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It’s getting borderline ridiculous.

As we showed yesterday, institutional, retail and systematic/algo investors have all thrown the last trace of caution to the wind and have gone even more “all-in” stocks, just as equity valuations hit never before seen levels…

… surpassing even the dot com bubble on an EV/EBITDA basis.

The melt-up in stocks is happening even though the underlying fundamentals have rarely been this bad…

… and in fact, as JPMorgan noted over the weekend, the market’s returns have now overshot the “improvement” in data, what little of it there is, by the most on record – an “extraordinary” 20%.

As the chart above shows, the market’s delirious meltup is taking place without any substantial improvement in either economic fundamentals or earnings, and in fact as SocGen calculates, since the beginning of last year, the average MSCI World stock gain is 26%, yet the average change in forward EPS expectations is just 1.5%! This means that the S&P’s 33% return since Jan 2019 is almost entirely a function of multiple expansion, i.e., central banks and stock buybacks.

That said, none of this should come as a surprise to regular readers and it certainly is not a surprise to SocGen’s Andrew Lapthorne who in a note asking “how long will investors be willing to ignore expensive [ZH: make it record] valuations and weak EPS“, notes that “we have seen this before.”

Echoing what Morgan Stanley wrote over the weekend, namely that the question for 2020 is whether fundamentals, both economic and EPS, can finally ramp up before the positive impact of central bank policy fades, Lapthorne writes that “during various central bank interventions post various financials crises, equities have rallied despite a lack of support from earnings.” So, although the share price rally in 2019 implies a need for rapid acceleration in profits this year, some market participants argue that “as long as central banks are printing money equities can keep rising”, which to be fair, has proved to be the right call more often than not.

However, as we have been pounding the table for the past few weeks, a key difference between ‘now’ and ‘then’ is  valuation. For example, in 2011 MSCI World was trading on a forward PE multiple of just under 11x, at the very bottom of it historical range; today Lapthorne calculates that MSCI World is on a forward PE of 17x, a 55% premium to 2011, and that is based on 9% EPS growth in 2020.

Which again brings up the key question: with record asset valuations constraining the upside, how long can investors ignore the hard reality and bet everything on an optimistic outcome? The answer may come as soon as the end of Q4 earnings season.

To be sure, many companies are expected to beat expectations “given that many have been working extremely hard in recent months to lower them” Lapthorne writes, adding that expected Q4 EPS numbers slumped at the end of last year and are almost 10% down from April levels. Still, he issues a warning, noting that “Q4 reporting is more extensive and the ability of companies to beat tends to be more limited than in the other quarters, and beyond beating EPS expectations the focus for us will be on profit margins, i.e., are costs continuing to rise faster than sales?”

There is another difference from prior QE-inspired meltups: the outlook for ‘Low Vol’ stocks that include the likes of  expensive Consumer Staples stocks in Europe. According to the SocGen strategist, these were “must own” stocks during the QE years, performing strongly for the past few years and notably riding the 2016 slowdown almost intact. But in 2019 on the back of a volatile bond market, these stocks had their “Fed Tapering” moment, with strong relative gains quickly followed by strong relative losses, and performance has struggled ever since. This suggest that momentum has now shifted away from these “QE darlings”, leaving them on challenging valuation multiples and needing to meet elevated expectations.

And so, the $64 trillion question is absent a dramatic improvement in earnings here, and elsewhere, how long before this revulsion to a handful of QE beneficiaries finally spreads to the rest of the market. While nobody knows the answer, if Q4 earnings prove to be a disappointment and it becomes obvious that fundamentals can’t grow into the record valuations implied by all time high stock prices, watch out below.

Authored by James Howard Kunstler via Kunstler.com,

As they like to say in the horror movie trailers: It… begins…! (Cue bassoons and waterphones.)

If last Wednesday’s solemn and prayerful parade through the Capitol rotunda was the Democratic Party’s funeral march, then impeachment starting this week may be the burial service. Central casting couldn’t have found a more perfect funeral director than the grave and genteel Mitch McConnell.

