OPEC has agreed to First oil production cut in 8 years.Non Opec members have also pledged to cut some production led by Russia’s 300k BBl cut.Iran also “won” as it is allowed to increase Oil production by 90k a day till they reach 3.8 Mbbl a day then freeze .IF we take everyone at their word,which we have to since no hard data is available yet,Worldwide oil production will be ~1.8 Mln BBl lower per day starting Jan.1.Indonesia Was suspended as An OPEC member because she is a Net Importer of oil,Indonesia produces 770 barrels of oil a day.OPEC pledged to cut production to 32.5 Mbbls a day,so If Indonesia production is not counted how much did they actually cut? A gray area For sure.I would have expected a “buy the rumor sell the news reaction” today,but not the case so far.
Energy related stocks and ETF’s are having a banner day,not a surprise.Tech stocks being sold aggressively to raise funds for the “trump trade” Spoos unchanged ,nassy -48 handles and dow +71.Higher Oil Weighing on long end bonds.Also weighing on Bonds is comments from new treasury Secretary hinting he is in favor of issuing longer term treasuries.Chicago PMI beat expectations but little attention paid to this release.
- Today could be an all time record volume day for Crude oil.
- SPX and Dow touched a new all time high today,Russell surprisingly lagging
News of Note: OPEC is close to a deal to cut production. Nothing official yet but WTI is higher by 7%, Brent by 7.5%, gasoline +5%.Deal on table is a cut of 1.4Mln barrel. The other big item overnight is China Central banking voicing concerns about drop in yuan and Capital flight. Central bank stepped in to prop up currency and has also created new measures to Slowdown commodity speculation. Steel and Coking coal had near historical drop in prices today, Steel -5.7% and Coal -7%.China worries starting to percolate as Shanghai closed 1% lower and short term rates continue to move higher. Higher oil is=Higher energy stocks as the group is higher by 2.7% in Europe helping all stock markets trade higher.
Bonds in Europe mixed with Bunds higher and Italy, Portugal and Spain all lower.US treasuries Heavy as Higher Oil =Inflation worries. Month end activity also to blame. Dollar higher as today’s Economic data was inline /better. ADP a solid beat of expectations at 216 vs f/c 170.
Watching OPEC comments today and Month end adjustments.
A few things:
• Trump as Appointed EX Goldman member Mnuchin as treasury secretary. This morning he said he is in favor of issuing longer term Bonds
• Wilbur Ross will be Commerce secretary
• Grains following oil higher
• Copper not following the Move lower in Steel and Coal
Here is daily chart of BTP /bund spread.The higher or wider it goes the more perceived worries or risk there is for Italy.This Spread has been trending higher due to the upcoming Vote On Sunday.Today ECB announced they would temporarily buy more Italian Bonds if referendum causes chaos.The ole’ Central bank put in play again.This spread works as a risk barometer for European Stocks,especially banks.Wider=bearish banks and vice versa.I will monitor this spread throughout week.
Base metals being sold aggressively today,Zinc -5.25%,Lead -6.25%,Nickel -4.75% Copper -3.5%.If you remember from yesterday’s post, base metals have had a heck of a Run this month.With Month End tomorrow it very well could be some profit taking as Some hedge Funds close up books for the month and Year .Dollar not having any impact on the metals trade today.
This mornings revision to GDP was better than expected as was Consumer Spending component.Consumer confidence for November released at 9:00 was highest in 7 years,beat expectations by 4 standard deviations.This metric does include reaction to trump Victory.
Spoos have 5 handle range since 8:30 as stocks in no hurry to do anything.Bonds were trading heavy after the Economic data release but now are trying to move higher. Recall that Goldman Said month end flows will lean towards “buys” in treasury complex.
Theme today: Stocks higher, Bonds steady to lower, base and precious metals lower, OPEC deal in doubt =Oil lower and dollar higher. Italy Stands out in 2 ways.1 ECB said it will temporarily buy more Italian Bonds if Chaos ensues after Vote on Sunday this pledge had also worked as Floor underneath Italian stock prices as the MIB is higher by 1.5%.The strength in the MIB is providing a Lift for all European stock markets. BTP’s, Italian 10 years, spiked on the headline regarding ECB pledge at one point prices were higher by 100 ticks, they now stand +50 on day. With the exception of Bunds (think spreads) all European 10 year yields are lower. Base metals are trading lower profit taking? Sure .if you need a reason report today showed china’s House volume sales number dropping year over year.
On the political front South Korea’s president said she will let the national Assembly decide how long she stays in office. South Korea has seen some of the largest protests ever as the president is wrapped in some type of bribery scandal.
Dollar sits higher by 20 ticks Euro down 40 and yen down another 60.No one likes the Yen today as AUDJPY +40.EURJPY +70 and GBPJPY +195.very well could be month end adjustments causing yen selling. Yen set for its worst month in 7 years per Bloomberg. Yuan traded to a 1 week high vs. Dollar as Chinese authorities try to slow down the selling. GBP higher as UK mortgage approvals beat consensus
All eyes on OPEC headlines and fluctuations of Dollar today. We will see first revision of Q3 GDP, we also will get 2 fed speakers Dudley and Powell both permanent voters. Outside of Oil, markets are drifting as the trump trade running out of Gas. Month End activity still present as well. Russell closed lower yesterdays for the first time since Election
Soybeans down ~60 ticks they have closed higher for 7 consecutive days. Palm oil closed lower in Malaysia for first time in 7 days
All december commodities rolling
Below is a snap shot of base metal prices with the last column showing the Month to date % change.Copper higher by 20% and in China +24%.Steel also impressive with a monthly gain of 34%.Zinc is at a 9 year high as well.Over the weekend talk from China was that an additional railroad projected would be green lighted and thus more demand possible for Base metals.Copper is leading candidate for an “Adjustment move ” lower
Italian referendum vote is scheduled For Sunday.Latest Poll ,reported last week has the “NO” Vote with a substantial lead.According to Italian law no “Polls” can take place within 2 weeks of Vote.This referendum is whether or not Italy should have a constitutional overhaul,not A vote on leaving Eurozone .PM Renzi has said he will step down if a “no” vote wins. If this does occur new elections will be called and it is possible that an Anti-Europe party could be elected.These elections will be sometime later next year.Their is plenty of steps that need to happen to turn this into a Global crisis and Not just an Italian one.We can look at the BTP/Bund spread to see what is being priced in
The spread is moving higher,near a 2 year high so it is pricing a no vote.The surprise would be a yes vote which will see a risk on move in European stocks and a rally in BTP’s and weakness in bunds. This event is nowhere near as Important as brexit vote or trump election.