FORTHCOMING ATTRACTIONS : JOBS, OIL, and some quite important POLITICS...
ref :- General
Just in case we're running around a bit and find ourselves in some
communications blackspot (well, we can but hope....) , we thought we'd better
alert readers of some key events over the next few days :
Friday 2nd November : Release of October Employment Data
Average Hourly Earnings (y-on-y) : expected +3.1% , last at +2.8%
Non-Farm Payrolls
(y-on-y) : expected +190,000k, last at +134,000k
Unemployment
Rate : expected 3.7% , last at 3.7%
Just the other day we were talking about how the odds of the Fed's
intended fourth rate hike of the year next month had slipped a touch .....
still odds-on mind you, but no longer a "lock". Reasons as to whether
the Fed might stray from its stated path included some slightly iffy data
(September jobs, Personal Consumption Expenditure ), a stock market suddenly in
reverse gear and some very un-presidential criticism from President Trump over
the central bank's tightening of monetary policy.
As it happens the probability of a December hike as calculated
from futures prices, having slipped below 70%, is now trading at just over 74%
...... and for what it's worth that seems fair enough to us. It's hard to make
a strong case around weaker numbers when the release of Q3 GDP shows growth at
a higher-than-expected 3.5% (though the Fed might need some stronger evidence
of an inflationary threat sooner or later to justify their policy). It's
also NOT the Fed's job to support asset prices, which by most measures were
looking overextended anyway. A correction is not necessarily a bad thing in the
longer run. And as for the verbal lashings form Mr Trump, as we've said many
times : since central bank independence is key, the President's repeated
interventions on the subject of rate hikes make the Fed LESS likely to follow
his "advice", not more.
One month of dodgy jobs data does not amount to much, but if
October's numbers disappoint again, no doubt questions will again be raised
about the wisdom of another rate rise next month. Keep a close eye on the
Average Hourly Earnings .... a strong number would point to inflationary
pressure down the line, even if it's not showing itself yet. A weak one ? Well,
not so much ....
Sunday 4th November : Oil Sanctions on Iran officially begin
We all know the significance of the date, right ? It was
deliberately chosen since Sunday 4th November 1979 was the day when Iranian
students overran the US embassy in Tehran and took almost the entire embassy
staff hostage. Not exactly subtle, but then again it was never meant to be and
the timing is intended to illustrate the determination of the US as it discards
the old nuclear deal in search of something better. We can leave the history,
and indeed the rights and wrongs of America's position for another time. What
we're wondering is where now for the oil price ?
Crude oil had a miserable month in October. Brent Crude was
trading above $86 per barrel (West Texas Intermediate, the other world
benchmark currently trades about $10 lower than Brent), and all the talk was of
$100 crude. Today it's worth less than $75 and on a purely technical basis
looks as sick as a dog (an old technical term). The worry HAD been how demand
was going to be satisfied once Iranian oil was removed from the market. Then
came a suggestion from a company that estimates output by tracking tankers by
satellite that Iran was still exporting close to 2m bpd.
Now, bearish news arrives in torrents : increased US shale oil
production and swollen US inventories ; a post-Soviet high in Russia's output ;
a previously reticent Saudi Arabia saying they can up production (to 12m bpd)
to counter any shortfalls, no problem ; a general concern that the escalating
trade war will damage the global economy and its demand for oil ; and as we
write, news that the US has given India (with others to follow, maybe) a waiver
that allows them to reduce puchases of Iranian oil gradually
The Saudi situation is the most interesting in some ways. Is it a
coincidence that they've changed their tune after getting themselves into a
disastrous (and barely credible) hole over the Kashoggi murder ? There's no
reason to doubt that they can up production to 12m bpd if they pull out all the
stops, but then again there absolutely no guarantee that they could sustain it.
Still, there no doubt that from the perspective of prices, the news is dark
.... very dark.
And yet ..... regulars will know that when everything points one
way we tend to get a bit nervous. Industry insiders tell us that an awful lot
on the supply side is being taken for granted, and as far as Iran goes those
satellite trackers were right : the sanctions haven't really begun to truly
bite yet .... but they will. Whether you're a fan of Mr Trump or not, it would
be foolish to doubt his tenacity. It's not mistake that oil companies are
likely to make , terrified as they are of the likely repercussions should they
transgress.
That may not sound like much when weighed against all the bearish
news out there, but at these levels it's as hard to make a bearish case as a
bullish one.
Tuesday 6th November : US mid-term elections
Right now, the bookies still reckon that the Democrats will
re-take the House of Representatives but the Republicans will hold onto the
Senate. If the world has learned anything in recent years, surely it's the fact
that it's unwise to underestimate the electoral appeal of Mr Trump and what he
stands for. Still, let's assume for a moment that the bookies are right .....
A split Congress would very likely thwart Mr Trump's plans for
further tax cuts and may even bring up the possibility of impeachment
proceedings against the President. In theory that would be bad for stocks and
for the dollar ..... but then again how much of the recent fall in share prices
was "pricing in" a Democrat victory in the House. If the Democrats do
achieve success and put a stop to those extra tax cuts, and the extra funding
they require, that should be supportive for bonds..... unless of course they do
a deal for increased infrastructure spending ..... which in turn might support
stocks. But then again, what if a split congress is unable to agree a budget
and we face a government shutdown as so often in the past ? Does that mean a
flight to quality and support for Treasuries ?
No comments