Of course, the Democrats have been screeching for new witnesses because Adam Schiff (D-CA) muffed his due diligence on the House side. The tactical fallback, courtesy of Lawfare, is to provoke a legal pissing match over executive privilege, which they hope to turn into a campaign ploy in the months ahead: Trump concealed the truth! This time, though, I doubt the Senate rules will give them a chance to run option plays from the Brett Kavanaugh playbook, flooding the end zone with obvious geeks and bottom-feeders of the Michael Avanatti species.

And, naturally, the witness question beats a path directly to the Bidens. Open that door and there is really nothing on God’s green earth that will keep Hunter B out of the witness chair. In which case he will have to reiterate what he said in a TV interview a few months back — they’ll play the recording in-session — which is that he got the $83-K-a-month do-nothing gig on the Burisma board-of-directors because he was the Vice-president’s son. Or he, can change his story and cast himself as a liar. It would not be necessary to call Joe Biden, just submit in evidence that recording of him bragging on how he strong-armed the Ukrainians to shut down their Burisma investigation by threatening to withhold a billion-dollar aid-and-loan package. Hmmmm. Sounds suspiciously like what Mr. Trump is accused of, absent evidence.

Was Jerrold Nadler (D-NY) playing dumb on Face the Nation Sunday when he said Hunter Biden shouldn’t testify because he has no knowledge of the accusation? Or, is Mr. Nadler just dumb enough to forget that in a trial, the person accused of something is called the defendant because he’s entitled to defend himself? The corruption in the Hunter B matter is not just obvious, it’s confessed. Everyone seems to have forgotten that the US has a treaty with Ukraine on mutual legal assistance in criminal matters signed at Kiev on July 22, 1998. How, exactly, does that not apply to Mr. Trump’s conversation with Mr. Zelensky?

Well, all this tends, naturally, to questions around the 2020 election. Though the polls cast Joe B as front-runner, I fail to see how he survives the Ukraine payola scheme as a viable candidate. On top of which is his pretty obvious mental deterioration. Half the time, he doesn’t seem to know what state he’s in, and the most amazing things come out of his pie-hole — the latest being his gaffe about Beto O’Rourke being a Latino. Did Uncle Joe not meet the man half a dozen times at debate venues?

Bernie Sanders looked to be coming on strong in recent weeks, until Project Veritas caught some of his field managers threatening to burn down Milwaukee if he was deprived of the nomination and then proceed with a national insurrection. Was that a true colors moment? Voters have a right to wonder if Bernie is piloting a garbage barge of old-time Bolshevism, complete with the requisite reign of terror.

Just today The New York Times endorsed Elizabeth Warren and Amy Klobuchar for president. Yes, you probably thought what I thought initially: one for Prez, one for Veep. Actually, no, it was both for Prez. How’s that supposed to work? Well, it’s just a ruse, of course, because both are foundering in the polls, and poor Ms. Warren is on tape lying about herself so many times that you’d see more of that on TV than Seinfeld reruns before next November. The New York Times is actually holding out for the resurrection of Hillary Clinton. Isn’t this the perfect set-up for old Hillary to swoop into Milwaukee on her leathery wings of fire, like the fearsome Wendigo of Potawatomi legend, and gobble up the delegates? It would be much like the Whigs nominating the old warhorse General Winfield Scott in the election of 1852. That election marked the death of the Whig Party, and with Hillary leading the charge, 2020 would be the end of the Democrats, such as they were known.

The impeachment witness question also redounds upon the fabled “whistleblower,” that Jacob Marley of the impeachment Christmas story, rattling his chains off-stage and wailing of cosmic injustice against the poor Ukrainians. There is no witness more pertinent to this enormous fiasco than that pimpernel of perfidy — and, of course, the long choo-choo train of persons he conspired with, including Adam Schiff and the Lawfare gang. I would love to see him unmasked in the ‘splainin’ seat, spilling the beans on the predication of this whole sordid affair. But it might be better to wait and hear from him in the Senate Judiciary Committee hearings to follow this impeachment circus, where his turpitudes can get the full attention they deserve.

Mike Bloomberg, the only candidate in the Democratic primary field who has ever successfully slapped a wealth tax on Wall Street (do you know how much a Bloomberg Terminal subscription costs?), is hoping to bolster his chances of winning in South Carolina and across the American south by courting the black vote.

