Month: March 2024

Authored by Simon White, Bloomberg macro strategist,

The current rally in the dollar is soon likely to face resistance from rising real-yield differentials with the rest of the world, driven by global inflation that is falling faster than in the US.

The dollar is on a mini spurt higher, with the DXY up almost 2% from its March lows, and up 3.3% year-to-date.

That has been driven mainly by selloffs in developed-market currencies such as the Swiss franc and the yen, with the DXY outperforming the broad trade-weighted dollar (white line in chart below), which includes EM as well as developed-market currencies.

But that is diverging from fundamentals, principally real-yield differentials. We can take the real yields of the currencies in the DXY basket (EUR, JPY, GBP, CAD, SEK and CHF) versus dollar real yields, and sum them using the same weights as in the DXY calculation, to create a DXY Weighted Real Rate. As the chart below shows, the DXY is currently diverging higher from this measure.

The DXY Weighted Real Rate is rising (it is shown reversed in the chart above) as inflation in the rest of the world is falling faster than in the US.

That trend is likely to continue. The US was among the first countries to experience elevated inflation, and one of the first to see fairly steep disinflation. It is now in the vanguard of countries realizing that inflation will not be a here-today-gone-tomorrow problem, and will instead be sticky and prone to re-accelerating.

In other words, US real yields are likely to remain more buoyant than in the rest of the world, even when central banks begin cutting interest rates, as they are all poised to be more cautious than suggested by current pricing.

The options market implies generous odds for a weaker dollar: about a 1-in-8 chance USD/JPY touches 140 by the end of June; the same odds that EUR/USD touches 1.13; and a 1-in-6 chance GBP/USD touches 1.32 (with sterling also likely structurally underpriced, as Brexit has proven surprisingly positive for the UK’s debt and external-account situation).

In the latest of countless cautionary tales about green energy, a large-scale Texas solar farm has been devastated by a hail storm that took much of the facility off-line for an unknown duration. 

The March 15 storm battered thousands of panels with hail described as anywhere between golf ball- and baseball-sized. “They look like somebody took a shotgun and blasted it into the air and let the pellets fall down and shatter holes all in them,” awestruck Fort Bend County resident Nick Kaminski told ABC 13. Actually, the damage looks much more like it was inflicted with direct fire: 

Located about 43 miles southwest of downtown Houston, the Fighting Jays Solar farm is a joint venture of Copenhagen Infrastructure Partners and AP Solar Holdings LLC. Sprawling across 3300 acres, it’s billed as promising 350 MW of capacity. Or, at least, it was before Mother Nature intervened.  

Flyover video showed the sweeping breadth of the destruction:

Net Zero fail: A single hail storm in Damon, Texas, destroys thousands of acres of solar panels.

Is it really wise to make ourselves dependent on expensive energy infrastructure that can be rendered permanently useless by a bout of bad weather? pic.twitter.com/pV3tdyRkeQ

— Wide Awake Media (@wideawake_media) March 26, 2024

A spokeswoman for GOP Rep. Troy Nehls, whose district encompasses the solar farm, told Fox News Digital that the incident raises serious questions about where solar farms are built, and undermines green zealots’ belief that fossil fuels can be retired anytime soon: 

“As far as solar farms being damaged where hail and tornadoes are common, those companies knowingly run the risk of building solar panel farms in these areas. Events like this underscore the importance of having an all-of-the-above energy approach to meet our energy needs and showcase how our country cannot solely rely on or fully transition to renewable energy sources like this.“

Some residents worried that cadmium telluride, a toxic ingredient of some solar panels, would find its way into the local soil and well water. However, Copenhagen Investment Partners reassured Fox that “the silicon-based panels contain no cadmium telluride and we have identified no risk to the local community or the environment.” 

Nonetheless, the Texas Commission on Environmental Quality has dispatched investigators to make their own assessment of the health implications. 

