David Fuller and Eoin Treacy's Comment of the Day
Category - Energy

    Fed Cuts Rates by Quarter Point, Hints It May Be Done for Now

    This article by Christopher Condon for Bloomberg may be of interest to subscribers. Here is a section:

    Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and hinted they may be done loosening monetary policy, at least for one meeting.

    The Federal Open Market Committee altered language in its statement following the two-day meeting Wednesday, dropping its pledge to “act as appropriate to sustain the expansion,” while adding a promise to monitor data as it “assesses the appropriate path of the target range for the federal funds rate.”

    As with the September statement, the FOMC cited the implications of global developments in deciding to lower the target range for the central bank’s benchmark rate to 1.5% to 1.75%.

    Treasuries weakened on the Fed’s announcement, pushing the 10-year yield up briefly to 1.81% from 1.80%. Stocks were little changed and the U.S. dollar gained. Traders also pared wagers on a fourth consecutive rate cut in December.

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    Oil Shipping Costs Soar to Highest Levels in 11 Years

    This article by Costas Paris for the Wall Street Journal may be of interest to subscribers. Here is a section:

    “There is a lot of confusion and uncertainty out there,” said Paolo d’Amico, head of Intertanko, a trade body representing tanker owners. “Everyone is afraid of being hit by the U.S., sanctions, rendering about 50 VLCCs untouchable.”

    U.S. oil exports to Europe, which usually move in smaller tankers, hit a record 1.8 million barrels a day for the week ending Oct. 7, according to Kpler, an energy market intelligence company. The figure is double the 924,000 barrels in the previous week. But shipments to Asia, which are typically done on VLCCs, were reduced almost in half to 508,000 barrels.

    A Singapore broker said rates for some VLCC cargoes on sailings from the U.S. Gulf Coast to the Far East were more than $120,000 on Thursday. Average earnings for supertankers picking up cargoes from around the world hit $94,124 a day, up from $18,284 on Sept. 25, when Washington blacklisted the Cosco fleet.

    “VLCCs to Asia are a rare commodity, the market is red hot and will stay that way while the U.S. sanctions on Cosco ships are in place,” said the broker, who asked not to be named because he isn’t authorized to talk to the media.

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    Midcap British Stocks Soar On Move Toward Brexit Talks

    This article by Steve Goldstein for MarketWatch may be of interest to subscribers. Here it is in full:

    The midcap FTSE 250 rose 3.5%, its best single-day percentage gain in more than three years, as European leaders indicated there was progress toward reaching an agreed deal with the U.K. on leaving the European Union. The European Union says it has agreed with the United Kingdom to "intensify" Brexit negotiations in a belated attempt to reach a divorce deal ahead of Oct. 31. A number of FTSE 250 components sported double-digit gains, including bank CYBG, building materials distributor Grafton Group and home improvement retailer Travis Perkins. The FTSE 100 however saw much smaller gains, of just 0.7%, because many of those components record revenue in dollars.

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    Melting Ice Redraws the World Map and Starts a Power Struggle

    This article by Marc Champion for Bloomberg may be of interest to subscribers. Here is a section:

    Shawn Bennett, deputy assistant secretary for oil and natural gas at the Department of Energy, said the U.S. was not concerned about competition. Growth projections for natural gas demand in India and other Asian countries are so high, and the need for supply diversification in Europe so acute that there’s little risk of a glut, he told Bloomberg. “Global demand for LNG is just going to grow,” he said.

    The U.S. may be pushing back in more concrete ways. On September 30, the Department of the Treasury imposed sanctions on units of China’s Cosco Shipping Corp., over alleged breaches of U.S. sanctions against Iran. The move immediately hit the Yamal project’s LNG tanker routes because of Cosco’s share in one of the main shipping companies involved.

    Still, for those who have been working in the Arctic for a long time, much of the geopolitical discussion sounds a little breathless. Last year, Russia’s Northern Sea Route carried 29 million tons of cargo, with projections rising to 90 million. The Suez Canal carries about 1 billion tons.

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    The Bond Market is the Biggest Bubble of our Lifetime

    Thanks to a subscriber for this interview of Louis-Vincent Gave which appeared in themarket.ch. Here is a section:

    On a global level, bonds with a value of about $15 trillion currently trade with a negative yield. What’s going on here?

    For every investor today, the starting point must be the bond market. Just a few weeks ago, we had $17 trillion of negative yielding debt. We’re now down to about 15, but even that is way too much. This is investment money that is guaranteed to produce a loss of capital. These extreme levels in today’s bond market can only have three possible explanations. One, the world faces an economic meltdown of epic proportions. Two, the bond market is the biggest bubble we have ever witnessed, and three, we have just experienced a massive buying panic in bonds.