Now, Bloomberg has managed to convince people of color to begrudgingly vote for him before (he was a three-term mayor of New York City), but in order to win them over on the national stage, Bloomberg’s crack team of campaign strategists has convinced him to go full-on SJW and admit to his white privilege, according to Politico and Axios.

Bloomberg’s campaign has “amassed a roster of surrogates that includes prominent black politicians…”. And now he’s pursuing the big kahuna: The Rev. Al Sharpton.

Sharpton told Politico that although Bloomberg has “challenges” when it comes to winning over black Americans, so far, he has made a “more-than-expected” attempt to assuage their concerns.

Bloomberg has so far amassed a roster of surrogates that includes prominent black politicians, traveled to cities with large black populations like Oakland, Detroit and Cleveland to solicit input on policy, and unveiled proposals on issues central to many black communities, such as maternal mortality and incarcerated youth. Aides point to his work on education, gun control and job creation in addressing concerns he faces among black voters.

“I think he has challenges, but he has, I think, made a more-than-expected attempt to deal with the challenges,” Rev. Al Sharpton told POLITICO, noting endorsements like Columbia, S.C. Mayor Steve Benjamin and other black leaders who were early endorsers. “I don’t know how much it will work, but I can say he’s put more of an effort in it than I would have thought.”

Politico followed Bloomberg to a campaign stop in Tulsa, Oklahoma, where he delivered a campaign stump speech at a historically black church.

Bloomberg flew here to attend Sunday services at Vernon Chapel AME Church before delivering the most sweeping and anticipated address of his young campaign: A plan to increase job opportunities and home ownership in black neighborhoods and invest $70 billion in struggling areas across the country.

His pitch, which takes its name from the Greenwood section of Tulsa known as “Black Wall Street” that was destroyed in the race massacre of 1921, was designed to tackle the systemic bias keeping many African Americans from advancement – as he put to parishioners at the church – “righting what I think are historic wrongs and creating opportunity and wealth in black communities.”

Of course, Bloomberg’s policies as mayor of NYC benefited minorities in many ways. But one of his policies that proved the most controversial also did the most to help save black lives.

Liberals like to criticize stop as frisk as a failed and obviously racist policy that sacrifices the civil liberties of minorities to help ensure the safety of New York City’s wealthiest and whitest.

But this couldn’t be further from the truth. Liberals like to whine about the relatively low number of seizures compared to the number of stops. But a falling number of seizures is actually evidence that a policy like stop and frisk is working. The idea is that criminals know they have a small chance of being randomly stopped, so fewer criminals are willing to risk carrying a gun in the first place.

And if fewer criminals are carrying guns in crime-plagued neighborhoods, that means there’s less of a chance that, if two drug dealers get into a disagreement, one of them ends up in the morgue.

Even the Washington Post has begrudgingly admitted that Bloomberg’s stop-and-frisk policy worked, even if the SJWs hated it. Bloomberg admits that minorities were searched at far higher rates than whites. But when compared to the descriptions of criminal suspects reported to police, that disparity disappears.

NYC’s plunging murder rate is the critical piece of evidence Bloomberg needs to cite to show that stop and frisk was the correct policy. As Bloomberg said during an earlier speech defending the policy, while black people don’t appreciate being stopped by police, they also don’t appreciate being shot and killed.

Which option do you think they would prefer?

Yet, because of the Democratic Party’s dedication to identity politics, these accomplishments during his mayorship have been twisted into liabilities, and Bloomberg is being forced to apologize for saving tens of thousands of black and brown lives.

It’s like that old song goes…

According to a French diplomat, French President Macron and US President Trump have agreed a truce in their dispute over digital taxes that will mean neither side imposes punitive tariffs this year.

As a reminder, France decided in July to apply a 3% levy on revenue from digital services earned in France by firms with revenues of more than 25 million euros ($28 million) in France and 750 million euros worldwide.

After concluding that the tax on digital revenues – that hits large American tech companies including Google, Apple, Facebook and Amazon.com – unfairly discriminated against US tech companies, the Trump administration had threatened to impose 100% tariffs on up to $2.4 billion of French imports, including champagne.

