Author: admin

One Trader Fears It’s Quiet This Week, Too Quiet

After last week’s event risk miasma largely disappointed in terms of chaotic markets movements (except for in offshore yuan), this week, the calendar is lighter, with a good portion of it back-loaded, and as former fund manager and FX trader Richard Breslow notes, it would be entirely consistent with how this year has gone, for this to be the one where we get rocking.

Via Bloomberg,

Perhaps less news will prove to be more. We still operate in a world where traditional economic numbers are the noise. And the information you will never see previewed on the economist survey pages drive the real price action. Nevertheless, it certainly feels like a lot of assets are in play. Even with so many technical charts looking confused and range-bound.

Various measures of implied volatility are creeping higher. So slowly that it is sometimes hard to notice. But you should. To my mind, vols don’t rise unless there is a perception of two-way risk. Despite all of the good reasons for traders to stand down, it feels like a good number of nerves are frayed. The VIX doesn’t count because it always strikes me as backward-looking rather than usefully predictive.

The dollar is trying ever so hard to get out of its summer range. The traders I speak with tend to be long. And unusually nervous. It’s as if they feel they have worked so hard, been so patient and just can’t bear for it all to again be snatched away in the blink of an eye. Analysts are more negative than not, but seem to be looking for ways to temper their forecasts. Maybe that’s why these two groups keep meeting in the middle.

We’ll see how the positions pan out, but underneath it all, the U.S. numbers last week were better than portrayed. The Fed is on the move. And no one will convince me that the ECB and BOJ weren’t ultimately dovish. Emerging-market currencies are demanding you choose among them carefully. As a class, they look uninspiring.

A lot has been made of recent predictions of higher interest rates. I’d find it a compelling notion if I thought it was happening anytime soon. If I were facing rollover risk, it would be on my worry list. As a trade, there’s nothing alluring about it. Bund yields aren’t going anywhere until political risk in Europe is alleviated. That includes Brexit as well. JGB vigilantes will only be able to accomplish what the BOJ allows and the leash remains short. Ten extra basis points won’t make Treasuries pale as an alternative. Especially if the dollar remains bid. And as long as U.S. equities remain this strong, being long bonds is a must-have hedge. Small risk for a lot of protection. Even if you think yields will rise, what’s the rush?

It isn’t true that the major central banks have committed any policy mistakes with their most recent moves. Including the BOE. But the chance of geopolitical mistakes hasn’t receded. Which further argues for keeping it simple and liquid.

via RSS https://ift.tt/2OfTdjb Tyler Durden

No, We Aren’t Going to Pay Off the National Debt With Tariff Revenue

Officially, the Trump administration’s position is that tariffs on aluminum and steel are a national security issue.

Unofficially, President Donald Trump has trotted out just about every imaginable justification for new taxes on imports, claiming that the tariffs are needed to create leverage for renegotiating trade deals, that they are meant to punish China for stealing American companies’ intellectual property, even that they’re a retaliation for Canada’s decision to charge high import duties on American milk—as if that were something that would justify a potentially destructive trade war.

In a weekend tweetstorm, Trump raised the bar yet again in his race to offer the most ludicrous justification for his tariffs. Now he says they’ll help the United States pay off the $21 trillion national debt.

It’s amazing thing just how many falsehoods Trump manages to pack into roughly 500 characters.

No, the tariffs are not “working big time.” If they were, the White House wouldn’t be planning to spend $12 billion bailing out farmers who have been hurt by the trade war. Nor would thousands of companies be lining up at the Commerce Department to ask for exemptions from those tariffs. Indeed, the fact that Trump keeps flailing around for new arguments to justify his policy is a sign that his protectionist scheme is unraveling, both intellectually and diplomatically.

No, the tariffs are not paid by foreigners. Trump says he wants “every country on earth” to be taxed when they come to America to do business. But this is exactly the opposite of how tariffs work. When steel or aluminum is imported into America, the tariff inflates the product’s price for whomever is buying it. That means the higher price is paid by American businesses purchasing the imported steel and aluminum to make nails, beer kegs, and lots of other things. Because tariffs are really just taxes, those higher costs are passed along to the consumer. If foreigners were paying those costs, why would American businesses seek those exemptions?

