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Director’s Cut
Service as usual will resume shortly
Two separate items point strongly to the belief that the second half should see
an uptick in the confidence of growth across the globe.
In an article in today’s FT, China’s premier Wen Jiabao declares the inflation
dragon has been slayed. “China has made capping price rises the priority of
macroeconomic regulation and introduced a host of targeted policies. These
have worked. The overall price level is within a controllable range and is
expected to drop steadily.” As well as “… growth in money and credit supply has
returned to normal”. This is important, as it is a very public airing of the view that
China has done enough to bring about a soft landing. As Paul Cavey has been
noting for some time, the PMI has been steadily falling back toward 50, showing
the slowdown in manufacturing expansion and the only shoe left to drop was the
stubbornly high inflation statistics. Inflation has now been declared dead and pity
any far-flung data collector who tries to send evidence to the contrary. So now
that the PBOC has done enough to effect the slowing, the next phase is the
market’s mindset changing to how soon the easing could come.
Second is oil. For only the third time in 37 years, the IEA has decided to release
oil, intervening in the natural state of markets to find an equilibrium. The official
reason is the lack of supply response to the oil lost in Libya, approximately 1.6 m
b/d. Whilst some members of OPEC are to increase production to meet this
shortfall, not all members could agree, so the IEA is to release 60m barrels over
the next 30 days. That said, the real threat of shortage is in light sweet crude,
which Libya was a large supplier of but of which the rest of OPEC are not a good
source – hence a need to balance this market with light sweet crude from the
strategic reserves. The decision to release can effectively be seen as addressing
the four Gs – gap, grade and getting there fast, which are all aimed at causing
the 4
th
G; growth. Light sweet is the best input for gasoline and hence in great
demand in industrialised countries. The important point is the move to release
under these circumstances is unprecedented – hence the market will take it as a
sign that the IEA is prepared to use reserves to prevent a blow out in oil prices
hindering the slow grinding recoveries in the developed world. So, following this
logic, oil upside is capped and the recovery is to be rewarded with support in the
form of greater oil price certainty.
Whilst the overall position in WTI oil is net short, the really interesting feature is
the retail market is at a peak long, offset by a bearish commercial market.
Weakness in Oil ETFs is likely as retail speculators move out of these products.
Prospects of improving growth (China item) and an implicit subsidy in oil will
benefit the transport sector, with FedEx and airlines the clearest beneficiaries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Director’s Cut
Service as usual will resume shortly
Two separate items point strongly to the belief that the second half should see
an uptick in the confidence of growth across the globe.
In an article in today’s FT, China’s premier Wen Jiabao declares the inflation
dragon has been slayed. “China has made capping price rises the priority of
macroeconomic regulation and introduced a host of targeted policies. These
have worked. The overall price level is within a controllable range and is
expected to drop steadily.” As well as “… growth in money and credit supply has
returned to normal”. This is important, as it is a very public airing of the view that
China has done enough to bring about a soft landing. As Paul Cavey has been
noting for some time, the PMI has been steadily falling back toward 50, showing
the slowdown in manufacturing expansion and the only shoe left to drop was the
stubbornly high inflation statistics. Inflation has now been declared dead and pity
any far-flung data collector who tries to send evidence to the contrary. So now
that the PBOC has done enough to effect the slowing, the next phase is the
market’s mindset changing to how soon the easing could come.
Second is oil. For only the third time in 37 years, the IEA has decided to release
oil, intervening in the natural state of markets to find an equilibrium. The official
reason is the lack of supply response to the oil lost in Libya, approximately 1.6 m
b/d. Whilst some members of OPEC are to increase production to meet this
shortfall, not all members could agree, so the IEA is to release 60m barrels over
the next 30 days. That said, the real threat of shortage is in light sweet crude,
which Libya was a large supplier of but of which the rest of OPEC are not a good
source – hence a need to balance this market with light sweet crude from the
strategic reserves. The decision to release can effectively be seen as addressing
the four Gs – gap, grade and getting there fast, which are all aimed at causing
the 4
th
G; growth. Light sweet is the best input for gasoline and hence in great
demand in industrialised countries. The important point is the move to release
under these circumstances is unprecedented – hence the market will take it as a
sign that the IEA is prepared to use reserves to prevent a blow out in oil prices
hindering the slow grinding recoveries in the developed world. So, following this
logic, oil upside is capped and the recovery is to be rewarded with support in the
form of greater oil price certainty.
Whilst the overall position in WTI oil is net short, the really interesting feature is
the retail market is at a peak long, offset by a bearish commercial market.
Weakness in Oil ETFs is likely as retail speculators move out of these products.
Prospects of improving growth (China item) and an implicit subsidy in oil will
benefit the transport sector, with FedEx and airlines the clearest beneficiaries.
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