But, if the diplomat and Macron’s tweet are to be believed, both sides have de-escalated…

“Great discussion with @realDonaldTrump on digital tax,” Macron said in a tweet.

“We will work together on a good agreement to avoid tariff escalation.”

Great discussion with @realDonaldTrump on digital tax. We will work together on a good agreement to avoid tariff escalation.

— Emmanuel Macron (@EmmanuelMacron) January 20, 2020

The dollar dipped back to unchanged on the news…

The two countries will continue negotiations along with their European partners until the end of 2020 in order to agree a global framework that ensures tech companies pay an appropriate amount of tax, the diplomat said.

Blain’s Morning Porridge – Jan 20th 2020 – Meltup to Meltdown?

“We should skip Mondays. The weekends give clients too much time to worry…”

Last week ended on yet more record highs.  Markets high-fiving all over the place.  Stock market cheerleaders are talking about new higher target levels – 15%+ gains this month already, and they expect more. The bulls see nothing to stop the longest and steepest stock market rally in 160 years going higher for longer.  Market’s just can’t get enough!  On the back of half-a-trade deal and pretty dismal Chinese numbers?  Meanwile, bond markets also soared on the back of record European sovereign order and a blowout Italian bond sale (!). Tesla is worth more than the rest of US autos combined, and no one blinked. Nothing seems to phase these markets. Doubts? Damn the torpedoes full steam ahead… 

Are you sure?

Stop Right There. This week could be a shocker. This could be a very big and very negative week. Perhaps it’s time to tighten your seat belt, and check the Brace Position card in the seatbelt.

What’s got me worried? 

I get calls all the time from chartists warning me of “significant” market formations signalling imminent shifts – I usually don’t pay much attention and ignore what I struggle to understand. But, late last week, no less than 3 of the chartists I’ve come to trust all called with the same warning: the charts all point to something significant about to happen. 

Taken together, three separate chartists hardly make a statistically significant market sample, but they all point the same way: Stocks – Down, Bonds – Up, Oil – Down, Gold – up and the beginning of a great secular shunt down for the Dollar against the Yuan.  

If they are right, then markets could get scary. Or maybe the charts are just playing mind-games with us. If you believe markets can only keep going higher – then Remember Blain’s Mantra No 1: Markets have but one objective: to inflict the maximum amount of pain on the maximum amount of participants. 

I don’t know enough about charting to make much of it myself, but I’ve seen enough to recognise the repetitive nature of market driven behaviour. Market patterns do repeat and are therefore worth paying attention to.  For instance, for a superb overview, that a look at my chum David Murrin’s website. His global forecasts and commentary DavidMurrin.co.uk). is worth a sign up to run through his chart-supported outlook and reading of the underlying forces at play. 

But don’t let charts ruin this beautiful Monday morning. Do a little due diligence yourself on how all monster rallies close. And then look at the economic reality and the factors that move markets. Ask yourself the following questions:

1. How euphoric or exhausted are markets?
2. Where are economic factors pushing prices? Growth, central bank policy, consumer confidence, and inflation. 
3. How do political factors support prices? Geopolitics, domestic politics and uncertainty levels, 
4. Do technical factors justify prices – price/earnings ratio, corporate earnings, Market cap to GDP (the Buffet factor),
5. Is there an imminent trigger point on the horizon?
6. Is the “No-See-Um event” risk elevated – clue: you never know
7. How is firm is market confidence?

How did you score? 

You can’t deny Markets look to be in a state of dangerous euphoria – do they have the adrenaline left in the tank to move higher? 

Global growth looks back on track, but will remain slow due to ongoing trade uncertainty in Europe and China (better now a phase 1 deal has been done, but who really trusts each other?). Central banks remain accommodative – but what ammunition do they have to solve a new crisis? Consumer confidence remains nervous in the wake of low pay and uncertainty – Housing demand is rising in US and UK, but consumer spending is in flux (look at autos as buyers put off spending plans). There is record employment in the US and UK, but many jobs aren’t paying that much. There is no apparent inflation (outside financial assets) to worry about. 

