It feels like oil is in a free fall, after prices dropped to 126 dollars per barrel in late New York trading. Most traders are selling the black gold, after a slow down in demand was seen from the US consumer over Memorial weekend. It seems like the 4+ dollars per gallon has consumers saying no more. We are expecting oil to fall below 125 by the end of Friday.
The FTSE is currently indicating a slightly higher open, mostly on the strength of the Japanese markets. We are expecting a low volume trading day, as most of the important economic announcements were already released this week. The only thing of note is at 12.30 GMT when US releases its Personal Consumption numbers. There is risk that they will come in lighter then expected, this will result in a sell off on the US equity side.
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Friday, May 30, 2008
Wednesday, May 28, 2008
Oil is Relaxing & Gold might start rising
Oil spent another day retreating from its recent record price of $135 per barrel. Currently the WTI crude oil is trading at 130.20, and traders are expecting oil prices to fall further as demand is slowing down. Gold which has been trading in a tight range is going to be getting a lot of attention today, when US releases its GDP numbers. While most analysts are expecting inline numbers, there is a risk that a weaker then expected number will push gold higher as traders will be selling US equities and buying gold.
The FTSE is currently quoted up 20 points, and will probably stay that way mainly because there are no economic news out of the UK. This all will change when US releases its GDP numbers. There will be lots of volatility when those numbers are posted, mainly because most traders are split on where the number should be.
Tuesday, May 27, 2008
Weekly Briefing
Contents This Week:
Economic calendar for week 26th - 30th May 2008.
Commentary: The week ahead.
Economic Calendar for week 26th - 30th May 2008
PLEASE NOTE - All times GMT not BST. BST is +1 Hr.
Monday May 26h:
UK - ALL - Holiday: Spring Bank Holiday.
US - ALL - Holiday: Memorial Day.
GE - Tentative - CPI M/M.
Tuesday May 27th:
GE - 06:00 - Consumer Confidence.
GE - 06:00 - Final GDP Q/Q.
US - 13:00 - National HPI Composite-20 Y/Y.
US - 14:00 - New Home Sales.
US - 14:00 - Consumer Confidence.
US - 14:00 - Richmond Fed Index.
Wednesday May 28th:
UK - Tentative - Nationwide House Prices M/M.
GE - 07:55 - Unemployment Change M/M.
EU - 08:00 - Current Account.
US - 12:30 - Core Durable Goods Orders M/M.
US - 12:30 - Durable Goods Orders M/M.
Thursday May 29th:
EU - 08:00 - M3 Money Supply Y/Y.
UK - 10:00 - CBI Distributive Trades Realized.
UK - 12:30 - Prelim GDP Q/Q.
UK - 12:30 - Prelim GDP Price Index Q/Q.
US - 12:30 - Unemployment Claims.
US - 14:30 - Crude Oil Inventories.
US - 14:30 - Natural Gas Storage.
UK - 23:01- Consumer Confidence.
Friday May 30th:
EU - 09:00 - CPI Flash Estimate Y/Y.
EU - 09:00 - Consumer Confidence.
EU - 09:00 - Unemployment Rate.
US - 12:30 - Core PCE Price Index M/M.
US - 12:30 - Personal Spending M/M.
US - 12:30 - Personal Income M/M.
US - 13:45 - Chicago PMI.
US - 13:55 - Revised Michigan.
EU - Europe wide
FR - France
UK - United Kingdom
US - United States
GE - Germany
The week ahead.
Until last week, there have been two stories running in parallel. The first story is of rampant inflation fuelled by the price of oil making record new highs every week. The subtext to this story is the dawn of a difficult decade. The second story is of a stock market that believed inflation would be contained and that the worst of the credit crunch is behind us. Last week these two stories collided with the end result being a sudden realisation that were not quite out of the woods just yet.
According to Michael Cartine of Thomson/ Reuters The danger from inflation comes in from its inherent volatility; when prices rise 3% the first year, 5% the next, 10% after that, but then stagnate or even drop for a year before trending higher again. This type of environment becomes increasingly difficult to make economic decisions in. Market participants around the world will certainly attest that the last year or so has been a particularly volatile time.
The FTSE sold off hard, falling further than most other global stock indices on the week. UK top tier stocks, led by banks and real estate shares, fell on fears of negative equity in the UK housing market leading to trouble for banks and consumers. Retailers including Marks and Spencer were being punished as UK shoppers face the prospect of not being able to bank on further house price rises to fuel further spending. The bricks and mortar ATM is no longer paying out.
