Tag: finance

WTI extended gains overnight, after dipping on a surprise crude build reported by API, pushing to 8-month highs above $45 on mounting optimism that recent breakthroughs on a Covid-19 vaccine will lead to a swift recovery in global energy demand next year.

“The recent news around Covid-19 vaccines has boosted crude prices as markets start to look to a return to some sort of normality in 2021,” said HSBC Bank analyst Gordon Gray. “We expect OPEC+ to err on the side of caution as it evaluates how the market evolves.”

Notably, prices have also been supported by renewed geopolitical tensions, with recent attacks on a fuel depot in the Saudi city of Jeddah and on an oil tanker in the Red Sea.

API

• Crude +3.8mm (-300k exp)

• Cushing -1.4mm

• Gasoline +1.3mm

• Distillates -1.8mm

DOE

• Crude -754k (-300k exp, +475k whisper)

• Cushing -1.721mm

• Gasoline +2.18mm

• Distillates -1.441mm

Official inventory data flipped the script from API with a 754k draw (vs 3.8mm build). Gasoline stocks rose more than expected (for the second week in a row), which is worrisome…

Source: Bloomberg

Crude production rebounded from storm shut-ins…

Source: Bloomberg

WTI was hovering around $45.30 ahead of the official inventory data, and limped modestly lower after the print…

Bloomberg Intelligence Energy Analyst Fernando Valle notes that gasoline-demand headwinds loom large ahead of the Thanksgiving holiday due to restrictions on travel, with the potential for an extended build in inventories and more pain.

Source: Bloomberg

Gasoline demand remains well below fall 2019 levels at its lowest since June.

Most ominously, Bloomberg reports that the national inventory is at a seasonal high since 1994.

Stockpiles rose 2.2 million barrels to go over 230 million barrels — the U.S. is swimming in gasoline right now.

Today in “why the Federal government and the state of California should not be in the business of capital management” news…

The infamous Scott Peterson was among other death row inmates who were able to fraudulently receive Covid unemployment benefits administered by California, according to analysis released Tuesday. 

Prosecutors in California say they uncovered a “massive scam” that allowed more than $400,000 in California state benefits to be paid to inmates at San Quentin State Prison. This includes Peterson, who is famously in prison for the killing of his wife, Laci Peterson, and his unborn son. 

The Los Angeles Times was the first to report the fraud, which is being called by nine local DA’s “the most significant fraud on taxpayer funds in California history.” 

But wait, it gets better. San Quentin’s $400,000 “error in judgement” was a small drop in the bucket compared to the $140 million that was sent to other inmates across California’s 38 prisons, according the NY Post. 

The funds were obtained by claims made either by inmates, or by family and friends. Some prisoners didn’t even know claims were being submitted on their behalf. It is also being reported that “prison gangs” may have organized large scale schemes to commit the fraud.

Prosecutors say that up to $1 billion may have been paid out to people ineligible for the benefits. 

“The murderers and rapists and human traffickers should not be getting this money. It needs to stop,” concluded Sacramento County DA Anne Marie Schubert. 

And the state wants a bailout https://t.co/TBi0PpmcQp

— Quoth the Raven (@QTRResearch) November 25, 2020

With various fiscal stimulus programs having ended in the summer, and even more set to expire on Dec 31 when nearly 15 million Americans will end up without emergency unemployment claims unless the government steps in, it shouldn’t be a surprise that American incomes – largely boosted by government “transfer payments” – shrank in October, sliding -0.7% compared to September, far weaker than the -0.1% expected. At the same time spending remained strong, rising 0.5% in October, above the 0.4% expected, if a modest slowdown from the 1.2% in September, and up for the 6th consecutive month.

Another way of seeing the convergence of spending, which has rebounded strongly from the March crash, and incomes which are shrinking rapidly since the massive multi-trillion spending package in the spring, is shown below.

So with incomes shrinking as government welfare payments fade away, how did American household manage to grow spending  in October for the 6th consecutive month? Simple: by digging deeper into their savings, which as a reminder soared as high 33.7% of Personal Income following the massive fiscal stimulus in April. Well, as of October, this number has tumbled almost back to trendline, and at 13.6%, it was 1% lower than September, and 20% below its record high hit in April.

