March 24, 2021 - Financial Occultist

US to sell $61 billion in 5-year notes

At the top of the hour, the US will raise $61 billion in a 5-year Treasury auction. This is a new sale, not a reopening and is trading at 0.835%/0.845% on the bid/ask in the when issued market.

Last month, the sale of 5s followed by 7s the next day caused a puke out in bonds that reverberated through markets. The WI today is about 21 bps above those levels, which wipes out quite a bit of the return for last month’s buyers. Why not average down?

In any case, there are some real jitters ahead of this sale. Results will be out just after the top of the hour.

OPEC+ likely to roll over production – report

24-Mar-21 09:58 pm

Anirudh Sethi

OPEC+ is ‘likely’ to make a similar decision to the last meeting on April 1, according to 4 Reuters sources.

They say some had hoped to reverse cuts but more covid and lockdowns are delaying those plans.

The report also notes that Iran is increasing shipments and defying US sanctions.

WTI is at the highs of the day, up $2.92 to $60.72.

WTI rebounds nearly 5% from six-week low

24-Mar-21 09:56 pm

Anirudh Sethi

Oil storms higher

Crude is having a bounce back day.

WTI tumbled to a six-week low yesterday in a 7% decline but it’s recovered most of the decline today, rising by $2.67 to $60.40, or 5%.

Technically, it breached the 55-day moving average yesterday for the first time since November but the strong rebound today despite a slight dip below that and the mid-Feb low is a positive sign. To generate any real kind of momentum though, or even to confirm a period of consolidation, it needs to get back above $61.90.

On the fundamental side, US weekly inventories were higher than anticipated but the small dip that caused in oil prices was quickly reversed. The ship blocking the Suez canal is backing up oil traffic but is expected to be cleared today or tomorrow.

Looking further out, the next OPEC meeting is coming quickly on March 31 and April 1. The latest dips in oil prices will likely make ministers more cautious and ensure an extension or the current policy, or only a small increase in supply in May.

EIA weekly US oil inventories +1912K vs 1350K expected

24-Mar-21 09:50 pm

Anirudh Sethi

Weekly US oil inventory data

Prior was 2396K
Gasoline 204K vs 1250K expected
Distillates +3806K vs -450K expected
Refinery utilization +5.5% vs +2.6% expected
Production estimate 11 mbpd vs 10.9 mbpd prior

API data from late yesterday:

Crude +2927K
Gasoline -3728K
Distillates +246K

WTI crude is about 15-cents lower on the headline to $59.55. Refineries really ramped up production last week as they play catch-up to on the Feb outages ahead of what looks to be a strong driving season. We’re up to 14.4 mbpd from 14.8 mbpd before the freeze.

There was a big jump at PADD 3 of 5385K, which is the gulf coast and suggests imports.

This headline is inevitable.

24-Mar-21 06:09 pm

Anirudh Sethi

UK March preliminary services PMI 56.8 vs 51.0 expected

24-Mar-21 03:38 pm

Anirudh Sethi

Latest data released by Markit/CIPS – 24 march 2021

Prior 49.5
Manufacturing PMI 57.9 vs 55.0 expected
Prior 55.1
Composite PMI 56.6 vs 51.4 expected
Prior 49.6

That is a solid beat and adds to the optimism surrounding the rebound in the UK economy once restrictions are eased later on in the year.

Business activity in the UK returned to expansion and improved at its quickest pace in seven months, with the services reading also coming in at the highest since August last year. Meanwhile, the manufacturing reading is the highest in 40 months.

Service providers noted forward bookings from domestic consumers as the higher level of activity is linked to the prospect of looser restrictions later in the year.

Manufacturers also noted advanced orders helping to boost demand conditions as export sales remain relatively subdued. Markit notes that:

“The UK economy rebounded from two months of decline in March, with business activity growing at its fastest rate since last August as children returned to schools, businesses prepared for the reopening of the economy and the vaccine roll-out boosted confidence. Companies reported an influx of new orders on a scale exceeded only once in almost four years, and business expectations for growth in the year ahead surged to the highest since comparable data were first available in 2012. Employment consequently rose for the first time since the pandemic struck as firms expanded capacity in response to the new inflows of work and brighter outlook.
“The surge in business activity is far stronger than any economists expected, according to Reuters polls, and hints at only a modest contraction of GDP during the first quarter, adding to evidence that the economy has shown far greater resilience in the third lockdown compared to the first. The encouraging readings on future expectations, job creation and new order inflows meanwhile all point to robust economic growth in the second quarter, especially if virus restrictions are lifted further.
“Worries persist though, especially in relation to near-record supply chain delays, a continued fall in exports and sharply rising prices, all of which are making life difficult for many companies. Many consumer facing companies meanwhile remain constrained by COVID-19 restrictions, which are likely to curb the overall pace of economic growth for some time to come, especially if we see a third wave of infections.”

Eurozone March preliminary services PMI 48.8 vs 46.0 expected

24-Mar-21 03:37 pm

Anirudh Sethi

Latest data released by Markit – 24 March 2021

Prior 45.7
Manufacturing PMI 62.4 vs 57.6 expected
Prior 57.9
Composite PMI 52.5 vs 49.1 expected
Prior 48.8

The French and German readings set out what to expect here and it is largely positive, with the services reading coming in at a 7-month high while the manufacturing reading is a record high for the overall Eurozone.

A record increase in the manufacturing output index contributed largely to the jump in factory activity, hinting that demand conditions are continuing to pick up.

Meanwhile, the services sector showed some signs of stabilisation at least but the outlook there still largely depends on how virus restrictions play out in the months ahead.

Markit notes that:

“The eurozone economy beat expectations in March, showing a much better than anticipated expansion thanks mainly to a record surge in manufacturing output.
“The service sector remains the economy’s weak spot, but even here the rate of decline moderated in March as companies benefited from the manufacturing sector’s upturn, customers adapted to life during a pandemic and prospects remained relatively upbeat.
“The outlook has deteriorated, however, amid rising COVID-19 infection rates and new lockdown measures. This two-speed nature of the economy will therefore likely persist for some time to come, as manufacturers benefit from a recovery in global demand but consumer-facing service companies remain constrained by social distancing restrictions.
“The surge in demand for manufactured goods is meanwhile stretching supply chains to an unprecedented extent, in turn pushing costs up at the fastest rate for a decade. These cost pressures will likely feed through to higher consumer price inflation in coming months.”

DAX the favoured cyclical recovery play?

24-Mar-21 01:40 pm

Anirudh Sethi

Via Bloomberg

The surge in Volkswagen shares last week that helped German stocks higher underlines the DAX as a cyclical recovery play.

The DAX outperformed European stocks overall last week with the DAX edging ahead of the FTSE MIB. A large part of the rally has been as Volkswagen bids to rival Tesla in electric vehicles. Volkswagen overtook SAP as Germany’s most valuable public company. The slowdown in Germany remains as the vaccine rollouts are dogged by delay. Eventually, though, the recovery should come to Germany. That is of course with all the caveats that we currently have regarding how the variants will develop and the pandemic proceed.

Bloomberg survey puts DAX ahead of the European pack

On average the anticipated gain is 2% by the end of the year. This is slightly more than in February. Since the start of February the DAX’s 12 month forward price target percent change has moved ahead of other European peers. Check out the comparison below:

Via Bloomberg Today is not the best day to chase this as the reflation trade is having a wobble. Whether it is a deeper pullback in equities or not is uncertain, but there is a bit or re-orientation going on right now.