In today’s briefing:
- Navigating the Crude Oil Crack Spread
- Positioning Watch – The Cocktail of Heavy Logs in Both Equities and Bonds
- Charting Beyond the US CPI Headlines
- CX Daily: Chinese Consumers Deluged With Cheap Loans
- Electricity Watch: Why Ze Germans Are OK for Now
- UK: Disinflation Driven in Oct-23
- 5 Things We Watch: Trump, Electricity, CPI, Crude Oil, Fixed Income
- EUR Watch: Damned if You Do Until You Are Damned if You Don’t
Navigating the Crude Oil Crack Spread
- Crack spread refers to the gross processing margin of refining (“cracking”) crude oil into its by-products.
- Crack spreads are affected by seasonality, supply, and inventory levels of crude and refined products, as well as demand for each refined product.
- A low-demand outlook for refined products of crude is prevalent due to expectations of an economic slowdown.
Positioning Watch – The Cocktail of Heavy Logs in Both Equities and Bonds
- Hello everyone, and welcome back to our weekly positioning watch, which due to delays in the CFTC data has been postponed to today (data was available yesterday evening).
- Almost as usual, markets find themselves in an odd position, as they await the next big event to move price action after Powell’s latest shocker a couple of weeks ago coupled with a severe sell-off in bonds in recent weeks.
- Today’s CPI report will likely not change a whole lot, but equity markets may continue their run upward if we are right in our prediction from yesterday (more on that here).
Charting Beyond the US CPI Headlines
- Both “supercore” and the Most Persistent category of CPI inflation improved directionally in October
- But the implications on inflation expectations and trend inflation as a result of the above-average 3-month and 12-month run-rates remain moot
- My measure of long-term inflation expectations (CPI-based) tentatively shows a somewhat less well anchored backdrop than before
CX Daily: Chinese Consumers Deluged With Cheap Loans
- Loans / In Depth: Chinese consumers deluged with cheap loans
APEC /Analysis: Xi-Biden APEC meeting may help stabilize ties, won’t change fundamentals
Credit /: Government borrowings boosted China’s credit growth in October
Electricity Watch: Why Ze Germans Are OK for Now
- We have so far seen a very contained market reaction to the electricity aid package from Germany last week, but there are loads of reasons why markets can absorb the demand-fuelling news in energy markets short-term.
- Maybe there is a window of opportunity for the German industry before price pressures return?
- The IFO index covering the Germany industry is likely going to improve in the coming months.
UK: Disinflation Driven in Oct-23
- UK inflation undershot expectations of 4.8% in October by plummeting to 4.6%. Most of that drop was an energy price base effect with downside news in car and hotel prices.
- Services inflation aligned with our relatively low forecast but disappointed the BoE. Other measures of underlying inflation, like the median, remained surprisingly strong.
- This outcome lessens the risk of another BoE rate hike. However, second-round effects still constrain this disinflation trend, with persistent excesses discouraging cuts.
5 Things We Watch: Trump, Electricity, CPI, Crude Oil, Fixed Income
- This week we start out by looking at Trump’s chances of getting reelected then move on to European electricity markets after that we’ll discuss yesterday’s CPI print before moving on to crude oil and then ending with fixed income positioning.
- President Biden’s approval ratings continue to sour as the country heads into potential Oil price headwinds and numerous unsolved foreign policy challenges.
- The Biden camp has launched a number of PR offensives during 2023 – most notably the coining of “Bidenomics”, but none have managed to close the gap, which has even accelerated since summertime.
EUR Watch: Damned if You Do Until You Are Damned if You Don’t
- EUR assets will suffer if the activity levels rebound too quickly due to a lack of elasticity in the commodity/energy supply in Europe.
- The EUR (and EUR assets) have suffered from a damned if you do, damned if you don’t a scenario in recent years as the scarcity of energy has taken center stage in the pricing of everything from the EUR, to EUR discount rates and EUR risk assets.
- Low volatility in energy prices allows energy-sensitive industrials to brighten up the outlook, which is initially good for the EUR, but the problem is just that there is a potential negative embedded feedback loop in that journey.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
