market update

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

 

 

 

Morning 11-30

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

BTP/Bund spread

gerit-u-index-germany-italy-e-2016-11-29-10-28-07

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.

Action So far..

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.

Morning 11-29

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

Copper

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

lmee

Italy

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

bund-s

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.

Goldman Sachs Month End

US TSYS/STOCKS: Talk is doing the rounds this morning of a Goldman Sachs report
that suggests there could be $17B-$27B of stocks that need to be sold/bonds to
be bought into the month-end by rebalancers; with Goldman reportedly saying such
rebalancing needs is “largest since Oct. 2015.

Morning 11-28

Event risk the key theme for this week. We have OPEC meeting On Wednesday, Friday payroll, Italian referendum Vote on Sunday, Month End Activity and continuation of any Trump and Brexit headlines. Per IFR news regarding Bond Markets “Since last week’s 7 year auction the idea has been to buy dips into Month end due to the need for portfolios to extend Duration” They go on to say that Extensions are seen as fairly substantial. Bonds and most European Fixed Income all higher as I type. The exception is Italy, Spain and Portugal which shows Yields steady to higher. Worries about Italian referendum Vote weighing on prices as “A headline from the FT warning that eight Italian banks could fail should Italy’s PM Renzi fail to win the 4th December political reform.” Italian banks down 1.9% today as the Italian Bank Index has closed lower 11 of last 12 days. Referendum worries weighing on prices. What is separating the Italian referendum vote from the Other “Black Swan” events of late is that the No Vote has led in the Polls ever since it was created.
European Stocks Lower led by Italy’s Mib -.88%, Dax -.7%.Spoos have a narrow range and sit lower by 5 handles. No US economic data today so Opec/Italian headlines could drive action.
Dollar experiencing a Wild ride over night as it has 100 tick range in the spot market and Dollar/yen almost 200 tick range. Month end adjustments, talk of Japanese pension funds Buying back yen as FX hedges are unwound. Dollar is Unchanged for now, All eyes continue to be on the movement of the dollar.
OPEC meeting Wednesday and it appears that a deal to cut or freeze production is in Doubt. Members are gathering in Vienna and Headlines /rumors will drive the action. Current rumor is that Saudi Arabia will cut production if Iran freezes hers at a certain level. Base and precious metals all trading higher Zinc at a 9 year high and copper at a 17 month high. Rumors of More infrastructure spending out of china creating a floor for prices.

Plenty of Action Today

Copper and Zinc  finding buyers aplenty.I believe the action being  driven by price movements in the Shanghai complex as copper  +2.8% Zinc  +3%.LME traded copper +2% and Zinc +2.2%.Copper traded in yen terms is at 1 year highs  maybe this is driving more Buyers into LME? Shanghai? Just a thought.Soyoil up nearly 5% as EPA increases the amount of biofuel needed  to fulfill 2017 mandate,this was higher than markets expected.Soymeal Down on day as the crush Spread moves higher by 3%.

Iraq said they  are willing to cut production per OPEC deal.This comment  hit wires at 9:28 ish. it is the second week in a row that an OPEC comment came out right around the time of Weekly EIA numbers. Coincidence? I think not.This comment is slightly Bullish as it came from PM not oil Minister, which would carry more weight.

Treasuries continue to trade heavy into the 10:30 Seven year auction.

I will  repeat what i said early today’s action could be profit taking and month end flows ahead of Long weekend.