The plight of UK equities was not helped by that fact that even with oil hitting $135; UK oil stocks were strangely subdued towards the end of the week. Oil & gas stocks make up nearly 20% of the FTSE by market capitalisation. The question remains whether this relative weakness is the start of a rotation out of this sector, or whether it is just a couple of days profit taking. Markets gave us a significant tell on Thursday as equities spiked following a natural gas inventory report which indicated increased levels of storage. Oil fell back and stocks surged in the opposite direction. Unfortunately, the rally didnt last as crude reaches back to previous highs. However, the way that markets reacted was certainly telling and could be an indication of how things will play out when oil finally stops going up.
Crude oil has now accelerated by 30% in under two months and 80% in a year. It is little wonder that the MPC voted 8-1 to keep rates on hold with inflation running so high. However, there are some potential weaknesses in crude which are worth pointing out. According to Mike Rothman of ISI, global demand growth for oil is now well below last years increase. In addition there are reports of the Gulf being crammed with oil tankers chartered by oil producing nations to hold oil they cannot sell. This suggests there are no buyers at this price and when this happens, the laws of supply and demand come into effect. Goldmans Analyst Arjun N. Murti recently predicted that oil could hit $150-$200 in the few years. While this prediction may still come through, there are increasing signs of this oil bubble over stretching.
With bank holidays in both the UK and US, it is a quiet start to next week on Monday. The most notable release on Tuesday is the US new home sales data which is expected to show indicated further pain for US home builders. The only question is the degree of acceleration in this decline, as is expected to be the case with the UKs Nationwide House Price index released some time on Wednesday morning. The weeks top announcement though is likely to be the US GDP figures on Thursday as the US economy weighs up the benefits of the Bush tax rebate against the rising cost of oil.
After experiencing a much needed sell off, there is the potential for the FTSE to stabilise over the next week, especially if (big if) oil manages to go a week without making a new record high. With that in mind a bull bet on the FTSE to be higher than 5900 on the 9th of June could yield around 19%.
Economic calendar for week 26th - 30th May 2008.
Commentary: The week ahead.
Economic Calendar for week 26th - 30th May 2008
PLEASE NOTE - All times GMT not BST. BST is +1 Hr.
Monday May 26h:
UK - ALL - Holiday: Spring Bank Holiday.
US - ALL - Holiday: Memorial Day.
GE - Tentative - CPI M/M.
Tuesday May 27th:
GE - 06:00 - Consumer Confidence.
GE - 06:00 - Final GDP Q/Q.
US - 13:00 - National HPI Composite-20 Y/Y.
US - 14:00 - New Home Sales.
US - 14:00 - Consumer Confidence.
US - 14:00 - Richmond Fed Index.
Wednesday May 28th:
UK - Tentative - Nationwide House Prices M/M.
GE - 07:55 - Unemployment Change M/M.
EU - 08:00 - Current Account.
US - 12:30 - Core Durable Goods Orders M/M.
US - 12:30 - Durable Goods Orders M/M.
Thursday May 29th:
EU - 08:00 - M3 Money Supply Y/Y.
UK - 10:00 - CBI Distributive Trades Realized.
UK - 12:30 - Prelim GDP Q/Q.
UK - 12:30 - Prelim GDP Price Index Q/Q.
US - 12:30 - Unemployment Claims.
US - 14:30 - Crude Oil Inventories.
US - 14:30 - Natural Gas Storage.
UK - 23:01- Consumer Confidence.
Friday May 30th:
EU - 09:00 - CPI Flash Estimate Y/Y.
EU - 09:00 - Consumer Confidence.
EU - 09:00 - Unemployment Rate.
US - 12:30 - Core PCE Price Index M/M.
US - 12:30 - Personal Spending M/M.
US - 12:30 - Personal Income M/M.
US - 13:45 - Chicago PMI.
US - 13:55 - Revised Michigan.
EU - Europe wide
FR - France
UK - United Kingdom
US - United States
GE - Germany
The week ahead.
Until last week, there have been two stories running in parallel. The first story is of rampant inflation fuelled by the price of oil making record new highs every week. The subtext to this story is the dawn of a difficult decade. The second story is of a stock market that believed inflation would be contained and that the worst of the credit crunch is behind us. Last week these two stories collided with the end result being a sudden realisation that were not quite out of the woods just yet.
According to Michael Cartine of Thomson/ Reuters The danger from inflation comes in from its inherent volatility; when prices rise 3% the first year, 5% the next, 10% after that, but then stagnate or even drop for a year before trending higher again. This type of environment becomes increasingly difficult to make economic decisions in. Market participants around the world will certainly attest that the last year or so has been a particularly volatile time.
