europe is preparing to disappear for the month of August and the seemingly-global obsession with Donald Trump's speech Thursday night is also sucking up a lot of oxygen.
The oil market endured a difficult week as continued supply issues are overshadowing hopes for supply and demand balance in 2017:
"While many expect global oversupply of oil to ease in the near term, huge amounts of crude remain in vessels at sea and storage tanks on land as the rebalancing takes longer than some had anticipated. 'The narrative of a balanced oil market (in the second half of 2016) has so far been an illusion,' UBS oil analyst Giovanni Staunovo said. 'Supply might actually increase in the near term with the further return of disrupted production and higher Middle East production, while demand growth is set to slow in emerging Asia.' "
The Baker Hughes report on the number of operating U.S. oil rigs will be released at 1 p.m. and should be interesting – it's been drifting higher in recent weeks as a sign of rising production. The U.S. refining sector is set to report dismal earnings, and this threatens short term crude demand.
"Crude oil prices face weekly decline as glut fears persist" – Reuters
"U.S. refinery profits set for worst year since start of shale boom" – Reuters
"Schlumberger joins Halliburton in calling bottom of oil downturn" – Bloomberg
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Merrill Lynch global quantitative strategist Nigel Tupper is urging clients to take more risk as the global market and economic cycle are on the verge of an upturn:
"The Global Wave continues to rise, suggesting investors rotate into the cyclical regions, sectors and styles of the world. In this environment, Asia and Emerging Markets tend to outperform [MSCI All Country World Index], the best performing sectors tend to be Tech, Materials, Diversified Financials, Energy and Industrials, and the best performing styles, on average, are usually Value, Risk, Momentum and Small Size… Currently, the [Price to Book value] of Quality is more than three times the [Price to Book value] of Risk."
"@SBarlow_ROB ML: P/B of quality more than 3x the P/B of Risk pic.twitter.com/RHV6Y3Wl3D" – Twitter (research excerpt)
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An FT Alphaville post assessing the possibility that current market conditions mirror 1998 – the final blow-off before a major correction – is a few days old but still entirely worth reading:
"The best parallel with recent events – major shock (this time, the UK vote), DM central bank liquidity reassurance and market surge – is, in our view, the collapse of Long-Term Capital Management (LTCM) in September 1998. In addition to a bailout for LTCM, the Fed 'turned on a dime' then and cut rates by 75bp in two months; risk markets took off. While MSCI GEMs fell much more before Sept. 1998 (Asia and Russian crises) than recently, EM rose by 31% in two months after LTCM and by 120% by March 2000."
But:
"The early warning indicators are signalling that Asia is now the region in the world most at risk, that a financial crisis could strike Asia at any time, and that the signals are at their highest point since the 1997 Asian crisis…"
"It's 1998 all over again, all over again" – Cotterill, FT Alphaville
See also: Churning over China: Anatomy of a slowdown – Peterson Institute
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Tweet of the day: "@S_Rabinovitch Nearly $2 of every $3 in new corporate debt around the world in next 5 years will be borrowed by Chinese firms -S&P pic.twitter.com/HkY1HD9fKa" – Twitter
Diversion: "This Is What Humans Would Look Like If They Evolved to Survive Car Crashes" – Gizmodo
Scott Barlow