No, the tariffs do not mean “jobs and great wealth.” Even protectionist think tanks like the Coalition for a Prosperous America say Trump’s steel and aluminum tariffs will, on net, cost American jobs. The White House’s own report on the tariffs, released in early June, showed that they would raise prices and slow economic growth. Businesses both large and small are already feeling the pain. Higher taxes are not a recipe for wealth creation and, again, tariffs are just taxes.

And now we get to the real whopper. No, we aren’t going to pay down the national debt with tariffs. Not even close.

Before getting into the debt numbers, let’s think for one more minute about how tariffs work. By increasing the price of imported goods, they are supposed to boost domestic manufacturing by reducing the imported competition. Trump wants to limit the amount of steel and aluminum into the country—supposedly for national security reasons—but he also wants to rely on steel and aluminum imports to pay off the debt?

Even if this made sense intellectually, it doesn’t add up mathematically. The current tariffs on steel, aluminum, and some Chinese-made goods will generate an estimated $21 billion this year, according to the Tax Foundation, a nonpartisan think tank. That’s roughly 0.1 percent of the $21 trillion national debt.

Every little bit helps, of course, but there’s no reason to believe the Trump administration is going to spend every red penny of tariff revenue on debt reduction. For one thing, there’s already that $12 billion pledged to farmers injured by the trade war. If other industries successfully lobby for similar bailouts—and already that talk is beginning—the price tag would be $39 billion, according to an analysis that the U.S. Chamber of Commerce published last week. As a revenue question, that would put the tariffs in the red even before you take into consideration how they could reduce future growth.

That growth will be critical to any realistic shot at balancing the budget. Current projections, assuming generous rates of future growth with no slowdowns caused by tariffs or anything else, show $1 trillion annual deficits into the next decade. You can’t begin paying off the national debt until you stop adding to it.

The national debt is an important topic—and, unlike imported metals, it actually is a threat to America’s national security in the long term—so it’s good to see an occupant of the White House talking about addressing it. But what he said isn’t a serious suggestion, and surely even Trump realizes as much. It’s just another half-baked attempt to retcon a justification for a trade war that will leave America poorer, less competitive, and less able to pay off the overdue bills on the national credit card.

from Hit & Run https://ift.tt/2OerDCU
via IFTTT

Parkland Shooter Nikolas Cruz Needed Help. Bureaucratic Errors Deprived Him of It.

CruzThe story of the Parkland mass shooting is one of catastrophic incompetence at every level: the sheriff, school resource officers, school security guards, the FBI, and the school itself. On Friday, we learned about two more mistakes critical junctures in the life of Nikolas Cruz, who would go on to murder 17 of his former classmates at Marjory Stoneman Douglas High School on February 14, 2018.

More than a year before the shooting, education specialists told Cruz, who was struggling, that he should transfer to Cross Creek, an alternative school for students with special needs, according to a report obtained by The Sun-Sentinel. Cruz bucked this recommendation, choosing to stay at Stoneman Douglas. Under school district policy, he was still entitled to special-needs assistance while at Stoneman Douglas. But the school failed to provide with him the help.

That was mistake number one. Mistake number two came months later, when Cruz belatedly decided to enroll at Cross Creek after leaving Stoneman Douglas. According to The New York Times:

The district was required to respond to Mr. Cruz’s request for special-needs services, known as exceptional student education, within 30 days, the report found. Instead, the district told Mr. Cruz that it would need to evaluate his eligibility for assistance—despite his 15-year record in the school system—and that the process could take six weeks.

The process never began: For a new special-needs evaluation to take place, Mr. Cruz first had to re-enroll in Stoneman Douglas. An administrator said it was too late in the school year to take him back.

Cruz bought an AR-15 three days after failing out of Stoneman Douglas. His bad choices are his own, and it’s certainly possible that in an alternate timeline he simply would have shot up a different school. No one is response for his actions except him.

But the Parkland schools bureaucracy failed at absolutely every turn. We don’t know what would have happened if school officials had done thier jobs properly, but we do know that they were required to make an attempt to help Cruz. They did not. They left him to his own devices, adrift in the world, despite every warning that he was a disturbed and dangerous individual. This was a colossal screw-up—arguably one of the most consequential in the histories of public education and law enforcement.

from Hit & Run https://ift.tt/2OcJUka
via IFTTT

Gartman: “We Were Clearly Wrong In Being Short Of The US Market”

Just late last week, in his latest flip-flop on the market, Dennis Gartman once again turned bearish, warning that despite 2018 earnings rising at above 20% Y/Y, the trade war with China took precedence, and as a result “we fear that the great game of investment “musical chairs” may be ending; we fear that the “music” has stopped and we fear that everyone shall be dashing for that last available seat with injuries along the way.”