At this rate, savings will be back to “normal” just around the time the US economy double dips some time in Q1, if JPM’s forecast of a -1% GDP print in Q1 is correct. Meaning: the safety net propping up the US consumer, who accounts for 70% of GDP, is almost gone.

Finally, going back to the composition of incomes, an notable observation is that while private sector wages continued their solid recovery in October, rising 3.0% Y/Y, up from 2.6% in September and on track to pre-covid levels, government wages tumbled -2.2% which curiously happens to be the biggest annual drop in government wages on record.

One wonders: as Trump’s contemplates next steps, is one of his “presents” to the deep state a big drop in its compensation?

Despite having staged a solid rebound from cyclical lows hit just a few weeks ago, as its stock surged by almost a third on the back of a dramatic jump in the price of oil, oil giant Exxon is turning increasingly pessimistic on the future of oil price, and according to internal documents seen by the WSJ, the company has lowered its outlook on oil prices for much of the next decade. As part of its internal financial-planning process conducted this fall, Exxon cut its expectations for future oil prices for each of the next seven years by 11% to 17%.

Whereas in 2019, Exxon had internally forecast that Brent prices would average around $62 a barrel for the next five years before increasing to $72 a barrel in 2026 and 2027, this summer, the company lowered that forecast to between $50 and $55 a barrel for the next five years, before eventually topping out at $60 a barrel in 2026 and 2027, according to the documents prepared in September.

As the Journal notes, the sizable reduction suggests the Texas oil giant expects the fallout from the coronavirus pandemic to persists for much of the next decade. The projected price drop also comes as the fossil-fuel industry is contending with increased competition from renewable-energy sources and electric vehicles, as well as the prospect of increased climate-change regulation around the world not to mention a Joe Biden administration that is openly hostile to fossil fuels.

Brent is currently trading above $48 a barrel after a jump in prices this week that has brought prices back to their highest levels since spring.

With the price of oil a key variable for Exxon’s cash flow models, and thus expectations that the company can sustain its remarkable dividend which a few weeks ago had a yield of over 10% amid expectations it would be cut, the company’s new price forecast was used at an early stage of modeling its financial plan, which the company’s board was set to vote on this month, according to an Exxon executive. An Exxon spokesman declined to tell the WSJ what its current price projections are, saying that the company uses a range of prices to develop its business plans, although the company has sounded upbeat in public statements about the long-term future for the oil industry coming out of the pandemic.

Years of lower oil prices have put substantial financial pressure on Exxon, which has posted three straight quarterly losses this year for the first time on record, and before the pandemic was in the midst of a plan to spend $230 billion to pump an additional one million barrels of oil and natural gas a day by 2025.

According to Exxon, the self-correcting oil market will soon find itself in a supply shortage: the company told investors in October that current underinvestment in oil and gas production would leave the world short of needed fossil fuels in coming years. In a recent note on its website, CEO Darren Woods called the industry’s woes temporary and said that the need for Exxon’s products would increase in the near future.

“Even accounting for the short-term demand impact of Covid-19, the investment case is still clear,” Mr. Woods wrote.

The good news for the company’s investors – who have seen the value of their XOM stock plunge by over 50% this year, is that so far Exxon hasn’t even made the slightest suggestion it would be cutting its dividend. Stephen Littleton, Exxon’s head of investor relations, said Exxon evaluates capital investment over a decadeslong time horizon, and that the coronavirus hadn’t changed its long-term view. Exxon hasn’t canceled any projects because of the pandemic, only delayed them, he said.

“The fundamentals haven’t changed; the only thing that has changed is timing, because we know populations and prosperity will increase,” Mr. Littleton said in an interview.

Still, it is a fact that Exxon is struggling to cover its dividend of $15 billion a year at current oil prices, taking on debt this year to do so. So far it has maintained the payout, unlike rivals including Royal Dutch Shell PLC and BP PLC, which have cut their dividends amid this year’s cash crunch.

The company cut $10 billion from its capital expenditures after the pandemic took hold and has said it could lay off as much as 15% of its global workforce, which would total about 14,000 jobs including contract employees. Exxon also said it would reduce its capital budget to between $16 billion and $19 billion next year. Even with those cuts, Exxon would need oil prices to be between $55 and $65 a barrel in 2021 to cover its capital expenses and dividend, according to analysts estimates.

