Neil's Morning Update - 12/29/21

Neil's Morning Update - 12/29/21

Please excuse typos.  Mornings are tilted more international, evenings more U.S.  Continuing to try to make this more digestible for those who are not as familiar with the markets, lingo, etc.  Feel free to leave your thoughts in the comments section, they are appreciated.  Also, I don't discuss crypto extensively as I don't consider myself knowledgeable enough to talk intelligently on the subject (and there are plenty of other sources for that). As are reminder, this is a free blog I put out to try to help people get information, so no editors, etc.

A small glossary.  

SPX = S&P 500

Naz = Nasdaq Composite

NDX = Nasdaq 100 (100 largest stocks in the Naz)

RUT = Russell 2000 (smaller stocks)

DMA = Daily Moving Average (the moving average over the given time period (20, 50, 100, 200 days normally)).

MACD = Moving Average Convergence Divergence (basically a trend indicator)

RSI = 14-day Relative Strength Index (basically what it sounds like)

Also, on my charts, the lines are 20-DMA (green), 21-DEMA (red), 50-DMA (purple), 100-DMA (blue), 200-DMA (brown)

Source abbreviations: BBG = Bloomberg; WSJ = Wall Street Journal; RTRS = Reuters; SA = Seeking Alpha; HR = Heisenberg Report 

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Global stocks continued to digest recent gains this morning as we enter the third day of seven (or eight depending on who you ask) of the "Santa Rally" period.  Asian shares closed mostly lower while European shares were also trading lower outside the UK which returned from a 2-day holiday.  In the US the SPX, NDX, and RUT futures are all up around a tenth of a percent.  Commodities are generally red, the dollar is flat (again), bonds are seeing the curve steepening with longer yields moving higher.

Here's the SPX futures this morning around 8.30 ET.  Remaining near all time highs.  

 In U.S. corporate news (Argus):

Tesla (TSLA 1102.43, +13.96): +1.3% on reports speculating that CEO Elon Musk might be done selling shares after he sold another $1 billion in stock and exercised his remaining stock options expiring next year. Victoria's Secret (VSCO 51.00, +2.42): +5.0% after reaffirming Q4 guidance and announcing a $250 million accelerated share repurchase program. Cal-Maine Foods (CALM 35.64, -2.66): -7.0% after missing EPS estimates . FuelCell Energy (FCEL 5.39, -0.48): -8.2% after missing top and bottom-line estimates. 

Asia

Major equity indices in the Asia-Pacific region ended the midweek session on a mostly lower note with Chinese stocks dropping with liquor makers driving the declines following a recent rally on the back of price hikes. It’s the typical “sell on good news” as speculation about price hikes has been driving the sector of late, said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.  Meanwhile, the Hang Seng Tech Index slid 1.8% in Hong Kong to the lowest close since its inception in July 2020, showing that investor sentiment toward the battered sector remains weak.  Japan's Nikkei: -0.6% Hong Kong's Hang Seng: -0.8% China's Shanghai Composite: -0.9% India's Sensex: -0.2% South Korea's Kospi: -0.9% Australia's ASX All Ordinaries: +1.2%.

In news, reports from Japan suggest that the country's government is not planning to tighten its border restrictions. Nikkei reported that Japanese automakers will begin fitting self-driving features to their vehicles in 2022. It is unclear if Evergrande made its bond payment that was due yesterday. The developer faces about $7.4 bln in debt payments in 2022. Yonhap reported that officials from the U.S. and South Korea agreed on a draft text to officially end the Korean war.

In economic data, South Korea's January Manufacturing BSI Index 89 (last 88)

Europe

As of 8 am Eastern, major European indices trade on a mostly lower note while the U.K.'s FTSE (+0.8%) outperforms after returning from a two-day break moving to the highest levels since February 2020, though the overall trading volume has remained low. The Stoxx Europe 600 index nudged to within a whisker of another record before erasing the advance.  STOXX Europe 600: UNCH Germany's DAX: -0.4% U.K.'s FTSE 100: +0.8% France's CAC 40: -0.1% Italy's FTSE MIB: -0.6% Spain's IBEX 35: -0.2%.