Gartman also pointed out the sharp reversals in tech names as a reason for his latest bearish call:

The “reversals” to the downside we had noted last week are still extant; the “gaps” to the downside in the US markets former leaders such as Twitter, Facebook, Netflix, Tesla et al are open and ominous. Protection of capital is now the first order of the day.

As a result, Gartman forgot all about his Dow 30,000 call from mid-July, and predicted that unless the “virtual collapse in China can be isolated”, a movement “below 2,775 in the S&P futures shall be a serious breach of technical support; a movement below 25,000 in the Dow futures would be the same and so too a movement below 7200 in the NASDAQ futures.”

Fast forward just 2 trading days later when, drumroll, Gartman is once again bullish, writing in his latest letter that “any
antipathy we might have toward the US market has been, is now and shall apparently remain wholly ill-advised. We might be
dismayed and err bearishly of stocks in broad global terms, but it is ill-advised to effect that dismay or bearish erring by selling short the market here in the US for the economy here is strong and may well be the strongest of the industrialized world.”

It also means that it is “better it is to adopt a bearish perspective by selling Europe or selling Asia but selling the US is and has been wrong. It is that simple, or at least it should be.”

The punchline, as usual, is Gartman’s update of his “retirement account” where all his shorts have now been covered:

“As for our retirement account, we made some material changes on Friday given that we were clearly wrong in being short of the US market as our “stops” are clearly going to be hit in our dual position short of US and European shares.”

Coincidentally, the S&P is in the red to start the week.

via RSS https://ift.tt/2LZ4pEk Tyler Durden

Italian Treasury Intervenes To Buy Bonds For Third Time Since May Crash

Italian bond prices rose on Monday after the Italian Treasury announced on Friday that it had intervened in the market with yet another debt buyback operation following a steep price decline on Friday.

Unwilling to wait for the ECB’s generosity, late last week the Italian government bought back nearly €1bn of its own short-dated debt late last week amid concerns of another breakdown in relations with Brussels after the country’s populist coalition launched negotiations over its debut budget, prompting a sell-off.

It was the treasury’s third – and largest to date – intervention in the bond markets since the coalition took power in late May, an event which stunned investors resulting in a record plunge in Italian bond markets and a slide in Italian risk assets.

The intervention propped up yields on 2-year Italian bonds, which dropped to 0.92% in Monday trading, after blowing out as much as 1.35% on Friday. Longer-dated debt also saw selling pressure ease, with the yield on 10Y Italian paper dropping to 2.9%, down from 3.1% on Friday.

As shown in the chart below, the Italian Treasury has intervened at the bottom of every recent selloff to avoid further losses.

The interventions highlight the fragile nature of the Italian bond market’s structure, the FT notes.

During May’s sell-off, numerous hedge funds suffered dramatic losses when the sudden plunge triggered many stop-loss levels. This forced selling exacerbated the price falls, along with very thin liquidity, “a dynamic that experienced investors said was in play again during last week’s sell-off.”

Some speculated that the Italian Treasury had stepped into the market to act as a buyer in a bid to ease that liquidity crunch, and they turned out to be correct.

Justifying its market intervention, the Treasury said it was simply using up spare cash when in reality it has become the buyer of last resort preventing an out-all out rout for the Italian bond market. And with the ECB’s QE tapering and coming to an end in less than 5 months, it is likely that Italian bond volatility will only get worse.

via RSS https://ift.tt/2nh8CVe Tyler Durden

U.S.–Saudi Coalition Paid Al-Qaeda Militants to Scram, Let Them Keep Weapons, Then Declared Victories Against Terrorism in Yemen: Reason Roundup

Apparently, we do negotiate with terrorists. A U.S.-backed military coalition in Yemen has “cut secret deals with al-Qaeda fighters,” according to an Associated Press (AP) investigation.

Throughout the past two years, the coalition—led by Saudi Arabia—”has claimed it won decisive victories that drove al-Qaeda militants from their strongholds across Yemen and shattered their ability to attack the West,” the AP reports. “Here’s what the victors did not disclose: many of their conquests came without firing a shot.”

