Ole Hansen
Saxo Bank’s head of commodity strategy Ole Hansen considers the implications of pledges by Saudi Arabia and Russia to raise oil production despite the likes of Iran and Venezuela not backing the move.
Article / 23 May 2016 at 10:30 GMT

Daily Shot: Japanese labour market going strong Team / Saxo Bank
  • Stabilizing oil prices affect markets
  • In Japan manufacturing contraction has worsened, employment is increasing
  • Betting markets are increasingly discounting the Brexit risk
  • Target prices for Deutsche Bank are getting one-digit
By Walter Kurtz*

We begin with a few developments in the energy markets.

1. The US energy & mining investment growth has declined sharply. While this is bullish for oil in the medium term, there is no shortage of capital waiting on the sidelines that will be quickly redeployed should prices rise further.
US mining
2. US oil rig count didn't decline last week - is it stabilizing? 
US rig count

3. Seeing oil prices stabilize, Iran is in no hurry to "freeze" production - as hard currency begins to flow in.

4. As discussed on Friday, with crude oil contango declining sharply in recent weeks, storage (cash & carry) is no longer profitable. Nevertheless, floating cargo continues to increase. The physical crude supplies remain bloated, and they will hit the spot market at some point.  
1. We now stitch to Japan, where the manufacturing contraction has worsened this month. This factory slowdown has been fairly broad, with production, new business, exports, and orders - all showing signs of weakness. The only stable component of the sector performance has been employment. Take a look at the summary below from Markit.

Markit Japan
2. Japan's imports fell by the largest percentage since the Great Recession as domestic demand remains poor. As a result, Japan's trade surplus rose.
Japan again
3. Japan's full-time employment growth has risen significantly this year as demand for labor remains strong. 
4. Related to the above comment, Japan's labor force has been increasing despite the drop in working-age population, as more women enter the workforce.
labour force
As discussed before, Australia's RBA has sharply revised down its inflation forecast. In fact, Australia's CPI growth projection is now below that of the US. 

In the Eurozone, the focus remains on Greece, with the IMF pointing out what Greek government debt trajectory will look like with and without the proposed debt restructuring. Similarly, the IMF sees debt servicing costs rising sharply without any "help". Is it time to convert Greek debt into a perpetual zero coupon bond?
1. In the UK, the focus remains on the EU referendum. Mentions of "Brexit" in the media have overshadowed the volume running up to the Scotland referendum as well as the UK elections. 
2. Similarly, Goldman Sachs' client survey puts Brexit ahead of other key concerns, including China's outflows/devaluation. Will this change as the dollar rises further? 
3. The betting markets, on the other hand, are increasingly discounting the Brexit risk.
Brexit bets
Next, we review some trends in the equity markets.

1. Which countries have the highest equity risk premium (relative to the government debt markets)? In addition to several other sectors, banks and energy firms keep risk premia elevated. 
equity risk premiums
2. One measure of the lack of conviction in the equity markets is the difference between bullish and neutral equity investor sentiment. 
3. Berenberg's target for Deutsche Bank shares is 9 euros. Several other firms have similar targets, expecting DB to be forced to raise additional capital in the near future. 
Deutsche separator
Finally, let's look at a couple of trends in alternatives.

1. Hedge funds are increasingly becoming concentrated as investors demand alpha
Hedge funds
 2. It's a bit surprising to see an increase in fund-of-funds allocations by institutional investors while other strategies decline.
Turning to Food for Thought, we have 5 items this morning:

1. Public transportation usage in the United States. 
public transport
2. The smaller the population of US counties, the worse the recovery from the Great Recession. 
out of recession
3. Most shootings in the US take place in the poorest communities. 
4. According to Pew Research, "41% of US adults say they get their news from Facebook". The use of Facebook, however, varies by political affiliation. 
News from Facebook
5. The world’s most polluted cities.  

— 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
- 沪ICP备13028953号-1

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