The sweeping ruin witnessed at the Fighting Jays solar farm is far from unique. A 2019 hail disaster caused roughly $70 to $80 million in damage to the Midway Solar farm in West Texas. Last June, a hailstorm in Nebraska destroyed nearly every last panel at a solar farm north of Scottsbluff: Of 14,000 panels, 13,650 were instantly turned into trash, though a spokesman for the facility unconvincingly assured a reporter that the goal was for the panels to be recycled.  

These and other episodes underscore a troubling trade-off in solar power: States with abundant sunshine are simultaneously more prone to hailstorms and tornados. 

Of course, solar isn’t the only renewable energy with increasingly evident drawbacks. As the Epoch Times last week reported in a story republished at ZeroHedge, some scientists are sounding alarms about the effects on cell and membrane structures of “infrasound” produced by wind turbine blades. 

However, nothing will derail leftists from mindlessly plowing money into inefficient and problematic “green energy solutions.” 

Authored by James Rickards via DailyReckoning.com,

Gold is trading at $2,211 per ounce this afternoon. Since its interim low of $1,832 per ounce on Oct. 5, 2023, gold has posted a 21% gain. That’s in less than six months. Almost half of that gain occurred in the one-month period from Feb. 11 to March 11.

That overall gain is especially impressive considering gold had been stuck in a fairly narrow range of $1,650–2,050 for the past two years. That’s a range of about 10% above and below the midpoint of $1,850. Starting from the high end of that range, gold traversed the entire range to the upside and beyond in just one month.

Now, any reference to “gold prices” is an interesting one. If you treat gold as a commodity, then the price per ounce measured in dollars is one way to think about price.

On the other hand, if you think of gold as money (as I do) then the dollar price is not really a price — it’s a cross-rate similar to euro/dollar (about $1.08 today) or dollar/yen (about 152 today). When analysts say the “price” of gold is $2,211 per ounce, I think of that data as showing the gold/dollar cross-rate = $2,211.

That’s useful because there are two sides to a cross-rate. While most analysts say that gold has rallied from $2,000 to $2,211 per ounce, it is just as valid and perhaps more useful to say that the dollar has crashed from 1/2,000 per ounce to 1/2,211 per ounce.

In this analysis, gold is constant (by weight) and the dollar gets stronger or weaker relative to gold. All of the recent market action points to a weaker dollar.

This mode of analysis also solves another market riddle. Given huge U.S. budget deficits, unprecedented levels of U.S. national debt, slow growth, rising unemployment and persistent inflation, how is it possible that the dollar has been so “strong” lately?

The answer is that it’s only been strong relative to the euro, yen, sterling and some other reserve currencies and as measured by certain dollar indexes (DXY, Bloomberg, etc.) composed of baskets of currencies (but not gold).

But that’s often because those other currencies are issued by countries with debt and growth problems even worse than the U.S.’ Those currencies dropping against the dollar have the look and feel of a good old-fashioned currency war.

It’s only when you use gold as your metric that the real weakness in the dollar becomes apparent, as it should. In effect, certain currencies are weakening against each other but all currencies are weakening against gold.

Returning to the “higher gold price” frame, there are a number of reasons for this trend.

The first factor is simple supply and demand. Mining output and recycled gold have been about flat for the past eight years running between 1,100 metric tonnes and 1,250 metric tonnes per year.

At the same time, central bank demand for gold has surged from less than 100 metric tonnes in 2010 to 1,100 metric tonnes in 2022, a 1,000% increase in 12 years. Central bank gold demand remained strong in 2023 with 800 metric tonnes acquired through Sept. 30, 2023. That puts central bank gold demand on track for a new record in 2023. There’s no sign of that demand slowing in 2024.

Constant output with surging demand by central banks does not by itself explain the recent surge in gold prices, but it is a contributor. Importantly, continued strong demand by central banks puts a floor under gold prices. This sets up what we describe as an asymmetric trade where downside is limited but upside is open-ended.

The second factor driving gold prices higher is the need for hedging. This is not the same as inflation hedging. It covers a larger list of risks including geopolitical risk, risks of escalation in the Ukraine and Gaza wars, Houthi efforts to close the Red Sea and Suez Canal, increasing risks of war with China and the intrinsic risk of a senile president of the United States.

