Tag Archives: Silver

Investing.com – Will the now-viral fist bump result in more oil for the world? Possibly in the coming weeks, says the White House. But Saudi Crown Prince Mohammed bin Salman (a.k.a. MbS), who received the fist bump from President Joe Biden, says the kingdom’s output will climb by just a million to reach 13 million barrels per day, and that only by 2027.The truth is probably somewhere in between.Biden’s awkward encounter with a man and kingdom that he had hoped to isolate for the 2018 butchering of Saudi-journalist-turned-US-resident Jamal Khashoggi  underscored the challenges for a president desperate to bring home relief from high gasoline prices. Months of painstaking behind-the-scenes work by U.S. State Department and Saudi palace officials made it happen, and each side played up the positives from Friday’s photo-op between the two men. Politically, the gambit seemed a disaster for Biden, with criticism from some of his own party faithful, led by California Democratic Senator Adam Schiff, who tweeted that “one fist bump is worth a thousand words” and this one showed “the continuing grip oil-rich autocrats have on U.S. foreign policy in the Middle East.” Khashoggi’s widow also tweeted, telling the president that “the blood of MbS’ next victim is on your hands”.But strategically, even if the Saudis raise production slightly in the coming weeks — after the additional 650,000 bpd a month that OPEC+ has already committed for July and August — it’s a win of sorts for the White House. With the Biden visit, it’s looking increasingly likely that Saudi oil policy towards the administration will not be as toxic as before. This is in spite of the president reminding MbS on Friday that he held him responsible for Khashoggi’s death, to which the monarch responded by releasing pictures of the two of them smiling and chatting. To MbS, most important was to show the world that Biden acknowledged him as the next Saudi king and that the president recognized Riyadh as holding the levers to the world’s oil. In Biden’s case, he wanted to tell MbS who he really thought he was to his face, and that he was there as a president of the American people. In that sense, both got what they wanted.The week in oil itself scored 1 for the bulls and 0 for the bears. ​​Crude prices fell as much as 7% on the week as earlier losses induced by a strong dollar offset the likelihood that Biden’s Saudi visit will not immediately lead to additional production of oil. The dollar surged to two-decade highs between Wednesday and Thursday after panic across markets that the Federal Reserve might opt for a record 100-basis point rate hike next to quell new four-decade highs in consumer prices — a threat later downplayed by the central bank’s officials.Crude’s increasing sensitivity to the dollar, Fed rate hikes and recession threats showed it was turning into a greater financial play than a commodity driven just by supply-demand.Global crude benchmark Brent Oil has fallen for five straight weeks now, losing a cumulative 17%. U.S. crude’s West Texas Intermediate, or WTI, gauge has dropped in four of those five weeks, sliding by a net 19%. The narrative in oil now is no longer about barrel deficiency alone. Over the past week, previously unasked questions about whether oil had become too pricey for consumers and needs to come down meaningfully to lower inflation have started getting investors’ attention. All these questions coincide with pump prices of US Gasoline that have also started their descent from last month’s record highs of above $5 a gallon to a national average of $4.55 last week.The average price of U.S. gasoline, all grades combined, has now dipped for the fourth week in a row, to $4.65 as of Monday, according to data from the Energy Information Administration, or EIA.In the week through July 8, gasoline consumption plunged by 9.7% to 8.73 million barrels per day, on a four-week moving average, according to EIA data. The EIA measures gasoline consumption in terms of barrels supplied to the market by refiners, blenders, etc., and not by retail sales at gas stations. This was the steepest decline yet so far this year.Some say that U.S. drivers are resorting to all kinds of tricks to put a lid on their gasoline expenditures: Drive a little less, take it easier with the gas pedal, cut out unnecessary trips, plan shorter road trips, prioritize the most fuel-efficient vehicle in the garage, use mass transit, etc. A debate now is whether a recession — which the Fed says it’s trying hard to avoid despite Deutsche Bank, JPMorgan Chase & Co. and Morgan Stanley suggesting one may be inevitable — will do more to bring oil consumption and prices down. But talk of a recession — and how badly that could impact oil — may also be overblown as the physical market for crude remains strong. While June and July have brought sweeping changes to what decides the direction in oil, new restrictions on Russian exports or a shipment blockade in Libya or Nigeria can still turn the market on its head, sending crude prices soaring.And despite the selloff in Brent and WTI, oil for near-term delivery continues to trade at a big premium to contracts for later delivery. The downward curve slope, known as backwardation, is a hallmark of a very tight physical oil market. At about $4 a barrel, the front-to-second front month backwardation is near its