Article / 03 August 2016 at 9:44 GMT

Daily Shot: Another slide in oil Team / Saxo Bank
  • A change in bond buying by the ECB could lead to moral hazard
  • Rate hike chance for the US this year is down to 40%
  • US inflation remains benign
  • NYMEX crude futures are trading clearly below $40/bbl
  • Bitcoin fell more than 20% on Tuesday
By Walter Kurtz*

Much is spoken about the trouble European banks are in (see for example today's From the Floor). Now, instead of talking more about commercial banks, let's look at the European Central Bank. Its balance sheet continues to expand to new highs. Many anticipate the ECB to announce a change in the bond purchases proportions - increasing Italian and Spanish debt buying. Can this introduce a moral hazard, reducing pressure on these governments to control spending?
ECB balance sheet separator

1. In the United States, futures markets are telling us there is less than a 40% chance of a rate hike this year. The chart below shows the probabilities of different outcomes over time (courtesy of our friends at Bloomberg LP).  
US rate hike ahead?
2. Fed's Kaplan said the FOMC wants to see materially more than 125k new jobs created per month. This Friday's employment report will be critical (180k new payrolls expected). 

3. The US consumer is still keeping the economy afloat as consumer sales beat forecast. 
4. US inflation (as measured by the PCE index) remains benign. 
PCE separator
1. Switching to the energy markets, NYMEX crude futures are trading comfortably below $40/bbl. 
NYMEX crude futures
2. Crude oil imports have risen by less than production has fallen. Should we start seeing inventories easing soon? 
crude imports
3. The recent peak in crude prices coincides with the bottom for the US oil rig count (discussed Monday). 
crude prices
4. US average retail gasoline price continues to decline which should be helping US households. 
US retail gasoline
5. The next two charts from Credit Suisse show that the gasoline glut is a supply issue. 
gasoline glut
6. Ethanol futures are following corn and gasoline prices lower.
In asset management, here is an excellent visualization from the WSJ on what it takes to get a 7.5% (targeted) return. This trend is a serious challenge for insurance firms who have much higher capital charges for holding some of the riskier assets. Clearly, it is also a significant problem for pension funds with minimum asset return requirements needed to meet their obligations. 
7.5% return, but how
College endowments are posting the worst returns since 2009 as a result of the recent weakness in international markets (and in some cases poor performance in alternatives).
college endowment
Finally, bitcoin traders hit their panic button on Tuesday as the cryptocurrency fell below $500 (a 20%+ decline). A major bitcoin exchange was breached and the rumor is that some 100k bitcoin (about $54mm) was stolen (h/t ‏@raoul_wade). A buying opportunity? 
Turning to Food for Thought, we have 4 items today:

1. According to McKinsey, France narrowed its wage gap while in the US and the Netherlands "inequality" has grown. Of course, French unemployment rate is 10.5% while it is 7% in the Netherlands. 
wage gap internationally
2. Union membership declined globally except in Italy and it remains exceptionally high in Sweden
Union membership globally
3. The percentage of households with flat or falling income.
falling incomes
4. Nations with the best and worst literacy and numeracy rates. 
 — Edited by Clemens Bomsdorf

* Walter Kurtz is an alias

**This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shot and select the appropriate command. E-mail addresses are never shared with anyone.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail