Oil Rallies to More Than 3-Year High as Stocks Tighten Oil prices hit their highest level in more than three years, extending gains on tightening U.S. inventories. The rally comes ahead of an OPEC meeting where oil exporting countries are expected to renew their commitment to draining global inventories.
(…) The group’s output reduction is now 60 percent bigger than the planned cut of 1.2 million barrels a day as Venezuela’s deepening recession hits its oil infrastructure. Meanwhile, President Trump has vowed to abandon an agreement with Iran on the country’s nuclear activity, and potentially reimpose sanctions on the nation’s oil trade. (…)
Rather than filling the gap, though, the producers are maintaining strict discipline. They’re even trying to attract additional nations to participate in the cuts, United Arab Emirates Energy Minister Suhail Al Mazrouei said in an interview with Bloomberg television in Berlin on Wednesday.
“We need to focus on finishing the job,” Al Mazrouei said. (…)
Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight. (…)
“Look at the economic reforms and projects they want to do, and the war in Yemen. How are they going to pay for all that? They need higher prices.” (…)
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Commodities rocket on $100 oil talk, metals stress
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Is the U.S. Shale Boom Hitting a Bottleneck? Congested pipelines, shortages of materials and workers stand in the way of Permian basin’s continued growth
(…) While production is expected to continue rising, the Permian’s stumbles could ripple out to the global oil market at a time when OPEC has curtailed output and many companies have cut back on megaprojects. That could become a source of volatility that propels oil prices elsewhere higher. (…)
Oil is starting to back up in West Texas and has recently sold at a $6 to $9 discount to crude prices elsewhere in the U.S. That is a warning sign that some oil might have to travel by more expensive ways like trucks to market and that producers could be forced to take drastic measures like halt drilling. (…)
A number of major Permian operators reduced their output forecasts last year, often citing weather-related issues—claims that some executives such as shale pioneer Mark Papa have questioned, suggesting that poor acreage, subpar drilling techniques and service constraints are a much more likely culprit. They argue that the bottlenecks could be more severe than some companies have acknowledged. (…)
Permian operators are likely to see their costs rise up to 15% in the area, an issue that could affect profit margins even as oil prices rise. (…)
Many analysts expect prices in the region could tumble further before new pipelines arrive in 2019. (…)
While this is happening, that is also happening:
More China bank reserve cuts on the cards as PBOC seeks to prevent slowdown
The reduction in reserve requirement ratios (RRR), announced by the People’s Bank of China late on Tuesday, may indicate that Beijing is worried that the Chinese economy showed signs of cooling in March and could lose further steam in coming months. (…)
The PBOC said that its move to cut reserve requirements should allow the banks to use the cash to repay relatively costly loans and boost lending for small firms. (…)
- Are the official reports also overstating China’s retail sales? (Pantheon Macroeconomics via The Daily Shot)
Triple whammy underway: weak retail sales in China, Europe and the USA, exacerbated by rising oil prices?
Emerging market growth ‘losing momentum’
(…) analysis by UBS suggests sequential emerging market growth began to slow in the fourth quarter of 2017, and that survey-based, but more timely, “soft” data weakened in the first three months of this year. This comes in the wake of recent research by Capital Economics, a consultancy, that suggests EM growth may have slipped as low as 4 per cent at the start of 2018, as well as data showing that a proprietary EM-wide growth momentum measure run by NN Investment Partners, a Dutch asset manager, has turned negative. (…)
A world slowdown would be untimely:
Since 1880, Global Government Debts Have Rarely Been So High
General government debt in advanced economies has been above 100% of gross domestic product for more than five years, levels that have only been seen one other time in the past century and a half—at the very end of World War II, according to new data from the International Monetary Fund’s Fiscal Monitor, released Wednesday, tracking the heath of government finances around the world. (…)
The U.S. is among the countries doing the least to reduce its debts. By the IMF’s tally, U.S. debts have risen more than 20 percentage points as a share of GDP and currently stand at 107.2%. Under current spending and taxation plans over the next five years, Washington’s general government gross debt will rise to 116.9% of GDP. According to the Congressional Budget Office, the combination of large spending increases along with tax cuts will lead to trillion-dollar deficits within two years. By 2023, under current projections, the U.S. will carry more debt than any major nation but Japan and Greece. (…)
Key charts from the IMF piece:
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Investors increase bets on Fed rate rises Expectations of three or even four hikes this year rise as growth worries persist
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Bank of Canada holds rates steady, remains ‘cautious’ on future hikes
Weak Inflation Reinforces ECB Caution Over Stimulus Taper Eurozone consumer prices rose more slowly than first estimated in the 12 months through March, a fresh setback for the European Central Bank in its lengthening struggle to meet its inflation target.
