29 Sep DISJOINTED THOUGHTS
Is OPEC really going to cut production for the first time since 2008? It was announced the cartel will lower production by 796,000 barrels per day to 32.5 million. Depending upon the source, the world is oversupplied between 500,000 and 1 million barrels a day.
I rhetorically ask is Saudi Arabia going to retaliate because Congress over road by a large margin the President’s veto of the 9-11 bill? What are the ramifications of the US no longer cooperating with Russia in Syria? What is the impact of surging overnight interest rates for Saudi Arabia? All of the above is impacting the long awaited first Saudi international bond offering that is needed to ease liquidity issues in the formerly cash rich kingdom.
Will Saudi Arabia begin selling US Treasuries and other American assets that total around $750 billion? The kingdom holds about $117 billion in US Treasuries.
Against the above backdrop, oil advanced about 6%, an advance that supported equities. Oil shares were leading the market before the news was announced, the result of declining inventories. This is the fourth such decline in as many weeks. Consensus had expected an increase in each of these weeks.
Are the oil dynamics rapidly changing, the inverse of the consensus view?
Speaking of which, most have extrapolated today’s environment into eternity. Change is the only certainty. It is only the velocity of change that has changed, a velocity that can be frightening.
Yesterday FRB Chair Yellen testified to Congress stating the majority of central bank’s policy setting group sees an interest rate increase as likely needed. There was little reaction to the headlines given that such are consistent with pronouncements made the previous weeks.
As inferred, equities were relatively quiet until the OPEC announcement. Bloomberg writes the S & P 500 has hovered between its average prices during the past 50 and 100 days for 12 of the past 13 session, the most since 1992, the result of the markets being entirely co-opted by cross correlated trading models steeped in technical analysis.
What will happen today?
Last night the foreign markets were up. London was up 1.14%, Paris up 1.19%, and Frankfurt up 0.86%. China was up 0.36%, Japan up 1.39% and Hang Sang up 0.51%.
The Dow should open flat. Oil is also flat. The 10-year is flat at a 1.58% yield.