In news, Spain's government approved a record EUR240 bln budget for next year. EU's Economy Commissioner Gentiloni said that he will propose setting individual debt limits for member states in the EU stability pact near the middle of next year. 

In economic data:

Eurozone's November M3 Money Supply 7.3% yr/yr (expected 7.6%; last 7.7%), November Private Sector Loans 4.2% yr/yr, as expected (last 4.1%), and November loans to nonfinancial corporations 2.9% yr/yr (last 2.5%)

Swiss December ZEW Expectations 0.0 (last -10.8)

As European nat gas prices continue to fall (as do energy prices).  BBG.

European gas prices slumped for a sixth day, the longest losing streak in more than a year, as cargoes of the liquefied fuel head to the continent just as industrial shutdowns and warm weather curb demand.

Futures fell as much as 9.7% on Wednesday as a flotilla of U.S. LNG cargoes is headed to the region, while several vessels that were sailing to Asia have now diverted to Europe. More supplies come after record prices earlier this month forced factories to halt or slow output, curbing demand just as the continent faces unseasonably warm temperatures.

European gas prices surged more than 400% this year, with Russia curbing flows at a time demand was rebounding. While prices have slumped over the past week, they are still more than five times higher than the average of the past five years. The LNG relief may also be short-sighted, with geopolitical tensions and Russian pressure to get its controversial Nord stream 2 pipeline to Germany approved keeping traders on edge.

Benchmark European gas prices fell to 96.22 euros a megawatt-hour, before trading at 97.50 euros by 9:51 a.m. in Amsterdam. In the U.K., prices slumped as much as 12% to 235 pence a therm, the lowest since Dec. 7.  LNG supplies are already entering European grids. Flows from the Isle of Grain and Milford Haven Terminals in the U.K. have surged more than 20% since Dec. 24, according to data from the National Grid. Flows at other ports in Europe are also set to increase, with the number of U.S. cargoes heading for the continent’s ports jumping by one-third over the weekend.

Higher wind power production and milder weather have also helped to reduce demand for the fuel to generate electricity and heating.

Commodities/Currencies/Bonds

Bonds - Some mild curve steepening this morning with 2-year bond yields flat at 0.75%, while the 10-year is up four basis points to 1.52%.  

Dollar (DXY) - Trading around flat levels for a fourth day continuing a very subtle uptrend.  Remains under the 20-DMA although pushed through earlier in the session.  Currently at $96.11.  Remains in intermediate-term uptrend.  Daily technicals negative.  

VIX - Trading around flat levels as well for a second day at 17.69.  

Crude (/CL) - After failing at the 50-DMA yesterday, struggling with it again this morning.  If it can get through this level it could make a run at the old highs.  Not yet overbought despite the gains over the last week.  Currently at $76.45 WTI. Daily technicals are positive.  We'll get EIA today.  Last night API showed a draw of -3.1mb. Crude is on track for its best year in a decade.  Also, as a reminder, we'll get an OPEC meeting next week.

“Crude oil trades near a one-month high after API’s weekly stock report,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. The market is “currently betting the omicron virus, despite a global surge, will not derail robust global demand.”

As driving in Asia so far not dented by Omicron (but keep an eye on China).  BBG.

The rapid spread of omicron has yet to dampen road traffic across most of Asia even as it leads to restrictions in parts of Europe, suggesting energy demand in the region may be spared a significant hit.

More cars have thronged the main roads in December amid year-end festivities than seen last month. All but one major Asian country registered a rise in mobility on-month, according to data compiled by Bloomberg using Apple Inc. mobility statistics until Dec. 27. 

The broadly positive picture from Asia -- at least so far -- may help to support gasoline demand and refining margins, which in turn could aid physical crude consumption and oil futures into 2022. Global benchmark Brent advanced by more than 3% in the week leading up to Christmas, and has extended gains since then, approaching $80 a barrel.