In response to investor concerns, Woods told investors in March that Exxon had stressed-tested a range of commodity prices, including low-price scenarios. If oil prices were to remain around $50 a barrel for years, a scenario Mr. Woods then called unlikely, Exxon’s debt levels would still be manageable.

After existing home sales (surprisingly) smashed expectations, new home sales were expected to rebound from their 3.5% MoM drop in September. The picture was less clear however with October’s new home sales sliding from an upwardly revised 1.002mm in September to 999k in October.

New Home sales hovered around the 1mm mark, at 14 year highs…

Source: Bloomberg

In fact, the last 3 months of home sales were all revised higher:

• July from 965K to 979K

• August from 994K to 1001K

• September from 959K to 1002K

And while off their peak, new home sales rose 41,5% YoY…

The median new home price dipped from $331.6K to $330.6K

…but the average price plunged more from a record $403.9K to $386.2K…

As 16% of new homes sold in Oct. cost more than $500,000, down from 20% prior month.

After yesterday’s disappointing drop in consumer confidence from The Conference Board, this morning’s final UMich sentiment survey was expected to fall from October’s 81.8 level (in line with the 77.0 flash print). The number were mixed, echoing the same picture as The Conference Board with current conditions slightly higher and future expectations dropping.

The final consumer sentiment index for Nov. fell to 76.9. It was 77.0 in the preliminary reading. The index was 81.8 last month.

• Expectations index fell to 70.5 vs. 79.2 last month.

• Current economic conditions index rose to 87.0 vs. 85.9 last month.

Source: Bloomberg

UMich notes, “November data were less optimistic than last month due to the resurgence in covid infections and deaths as well as partisan shifts due the outcome of the presidential election”

The drop in confidence was dominated by a plunge in Republican hope…

Source: Bloomberg

Which is odd because UMich notes that “the steep rise in covid infections had a greater impact on Democrats as 59% of Democrats reported that the coronavirus had changed their lives to a great extent compared with just 36% among Republicans.”

Summary:

• US suffers most new deaths in months
• Global deaths see new daily record
• Cases near 60 million
• US mulling abandoning travel restrictions on Europe, Brazil etc
• College students scramble to get home for the holiday
• Merkel proposes tighter restrictions
• Iran sees back-to-back record cases
• Russia sees another day of record deaths
• South Korea confirms nearly 400 new cases
• Australia’s most populous state to ease restrictions

* * *

As global confirmed COVID cases teeter on the brink of 60 million, millions of Americans are rushing home via planes, trains and automobiles to try and spend the holiday with family (even if this year, the number of seats at the table is much smaller than usual). Just in time for the holiday, the 7-day average of new cases remains at record highs, while hospitalizations have hit a new record, and daily deaths topped 2k yesterday, the largest tally since the spring.

Globally, the number of deaths record yesterday topped 12.75k in just 24 hours, a new record high, as deaths finally start to catch up to increases in case numbers and hospitalizations.

In terms of news, Reuters reported that the US government is considering removing bans on entry into the US for non-citizens who recently visited Brazil, the UK and the EU. While lifting these restrictions could lead to a resurgence in tourism, it’s more likely that it won’t have much of a near-term impact, as most airlines have cut international flights to the bone. Other bans, including on travelers from China and Iran, will remain in place.

According to Reuters, the plan has received the approval of the White House Coronavirus Task Force. Many administration officials argue the restrictions no longer make sense given that most countries aren’t subject to any travel bans. Officials believe lifting the restrictions could bolster the struggling airline industry, which has seen international travel fall by 70% this year. The Trump Administration infamously dragged its feet before imposing travel restrictions in Europe, though Trump was one of the first leaders to impose restrictions on travelers from China.

Reuters also interviewed family members of college students traveling home for the holiday, some of whom described asking their children to quarantine despite a negative test.

Finally, German Chancellor Angela Merkel proposed tighter restrictions during a Wednesday meeting with regional leaders including suggesting further reduction on the number of customers allowed in shops and tighter measures in schools in certain ‘hotspots’.

Here’s some more COVID-19 news from overnight:

Iran reported a new record for daily infections for a second day in a row, pushing the number of total known cases to 894,385. The death toll reached 46,207 with 469 more deaths in the last 24 hours, down from a day earlier (Source: Bloomberg).

The daily death toll in Russia exceeded 500 for the first time as surging infections across the country put increasing strain on hospitals and medical staff complained about a lack of medicines and protective gear (Source: Bloomberg).

