23 Nov A BIFURCATED MARKET
Markets were bifurcated on the re nomination of Fed Chair Powell. It is widely assumed he will not alter the path of monetary policy.
At casual observation, several bulge bracket firms have issued warnings that volatility in the markets can rise considerably. Morgan Stanly believes the NASDAQ can stage a quick 10%-15% decline. Bank America made as stronger pronouncement stating “There is a Mother of All Bubbles in Tech.”
Bloomberg writes yesterday the massive concentration in a few companies or sector is unprecedented. This observation is not new however the Newswire did write approximately 25% of the NASDAQ members are trading at a 52-week low and the number of companies hitting new lows outnumbered the number hitting new highs for five straight days. The above data is five times greater than the average reading as per Bloomberg.
Bloomberg also writes data going back two decades there has never been another day when so many stocks fell to new lows as the overall index climbed to a new highs.
Wow! Talk about an imbalance.
Speaking of wow, OPEC + stated yesterday that if the US and other “oil consuming nations release reserves it will reassess its planned oil-output increase.” Mid-day the US and several other nations—excluding China– did make the announcement that such a release is to occur.
Late last week it was reported that the US and China were negotiating to have a coordinated release.
How will this unfold?
Oil is the ultimate geopolitical weapon. Saudi Arabia is incensed the US is again pivoting to its arch enemy Iran. Moreover, Riyadh has been denied White House access, the killing of the Saudi journalist is the accepted reason for the snub. The Sheikdom has made a very public pivot towards China albeit no one knows if this just posturing or something of greater significance.
Some believe this pivot might be the beginning of the end of petrodollars and oil being paid with something other than dollars. Such a move if occurs would be gargantuan.
As noted last week, OPEC failed to reach its planned September output by 750,000 barrels because of shortages of workers and materials. The quota shortfall was primarily based in the smaller producing members. Planned production in October was also not met for similar reasons.
Some believe Riyadh has the spare capacity to make up the loss production but the question is does it want to?
It is now widely accepted the current oil tightness is primarily the result of western government policies, a policy that might not change for at least 12-36 months. OPEC + balance sheets are/were greatly weakened and I believe this group will take every opportunity advantage to repair its finances.
Commenting about the Treasury market, the curve steepened nominally as both short and long dated Treasuries sold off. Fed Funds futures are suggesting the first interest rate increase may occur in June, a view validated by the two-year Treasury. Longer dated Treasuries declined in price, the result of the realization that inflation is not transitory.
What will happen today?
Last night the foreign markets were down. London was down 0.02%, Paris down 0.27% and Frankfurt down 0.67%. China was down 0.21%, Japan up 0.09% and Hang Seng down 1.20%.
The Dow should open flat but technologies are continuing their interest rate induced selloff. The President ordered the release of oil of the strategic reserves in a challenge to OPEC +. Oil is down about 0.50% to $76.50/barrel. The 10-year is off 7/32 to yield 1.67%.