strongest ever. Back in July 2008, the oil time-spreads were in the opposite condition: a contango, with spot barrels at a discount to forward contracts, a sign of an oversupplied market.Liquidity in oil market futures is, meanwhile, poor, leaving them vulnerable to anyone unwinding a large position or selling forward contracts. Over the summer, several big producer-hedging deals are likely, including the annual deal used by the Mexican government to lock in prices for the following year. Wall Street banks also have large put options for 2023 — likely a sign that a big client was in the market hedging oil prices. New York-traded West Texas Intermediate, or WTI, crude posted a final trade of $97.57 per barrel on Friday, after settling the official session up $1.81, or 1.9%, at $97.59 per barrel. For the week, however, WTI was down 6.9% after plumbing a near five-month low of $90.58 on Thursday. The U.S. crude benchmark has also lost 8.1% since the start of July.London-traded Brent crude posted a final trade of $101.13 per barrel on Friday, after settling the official session up $2.19, or 2.2%, at $101.16 a barrel. The global crude benchmark fell to $95.42 in the previous session, marking a low since late February. For the week, Brent was down 5.5%, while for July it has lost 7.4%.Amid heightened volatility ahead, WTI’s sustained move away from the just-ended week’s lows of $90.58 to hold at above $92 can push it towards the Daily Middle Bollinger Band of $104.30, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.“If WTI manages to break and sustain above week high of 105, the recovery can extend to the 50-Day Exponential Moving Average of $106.80 and the 100-Day Simple Moving Average of $107.40, as well as the weekly middle Bollinger Band of $108.50,” said Dixit.But he also cautioned that failure to breach $105 could resume WTI’s downward correction to $94-$92-$90.“If WTI breaks below $90, it will eases the drop to the vertical support of $88-$85-$83,” Dixit added.Gold for August delivery on New York’s Comex posted a final trade of $1,706.50 per barrel on Friday, after settling the official session down $2.20 at $1,703.60.For the week, however, August gold was down 2.2% after plumbing a 27-month low of $1,695 on Thursday.The U.S. gold benchmark has fallen for five straight weeks now, losing a cumulative 9%. Year-to-date, it is down 7%.Since the Consumer Price Index for the year to June came in on Wednesday at a new four-decade high of 9.1%, bets on rates have been volatile — with the pendulum swinging between an unprecedented increase of 100 basis points for July versus the broader consensus for a 75-basis point hike. “Risky assets have been beaten up enough and could be ready for a bounce here,” said Ed Moya, analyst at online trading platform OANDA. “The precious metal is still vulnerable to further technical selling.”Dixit of skcharting said the five-week drop in gold has taken out all key markers including the Middle Bollinger Band of $1,877 and the major moving averages 50 week EMA 1837 and 100 Week SMA 1836. “The stochastic readings for daily gold at 6/12 and weekly gold are 3/6 are extremely oversold,” Dixit said. “Thus, a short-term rebound towards at least $1,745 is a high probability.”He also said if gold manages to breakout above $1745, it could extend towards $1770-$1,800 and $1,815“As an erstwhile safe haven, gold is not out of the woods yet and its doors remain open for another break below $1,700, aiming this time for $1683-$1,666-$1,652,” Dixit added.Disclaimer: Barani Krishnan does not hold positions in the commodities and securities he writes about. Continue reading →

Debate has been simmering over whether Federal Reserve policy makers will raise the fed-funds rate by three-quarters of a percentage point later this month, as they did in June, or step up their inflation-fighting campaign with a full point hike —- something that hasn’t been seen in the past 40 years.Friday’s economic data, which included somewhat improving or steady inflation expectations from the University of Michigan’s consumer survey, prompted traders to lower their expectations for a 100 basis point hike in less than two weeks. The size of the Fed’s next rate hike might be splitting hairs at this point, however, given the bigger, overwhelming issue confronting officials and financial markets: A 9.1% inflation rate for June that has yet to peak.Generally speaking, investors have been envisioning a scenario in which inflation peaks and the central bank is eventually able to back off aggressive rate hikes and avoid sinking the U.S. economy into a deep recession. Financial markets are, by nature, optimistic and have struggled to price in a more pessimistic scenario in which inflation doesn’t ease and policy makers are forced to lift rates despite the ramifications for the world’s largest economy. It’s a big reason why financial markets turned fragile a month ago, ahead of a 75 basis point rate hike by the Fed that was the biggest increase since 1994 — with Treasurys, stocks, credit and currencies all exhibiting friction or tension ahead of the June 15 decision. Fast forward to present day: Inflation data has only come in hotter, with a greater-than-expected 9.1% annual headline CPI reading for June. As of Friday, traders were pricing in a 31% chance of a 100 basis points move on July 27 — down significantly from Wednesday — and a 69% likelihood of a 75 basis point hike, according to the CME FedWatch Tool.