India reports 44,376 cases for the past 24 hours, up from 37,975 the previous day, bringing the country total to 9.22 million. The death toll jumped by 481 to 134,699 (Source: Nikkei).

South Korea confirms 382 new daily cases, up from 349 a day ago. Total infections reach 31,735, with 513 deaths (Source: Nikkei).

Australia’s most populous state will ease social distancing restrictions after recording nearly three weeks without any local transmissions, Premier Gladys Berejiklian said on Wednesday (Source: Nikkei).

China recorded five cases on Nov. 24, down from 22 a day earlier. All infections originated overseas (Source: Nikkei).

An oil tanker in the Red Sea has been subject of a mysterious attack while it was anchored at the Saudi port city of Shuqaiq on the Red Sea, reportedly after a mine exploded.

The vessel has been identified in Bloomberg as the Maltese-flagged, Greek-managed Aframax tanker Agrari which early unconfirmed reports are saying was “attacked while at a berth” according to a statement on behalf of its owner TMS Tankers.

The statement further said that attack was from “an unknown source” just as as the tanker was undergoing preparation to depart, and it’s further said to be stable with no cargo on board, however the ship was breached by the blast.

Early reports are suggesting a mine may have been placed on the ship’s hull.

#BREAKING: Mine explodes, damaging Agrari oil tanker off Saudi Arabia near Yemen border in Red Sea: tanker suffered breat but no reported polltuion according to TMS tankers

— Amichai Stein (@AmichaiStein1) November 25, 2020

Maritime news analyst Will Collins describes of the incident: 

The Aframax tanker Agrari was “attacked by an unknown source” early this morning, while at berth in the Red Sea port of Shuqaiq, Saudi Arabia, and suffered a breach, ship management company TMS Tankers said.

TMS Tankers, which manages the 107,000 deadweight tonne (dwt) tanker, said it was struck one metre above the waterline and breached, having discharged at the port and while preparing to depart. The tanker transported a fuel oil cargo from Ventspils, Latvia to Shuqaiq, arriving on 23 November, according to oil analytics firm Vortexa.

The Red Sea, which remains among the world’s busiest shipping channels, has in recent years witnessed military tensions and incidents between Saudi Arabia and Yemen’s Houthi rebels amidst the civil war that has been raging for at least five years there.

APNewsAlert: DUBAI, United Arab Emirates (@AP) _ Private security firm says mine explodes, damaging oil tanker off Saudi Arabia near Yemen border in Red Sea.

— Jon Gambrell جون (@jongambrellAP) November 25, 2020

The latter is said to be backed and supplied by Iran, which raises the question of whether this attack is connected to rising tensions also centered on speculation that Trump may be planning some kind of preemptive military strike on the Islamic Republic just before leaving the White House in January.

As one of the most chaotic years on record comes to a close, the topic of conversation on Wall Street are bonuses. As we’ve noted (see: here & here), traders, analysts, and bankers are set to experience a flat to a slump in bonus payouts this year despite an explosion in trading and debt & equity underwriting.

The message from within Bank of America, according to Bloomberg sources, is that senior executives are likely to keep the bonus pool for sales and trading desks at last year’s level, despite a solid year in revenue, jumping more than 20% in the first three quarters of the year. 

BofA’s top leadership is mulling over large bonuses because the virus pandemic has wreaked havoc over its consumer division department and added expenses. 

Sources said some staff who expected to receive large bonuses for stellar performance are outraged. 

“Executives still have time to lobby for larger payouts to top-performing desks, and may indeed wrangle more money,” the source added.

BofA’s final bonus decision will hinge on how the fourth quarter plays out. Already, conversations have prompted senior managers to decrease bonus expectations as they conduct year-end meetings with subordinates. 

In a recent weekend briefing, a fixed-income manager told traders that they should expect bonuses that are flat compared with last year. 

New York consulting firm Johnson Associates recently released a note showing how third-quarter compensation analysis points to overall year-end incentives, including cash bonuses and equity awards, will decline on the year for Wall Street. 

“The pandemic is wreaking havoc on many parts of the U.S. economy this year, and the financial services industry is no exception,” said Alan Johnson, managing director of Johnson Associates. 

While retail and commercial bankers and asset management firms are expected to see year-end compensation incentive declines, Johnson said, he noted fixed income and equities traders could see large bonuses, anywhere from 20% to +45% over the previous year. 