The FTSE sold off hard, falling further than most other global stock indices on the week. UK top tier stocks, led by banks and real estate shares, fell on fears of negative equity in the UK housing market leading to trouble for banks and consumers. Retailers including Marks and Spencer were being punished as UK shoppers face the prospect of not being able to bank on further house price rises to fuel further spending. The bricks and mortar ATM is no longer paying out.
The plight of UK equities was not helped by that fact that even with oil hitting $135; UK oil stocks were strangely subdued towards the end of the week. Oil & gas stocks make up nearly 20% of the FTSE by market capitalisation. The question remains whether this relative weakness is the start of a rotation out of this sector, or whether it is just a couple of days profit taking. Markets gave us a significant tell on Thursday as equities spiked following a natural gas inventory report which indicated increased levels of storage. Oil fell back and stocks surged in the opposite direction. Unfortunately, the rally didnt last as crude reaches back to previous highs. However, the way that markets reacted was certainly telling and could be an indication of how things will play out when oil finally stops going up.
Crude oil has now accelerated by 30% in under two months and 80% in a year. It is little wonder that the MPC voted 8-1 to keep rates on hold with inflation running so high. However, there are some potential weaknesses in crude which are worth pointing out. According to Mike Rothman of ISI, global demand growth for oil is now well below last years increase. In addition there are reports of the Gulf being crammed with oil tankers chartered by oil producing nations to hold oil they cannot sell. This suggests there are no buyers at this price and when this happens, the laws of supply and demand come into effect. Goldmans Analyst Arjun N. Murti recently predicted that oil could hit $150-$200 in the few years. While this prediction may still come through, there are increasing signs of this oil bubble over stretching.
With bank holidays in both the UK and US, it is a quiet start to next week on Monday. The most notable release on Tuesday is the US new home sales data which is expected to show indicated further pain for US home builders. The only question is the degree of acceleration in this decline, as is expected to be the case with the UKs Nationwide House Price index released some time on Wednesday morning. The weeks top announcement though is likely to be the US GDP figures on Thursday as the US economy weighs up the benefits of the Bush tax rebate against the rising cost of oil.
After experiencing a much needed sell off, there is the potential for the FTSE to stabilise over the next week, especially if (big if) oil manages to go a week without making a new record high. With that in mind a bull bet on the FTSE to be higher than 5900 on the 9th of June could yield around 19%.
Wednesday, May 21, 2008
Oil - Another Record!!
Oil has hit another record price, closing at above 129 dollars per barrel for the WTI crude. T.Boone Pickens was on CNBC yesterday predicting that oil is on its way to 150 dollars. Sadly this is not the guy to bet against. Gold was up in yesterdays trade, mostly on the weakness of the US dollar, traders are indicating that this weakness is going to continue, with the British Pound revisiting 1.98 by Thursday, and the Euro visiting the 1.59 area again.
Later this morning, we have the release of the minutes from the last MPC meeting with a vote to hold of 8-1 the most likely action from last time round. We see little potential upside surprise from this release. With the key inflation driver, oil pushing further towards $150, the MPC have little choice but to stand firm on rates for the foreseeable future. Manufacturers are having to cope with extreme inflation in the cost of raw materials and are faced with two difficult options: They can raise prices, or eat into their profit margins on behalf of the consumer. However since most of the consumers are already stretched to the limit with higher prices at the fuel pump no savings, and homes that are worth less then the mortgage, most companies are looking at other alternatives before forcing the consumer to pay the higher price.
Later this morning, we have the release of the minutes from the last MPC meeting with a vote to hold of 8-1 the most likely action from last time round. We see little potential upside surprise from this release. With the key inflation driver, oil pushing further towards $150, the MPC have little choice but to stand firm on rates for the foreseeable future. Manufacturers are having to cope with extreme inflation in the cost of raw materials and are faced with two difficult options: They can raise prices, or eat into their profit margins on behalf of the consumer. However since most of the consumers are already stretched to the limit with higher prices at the fuel pump no savings, and homes that are worth less then the mortgage, most companies are looking at other alternatives before forcing the consumer to pay the higher price.
Monday, May 19, 2008
The week ahead.
Better than expected could apply to many features of the market last week. Firstly, stock markets themselves have been performing better than one would expect with the constant stream of negative headlines in the media. There's a feeling that the bad news on the credit crunch is out now, and things are not as bad as feared. More than any thing, markets hate uncertainty and whether it is good news or bad, the fact that the surprises are thought to be behind us has a positive impact. Whether the bad news is really behind us is another matter.
