Thought For A Day
Archives of “February 2021” month
rssOil surges to a fresh post-pandemic high. What’s next
Crude sizzles higher
So much for the mini-correction in oil.
WTI crude oil is now up $1.08 on the day to $59.34. It traded as low as $57.41 earlier.
Brent sailed through $60 this month and is now testing $62. Will WTI be the next? If today’s candle holds that bodes well on the technical side.
The fundamental side is also improving much more quickly than anticipated, despite lockdowns. Here’s a chart from Ninepoint showing combined crude, gasoline and distillate inventories falling below the 5-year average.
I’ve been writing about the lack of investment in oil for months but the gains are unfolding much more quickly than I anticipated. The problem is that oil companies simply aren’t investing in replacing production that’s running off. At best they’re holding production flat and directing cash towards paying down debt as banks and Wall Street starve them of capital.
Even Goldman Sachs is talking about an oil supercycle now.
“I want to be long oil and hang on for the ride,” Goldman’s Jeff Currie said in an interview with S&P Global Platts on Feb. 5, warning “there is a lot of upside here.”
“Is it back to $150/b? I don’t know… as it is a macro repricing we are talking about and everything needs to reprice.”
How does that sound? While oil itself and CAD, RUB or NOK would be good bets on crude, oil company shares remain extremely depressed.
European shares end higher. The weeks changes are mixed
Italy’s FTSE MIB the biggest gainer
The European shares are ending the session higher but with mixed results. The provisional closes are showing:
- German DAX +0.02%
- France’s CAC, +0.6%
- UK’s FTSE 100, +0.8%
- Spain’s Ibex, +0.2%
- Italy’s FTSE MIB, +0.4%
For the week, the results were mixed with Italy’s FTSE MIB and UK FTSE the biggest gainers (cheering on Draghi government and hopes for a bounce in the UK economy as Covid risks decrease). See Italy’s FTSE MIB chart below.
- German DAX, unchanged
- France’s CAC, +0.75%
- UK’s FTSE 100, +1.35%
- Spain’s Ibex, -1.9%
- Italy’s FTSE MIB, +1.35%
Canada approves North America’s bitcoin ETF
Bitcoin exchange trade funds are coming
Canadian regulators have approved the first bitcoin ETF in North America.
The Purpose Bitcoin ETF will invest directly in physically-settled bitcoin. It will be the world’s first bitcoin ETF, though Europe has several physically-backed products that act in a similar matter.
The issue will be whether it trades at NAV or a premium. If it consistently trades in line with the underlying, the flows will come (they’ll probably come anyway).
Other applications are in the pipeline in Canada and the race is on in the US as well.
Between this and the news yesterday from Mastercard and BNY Mellon, a race to $100K may be in the not-too-distant future. What’s baffling is that with ESG investing all the rage, this incredible energy sinkhole is getting all this love from regulators.
People are being re-infected with the new covid variant
WHO chief scientist says
WHO chief scientist Swaminthan says there are now reports of people getting reinfected with new variants of the coronavirus.
Earlier this week, Boris Johnson said we may need to think of covid vaccines as an annual or regular event.
That’s not what anyone wants to hear but the market doesn’t care.
Oil finds a way into positive territory
Can’t keep oil down
Crude is now slightly higher on the day with WTI at $58.35 and Brent at $61.29. Both are about $1 above the lows of the day.
There’s an inflationary impulse in the market today and in energy particularly. Natural gas has been climbing with the central United States getting some very cold weather. Bond yields are also climbing higher and in danger of breaking the post-virus highs.
This is the best start to a year for crude in 30 years. It’s been a very impressive run despite downward pressure from the latest wave of the virus. It’s gone in a straight line to $58 from $35 at the end of October. It’s a market that will really go into overdrive if OPEC+ stays disciplined in March. They have to be pleased with how it’s worked out so far.
US 30-year bonds are having another look at 2%, helping to lift USD
Treasury yields higher on the day
Yesterday’s soft auction has led to a continuation of the selloff in bonds, pushing 30-year yields up to 1.98%, up 3 bps on the day.
Keep a close eye on these and 10s, which are challenging 1.20% again. With the climbing yields the dollar is strengthening across the board.
If we do see a break, the worry is that it sparks a negative feedback loop into stocks and risk trades, which would accelerate the drops in commodity currencies versus USD that we’re seeing today. But I don’t buy that thinking, especially on a measured, steady climb.
For USD/JPY though and even EUR/USD, we could see an extension of dollar strength.
The rise also makes it doubly important to watch the inflation expectation metrics in today’s UMich survey. It looks like this week’s CPI data and Powell’s emphatic dismissal of inflation fears hasn’t soothed nerves.
You will fly higher
Risk sentiment softens as the recent momentum loses more steam ahead of the weekend
S&P 500 futures down 0.5% now
Meanwhile, European equities are also keeping lower with the DAX down 0.6% and other indices are also trading thereabouts on the session currently.
The more tepid risk mood is putting a slight bid in the dollar with commodity currencies leading losses in European morning trade so far.
After a sluggish last few days, it looks like investors are more than happy to pare back on the recent momentum over the past week or so.
As mentioned earlier, the long weekend in the US sets the stage for potential profit taking and de-risking so perhaps we are getting early signs of that here in Europe already.
EUR/USD eases towards key near-term level as the dollar shows some fight
EUR/USD falls to 1.2105 and nears a test of its 100-hour moving average
The greenback is higher across the board in European morning trade and is starting to run against some key levels on the charts today.
Of note, EUR/USD is now down to near 1.2100 as price closes in on a test of the 100-hour moving average (red line) @ 1.2103.
Keep above that and the near-term bias stays more bullish but break below and the near-term bias becomes more neutral instead. Further key support is then seen closer to the 200-hour moving average (blue line) @ 1.2060.
If sellers can manage that, it essentially resets the upside momentum seen this week.
Elsewhere, the dollar is also putting up a decent showing with USD/JPY keeping a bounce from its 100-day moving average to 105.00 now – testing key levels. Meanwhile, AUD/USD is also falling to test its own 100-hour moving average @ 0.7726 currently.