For big Wall Street banks, the optics of big bonuses for traders may not be a good look as tens of millions of Americas have food and housing insecurity issues. 

By Michael Every of Rabobank

30,000 Dow, 20,000 Leagues

Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000!

Did I mention Dow 30,000?

The Dow – she is slightly more than 29,999.

The Dow is 10,000 above the number in the title of Jules Verne’s classic early sci-fi novel ’20,000 Leagues Under the Sea’.

The above more or less captures the breadth and depth of financial market coverage of ‘key events’ of the past 24 hours. As often repeated here, this is not an equity-focused Daily. However, clearly a US benchmark equity index passing into a whole new “DOW XX,XXX!” baseball-hat territory is worth mentioning. A little. Even President Trump, in-between court cases that still have what some election law experts describe as a ‘Hail Mary’ chance of prevailing, held an emergency press conference to announce the significance of the Dow development, which was very much in keeping with his equity-focused presidency.

So, 30,000. Wow. Who could ever have seen that coming at a time of infinite global central-bank liquidity?

Infamously, economists Hassett and Glassman published a book called “DOW 36,000” (no exclamation point) all the way back in 1999. Pop quiz: how many burst US bubbles ago was that? The book trumpeted that this goal would happen by 2002 or 2004. Maybe we will get there by 2022 or 2024…which economists may still try to call a win, because economists are funny like that. Inadvertently funny, but very much so. By the way, Hassett was Chairman of the Council of Economic Advisors under Trump from 2017-19; Glassman was Under Secretary of State for Public Diplomacy and Public Affairs from 2008-09, and from 2009-13, executive director of the George W Bush Institute (For Policymakers Who Can’t Forecast Good and Who Wanna Learn to Do Other Stuff Good Too).

But back down to 20,000 – leagues. There is a huge amount of important stuff still going on in the depths across geographies and geopolitics and markets. Massive global realignments and structural shifts are about to occur if Biden shifts policy, or if he continues on from what Trump was doing, or even if Trump somehow manages to prevail: that covers all bases.

Yet much of the media are opting to merely dip their toes in these deep, dark waters. For example, yesterday saw one US journalist tweet about Joe Biden’s socks as a contrast with George W. Bush’s.

George H.W. Bush was known for his socks, maybe Biden will be too? Today he wore dark blue socks adorned with lighter blue dogs. (Yes, there are plenty of more substantive things to tweet about but we can have some fun sometimes too.) pic.twitter.com/8xxTusXafQ

— Jennifer Epstein (@jeneps) November 23, 2020

Is this, along with “DOW XX,XXX!” really going to be the kind of analysis we see ahead? If so –and steel yourself for the incoming pun, folks– we are 20,000 Leagues above the ‘see’. Some will love that, while others will be feeling seasick.

At a tangent, I can see some parallels between Verne’s 1870 world of ‘20,000 Leagues Under the Sea’ and the late-2020 world of Dow 30,000.

• Verne’s hero is Captain Nemo. Yes, kids, the fishy Nemo you know today is a post-modern reference to classic 19th century French sci-fi: how about that? And Verne’s own use of Nemo was a translation from the Latin translation of the ancient Greek for “No man”, a reference to Odysseus’s escape after his clash with the Cyclops Polyphemus: how about that? Things that look modern can actually have very deep roots; and there is usually more going on under the surface than the child-friendly animation, and associated merchandising, we see.
• Verne’s iteration of Nemo travels the world’s seas in his futuristic submarine The Nautilus like a crypto libertarian of the kind looking at Bitcoin today and grinning: that after his homeland had been conquered and his family slaughtered by a powerful imperialist nation. (“I am not what is called a civilized man, Professor. I have done with society for reasons that seem good to me. Therefore, I do not obey its laws.”) He is chased down by navy vessels from the US in particular. 
• The Nautilus has a battle with a giant squid: hasn’t the latter been used as a market metaphor by Matt Taibbi in recent years, and aren’t we hearing about a political Kraken from some (leftfield, or rather rightfield) quarters?
• Nemo also offers the following wise words: “…we cannot prevent equilibrium from producing its effects. We may brave human laws, but we cannot resist natural ones.”

Anyway, I need to come up for air, so let’s raise the periscope and see what’s up there…

Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000! Dow 30,000!