The “without firing a shot” part sounds good, until you realize how they got these guys to leave key places in Yemen—places publicly portrayed by U.S. authorities as dangerous strongholds of extremists from whom the we needed to wrest control and free the inhabitants. According to the AP, the coalition simply paid some al-Qaeda fighters to leave. Others were allowed to take cash and weapons with them in exchange for leaving peacefully, while hundreds more were admitted into the Saudi-led coalition.

Terrorism analyst Michael Horton tells AP there was “much angst” in certain segments of the U.S. military about this, but that “supporting the UAE [United Arab Emirates] and the Kingdom of Saudi Arabia against what the U.S. views as Iranian expansionism takes priority over battling [Al Qaeda in the Arabian Peninsula] and even stabilizing Yemen.” UAE and Saudi pledges to fight Al Qaeda are mostly “a farce,” Horton adds. In fact, the AP found that the coalition actively recruited current or recent Al Qaeda fighters because they were good at what they did.

American Enterprise Institute Research Fellow Katherine Zimmerman tells the AP that “in some places, it looks like we’re looking the other way” when it comes to Al Qaeda.

Last week, U.S. Ambassador Nikki Haley told the U.N. Security Council that the U.S. government is beginning to grow concerned over our allies’ actions in Yemen. “The idea that a Saudi-led coalition had air strikes today against a fish market and a hospital in Hodeida that may have caused dozens of casualties,” said Haley. “The idea that strikes almost hit some of the water tanks, with the cholera outbreak, all of these things are starting to show a disregard for the people on the ground in a time when they are already suffering so much.” Haley suggested that “we’ve hit a new day now” in terms of U.S. policy there. We’ll see.

The AP notes that Washington has sent billions of dollars’ worth of weapons to the coalition, has given the coaliton “intelligence used in targeting on-the-ground adversaries in Yemen,” and has provided American jets for air-to-air war-plane refueling. We don’t directly give money to the coalition, which was launched in 2015.

Amid the chaos, Al Qaeda is gaining ground. “[A]l-Qaeda says its numbers—which U.S. officials have estimated at 6,000 to 8,000 members—are rising,” AP reports. “An al-Qaeda commander who helps organize deployments told the AP that the front lines against the Houthis provide fertile ground to recruit new members.”

Meanwhile, everyone’s declaring mission accomplished left and right.

In February, Emirati troops and their Yemeni militia allies flashed victory signs to TV cameras as they declared the recapture of al-Said, a district of villages running through the mountainous province of Shabwa—an area al-Qaeda had largely dominated for nearly three years. It was painted as a crowning victory in a months-long offensive, Operation Swift Sword, that the Emirati ambassador to Washington, Yousef al-Otaiba, had proclaimed would “disrupt the terrorist organization’s network and degrade its ability to conduct future attacks.”

But weeks before those forces’ entry, a string of pickup trucks mounted with machine guns and loaded with masked al-Qaeda militants drove out of al-Said unmolested, according to a tribal mediator involved in the deal for their withdrawal.

Under the terms of the deal, the coalition promised al-Qaeda members it would pay them to leave, according to Awad al-Dahboul, the province’s security chief. His account was confirmed by the mediator and two Yemeni government officials. Al-Dahboul said about 200 al-Qaeda members received payments.

The earliest such deal that the AP uncovered took place in 2016 and involved Mukalla, Yemen’s fifth-largest city and a major port:

The militants were guaranteed a safe route out and allowed to keep weapons and cash looted from the city—up to $100 million by some estimates—according to five sources, including military, security and government officials….Coalition-backed forces moved in two days later, announcing that hundreds of militants were killed and hailing the capture as “part of joint international efforts to defeat the terrorist organizations in Yemen.”

No witnesses reported militants killed, however. “We woke up one day and al-Qaeda had vanished without a fight,” a local journalist said, speaking to AP on condition of anonymity for fear of reprisals.

In other Al Qaeda news: Osama bin Laden’s mom spoke out for the first time last week:

Meanwhile Osama’s son, Hamza bin Laden, “has married the daughter of Mohammed Atta, the lead hijacker in the 9/11 terror attacks,” The Guardian reports.

FREE MINDS

No segregated subway cars for white nationalists. “Metro will not be providing a special train or special car for anyone next Sunday,” said Jack Evans, chair of the Washington, D.C., public transit board. Metro had originally floated the idea of setting up separate trains for protesters attending an upcoming “unite the Right” protest in Washington, D.C. The rally is organized by the same group responsible for the white nationalist tiki-torch mafia that took to the streets of Charlottesville last summer.

