Market update: Oil prices advance to fresh 2019 highs, shale underperforms, Forint strengthens

19 Mar

by Mihály Tatár

 

Good Morning!

 

  • In absence of major developments, trading started in a slow fashion on Monday (SPX +0.37%, Nasdaq +0.34%, DAX -0.25%, Nikkei -0.09%, Shanghai -0.55%), with investors watching oil prices hitting a 2019 high. (WTI 59, Brent 67.60 USD – the OPEC+ reaffirmed its intent to continue with production cuts, and Trump so far did not follow through on his ’oil prices too high’ tweet. Strategists point out that interestingly, shale producers have vastly underperformed the energy sector (FRAK ETF only +13%), most likely because the US infrastructure (pipelines, railroads and even trucks) simply can’t handle the rise in output. The difficulty of getting out oil from shale fields also dampened the demand for oil equipment in the US, at a time when oil demand goes up in a straight line, making a short work of gloomy electric car effect predictions. From a technical trading perspective, note that 60 USD is a very major level in WTI.) The Brexit melodrama reached another new low with Speaker John Bercow blocking a third vote on the Brexit deal if it ’doesn’t change significantly’ (GBP traders had a really hard time to price this in – is this good news or bad news? Later it emerged that May is drafting a request to get a 9 to 12 months extension on Brexit, stabilizing the GBP at 1.3270. Note that while the media is spinning the story as another humiliating blow to May, if you consider she has always been a Remainer at heart, and someone desperately clinging to power, well, all went in the right direction so far. No need here for a risky second referendum and voters having any say.) The slow Dollar weakening continued (EURUSD 1.1350), but that was a no-show compared to regional currencies strengthening further (especially the Forint, EURHUF 313.80, EURPLN 4.29, EURCZK 25.60), in the wake of the dovish ECB and the realization – as discussed here earlier – that the region dodged the Eurozone slowdown competely so far and looks quite healthy still. (Poland? 7% wage growth with 1% core inflation. Hungary? 5% GDP expansion when Germany stops to zero. Romania? Industrial sales rise 4.3% and retail sales jump 6%. I haven’t yet read a single plausible economist explanation why the German growth and trade stopped dead in Q4  – in theory supported by a -0.40% interest rate and a super weak Euro – and why there was zero reaction in this region.)

 

  • In political developments, French Defense Minister Florence Parly questioned Washington’s long-term commitment to NATO and lashed out at Trump (’NATO’s solidarity clause is called Article 5, not article F-35’ – very funny, if you want to be defended for free as a loyal ally, why undercut the US regarding Iran and oil trading?); in a rarely brutal move in diplomacy, Washington said Afghanistan’s National Security Adviser is no longer welcomed (he criticized the US-Taliban peace talks, I guess, they are going too well and leaving the country is on track); while the mainstream media voiced its frustration that Democrat Presidential nominee Elizabeth Warren was quickly overtaken by Bernie Sanders and Beto O’Rourke in the polls. (This is framed as white men unfairly winning over female candidates – but in reality Warren never came out of the ’Indian’ scandal. Note that her lack of success is not being not Left enough – she proposed sweeping policy ideas from breaking up Big Tech to a wealth tax, making her well competitive with the other Democrat nominees who propose everything from legalized cannabis to green tax and debt-free college.)

 

 

Have a nice day,

Mihály

 

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