Still, the region’s biggest oil guzzler, China, has shown signs of weakening fuel demand. While Apple doesn’t provide data on China, other local providers like Baidu Inc. showed that road congestion has eased in Shanghai, while it was up a little in Beijing. Xi-an, a city of more than 10 million people that’s under lockdown after a surge in virus cases, saw congestion drop by a fifth on Wednesday from a week earlier, according to data from Baidu’s map service.

As Russia's desire to hit pre-pandemic levels by April looks unrealistic.  

MOSCOW, Dec 28 (Reuters) - Russia is unlikely to hit its May target of pre-pandemic oil output levels due to a lack of spare production capacity but could do so later in the year, analysts and company sources said on Tuesday.

Deputy Prime Minister Alexander Novak, in charge of Moscow's ties with the OPEC+ group of oil producers, has said output by May is expected to hit pre-pandemic levels, or about 11.33 million barrels per day (bpd) of oil and gas condensate, as seen in April 2020 .  However, many oil producers have reported they are almost out of spare production capacity having reduced output in tandem with other OPEC+ producers.

Part of the problem is old wells, mostly in Siberia, that are struggling to increase output, industry sources say.  Production of oil and gas condensate in December stayed at around 10.9 million bpd, in line with November, despite Russia's OPEC+ quota rising by 100,000 bpd.

"It's possible that Russia will be behind the output increase schedule in the first half of 2022 and not reach its pre-crisis level until the end of summer," said Dmitry Marinchenko of Fitch Ratings. Marinchenko said it would be hard for Russian companies to increase monthly output by 100,000 bpd and that they would need to intensify drilling.  "That would take some time," he said.

A source at one Russian oil major said efforts to boost oil production have also been hampered by a lack of new wells at oilfields with high levels of water, as well as declining oil well production rates at hard-to-recover fields.  He said Russia would not likely hit pre-pandemic output levels before August. Alexei Kokin of Otkritie brokerage had a similar view: "Russia is unlikely to reach the pre-crisis output in April. According to the plans of OPEC+, this should happen by September."

And President Obrador looks to halt oil exports.  BBG.

Mexico plans to halt crude oil exports in 2023 as part of President Andres Manuel Lopez Obrador’s nationalist goal of self-sufficiency in fuel production.

Petroleos Mexicanos, the Mexican state-owned producer known as Pemex, will reduce daily crude exports next year by more than half to 435,000 barrels before phasing out sales to foreign customers the following year, Chief Executive Officer Octavio Romero said during a press conference in Mexico City on Tuesday.

The ambitious -- and some say improbable -- endeavor is part of Lopez Obrador’s drive to expand homegrown production of gasoline and diesel that Mexico now mostly buys from U.S. refiners. Like many major oil-producing nations, Mexico lacks the processing capacity to convert its oil bounty into fuels and other end-products.

If fulfilled, Pemex’s pledge will mark the exit from international oil markets of one of its most prominent players of the past decades. At its peak in 2004, Pemex exported almost 1.9 million barrels a day to refineries from Japan to India, and participated in OPEC meetings as an observer. Mexican crude also had a major influence on the U.S. oil refining heartland along the Gulf Coast where plants were configured to handle heavy, sulfur-rich oil.   

The skepticism about Pemex’s ability to refine all of its own crude output stems from the company’s poor operating and safety record. Pemex refineries have been operating at a fraction of capacity for half a decade after years of underinvestment and lack of maintenance. 

In contrast, U.S. refiners typically operate at more than 90% of capacity; even during the worst of the pandemic-driven collapse in energy demand, American fuel makers were churning away at close to 70%. 

Nat Gas (/NG) - Up this morning just above the 20 and 200-DMA's.  Currently at $3.99. Daily technicals positive.  

Gold (/GC) - After seemingly set up to move higher, has fallen back into that cluster of resistance and below $1800.  I'm not a big gold bull but it must be frustrating.  Currently at $1791.  Daily technicals positive.  

Copper (/HG) - After failing again yesterday at the November highs has pulled back to the 50-DMA.  Daily technicals remain positive.

“Copper has spent the latter part of December moving into position for a potential upside break in 2022,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by email. “Heading into 2022, the initial focus will be firmly on China, not only how they handle the omicron outbreak but also whether renewed stimulus will offset a slowdown in the property sector.”

