Oil prices sink back into the ground as equities drop.

A relatively quiet week, in equities that is. A holiday weekend in the United States and a shortened trading week due to Thanksgiving. A drop came out in equities that fell short 25 points of the lows of the ES futures. More global concern and slowing in global growth encompassed this past week.

China is always in the news, and trade talks continue in a ever confusing tone. Brexit worries loom, and the Italian budget disagreements are an everlasting topic in Europe.

The last of the Q3 earnings came out, and retailers did disappoint. With the holiday season coming up, retail margins grow. While treasury yields out of the US drop to monthly lows .

Crude oil is the center of attention this week as a 10% drop occurred. Crude futures were pennies away from dropping under the $50 mark, due to under demand and oversupply.

Apple stock continues to slide as the new iPhone’s are not getting the anticipated reception. The production for the latest three iPhone models has been cut due to a significant drop in demand. To boot, Foxconn, the iPhone’s largest assembler planned ahead for this decrease in demand by $3Bn in cost cuts.

Here is a look of last week’s stock market on a daily basis (red vertical lines split days).

Stock Market and Sector Overview

Here is a break down of the weekly performance in various stock market sectors (top chart):

  • Energy stocks down 4.85%
  • Technology down 5.47%
  • Financials down 2.99%
  • Retail down 3.33%
  • Utilities down 1.24%

Overview of key markets last week (bottom chart):

  • Crude oil down 9.96%
  • S&P500 down 4.07%
  • Silver was down 0.97%
  • Gold down 0.04%
  • US dollar up 0.51%

Trump keeps pestering the Fed and Co.

A fellow member of the Plunge Protection Team, Steven Mnuchin is under Trump’s fire as Fed Chair Powell was not too long ago. Or is he? What’s going on with the “FAKE NEWS” being circulated as of late.

The Wall Street Journal recently accused Trump of coming down on Mnuchin and “expressing dissatisfaction” with the US Treasury Secretary. The Wall Street Journal has pinned Mnuchin as the scapegoat to the faltering market, on Trumps account. Not too long ago it was Fed Chair Powell. Will Mnuchin be added to the list of Trump’s cabinet that have lost their jobs or are in danger of doing so.

The Mnuchin blame comes from hiring Jerome Powell who seems to be enemy number one of the market and Trump for the time being. Trump wanted a weaker dollar, but with the rising rates, the dollar has done just the opposite. He is very critical of Jerome Powell’s insistence of raising rates.

Some choice words came out of the White House, a representative mentioned that in retrospect Trump might have wanted to hire Jamie Dimon (JPMorgan Chase & Co. Chief Executive) in 2016 rather than Mnuchin.

Even with that being said, Trump and the White House have gone out of their way to defend their relationship with Mnuchin, a prime example is the tweet below:

Oil spill, markets oversupplied!

The $80 dollar level that Saudi Arabia wanted earlier this year seems like a joke now, even though crude oil hit a short term peak of about $77.00. The $60 level looks like its out of reach even! What’s going on? Even Brent crude tumbles beneath the $60 mark. Its just simple economics, oversupplied markets with falling demand. Not to mention Goldman who has been telling clients to buy the dip, each time it fell from the near $80 mark. Then blaming the fall on “negative convexity”.

Saudi Arabia reached record highs of production while “negative convexity” was taking the blame, it seems that analysts refuse to take the simpler explanation seriously. This past week we saw crude oil drop 9.96% with Wednesday and Friday being the energy markets biggest losing day.

Trump has even lifted the export restrictions on Iran but Saudi production has climbed for 9 weeks straight! The Saudi’s are producing 10.7million bpd! Why!?!? With the Iranian sanction lifted, the demand for Saudi Arabian crude will continue to drop in the next two months, but it doesn’t seem that production is going to take a cut. Saudi Arabia is sure that they are supplying enough for current demand. The supply glut is real. This will surely be brought to attention at the producers meeting in December in Vienna.

Iran continues to export to China, a client that Saudi Arabia wants badly, which could lead to more of a price war between oil rich nations. Saudi is not playing nice, having disregarded the 2016 Vienna output deal, as they are trying to grab all market share they can. With this, the likely outcome of the Vienna meeting this time around will be a cut in production.

What is interesting in the crude oil markets, is that it looks like Saudi Arabia are actually planning a quiet production cut, is this all a game to them? The chart below represents crude oil on a 1-Min time frame. This was the last day of the trading week and into the afternoon session, there was a solid bid up on very high volume. Price rocketed above the 200 day moving average but could not hold. This was a mini production cut led by Saudi Arabia, are they planning something larger?

Crude Oil 1-Min Friday November 23rd 2018

Weekly Economic Calendar

A big change in the economic news calendar from last week to this week. There is a substantial increase in high impact events in the coming week.
Sunday, if you are on the Western side of the world, there is news out of New Zealand (retail sales), Australia (RBA Governor Lowe) and the EU Economic summit. Be sure to keep your eyes on the Euro.
Monday, ECB President Mario Draghi goes on the wire, again be aware of the Euro. He is then followed by Governor Carney out of the UK.
Tuesday, CB consumer confidence out of the US, then the rest of the day is filled with data out of New Zealand. Financial Stability report comes out and RBNZ Governor Orr speaks on the matter. Watch the New Zealand dollar.
Wednesday, Bank Stress Test results out of the UK, keep all eyes on the pound. The Prelim GDP numbers come out of the US. ANZ business confidence out of New Zealand and private capital expenditure out of Australia.
Thursday, ECB president Draghi hits the wire again, watch the Euro. FOMC meeting minutes out of the United States. Keep eyes on the Euro/USD throughout this event and the US markets.
Friday, a single event out of Canada, GDP report.

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