Geopolitics looks more difficult than ever – the square off between the US and China isn’t over by a long-shot, and will be reflected in the big currency game – US$/Yuan. US protectionism and isolationism is causing fundamental uncertainty around the globe. Domestic populism isn’t really so much about the demonised shift-left, but an even more insidious rightwards lurch as countries become protectionist and anti-immigrant. 

Markets are definitely distorted – P/Es are a record levels, earning are marginal at best, and the stock market to GDP has never been so high. Companies are highly indebted and spent the money on rewarding execs through stock buybacks. It’s difficult to justify further gains when markets are already so highly priced – it looks like FOMO of missing futher upside is overcoming doubts on the rally’s longevity.

We can talk about potential trigger points from the stock market below, but a No-See-Um Black Swan event, or a sudden correction in confidence could shake market far more aggressively than expected, uncovering a host of ancillary problems like debt, leverage and liquidity. 

But no-one is particularly worried. Why should we worry – Global Central Banks are going to bail us out if anything goes wrong. And perhaps that’s the biggest risk of all. Global interest rates are effectively zero. An increasing number of commentators are beginning to state the downright bleeding obvious: Zero-Interest Rate Policies do little to stimulate real growth, but create a host of unintended long-term negative consequences in terms of market, investment, corporate and entrepreneurial behaviours. 

If there was a sudden loss of confidence in global bonds or equity, would easing rates a further 1% or ever 10% make any real difference? The answer is yes – but only if Central Banks further defile themselves and keep buying financial assets. Who could then resist free money at negative interest rates to buy financial assets secure in the belief they will rise in price because Central Banks are defacto guaranteeing it? It happened for most of the 2010s, so why not again? 

You can only fool people so long. Eventually folk see through it.. and see it for the Ponzi-esque distortion it is.. And they will sell. And they will buy bonds secure in the knowledge that even if stocks break from here, there is zero threat of higher rates. And they will buy Gold. And they will sell Oil because a stock market collapse puts the long-awaited recession into fast gear. 

And the big big issue will be the dollar, because for all the bluff and bluster, markets are markets and a collapse will crush confidence at a time when the Yuan and dollar are ever so clearly a competing pair. The last 100 years were all about the US and the dollar. The next 20 could be be very different: China vs US, US vs Yuan. Confidence in the dollar could take a substantial dunt. David Murrin is now calling USD/RMB the Empire Cross to reflect the reality of what’s occurring.

What scares me most? 

For the past months, I’ve been aggressively trolled for my temerity in questioning why Tesla is so highly priced. I’ve become familiar with a scary genre of free-market US market commentary. The programs are basically evolved boiler houses – touting baseless opinions as unquestionable fact. They are truly remarkable – hosted by highly animated shouty hosts assuring their viewers Wall Street is full of crooks who don’t want you to know the trading secrets they are sharing. They peddle bad conspiracy theories. I’ve never been able to watch one through to the end, but I just know they’ll be touting penny-stocks that are about to make big time money, and telling viewers where to send their money. 

These “trading bootcamps” pray on desperate retail investors desperate to pay off their debts, their homes and fund their futures. 2 years ago they were telling everyone they could be Bitcoin billionaires. Now, among other things, they are touting the same auto stock. 

They peddle very bad advice. When a stock goes stratospheric for no obvious reason except hype, it’s not good advice to ignore analyst recommendations, because “whatever the crooks on Wall Street says, this stock is going higher. You can’t fight that upward trajectory. Buy because the trend is your friend.”

Yeah, right… The above is about the most scary thing I’ve heard. The moment you trust the trend is when you lose.

I can just imagine what might happen if the current Euphoria collapses. Maybe on the event of a stock market disappointment, or a narrative break. Among others I’ve got Boeing, Tesla and GE on my list. Who is on yours? 

Back in December, we tweeted “Boeing 737 MAX renamed to Boeing 420; flight certificate secured,” while “Boeing 420” might not be the new name — there are new calls from a major aircraft leasing company for Boeing to drop the name “MAX.” 

President Trump first suggested Boeing rebrand MAX after a faulty flight control system led to two deadly crashes, killing 346 people. The planes have been grounded since March 2019. 