  

US Data

In the US we've gotten the Advance November reports for Intl Trade in Goods, Retail Inventories, and Wholesale Inventories.  Headline below.  I'll put out a quick report later.

US Advanced Goods Trade Balance Nov: -97.8B (est -$89.0B; prev -$83.2B)

US Wholesale Inventories (M/M) Nov P: 1.2% (est 1.8%; prev 2.3%)

Retail Inventories ex-auto (M/M) Nov: 2.0% (prev 0.5%)

We'll get pending home sales for November and the EIA weekly report later this morning.

Misc.

Random stuff:

As still no clarity on Libyan elections.

And the WH considers Sara Raskin for vice chair of supervisions at the Fed in a nod to the progressives (Elizabeth Warren has stated she would support a Raskin nomination) and potentially two others for the other two seats.  WSJ.

President Biden is considering Sarah Bloom Raskin for a top role at the Federal Reserve as part of a slate of three nominees for central bank board seats, according to people familiar with the matter.

The administration is eyeing Ms. Raskin, a former Fed governor and former Treasury Department official, to become the central bank’s vice chairwoman of supervision, the government’s most influential overseer of the American banking system, the people said.

Mr. Biden is also considering two economists for other Fed board seats that will soon be vacant: Lisa Cook, a professor of economics and international relations at Michigan State University; and Philip Jefferson, a professor and administrator at Davidson College in North Carolina.

While serving as a Fed governor from 2010 to 2014, Ms. Raskin was deeply involved in behind-the-scenes work to write rules implementing the 2010 Dodd-Frank financial-regulatory overhaul.  Since leaving the government, Ms. Raskin has spoken out on the need for the Fed and other federal financial regulators to more proactively address growing threats from climate-related events such as natural disasters and wildfires.

In a speech in September 2009, Ms. Raskin blamed the financial crisis on “a deregulatory fervor that marginalized the interests of many” and said the downturn had been “brought upon us through a combination of greed, weak regulation and weak enforcement.”

The potential nominations of Ms. Cook and Mr. Jefferson, both Black economists, would help Mr. Biden achieve his promise to improve diversity atop the central bank, which in its 108-year history has had only three Black board members, all of them men. The most recent was former Fed Vice Chairman Roger Ferguson, who left the board in 2006.

Mr. Jefferson, vice president for academic affairs and dean of faculty at Davidson College in North Carolina, has been an academic for nearly all the time since 1990, when he earned his Ph.D. in economics, specializing in monetary economics and finance, at the University of Virginia. He was an economics professor at Swarthmore College from 1997 to 2019 and spent a year as a staff economist in the division of monetary affairs at the Fed board in the 1990s.

His research has focused on labor markets and poverty, including a 2008 paper that examines economic volatility faced by African-American families and female-headed households and its relationship to declining volatility in economic output. In 2005, he analyzed the costs and benefits of policies that promote a “high-pressure economy” to spur tighter labor markets, arguing that the latter outweighed the former.

Ms. Cook formerly served as a senior economist on the White House Council of Economic Advisers in the Obama administration. She has a Ph.D. in economics from the University of California, Berkeley, and bachelors degrees from Spelman College and Oxford University.

She wrote her doctoral dissertation on the underdevelopment of Russia’s banking system after the collapse of the Soviet Union, a feature she attributed to weak property rights.  The project created the germ of what would become her best-known research: a paper exploring the effect of violence and terrorism against Black Americans on innovation between 1870 and 1940. Ms. Cook expressed support for programs in Mr. Biden’s economic agenda during a recent Fed conference on gender and the economy. Asked on a Nov. 8 panel to identify three policies that would be most effective in addressing discrimination and lack of opportunity, Ms. Cook cited child-care and elder-care support, paid family leave and infrastructure. All are included in either the bipartisan infrastructure package that was enacted this year or in the social-spending and climate legislation that passed the House, but has stalled in the Senate.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to https://sethiassociates.blogspot.com for the full history.