The European Union’s statistics agency Wednesday said prices were 1.3% higher than a year earlier, a pickup in the annual rate of inflation from the 1.1% rate recorded in February. But that was lower than Eurostat’s initial estimate of 1.4%, which had itself been surprisingly low.
But the core rate of inflation was unchanged at 1.0% in March. (…)
What the WSJ article fails to mention is that core inflation jumped 1.4% MoM in March after +0.4% in February, itself following a 1.7% drop in January. Such volatility is bizarre, to say the least. In any case, Q1’18 core inflation ends up at +0.4% annualized, following +1.2% in Q4’17 and +0.4% in Q3’17.
It will be interesting to see the April number.
- The euro area’s capacity utilization has risen significantly in recent years. Will tighter industrial capacity generate inflation? (The Daily Shot)
Source: Credit Suisse
Inflation-busting pay hikes highlight German shift towards consumptionGerman unions have reached an inflation-busting pay hike deal for more than 2 million public sector workers that could push up prices and boost a consumer-led upswing in Europe’s biggest economy. (…)
The complex wage agreement gives public sector workers a 3.2 percent pay raise backdated to March 1, followed by a 3.1 percent increase from April 2019. In a third stage, wages will rise by a further 1 percent from March 2020. (…)
It comes in the wake of an unusually high pay hike reached in February for 3.9 million workers in the industrial sector, amounting to a roughly 4 percent annual rise for 2018 and 2019. (…)
- Rapidly slowing growth in the eurozone and other developed economies presents a real threat of recession for Europe in the next twelve months. Read more here: http://bit.ly/2qKre0S
EARNINGS WATCH
We have 52 Q1 reports in and the beat rate is a high 79% and the surprise factor a high 5.4% (+1.7% on revenues). Blended EPS are now seen up 19.4% by Thomson Reuters, up from +18.5% on April 1st.
Trailing EPS are $138.31 but would be about $145 after Q1’18 after adjusting for the tax reform impact during the last 9 months of 2017.
With this adjustment, the Rule of 20 P/E is 20.7, slightly overvalued. It drops to 19.2 if incorporating analysts’ estimates for the full year 2018 of $158.
The earnings momentum is very strong and conf. calls are not negative other than the frequent mentions of the trade war risks.
Investors are not impressed however. Even though the S&P 500 Index is back to its 100-day m.a., the recent 157 points rise (+6.2%) has been on sharply declining volume:
This lack of enthusiasm is noticed by Lowry’s Research which says that yesterday’s attempt at a rally was the weakest of the past 3 days. Banks have been particularly weak, never a good sign:
Interestingly, the weakening volume did not prevent news highs in breadth:
NDR stock-only A/D lines hit new highs among large-caps, mid-caps and small-caps. LC & MC are records (starts in 1980). SC best since 1998. Good breadth, BUT A/D lines hit new highs in March before early April retest. Still looking for breadth thrust confirmation
@NDR_Research
Along with the 200-d m.a., I am watching the 13/34–Week EMA Trend Chart:
FYI:
