06 Oct ENERGY, FINANCIALS AND TECHNOLOGIES LEAD EQUITIES HIGHER
Energy, financials and technology led equities higher while the yield on the 10-year Treasury spiked above 1.53%. The ISM Services Index was better than expected, likely keeping the Fed on track to announce a pullback in bond buying.
The gains permitted the S & P 500 to rise above the key 100-day moving average.
Oil is front and center. The world is living through the first major oil crisis of the clean power transition. It probably will not be last but the first time is always the most difficult.
The global economies have faced energy crises before but this one is different as the richest economies are undergoing one the most ambitious overhaul of the power system since the dawn of the electric age with no easy way to store energy generated from renewable sources.
The transition is designed to make these systems more resilient not less. Such is not occurring as shortages are global. Barring a dramatic breakthrough in technology, the world will rely upon fossil fuels for a long period of time, a viewed shared by OPEC, the IEA (International Energy Agency) and the vast majority of the oil majors.
In my view, the turmoil in world energy markets reminds policy makers of an inconvenient truth: Green pledges are popular; green polices drive public revolt. For example, China does not want unemployed steel and aluminum workers marching in the street. France does not want the return of the “Yellow Vests.” Britain does not want images of oil trucks being hijacked on highways.
I believe the hypocrisy of global governments is intense. All talk about the dangers of climate change but promise to cut emissions at a later date to preserve economic and domestic tranquility, except perhaps in the US.
Reality is now hitting the global energy markets with actions taken to date and the potential outcomes are infinite. It is widely accepted energy bills are and will continue to surge for the western democracies. There is a distinct probability that a colder than normal winter will cause considerable shortages that perhaps includes curtailment of service.
Wow! If this does occur, will the elected class catch proverbial hell? As stated above green pledges are politically popular but green polices can drive public revolt. Climate change is not a top ten concern of American voters as per Pew Research.
As noted many times, the elected class has brought this crisis upon itself, a crisis that can be overcome with time via a return back to fossil fuels. Such is already occurring as both China and New York are reopening shuttered coal and natural gas plants but the pace is slow given the complex process which takes anywhere from 6-12 months. The time to develop large scale oil exploration is 18-24 months.
When reality hits people, when the consequences of past actions are realized, views and attitudes can quickly and radically change.
What will happen today? Will the ADP Private Sector Employment Survey impact the markets?
Last night the foreign markets were down. London was down 1.67%, Paris down 2.14% and Frankfurt down 2.12%. China was Japan down 1.05% and Hang Seng down 0.57%.
The Dow should open moderately lower on inflationary pressures. NASDAQ futures are off almost 2% as one pundit stated the buyers from “the buy on dip” crowd appears to be exhausted as the inevitable rebound is not presently occurring. The 10-year is off 7/23 to yield 1.56%.