What do I know about branding, maybe nothing (but I did become President!), but if I were Boeing, I would FIX the Boeing 737 MAX, add some additional great features, & REBRAND the plane with a new name.
No product has suffered like this one. But again, what the hell do I know?

— Donald J. Trump (@realDonaldTrump) April 15, 2019

On Monday, Air Lease demanded Boeing drop the “damaged” label of its MAX brand to avoid undermining the value of its 150 MAX jets, reported Reuters. 

“We’ve asked Boeing to get rid of that word MAX. I think that word MAX should go down in the history books as a bad name for an aircraft,” Steven Udvar-Hazy told the Airline Economics aviation finance conference in Dublin. “The MAX brand is damaged, and there is really no reason for it.”

Hazy warned even with a name change – it’s not clear if customers would forget about the two fatal crashes.

The name “MAX” has been tarnished with the blood of 346 lives. Press from around the world covered the disaster and any updates via Boeing’s progress in attempting to unground the planes. MAX could develop the same negative vibes as the name “Hindenburg.” Even after 80 years, Hindenburg is widely recognized as an air disaster that killed lots of people. There’s also a technical indicator called the “Hindenburg Omen” – designed to spot stock market tops. 

With the MAX brand severely damaged, a recent report via BofA Defense Outlook and Commercial Aerospace noted that there are increasing concerns about whether the MAX will return to service. 

BofA anticipates the MAX could return to service by May 2020, but notes “the path to normalization for the 737 MAX may take longer than expected.” 

“For the production rate to ramp-up back to 52 per month, Boeing will still need to get the 387 737 MAX grounded aircraft that were already delivered to airlines to get back in the air and “depickle” and deliver the ~400 undelivered, parked 737 MAX aircraft. Additionally, Boeing will need to synchronize its entire supply chain back to harmony. Getting back to 57 per month may be unlikely.” 

BofA notes, “the key bottlenecks for aircraft delivery” has been Boeing’s ability to issue airworthiness certificates has been stripped and is now up to the Federal Aviation Administration (FAA). This could further delay the jets returning to the skies. 

“Before the 737 MAX grounding, Boeing had expected to ramp up to 57 per month by 2H19. Boeing ability to issue airworthiness certificates and export certificates of airworthiness One of the key bottlenecks for aircraft delivery is that Boeing is no longer allowed to issue airworthiness certificates and export certificates of airworthiness for 737 MAX aircraft. The Federal Aviation Administration (FAA) will be the sole issuer of these certificates.”

Boeing peaked at 69 MAX deliveries in December 2018. Boeing delivered 580 737 aircraft in 2018, which averages about 48 aircraft per month. Before the grounding and now production halt, Boeing delivered 34 737s in January 2019, 32 in February 2019, and 23 in March 2019.

 

And with the production of the MAX halted and no clear timetable of when the planes could return to the skies – the peak commercial jet bubble has started to unravel. This will could trigger a deepening of the U.S. manufacturing recession in 1H20. 

As for the branding, President Trump was right, Boeing must drop MAX and rebrand the troubled planes. 

 

Via S&P Global Platts Insight blog,

This week’s pick of energy and commodity market trends kicks off with EU biofuels demand prospects and a window of opportunity for Australian crude oil grades. US and European gas market dynamics and Brazilian corn prices are also in the sights of S&P Global Platts news editors this week.

1. Renewables goals boost global biofuels demand

What’s happening? In 2020, each EU member country will need to meet specific national renewable energy targets set by the European Commission. One route is to blend more biofuels into road fuels, with more countries adopting E10 gasoline, which contains up to 10% ethanol, twice as much as the current E5 standard. In 2019, the Netherlands became the latest European country to introduce E10 gasoline, following Finland, Belgium, France and Germany.