FREE MARKETS

If you tax them, they will come?

Read more on the disasters of Trump’s trade policies from Steve Chapman and Shikha Dalmia.

QUICK HITS

  • Former Arizona Sheriff Joe Arpaio appeared on Sacha Baron Cohen’s show Who Is America? and talked to a plastic donut about giving President Trump a blowjob.

  • “Whom to believe—the accused liar, or the admitted one?” asks The Washington Post. A Virginia jury is scheduled to hear former Trump campaign aide Rick Gates testify against former Trump campaign chair Paul Manafort, whom Gates had worked with independent of the campaign for many years.

  • Dick Wolf of Law & Order fame is launching a new CBS series titled FBI.

  • The actual FBI has released information on British agent Christopher Steele’s pay for producing the infamous Trump-Russia dossier. “Because of the redactions, it is not possible to tell when payments to Steele began,” notes NBC, “but it has previously been reported that he assisted the FBI with past investigations, including a probe of corruption in international soccer.”

from Hit & Run https://ift.tt/2vni9yq
via IFTTT

Yosemite Valley Closed “Indefinitely” Due To Raging Wildfires

Large sections of Yosemite National Park will be closed “indefinitely” because of the ongoing wildfires raging throughout the region which have filled the iconic valley with hazardous smoke. 

The nearby Ferguson fire has caused the closures of Yosemite Valley, El Portal Road, Wawanoa Road, Big Oak Flat Road, Glacier Point, the Mariposa and Merced Groves of Giant Sequioas, Tamarack Campground, Crane Flat Campground and the Wawona Campground.

“Fire managers are continuously assessing conditions in the area and will work directly with and will immediately advise park managers as conditions change and it becomes safe to reopen,” said the National Park Service in a statement.

Firefighters remain committed to fully suppressing this fire and are actively engaged, taking action to limit the fire’s spread when it is safe to do so. The fire activity inside Yosemite National Park is dynamic. Over the past 48 hours, fire has impacted all of the roads used to access Yosemite Valley, burning dead and downed trees that can become very explosive and fall without warning. There are also significant terrain hazards for firefighters. These hazards, along with extreme fire behavior and frequent weather changes, have made this an extremely difficult fire fight. –Yubanet

The Ferguson fire has devastated 89,633 acres as of Sunday and was 38% contained. It is one of the 18 major fires raging throughout the state, sending smoke into Yosemite Valley and blocking views of scenic Half Dome and El Capitan as well as Yosemite Falls. 

“In talking to people, no one has ever seen the smoke this heavy,” park spokesman Scott Gediman told the Los Angeles Times.

On Friday, evacuations were ordered due to “multiple hazards” along several roads in addition to power outages in Yosemite Valley. Two firefighters have died so far battling the blaze.

Ferguson Fire officials told FOX26 that all the power in Yosemite Valley was out, and there was no way for park employees to keep food or filter air due to the outages. –Fox News

Prior to the “indefinite” closure, visitors to Yosemite had been suffering through a choking haze for several days – while shifting winds brought varying levels of pollution throughout the daytime, according to US Forest Service air resource specialist Pete Lahm. Officials have been referring visitors to a website to check levels. 

“The whole park at this juncture has been hammered in smoke,” Lahm told AP. “This area definitely has the highest levels (of air pollution) in the U.S. right now,” he said, noting that several other parts of Northern California and southern Oregon had reached unhealthy levels amid the wildfires.

The Environmental Protection Agency’s “Air Now” website on Friday recorded the Air Quality Index in Yosemite at a staggering 386, or “hazardous” — higher than the smog-choked city of Beijing, which had an “unhealthy”  AQI of 119 at the same time. 

Officials note that the AQI changes throughout the day and that the pollution from industrial dust, cars and emissions is different than wildfires burning through trees and grass but still unhealthy. On Sunday, the quality shifted back down to “unhealthy.” –Fox News

Visitors can still see Yosemite’s northern region, as approximately 1/3 of the park remains open – however the southern 2/3 of the park will remain off limits in what officials are calling the National Park’s most extensive closure since 1997, when floods forced the park closed for two months. 

via RSS https://ift.tt/2AHeXTq Tyler Durden

Trump and Bernie: America First Brothers in Arms

Last week, President Donald Trump took to twitter to attack the Koch brothers after they confirmed that they would look to bankroll Democratic candidatesBernie-Trump who share their values in the mid-term elections. It is no secret that the bros have been deeply disturbed by the protectionist, restrictionist, statist and racist turn of the GOP under Trump.