As the list of risks grows longer and potentially more dangerous, the need for a hedging asset such as gold that does not rely on any nation-state for its value increases. I call gold the everything hedge.

Finally, gold prices are being driven higher by U.S. threats to steal $300 billion in U.S. Treasury securities from the Russian Federation. Those assets were legally purchased by the Central Bank of Russia as part of their reserve position.

The actual securities are held in custody in digital form at European banks, U.S. banks and the Brussels-based Euroclear clearinghouse. Only about $20 billion of those Treasury securities are held by U.S. banks; the majority are held by Euroclear. Those assets were frozen by the United States at the outbreak of the war in Ukraine.

Freezing assets means the Russians cannot collect interest or sell or transfer the assets or pledge them as collateral. Asset freezes are used frequently by the U.S. including in the cases of Iran, Syria, Cuba, North Korea, Venezuela and other nations. Often the assets are frozen for years but ultimately released to the owner as happened in the case of Iran after 2012.

Now the U.S. wants to go further and actually seize the assets, which may be viewed as outright theft under international law. The U.S. proposes to use the $300 billion to finance the war in Ukraine. European entities have expressed considerable uncertainty about this plan but the U.S. has maintained the pressure and wants to complete the theft before the June and July summits of G7 leaders and NATO members.

If the U.S. steals these assets, Russia will likely confiscate an equivalent amount of industrial and commercial assets located in Russia and owned by German, French, and Italian interests among others.

The bottom line is that if U.S. Treasury securities are not a safe investment, then securities of Germany, Italy, France, the U.K. and Japan are no better. The only reserve asset free of this kind of digital theft is gold. Nations are beginning to diversify into gold in order to insulate themselves from digital confiscation by the collective West.

Finally, there’s an interesting bit of math here, which I’ve explained in the past that shows each $100 per ounce increment in the price of gold is a smaller percentage gain because the denominator is larger.

That makes each $100 milestone ($2,400, $2,500, $2,600) easier to reach than the one before. People don’t really notice this; they just focus on the dollar amount of the gains. But this explains how price rallies gather crazy momentum.

All of these trends — flat output, rising central bank demand, hedging, protection against digital confiscation and simple momentum — will continue. Based on those trends, one would expect the gold price rally to continue as well.

The trend is gold’s friend.

A combination of higher mortgage rates and sky-high housing prices has made it cheaper to rent than to own a home in all of America’s largest metropolitan areas, according to a new report by Realtor.com.

The report, which tracks the top 50 metro areas in the US, found that while it was already cheaper to rent than buy in 90% of metros last year, it’s now pushed to 100% – the first time this has happened since Realtor.com began tracking renting vs buying three years ago.

“With rents continuing to fall and the cost of buying a home remaining high” thanks to mortgage rates and home prices, “renting a home is now a more cost-effective option in all major U.S. markets,” said Realtor.com chief economist, Danielle Hale.

To be sure, buying a house is a form of forced savings that builds wealth via an asset that appreciates over time. But the current market is too expensive for many Americans, given the steep rise in borrowing costs and home prices, relative to rents, in recent years.

For instance, the median rent in the New York–Newark–Jersey City metro area was $2,852, which was far cheaper than the $4,995 monthly cost of buying. –MarketWatch

The report calculates the monthly cost of buying a home by averaging the median listing prices of a studio, one-bedroom and two-bedroom homes in a tracked metro. It’s then weighted by the number of listings in each market, and assumes buyers are putting down 8% on a home purchase (which then tacks on Private Mortgage Insurance (PMI) of course), with a mortgage rate of 6.78%.

As for that PMI which pushes costs higher – the nationwide average down payment on a home in America is 14.4% according to Forbes – still below the 20% threshold to eliminate PMI.

Rents, meanwhile, have declined – however they sit just 2.8% below the 2022 peak.

