Is oil once again becoming a political commodity: Russia and Saudi Arabia are cutting oil production at the worst time for the Biden administration (hint: next year is an election year in the US)
Source: Bloomberg, HolgerZ
The S&P 500 earnings yield minus risk-free cash rate (3-month treasury bill) has dropped to its lowest level (-90 basis points) in 23 years
Source: BofA
One key development of the week (beyond brent hitting $90) has been stronger than expected macroeconomic data - e.g the ISM services (see data table below from Markets & Mayhem)
Indeed what we are seeing in the last ISM Services PMI reading may not be the best news for the inflation situation: 1) New orders growing faster 2) Employment growing faster (from being nearly flat m/m) 3) Prices rising faster And the market reaction - stocks pulling back - means that good macro news is bad news for the market again. Indeed, while a growing economy supports rising corporate profits (which is a positive), a too strong economy would imply a more hawkish FED than it is currently anticipated by the market.
Hard landing - Energy leads. Soft landing - energy lags. What will be the message from Mr Market?
Source chart: 3Fourteen, Warren Pies
Nearshoring / Friendshoring in action... For the 1st time since 2003, the US is importing more from Mexico than from China
Source: BofA, Bloomberg
Next FOMC rate hike probabilities:
No hike → 93% 25 bps hike → 7% Source: Game of Trades
Is oil going to $100?
U.S Crude inventories fell by WAY more than expected ( -6.3mm (-2.1mm expected) to their lowest since early December - and are well below their five-year average for this time of year as the summer driving season ends. Including the SPR (Strategic Petroleum Reserve), this is the lowest level of total crude inventories in America since 1985... Source: Bloomberg, www.zerohedge.com
China Budges in Fight With Bears, Sending Yuan Toward Record Low – Bloomberg
The offshore yuan weakened toward its lowest on record against the dollar, as a cut to the daily reference rate for the managed currency stoked bets China is comfortable with a gradual depreciation. China’s currency declined to about 7.36 per dollar in overseas trading, beyond the psychologically important level of 7.35 and close to the weakest since the creation of the offshore yuan market in 2010. The move came after the People’s Bank of China set its so-called fixing at a two-month low on Friday.