Trump denounced them as a “total joke” and “globalists” who don’t put “America or the American workers” first. Such rhetoric, while alarming, is par for the course for this POTUS. But you know who beat him to similar attacks on the Kochtopus three years ago?

Bernie Sanders.

Yes, the silver haired, social-democratic senator from Vermont who is the darling of the left for his high-minded altruism. But he’s an America Firster like the best of them. And the similarity between him and Trump doesn’t just end there, I point out in my column at The Week. There’s more. Much more.

Go here to read the piece.

from Hit & Run https://ift.tt/2vHVv2W
via IFTTT

Locked Into Hedges, Shale Misses Out On Oil Price Rally

Authored by Nick Cunningham via Oilprice.com,

The shale industry is set to enjoy its best year, arguably in its history, but some drillers are not benefitting as much as expected because they locked themselves into hedges at lower prices.

Shale drilling has historically been a loss-making proposition. The precipitous decline in output from shale wells meant that companies had to use the revenue from one well to drill the next well. Cash was continuously recycled back into new wells, and shareholders rarely saw any profits flow back to them.

That is set to change this year. “Higher prices and operational improvements are putting the US shale sector on track to achieve positive free cash flow in 2018 for the first time ever,” the International Energy Agency (IEA) wrote in a recent report on energy investment.

But not everyone is raking in as much money as they might have wanted. A handful of shale companies posted lower-than-expected profits in recent days, owing to the fact that they secured hedges for their second quarter production at prices that were lower than the prevailing market price.

Among the companies that undershot expectations were Devon Energy, Anadarko Petroleum and Chesapeake Energy. As Reuters notes, many shale companies hedged at around $55 per barrel in the second quarter while WTI was much higher.

Those hedges were likely secured last year, when oil traded at lower levels. The shale companies locked in those positions as a risk management strategy, guarding against the possibility of a meltdown in prices. If the economy had crashed or OPEC decided to flood the market once again for some reason, and oil prices fell back below $50 per barrel this year, those companies would have been protected.

As it happened, however, prices surged in the first half of this year. WTI surpassed $70 per barrel in the second quarter, rising to its highest point in more than three years. Some shale drillers were stuck selling their oil for prices in the mid-$50s. Anadarko said that it missed out on nearly $300 million in pre-tax revenue because it was locked into hedges.

Devon Energy also missed expectations for its quarterly earnings, noting that it earned 20 percent less in oil sales than would have been the case absent the hedges. When asked if the company would revise its hedging plans, Devon’s CEO David Hager said it would stick with the strategy. “We think it’s important to underpin the cash flows of the company to make sure that we have a certain level of consistency in cash flows to be able to fund the capital program,” Hager said on an earnings call. “And so we are doing this through a systematic program largely, where we’re reaching out 18 months and hedging production at any given time.”

He also cited the fact that hedging actually worked out when Devon bet on differentials. Oil prices in Midland, Texas have consistently traded at hefty discount relative to WTI in Houston, a reflection of the pipeline constraints in the Permian.

Meanwhile, according to Reuters, Pioneer Natural Resources sold its oil for an average price of $52.62 per barrel, or $4.23 per barrel less than analysts had assumed.

“We’re pretty bullish on oil and we don’t think (companies) should be giving up the upside and don’t think they should run the market that way. Take the price,” Paul Sankey, an oil industry analyst for Mizuho Securities USA, told Reuters. Sankey was the analyst that questioned Devon Energy’s CEO on whether or not he’d reconsider the hedging strategy.

Interestingly, Tony Vaughn, the COO of Devon Energy tried to highlight the one area in which hedges have worked in the company’s favor. Unprompted, he pointed to the company’s heavy oil operations in Alberta. “The last area I will touch on is our attractive WCS hedges in Canada. In 2018, we have roughly half our production hedged at $15 off of WTI,” he told analysts and shareholders on an earnings call. Western Canada Select has traded at a steep discount, dropping as low as $30 below WTI at some points this year.