“The problem now does not have to do with 100 basis points or 75 basis points: It’s how long inflation stays at these levels before it turns lower,” said Jim Vogel, an interest-rate strategist at FHN Financial in Memphis. “The longer this goes on, the more difficult it is to realize any upside in risk assets. There’s simply less upside, which means any round of selling becomes harder to bounce back from.”An absence of buyers and abundance of sellers is leading to gaps in bid and ask prices, and “it will be difficult for liquidity to improve given some faulty ideas in the market, such as the notion that inflation can peak or follow economic cycles when there’s a land war going on in Europe,” Vogel said via phone, referring to Russia’s invasion of Ukraine. Financial markets are fast-moving, forward-looking, and ordinarily efficient at evaluating information. Interestingly, though, they’ve had a tough time letting go of the sanguine view that inflation should subside. June’s CPI data demonstrated that inflation was broad-based, with virtually every component coming in stronger than inflation traders expected. And while many investors are counting on falling gas prices since mid-June to bring down July’s inflation print, gasoline is just one part of the equation: Gains in other categories could be enough to offset that and produce another high print. Inflation-derivatives traders have been expecting to see three more 8%-plus CPI readings for July, August and September — even after accounting for declines in gas prices and Fed rate hikes.Ahead of the Fed’s decision, “there will be dislocations across assets, there’s no other way to put it,” said John Silvia, the former chief economist at Wells Fargo Securities. The equity market is the first place those dislocations have appeared because it has been more overpriced than other asset classes, and “there aren’t enough buyers at existing prices relative to sellers.” Credit markets are also seeing some pain, while Treasurys — the most liquid market on Earth — are likely to be the last place to get hit, he said via phone. “You have a lack of liquidity in the market and gaps in bid and ask prices, and it’s not surprising to see why,” said Silvia, now founder and chief executive of Dynamic Economic Strategy in Captiva Island, Florida. “We’re getting inflation that’s so different from what the market expected, that the positions of market players are significantly out of place. The market can’t adjust to this information this quickly.”If the Fed decides to hike by 100 basis points on July 27 — taking the fed-funds rate target to between 2.5% and 2.75% from a current level between 1.5% and 1.75% — “there will be a lot of losing positions and people on the wrong side of that trade,” he said. On the other hand, a 75 basis point hike “would disappoint” on the fear that the Fed is not serious about inflation.All three major U.S. stock indexes are nursing year-to-date, double-digit losses as inflation moves higher. On Friday, Dow industrials
DJIA,
+2.15%,
S&P 500
SPX,
+1.92%
and Nasdaq Composite
COMP,
+1.79%
posted weekly losses of 0.2%, 0.9% and 1.6%, respectively, though they each finished sharply higher for the day.For the past month, bond investors have swung back and forth between selling Treasurys in anticipation of higher rates and buying them on recession fears. Ten- and 30-year Treasury yields have each dropped three of the past four weeks amid renewed interest in the safety of government debt. Long-dated Treasurys are one part of the financial market where there’s been “arguably less financial dislocation,” said economist Chris Low, Vogel’s New-York based colleague at FHN Financial, even though a deeply inverted Treasury curve supports the notion of a worsening economic outlook and markets may be stuck in a turbulent environment that lasts as long as the 2007-2009 financial crisis and recession.Investors concerned about the direction of equity markets, while looking to avoid or trim back on cash and/or bond allocations, “can still participate in the upside potential of equity market returns and cut out a predefined amount of downside risk through options strategies,” said Johan Grahn, vice president and head of ETF strategy at Allianz Investment Management in Minneapolis, which oversees $19.5 billion. “They can do this on their own, or invest in ETFs that do it for them.”Meanwhile, one of the defensive plays that bond investors can make is what David Petrosinelli, a senior trader at InspereX in New York, describes as “barbelling,” or owning securitized and government debt in the shorter and longer parts of the Treasury curve — a “tried-and-true strategy in a rising rate environment,” he told MarketWatch. Next week’s economic calendar is relatively light as Fed policy makers head into a blackout period ahead of their next meeting.Monday brings the NAHB home builders’ index for July, followed by June data on building permits and housing starts on Tuesday.The next day, a report on June existing home sales is set to be released. Thursday’s data is made up of weekly jobless claims, the Philadelphia Fed’s July manufacturing index, and leading economic indicators for June. And on Friday, S&P Global’s U.S. manufacturing and services purchasing managers’ indexes are released. Continue reading →