The declines were observed across the spectrum:

Highlights from the report (via Realtor.com):

• February 2024 marks the seventh year-over-year rent decline in a row for 0-2 bedroom properties observed since trend data began in 2020. Asking rents dipped by $7 or -0.4% year-over-year (Y/Y).
• The median asking rent in the 50 largest metros decreased to $1,708, down by $4 from last month and down $50 (-2.8%) from its August 2022 peak. 
• Median rent was mixed across size categories: Studio: $1,426, down $21 (-1.5% ) year-over-year; 1-bed: $1,587, down $6 ( -0.4%) year-over-year; 2-bed: $1,889, down $15 (-0.8% ) year-over-year.
• In all of the 50 largest U.S. metros, renting a starter home is a more affordable option than buying one. In these markets, the monthly cost of buying a starter home in February 2024 was $1,027 more or 60.1% higher than the cost of renting.
• The overall advantage of renting became more pronounced. The monthly savings from renting were $162 higher compared to the prior year across the top 50 metros.

In December, the Wall Street Journal reported that homeownership “has become a pipe dream for more Americans, even those who could afford to buy just a few years ago.”

It is now less affordable than any time in recent history to buy a home, and the math isn’t changing any time soon. Home prices aren’t expected to go back to prepandemic levels. The Federal Reserve, which started raising rates aggressively early last year to curb inflation, hasn’t shown much interest in cutting them. Mortgage rates slipped to about 7% last week, the lowest in several months, but they are still more than double what they were two years ago. 

One can see the impact of high mortgage rates over the course of a loan. A few percentage points can mean hundreds of thousands of dollars more in interest spent over the life of a 30-year mortgage.

This boils down to a much lower average price that borrowers can afford.

As the report notes further, first-time and young buyers are ‘still stuck on the sidelines’ – with around 1/3 of buyers last year being first-time home buyers, below the historical average of 38%, according to the National Association of Realtors.

What’s more, the median age of first-time buyers last year was 35-years-old, the second-highest on record after 2022’s peak of 36.

By Alan Condon of Becker Hosptial Review

Tennessee’s Jellico Regional Hospital, a 25-bed critical access facility, closed March 9, making it the 36th rural hospital to shutter or no longer provide inpatient services since 2020, according to data compiled by the University of North Carolina’s Cecil G. Sheps Center for Health Services Research. 

The closures highlight the heightened financial challenges that rural hospitals face amid persisting workforce shortages, rising costs and leveling reimbursement. In addition, only 45% of rural hospitals now offer labor and delivery services, and in 10 states, less than 33% do, according to the Center for Healthcare Quality and Payment Reform.

Below are the 36 rural hospitals that closed since 2020, beginning with the most recent.

Editor’s note: Facilities with an asterisk (*) signify converted closures (facilities that no longer provide inpatient services, but continue to provide some services, such as primary care, skilled nursing care or long-term care).