Looking forward at 2019, there is still a ton of uncertainty. Sankey of Mizuho might want shale companies to rid themselves of hedges to enjoy the upside of oil prices, but there is no guarantee that prices continue to rise.

In fact, a Wall Street Journal survey of nine investment banks shows that pricing forecasts are all over the map. At the high end, BNP Paribas has WTI rising to $81 per barrel in the second quarter of 2019. But Commerzbank puts WTI as low as $58 per barrel for the same time period. There is no shortage of forecasts that fall in between.

The uncertainty is exactly why drillers secure hedges. It’s just that sometimes the hedges don’t pay off.

via RSS https://ift.tt/2MnKifh Tyler Durden

Preview Of The Week Ahead: The “Storm” Has Passed; All Eyes On CPI

After a “stormy” week of non-stop economic news, political drama and corporate earnings, the calendar takes a break this week with a lull in market sensitive data and events. The US CPI report is the highlight while Q2 GDP reports in Japan and the UK are also worth a mention. Inflation data will also be out in China while earnings season will start to wind down across the US and Europe. As always, markets will be closely watching the rhetoric out of the US and China as the war of words on trade rumbles on.

The highlight of the relatively quiet for data week is the US July CPI report on Friday. As it stands, the current market consensus is for a +0.2% mom headline and core reading, with the latter likely to be enough to keep the annual rate at +2.3% yoy. That consensus reading is the 33rd month in a row that the forecast is +0.2% mom. So far this year we’ve had four in-line readings, one beat and one miss. Aside from the CPI data we’ll also get the July PPI report in the US on Thursday, along with the July monthly budget statement on Friday.

The main focus for data in Europe next week is likely to lie with some of the hard data releases. In Germany we got the June factory orders data on Monday (which printed at a 17 month low) followed by June trade and industrial production data on Tuesday. In France we’ll also get June industrial production on Friday, while the highlight in the UK will also come on Friday with the preliminary Q2 GDP release (+0.4% qoq expected), and June trade and industrial production data.

In Asia there’s some data of significance in China with the July trade stats on Wednesday and the July CPI and PPI prints on Thursday. CPI is expected to nudge up one-tenth to +2.0% yoy however PPI is expected to decline two-tenths to +4.5% yoy. In Japan we’ll get the preliminary Q2 GDP report on Friday (+0.3% qoq expected) while the BoJ summary of opinions from the July meeting will also be out on Wednesday and will be worth a quick skim given the policy tweaks made at the meeting.

Away from the data it’s a fairly quiet week for central bank speak with only Richmond Fed President Thomas Barkin due to speak on Wednesday in Virginia. Barkin is a voter on the FOMC this year and is generally seen as centrist in his views.

Meanwhile earnings will start to slow down a bit next week with just 44 S&P 500 companies due to report. Walt Disney (Tuesday) and CVS Health (Wednesday) are the highlights in the US while outside of that we have HSBC, SoftBank and UniCredit on Monday, Glencore on Wednesday, Merck and Adidas on Thursday and Gazprom on Friday.

Other things to note next week include the first phase of the restoration of US economic sanctions on Iran taking effect from Monday. Central Bank meetings are also due in Australia and Argentina on Tuesday, Thailand and New Zealand on Wednesday, and Peru on Friday. The consensus is for policy to stay on hold at all meetings.

Below is a breakdown of key events by day courtesy of Deutsche Bank:

  • Monday: It’s a quiet start to the week for data on Monday. In Europe, we get June factory orders and the July construction PMI for Germany along with July new car registrations for the UK and the August Sentix investor confidence survey reading for the Eurozone. There is nothing of note in the US, while in China the Q2 current account balance reading will be out at some stage. It’s worth noting that the first phase of the restoration of US economic sanctions on Iran are also scheduled to take effect from Monday. HSBC, SoftBank and UniCredit are all due to release earnings.
  • Tuesday: The overnight data on Tuesday includes the July BRC like-for-like sales reading in the UK and June household spending and labor earnings data in Japan. In Europe we’ll get the June trade balance, current account balance and industrial production data for Germany along with the June trade balance and current account balance data for France. House price data for the UK for July will also be out. In the US the June JOLTS job openings and consumer credit data are due out. China’s July foreign reserves data is also scheduled to be released at some stage. Walt Disney will also release earnings.
  • Wednesday: Overnight on Wednesday we get the BoJ’s summary of opinions along with Japan’s June current account balance and July trade balance data. In Europe, the only release is France’s July Bank of France industry sentiment index while in the US we get the latest weekly MBA mortgage applications data. China’s July trade data will also be released at some stage during the day. Away from the data, the Fed’s Barkin is scheduled to speak while CVS Health and Glencore are due to report earnings.
  • Thursday: The early focus on Thursday will be China’s July PPI and CPI prints. With nothing of note in Europe, attention will turn to the US where we get the July PPI report along with final June wholesale inventories data and the latest weekly initial jobless claims data. Merck and Adidas will also report earnings.
  • Friday: It’s a busy end to the week for data on Friday. The main highlight is likely to be the July CPI report in the US in the afternoon. Prior to that we get the preliminary Q2 GDP reports in Japan and the UK. June industrial production data is also due out in France and the UK as well as June trade data in the latter. In the evening we’ll also get the July monthly budget statement in the US. Japan Post and Gazprom will report earnings.