What’s next? In France, E10 sales have now overtaken E5 deliveries. Growth of the E10 ethanol blend have been hindered in Germany by consumer belief that it could harm car performance. Meanwhile, the UK has yet to introduce E10 despite a very ambitious clean energy target, because most fuel stations do not have enough tanks to offer both E5 and E10 simultaneously. The US adopted tier 3 standards on 1 Jan 2020, which means less sulfur in the fuel and lower exhaust emissions of nitrogen oxides. India will move to BS VI specifications which limit the sulfur levels for road fuels to a maximum 10ppm from April 2020. China is implementing Euro 6 equivalent fuel standards and favoring higher levels of ethanol and biodiesel in the blend. The move has been phased in from 2019 and should be completed country-wide by 2022.

2. Aussie crude grades command high premium in IMO 2020 setting

What’s happening? Australian heavy sweet crudes including Pyrenees and Van Gogh are widely seen as ideal for blending into low sulfur marine fuels due to the grades’ rich fuel oil yield, very low sulfur content and unique specifications such as low pour point and high flash point, industry and Asian refinery sources have told Platts. With demand for low sulfur fuel oil outpacing supply in Singapore, the world’s biggest bunkering hub, the price of Marine Fuel 0.5% has spiked by more than 185% month on month, Platts data showed.

What’s next? Australia looks set to reap the benefits of the International Maritime Organization’s global sulfur cap as the country’s heavy sweet crude oil is widely considered one of the best feedstocks for making IMO-compliant marine fuels – and many Asian refiners are willing to pay lofty spot premiums for it. Australian oil and gas producer Santos recently sold a 550,000-barrel cargo of Pyrenees crude for loading over March 4-8 to a Japanese buyer at a premium of around $31/b to Platts Dated Brent crude assessments on an FOB basis, essentially making the Australian oil the most expensive grade in the world. Asian refiners will likely compete for more Australian heavy sweet crude oil, with several cargoes of Van Gogh crude for loading in March up for grabs this week in the regional spot market.

3. German offshore wind stepping up to energy transition plate

Click to enlarge

What’s happening?  German offshore wind generation has doubled since 2016, with turbines in the North Sea generating as much electricity last year as two large nuclear power reactors running at baseload. Offshore turbines are playing an increasingly material role in wind’s overall ascendancy to the Number One spot in Germany’s generation mix. With over 7 GW installed in German waters, project commissioning in the North Sea is set to take a breather until 2022, with the focus switching to Baltic Sea projects.

What’s next?  More is being asked of German offshore wind in the longer term. Berlin has upped its 2030 target by 5 GW to 20 GW, to help fill the gap left by nuclear and coal closures. The target is challenging because of grid constraints and reduced offshore acreage availability. One way to counter the grid constraint issue could be to produce green hydrogen at sea or coast. The concept is early-stage but the world’s leading offshore wind developer, Orsted, has already bid a joint offshore wind/green hydrogen project into a Dutch auction and is determined to pursue the idea.

4. Specter of negative gas prices looms over Permian Basin…

What’s happening? Balance-2020 forwards gas prices at the West Texas Waha hub tumbled to a record low in mid-January as the market outlook for available pipeline capacity exiting the Permian Basin continues to deteriorate. At market close on January 15, the forward curve dipped to its lowest on record at just 49 cents/MMBtu. Shoulder season prices for this year have faced even more downward pressure with the April contract falling to just 7 cents/MMBtu.

What’s next? As Permian output continues to build, hitting a record high at 12.4 Bcf/d recently and averaging 11.5 Bcf/d over the past month, market jitters over midstream constraints have reemerged. Concerns about the possible return of negative prices this year were exacerbated following Kinder Morgan’s third-quarter earnings call in October when executives announced a three-month delay to startup of the company’s 2.1 Bcf/d Permian Highway Pipeline. The pipeline was originally scheduled to enter service in late 2020 but has since been delayed to Q1 2021.

5. …while EU’s huge gas overhang limits Ukraine transit

What’s happening? Natural gas stocks across the EU are currently at around 77 Bcm – some 18 Bcm above the levels at the same time last year – helping to keep a lid on prices already pressured by warm weather and weak demand. To put that surplus into context, the additional stocks represent only a little less than the total pipeline exports from Algeria – considered a key European gas supplier – to Europe in 2019. Stocks across Europe were built up to record highs by the end of 2019 on fears that Russian gas transit via Ukraine to Europe could be disrupted.