• Jellico (Tenn.) Regional Hospital
• St. Mark’s Medical Center (La Grange, Texas)
• Herington (Kan.) Hospital
• Spectrum Health Kelsey Hospital (Lakeview, Mich.)
• Indiana University Health Blackford Hospital (Hartford City, Ind.)*
• Martin General Hospital (Williamston, N.C.)
• Patients Choice Medical Center of Smith County (Raleigh, Miss.)
• St. Margaret’s Health-Spring Valley (Ill.)
• UPMC Lock Haven (Pa.)*
• St. Margaret’s Health-Peru (Ill.) (OSF Healthcare expected to reopen the hospital this spring)
• Ascension St. Vincent Dunn (Bedford, Ind.)
• Blessing Health Keokuk (Iowa)
• Audrain Community Hospital (Mexico, Mo.)
• Callaway Community Hospital (Fulton, Mo.)
• Acoma-Canoncito-Laguna Service Unit (Acoma, N.M.)*
• Galesburg (Ill.) Cottage Hospital*
• MercyOne Oakland Medical Center (Oakland, Neb.)*
• Community HealthCare System-St. Marys (Kan.)*
• Perry Community Hospital (Linden, Tenn.)
• Northridge Medical Center (Commerce, Ga.)*
• Southwest Georgia Regional Medical Center (Cuthbert, Ga.)
• Shands Lake Shore Regional Medical Center (Lake City, Fla.)
• Cumberland River Hospital (Celina, Tenn.)
• Bluefield (W.Va.) Regional Medical Center*
• Saint Luke’s Cushing Hospital (Leavenworth, Kan.)*
• Shands Live Oak (Fla.) Regional Medical Center*
• Shands Starke (Fla.) Regional Medical Center*
• Williamson (W.V.a) Memorial Hospital*
• Decatur County General Hospital (Parsons, Tenn.)
• Sumner Community Hospital (Wellington, Kan.)
• Edward W. McCready Memorial Hospital (Crisfield, Md.)*
• Mayo Clinic Health System-Springfield (Minn.)*
• Central Hospital of Bowie (Texas)*
• UPMC Susquehanna Sunbury (Pa.)*
• Mountain View Regional Hospital (Norton, Va.)*
• Pinnacle Regional Hospital (Boonville, Mo.)

The fallout from the bridge collapse in the Port of Baltimore is hitting a wide range of companies, from those that export coal to those that import automobiles, tractors, and cheap Chinese goods that are eventually sold on Amazon. The latest troubles come from the Maryland Cruise Terminal, home to Carnival Corp. 

On Wednesday, Carnival warned port disruptions will reduce annual adjusted earnings by $10 million. The cruise line operates ships from the terminal year-round that sail through the Caribbean Sea. 

The removal of the massive wreckage left after a container ship rammed into the 1.6-mile-long Francis Scott Key Bridge and sent it crashing into the harbor’s only shipping lane, effectively blocking all access to a large swath of the port, could take weeks, if not months. 

Stephen Flynn, a professor of political science and civil and environmental engineering at Northeastern University, told USA Today that it could take several weeks or a couple of months for salvage crews to clear the channel. 

“It doesn’t have to be 100% clear in order to turn the lights back on and have the port moving again,” Flynn said, adding it could take a year or more to clear the wreckage completely. 

“This is a really hard, messy problem… It’s a bit like a really complex, dangerous jigsaw puzzle,” he said.

On a conference call with investors, Carnival Chief Executive Josh Weinstein said its Baltimore terminal operations have been moved to a temporary space in Norfolk, Virginia, “which should help to minimize operational changes.” 

Weinstein said the loss of Baltimore profit hasn’t been factored into full-year guidance. 

Carnival raised its full-year adjusted profit guidance by five cents to to 98 cents a share. For the first quarter, which ended on Feb. 29, Carnival recorded a loss of about $214 million, or 17 cents a share. This was much better than the $693 million loss, or 55 cents a share, in the same period one year ago. 

Besides Baltimore, Carnival is also facing disruptions in the southern Red Sea as Iran-backed Houthis continue attacking commercial vessels with drones and anti-ship missiles. 

While mega companies can easily pick up and leave Baltimore, as seen by Carnival, this will have catastrophic consequences for the local economy as layoffs are only beginning. 

Sigh, Baltimore City, surrounding counties, and the State of Maryland. We feel for the residents who are losing their jobs because radical Democrats in the state were more concerned about DEI than improving infrastructure. 

Many are asking this question: Why didn’t the government install protective pilings around the bridge to prevent ship strikes from large vessels? 

Authored by Darlene McCormick Sanchez via The Epoch Times (emphasis ours),

Mass migration exposes the United States’ food supply to diseases and parasites that could ultimately affect national security, animal health experts told The Epoch Times.

With unfettered illegal immigration—some 9 million encounters since 2021—the normal guardrails for inspection are ignored, raising the likelihood of unwanted diseases being brought across the border.

Dr. Michael Vickers has been a veterinarian for about 50 years and served on the Texas Animal Health Commission (TAHC),

The threat to the food supply is already apparent from the past cases of tuberculosis (TB) transmitted from illegal immigrants to dairy cows in Texas, he said.

Concerns are growing that it’s only a matter of time before U.S. agriculture experiences a fresh disaster on a grand scale, Dr. Vickers said.

“These people are just destroying our country. And our food supply is going to be a real critical issue,” he told The Epoch Times.

In recent years, thousands of Texas cattle have been slaughtered after being infected with drug-resistant TB through contact with illegal aliens who end up working in dairies, Dr. Vickers said.

He recalled two separate instances in which dairy herds were infected with human strains of TB in the Texas Panhandle. Certain strains of TB are zoonotic, meaning that they can be spread between humans and animals.

One Texas herd of about 10,000 was affected in Castro County in 2015, and another 13,000 cattle were affected in Sherman County in 2019, according to TAHC records.

Investigators found that the human strains had originated outside of the United States.

“Most of the dairy herds in the United States are actually milked by people from Central America and beyond,” Dr. Vickers said.

The USDA bought the Castro County herd and slaughtered it, he said. The Sherman County herd, which consisted of higher-priced organic cows, continued to be tested for TB, with infected animals removed from the herd.

Dr. Vickers said he learned that 12 illegal immigrants who were working with those dairy herds were infected with TB.

Rules meant to keep people who are carrying disease out of the United States have been sidelined under the Biden administration, according to Ammon Blair, a border security advocate at the Texas Public Policy Foundation and former Border Patrol agent.

“We’re really just mass releasing these people into the United States that could be carrying multiple diseases that aren’t even checked,” he told The Epoch Times.

For the first time in a quarter of a century, a New World screwworm resurgence is underway in Central America—a region that many migrants pass through on their way to the U.S. border.

Dr. Vickers fears that the screwworm could make its way into the United States again.

Susan Kibbe, executive director of the South Texans’ Property Rights Association, said she’s old enough to remember the screwworm outbreak when she was a teenager in Texas. She recalls having to scrape screwworm maggots out of the bellybuttons of newborn calves.

“It was devastating,” she said.

Ms. Kibbe told The Epoch Times that she is concerned about diseases being brought into Texas from mass illegal immigration from South America through the Darién Gap in Panama and into Central America.

She said a fever tick outbreak has already driven some ranchers out of business and that any new disease or parasite outbreak could push more ranchers to the financial brink—and endanger food security.

Texas counties bordering Mexico are already under a fever tick quarantine to stop them from spreading to livestock and deer in the state.

Fever ticks can carry a parasite that causes babesiosis, a malaria-like disease that can decimate a herd.

“We need to be food and energy independent and not dependent on other countries that don’t have our best interests at heart. I mean this is a big deal,” Ms. Kibbe said.

Central American Disaster

Costa Rica declared a screwworm emergency in February after reporting its first case in July 2023, according to the USDA Foreign Agricultural Service.

Costa Rica’s animal health authority, SENASA, reported the case in the Corredores region of southwestern Costa Rica near the Panamanian border crossing of Paso Canoas.

The USDA stated that despite a weekly aerial release of nearly 15 million sterile flies, Costa Rica hasn’t been able to halt the pest’s progress, placing not just Costa Rican dairy and beef cattle at increasing risk but also endangering wild animals, domestic pets, and humans.

That prompted the emergency declaration, which will provide access to additional financial resources that SENASA needs to ramp up its campaign to re-eradicate New World screwworm from Costa Rica, according to the USDA. The agency also imposed additional requirements on live animals entering the United States from Costa Rica.

Read more here…

‘Soft’ survey data has been a bloodbath this week with regional Fed surveys all slumping and this morning’s Chicago PMI uglier than all expectations.