* * *

Finally, focusing just on the US, Goldman writes that the key economic release this week is the CPI on Friday. There is one scheduled speaking engagement by a Fed official this week, by Richmond Fed President Thomas Barkin on Wednesday.

Monday, August 6

  • 02:00 PM Senior Loan Officer Opinion Survey, 2018Q3: We expect that the Fed will release results and a memo from its quarterly Senior Loan Officer Opinion Survey on bank lending practices. The 2018Q2 release showed a modest easing in standards and terms for C&I loans in the first quarter of this year, while standards for CRE loans were unchanged, with most banks citing weaker demand. Since the last survey, US bank loan growth has increased slightly, growing at just above a 5% annualized pace in Q2.

Tuesday, August 7

  • 10:00 AM JOLTS Job Openings, June (consensus 6,625k, last 6,638k)

Wednesday, August 8

  • 08:45 AM Richmond Fed President Thomas Barkin (FOMC voter) speaks: Richmond Fed President Thomas Barkin will speak in Roanoke, Virginia on “Unlocking our Potential.” Audience and press Q&A is expected.

Thursday, August 9

  • 08:30 AM Initial jobless claims, week ended August 4 (GS 220k, consensus 220k, last 218k): Continuing jobless claims, week ended July 28 (consensus 1,735k, last 1,724k): We estimate initial jobless claims rose by 2k to 220k in the week ended August 4, following a 1k increase in the previous week. The trend in initial jobless claims appears to still be declining, but we expect a potential modest increase this week due to the timing of auto plant shutdowns.
  • 08:30 AM PPI final demand, July (GS +0.2%, consensus +0.2%, last +0.3%); PPI ex-food and energy, July (GS +0.2%, consensus +0.3%, last +0.3%); PPI ex-food, energy, and trade, July (GS +0.2%, consensus 0.2%, last +0.3%): We estimate a 0.2% increase in headline PPI in July, reflecting firmer core prices, as well as higher food and energy prices. We expect a 0.2% increase in both core measures of PPI, reflecting a tick down from the June increase based on slightly softer recent price indicators that tend to lead PPI. We do not expect a meaningful impact on prices from the tariffs that went into effect in early July.

Friday, August 10

  • 08:30 AM CPI (mom), July (GS +0.15%, consensus +0.2%, last +0.1%); Core CPI (mom), July (GS +0.19%, consensus +0.2%, last +0.2%); CPI (yoy), July (GS +2.94%, consensus +2.9%, last +2.9%); Core CPI (yoy), July (GS +2.30%, consensus +2.3%, last +2.3%): We estimate a 0.19% increase in July core CPI (mom sa), which would leave the year-over-year rate stable at +2.3%. Our forecast reflects modest increases in apparel and used car prices but weakness in the lodging category. We also expect a pause in medical care commodities inflation, reflecting recently announced prescription-drug price freezes. We also expect a trend-like gain in the shelter category, as alternative rent growth measures have softened but imputed utility costs should support the owners’ equivalent rent category. We do not expect a significant boost from the tariffs on $34bn of Chinese goods (enacted in early July), reflecting their incidence (industrial inputs and capital goods as opposed to consumer products). We look for a 0.15% increase in headline CPI (mom sa), reflecting a modest drag from energy prices.
  • 02:00 PM Monthly budget statement, July (consensus -$81.0bn, last -$74.9bn)

Source: BofA, Goldman, Deutsche Bank

via RSS https://ift.tt/2ObODCH Tyler Durden