Please be advised of the following Daily Market Brief from the analyst desk at Swissquote Bank, Switzerland’s leading online bank.
US housing to provide early signal
(Peter Rosenstreich, head of market strategy)
The US will report existing home sales which are expected to soften slightly to 5.50m after surging to the highest levels since 2007. Higher mortgage rates (since Oct 30-yr fixed rate mortgages are up 85bp to 4.18), driven by the steeper Fed normalization path will continue to cool the housing market. This should represent the last of sideline buyers entering the era of historically low interest rates. We currently view the markets as all inexplicably drinking the same Kool-Aid. Trump fiscal spends and tax reforms have had near magical effects in convincing markets that the end of monetary support will be a smooth transition and actually enhancing global growth and therefore corporate profits. With the Dow rallying to new all-times highs the US consumer has been lulled into a false sense of wealth (and well-being). Broader US economic data has failed to convince us of anything more than a temporary upswing in a larger cyclical downturn. We remain skeptical that President trump will accomplish anything close to the miracle growth rhetoric he has been supplying. Faltering in stocks, US economic data and political inaction will take Fed “dots” off the chart. Given the significantly overbought USD positioning (IMM data) we anticipate a correction heading towards Jan 20th. With US short-end yields upside stalled watch for a retracement of USDJPY to 114.74 near term support.
Crude oil prices rise on foggy outlook
(Arnaud Masset, market analyst)
The West Texas Intermediate surged to $53.60 a barrel on Wednesday as the API weekly report was anticipated to show a drop of 4.15 million barrels, while the EIA report due later today is expected to show a contraction of 2.5 million barrel in US crude stockpile. According to the EIA, US inventories shrank during the past four weeks by a total of 7 million barrels. With the OPEC output cut deal in the pipeline and a broad willingness amongst oil producers to shore up prices, we do not exclude further improvement in crude oil prices.
However, the downside risk is quite significant as most recent oil gains are based on an optimistic outlook. Indeed, OPEC crude oil production reached an all-time high in November, while Libya reopened two of its biggest oil fields which are expected to lift the country’s output to 270k barrels a day within the next few months, compared to 175k currently. According to Baker Hughes, the US oil and gas rig count increased by 12 sites last week which brings the total to 610, compared to 316 in late May this year. Finally, according to the CFTC, net speculative positioning has exceeded 300k contracts on the NYMEX, the highest level since July 2014.
All in all, if everything goes according to the plan, we may see further crude oil gains. Nevertheless, the market positioning together with the upside in production levels mean that the downside risk in crude oil prices is quite significant. Investors should remain open to all possibilities, especially a debasement of prices.
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