That smashed ‘hope’ – the spread between hard and soft data – back to cycle lows…

Source: Bloomberg

Today’s Chicago PMI plunged to 41.4 – its lowest since May 2023 – from 44.0 (and well below the expected bounce to 46.0)…

Source: Bloomberg

That was below all analysts expectations for the second month in a row…

Source: Bloomberg

Under the hood was even more problematic:

• New orders fell at a faster pace; signaling contraction

• Employment fell at a slower pace; signaling contraction

• Inventories fell at a faster pace; signaling contraction

• Supplier deliveries fell and a faster pace; signaling contraction

• Production fell at a faster pace; signaling contraction

• Order backlogs fell at a slower pace; signaling contraction

Worse still, Prices paid rose again!

So, in summary: slower growth, declining production, shrinking orders, falling employment… and accelerating inflation – is it any wonder that ‘soft survey’ data is collapsing – not exactly election-winning headlines.

By Michael Msika, Bloomberg Markets Live reporter and strategist

For investors worried about frothy stock valuations, recently out-of-favor European energy stocks might be the answer.

After five months of losses, the sector is up more than 6% in March and it’s heading for the best month since late 2022. The reversal comes as worries about overheated markets and the tech-led rally grow, and investors are again lured to cash-rich, stable companies.

Energy is a “cash machine and a geopolitical hedge,” say Berenberg strategists Jonathan Stubbs and Leoni Externest. They see support from record relative valuation lows, high cash generation as well as continued share buybacks. Furthermore, the sector offers a natural buffer against the escalation of global tensions, according to the broker.

The industry’s total dividends are set to rise to about €37 billion ($40 billion) this year and buybacks are seen reaching a record €27 billion, according to Bloomberg Intelligence data. The dividend yield stands at 4.8%, about 40% higher than for the broader market.

Oddo strategist Thomas Zlowodzki upgraded energy stocks to overweight last week, adding to upbeat recommendations from JPMorgan and Barclays. “The recent rebound in oil prices is set to continue, driven by short, medium and long-term factors,” he says, citing geopolitical tensions, discipline by OPEC and slowing global production. He also sees the consensus as “too conservative” and expects 1% EPS growth in 2024 and 5% in 2025 versus the mid-single digit drop seen currently.

The conflict in the Middle East, as well as potential consequences of the attack in Russia last weekend are likely to keep tensions high around oil supply. Separately, an ongoing economic recovery in Europe, stimulus in China and a resilient US economy are all supportive for demand.

Still, Bank Of America strategists expect demand to fade as the global economic outlook turns sour, keeping an underweight stance. The latest earnings season confirmed a slowdown in profits and earnings are expected to falter further. Energy shares are still trailing the broader market year-to-date, even as Brent oil has surged 13% in 2024.

Yet investors started to respond. According to a BoA European fund manager survey published in March, energy is the sector that has seen the largest increase in positioning compared with February. Still, only a net 3% of respondents are overweight, making it under-owned against historical data. Meanwhile, investors see energy as the most undervalued sector out there, the survey shows.

The sector is cheap on an absolute and a relative basis, trading at forward P/E of 8.9, a 36% discount to the broader market. Both figures are significantly away from long-term averages, and should higher oil prices start feeding into earnings upgrades, the sector might look even cheaper.

Finally, the technical picture is also pointing to some upside ahead, according to DayByDay technical analyst Valerie Gastaldy. “The oil and gas sector relative strength has been consolidating for one year. It is now time for a bounce, as it’s back at the previous low area,” she says.

Final March UMich Inflation expectations dropped notably. 1-year inflation exp fell from 3.0% in Feb and from 3.1% in flash March data to 2.9% final. at the longer-end, inflation expectations fell to 2.8%…

Source: Bloomberg

The headline sentiment index climbed to 79.4 from 76.5 earlier in the month, reaching the highest since mid-2021…

Source: Bloomberg

Republican confidence surged, while Independents were less confident…

“Not only did inflation expectations fall sharply, so did inflation uncertainty,” Joanne Hsu, director of the survey, said in a statement, referring to progress in recent months.

“As such, consumers are now broadly in agreement that inflation will continue to slow both over the short term and the long term.’’

Consumers’ views about their current personal finances rose to the highest level in over two years, while their present outlook for the economy improved to the best since July 2021.