What’s next? Withdrawals across the EU have stepped up since the start of 2020 to some 450 million cu m/d as Russian deliveries slumped despite the transit deal. Gazprom itself was aiming to build up more than 11 Bcm in storage in Europe and may be withdrawing that gas rather than flowing via Ukraine to avoid keeping gas in storage any longer than necessary.

6. Ethanol, meat industry keep Brazil corn prices supported

What’s happening? Corn prices in Brazil, the world’s largest corn exporter in 2019, have risen considerably over the last few months. Mato Grosso, the largest grain-producing state in the country, saw a sharp price increase because of record exports in 2019 and higher consumption by the ethanol industry. The feed industry in southern states also drove up prices as they paid a higher premium for corn to secure food supply for pork and poultry farms.

What’s next? Domestic corn prices in Brazil are seen firm as meat exports from the country are expected to rise in 2020 on higher demand from Asia. Higher prices for corn in Brazil, especially in southern states, are likely to force the animal protein industry to buy more corn from neighboring countries. Moreover, higher local corn prices could also reduce the availability of the grain for exports.

7. Renewables focus could expand reach of US cap-and-trade

What happening? The Regional Greenhouse Gas Initiative issued the auction notice for the 47th quarterly carbon dioxide allowance auction that will take place March 11. There will be 16,208,347 CO2 allowances for sale, 24% more than the previous auction, with a minimum reserve price of $2.32/st. Plants in RGGI states must purchase an allowance for each ton of CO2 that they emit. Applications must be submitted by January 29.

What’s next? As the focus on renewables intensifies in the US and the RGGI market matures, more states are looking to join the regional cap-and-trade program. RGGI states currently include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. New Jersey rejoined January 1 after an eight-year hiatus. Other states that could join RGGI include Virginia, whose joining has been postponed, and Pennsylvania, whose governor issued an executive order in October instructing the state Department of Environmental Protection to join RGGI.

President Trump’s legal team filed a lengthy legal brief on Monday in which they have asked for a ‘speedy acquittal’ from the Senate, as they begin impeachment proceedings on two articles advanced by the House after a four-week delay. 

Trump’s legal team notes that the impeachment articles fail to cite any violation of the law, and the charge that Trump obstructed Congress was a “frivolous and dangerous” attempt to alter the separation of powers outlined by the framers in the Constitution, according to CNN.

The briefing comes one day after Trump’s legal team filed a shorter document on Saturday which laid out their arguments against impeachment – calling it “constitutionally invalid” and an attack on Americans.

Mr. Trump’s lawyers plan to dismiss the largely party-line impeachment by the House as a “brazenly political act” following a “rigged process” that should be repudiated by the Senate, according to a person working with his legal team, who spoke on condition of anonymity ahead of the submission of the trial brief. They will argue that neither of the articles of impeachment against Mr. Trump are valid because they do not state a violation of the law and they would in effect try to punish the president for foreign policy decisions and efforts to preserve executive prerogatives. –NYT

Trump’s attorneys don’t deny that he asked Ukrainian President Volodomyr Zelensky to investigate Joe and Hunter Biden and other matters related to the 2016 US election – however they argue that the President has the right to conduct international relations between countries as he sees fit, and that he had valid grounds for raising the aforementioned issues. 

The briefing rejects the notion that Trump abused his power, calling it a “novel theory” which was a “newly invented” offense which would set a dangerous precedent for the ability of future presidents to conduct legitimate foreign policy.

According to the filing, the “articles of impeachment as a matter of law are deficient on their face.”

Trump, meanwhile, weighed in from Florida – arguing over Twitter that he wasn’t being treated fairly, while dismissing Senate Minority Leader Chuck Schumer (D-NY)’s call for ‘fairness.’

Cryin’ Chuck Schumer is now asking for “fairness”, when he and the Democrat House members worked together to make sure I got ZERO fairness in the House. So, what else is new?

— Donald J. Trump (@realDonaldTrump) January 20, 2020

They didn’t want John Bolton and others in the House. They were in too much of a rush. Now they want them all in the Senate. Not supposed to be that way!

— Donald J. Trump (@realDonaldTrump) January 20, 2020

Read the briefing below: