A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
Brent crude prices are lower by 15 per cent over the past month, and the Financial Times cites five reasons for the volatility.
The list, in order, is higher production than expected from U.S. shale, U.S. waivers allowing selected countries to ignore trade sanctions on Iranian oil, increased production from Saudi Arabia and Russia (possibly in response to president Trump pressure), future concerns about where supply growth will come from that are keeping the commodity price from falling further, and hedge funds covering bullish bets on the oil price.
The bullish concern – where supply increases will occur – is arguably the most salient,
“While some [supply growth] is from new shale wells in the US, additional Saudi Arabian oil has meant tapping into the kingdom’s spare capacity — a buffer of output kept in reserve in case of severe supply disruptions. Once that has been brought online to replace Iranian barrels there may not be much left should another supply outage occur. “What we find particularly scary about oil markets today is the lack of Opec spare capacity,” said Neil Beveridge at Bernstein, who estimated spare capacity had fallen to approximately 1.3m b/d, or little more than 1 per cent of global demand.”
“Nervous oil: Five factors driving price swings” – Financial Times (paywall)
“Oil keeps sliding, reaching a 7-month low overnight” – Bloomberg
“Iran oil exports to plummet in Nov, then rebound as buyers use waivers” – Reuters
A very good chart from highly-ranked Credit Suisse strategist Andrew Garthwaite strongly suggests that U.S. interest rates are set to head lower,
“We have seen the largest decoupling between global [purchasing managers index] new orders (falling) and real bond yields (rising) since 2007… if global PMIs are right, US bond yields fall”
“@SBarlow_ROB CS: "We have seen the largest decoupling between global PMI new orders (falling) and real bond yields (rising) since 2007."” – (research excerpt) Twitter
“@SBarlow_ROB CS chart: "PMIs are decoupling from bond yields"” – (chart) Twitter
Merrill Lynch quantitative strategist Savita Subramanian has frequently pointed out that buying the stock most neglected by fund managers leads to outperformance. Citi strategist Hong Li takes this further by pointing out the most ‘crowded’ or over-owned U.S. stocks and also those with the biggest recent declines in ownership. The most over-owned company list is led by financials and starts with Morgan Stanley, Charles Schwab Corp., Discover Financial Services, International Exchange Inc. and Goldman Sachs Group Inc.
The stocks with the biggest drops in ownership start with DXC Technologies Co., Universal Logistics Holdings Inc., Cleveland Cliffs Inc. and Flex Ltd.
“@SBarlow_ROB C: most crowded trades – (table) Twitter
“@SBarlow_ROB C: biggest declines in crowdedness” – (table) Twitter
Tweet of the Day:
Diversion: “Trump Already Won the Midterms” - The Atlantic