Better than expected inflation figures from the US managed to pull the FTSE up by its bootstraps midweek. The UKs leading benchmark index was down 80 points before the US CPI figures came in and managed to push back into the black going into the close. Unfortunately, there were no positive surprises coming from the MPC last week, just more bad news on inflation and growth prospects for the UK economy. With the prospects of further bank boosting rate cuts diminished, there was an unwinding of positions in financial stocks. Barclays, HBOS, Lloyds and RBS were amongst the biggest fallers last week as mortgage rates continue to rise. The MPC looks to be continuing its tough line on inflation and consequently investors may view the upside for the financial sector as severely limited in relation to the downside risk. Traders punished Barclays primarily due to the indecision over a potential rights issue. Banking stocks might be seen as cheap at the moment in relation to their dividend yields, but investors are still mindful of how cheap Northern Rock and Bear Stearns looked before they went to the wall.
Oil stocks led the markets higher last week as oil touched another record high in excess of $127. The Nasdaq also performed well over the week with Blackberry maker Researching In Motion announcing it will be releasing a challenge to the Iphone. Yahoo was also in play on the news of a potential boardroom battle which could put the Microsoft deal back on.
Next week is relatively light on the data front with nothing of real note until Tuesday when we receive German sentiment data and US PPI figure around midday. Wednesday sees the release of the minutes from the last MPC meeting; analysts and home owners alike will be keen to know just how close last weeks decision to not change rates actually was. The release of the minutes from the last FOMC meeting will have an even greater impact as the housing market continues to slide.
The news is still bad from the US housing market with a bottom nowhere in sight. Construction of single family housing in April dropped to its lowest level in 17 years. Jason Goepfert recently highlighted a couple of indicators that point to the potential upside for US equities being limited from here.
One factor may be the unusually low levels of volume on the US markets. Monday the 12th had the lowest volume for 2008 on the New York Stock Exchange. Since 1980, the lowest volume days usually happen in the second half of the year, especially summer as traders take their holidays. In fact, the lowest volume day has occurred between January and June just twice since 1980 and on both occasions the market made no further progress for at least 9 months. Secondly sentiment studies indicate high levels of dumb money buying into this rally. While this alone doesnt signify a crash, it may at least indicate that the upside may not be spectacular from here on a 1-5 month basis.
With this in mind, the following trade may be valuable. Placing a No Touch trade on the S&P 500 not to touch 1580 within the next 120 days could return 14%. This places the no touch level above the high from last year, while providing room for some upside.
Better than expected inflation figures from the US managed to pull the FTSE up by its bootstraps midweek. The UKs leading benchmark index was down 80 points before the US CPI figures came in and managed to push back into the black going into the close. Unfortunately, there were no positive surprises coming from the MPC last week, just more bad news on inflation and growth prospects for the UK economy. With the prospects of further bank boosting rate cuts diminished, there was an unwinding of positions in financial stocks. Barclays, HBOS, Lloyds and RBS were amongst the biggest fallers last week as mortgage rates continue to rise. The MPC looks to be continuing its tough line on inflation and consequently investors may view the upside for the financial sector as severely limited in relation to the downside risk. Traders punished Barclays primarily due to the indecision over a potential rights issue. Banking stocks might be seen as cheap at the moment in relation to their dividend yields, but investors are still mindful of how cheap Northern Rock and Bear Stearns looked before they went to the wall.
Oil stocks led the markets higher last week as oil touched another record high in excess of $127. The Nasdaq also performed well over the week with Blackberry maker Researching In Motion announcing it will be releasing a challenge to the Iphone. Yahoo was also in play on the news of a potential boardroom battle which could put the Microsoft deal back on.
Next week is relatively light on the data front with nothing of real note until Tuesday when we receive German sentiment data and US PPI figure around midday. Wednesday sees the release of the minutes from the last MPC meeting; analysts and home owners alike will be keen to know just how close last weeks decision to not change rates actually was. The release of the minutes from the last FOMC meeting will have an even greater impact as the housing market continues to slide.
The news is still bad from the US housing market with a bottom nowhere in sight. Construction of single family housing in April dropped to its lowest level in 17 years. Jason Goepfert recently highlighted a couple of indicators that point to the potential upside for US equities being limited from here.
One factor may be the unusually low levels of volume on the US markets. Monday the 12th had the lowest volume for 2008 on the New York Stock Exchange. Since 1980, the lowest volume days usually happen in the second half of the year, especially summer as traders take their holidays. In fact, the lowest volume day has occurred between January and June just twice since 1980 and on both occasions the market made no further progress for at least 9 months. Secondly sentiment studies indicate high levels of dumb money buying into this rally. While this alone doesnt signify a crash, it may at least indicate that the upside may not be spectacular from here on a 1-5 month basis.
With this in mind, the following trade may be valuable. Placing a No Touch trade on the S&P 500 not to touch 1580 within the next 120 days could return 14%. This places the no touch level above the high from last year, while providing room for some upside.
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