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    Aramco Said to Face Weeks Without Majority of Abqaiq Output

    This article by Anthony DiPaola, Will Kennedy and Javier Blas for Bloomberg may be of interest to subscribers. Here it is in full:

    Saudi Aramco faces weeks or months before the majority of supply from the giant Abqaiq plant is restored after this weekend’s devastating aerial attack, according to people familiar with matter.

    Aramco is still assessing the state of the plant and the scope of repairs, but the state oil company currently believes less than half of the the plant’s capacity can be restored quickly, the people said, asking not to be identified before an official announcement. It’s a more pessimistic outlook than Aramco had immediately after the incident, they said.

    All eyes are on how fast the kingdom can recover from the weekend’s devastating strike, which knocked out roughly 5% of global supply and triggered a record surge in oil prices. The loss of Abqaiq, which handles 5.7 million barrels of oil a day, or about half of Saudi production, is the single worst sudden disruption to the oil market.

    Aramco, the world’s largest exporter, is currently supplying customers from its stockpiles, but is asking some buyers to accept different grades. President Trump has said he’s ready to release oil from the U.S. Strategic Petroleum Reserve to ensure ample supply.

    Saudi Arabia is also starting idle offshore fields to replace some of the lost production.

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    Factors or Fundamentals, Quant Tremor Is Field Day for the Geeks

    This article by Sarah Ponczek and Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

    You wouldn’t know it from benchmarks, but beneath a tranquil surface violent swings are lashing traders along obscure fault lines. Companies like real-estate firms that rose the most in 2019 are plunging, and some that have trailed are being pushed out front. It’s been a mild reckoning for hedge funds and others who have bet on the status quo persisting.

    Amid all the churn has been a renewed focus on a quantitative concept known as factor investing, which groups companies not by industry but traits such as how fast their prices move or profits rise. A question gaining currency in the past few days is whether these categories are just handy descriptions of twists in the market -- or are at some level guiding them.

    “It seems very mechanical right now,” said John Swarr, investment specialist at Penn Mutual Asset Management, which has $27 billion under management. “If you look within some of these stocks that are being hit the hardest, some are in much better shape than others and yet they’re all being affected similarly,” he said. “It does feel like it’s a rules-based rotation.”

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    Homeowners are sitting on a record amount of cash, but they're not really tapping it

    This article by Dina Olick for CNBC may be of interest to subscribers. Here is a section:

    So-called tappable equity grew by more than $335 billion during the quarter. The total is 26% more than the mid-2006 peak of $5 trillion. Roughly 45 million mortgage holders have excess equity, and half of them have mortgage rates higher than 4.25%, making a refinance not only possible but attractive. The average rate on the 30-year fixed is now around 3.6%. The majority of these borrowers also have top credit scores.

    Falling mortgage rates over the past several months have caused a surge in overall refinance activity, but despite the record housing wealth, homeowners have been highly conservative about taking cash out. In 2006, 89% of refinances were cash-out, according to Freddie Mac. In 2012, when home prices crashed, that share dropped to 12%. But even now, with prices back above their previous peak and mortgage rates much lower, cash-out refinances are just 61% of the total pool of refinances.

    “I think you’re seeing a little bit of reluctance both on the side of lenders and on the side of borrowers,” said Andy Walden, director of market research at Black Knight. “If you look at lending, guidelines are a little bit tighter than they were back in 2006, but even given those lending restrictions, I think you’re seeing more conservative behavior on behalf of homeowners as well, as folks have the remembrance of the financial crisis in the rearview mirror.”

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    OPEC+ Expects to Drain Oil Stocks as It Makes Supersized Cut

    This article by Grant Smith for Bloomberg may be of interest to subscribers. Here is a section:

    In response, the Saudis have reduced output by far more than pledged under the terms of the deal, and the coalition’s overall implementation rate last month was 59% above target, according to a statement posted on its website on Tuesday. That means the alliance cut supplies by about 1.9 million barrels a day.

    OPEC signaled that the deeper-than-anticipated cutbacks had been necessary because of the extreme upheaval in the global economy.

    “This high level of overall conformity has offset uncertainty in the market due to ongoing economic-growth worries,” according to the statement from the Joint Ministerial Monitoring Committee, a body set up by OPEC and its allies to oversee implementation of their strategy.

    “Along with healthy oil demand,” the supply restraints have “arrested global oil-inventories growth and should lead to significant draws in the second half of the year,” the committee said.

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