Article / 22 December 2015 at 11:05 GMT

Daily Shot: Oil is no longer the black, but the red gold

TradingFloor.com Team / Saxo Bank
Denmark
  • Commodities are stabilizing, not so oil
  • JPMorgan has turned very bearish on crude oil for 2016 
  • Warm weather is and will be putting pressure on oil prices
  • Argentina's peso appreciated in free flow as the central bank is raising rates by 10% 
  • CHF is the currency with highest amount of cash in circulation per resident 
by Walter Kurtz*

We begin with commodities where we see several signs of stabilization. Here are some examples.

1. Natural gas rallied 8% although one can barely discern the move next to the precipitous declines.
Nat Gas
2. Iron ore is approaching $40. A "dead cat bounce"? Perhaps.
Iron ore
3. Cattle futures show signs of recovery.
cattle
4. Even copper moved higher.
Copper
However copper markets remain oversupplied and more production may be coming online next year. It's hard to see a significant rally here.
Peru production
Some suggest that the stabilization in commodities is due to a weaker USD. Indeed the DXY index has been softer since the ECB's less-than-bazooka stimulus surprise. However the broad trade-weighted dollar index has actually continued to rise and is now at the highest level since 2003. Watch this index closely in 2016 ... 
DXY
Turning to oil markets, Brent crude hit the lowest level in 11 years.
oil
JPMorgan has turned very bearish on crude oil for 2016 partially due to the ridiculously warm weather in the northern hemisphere. The banks also sites persistently strong non-OPEC production (we discussed US production last week) and increased Iranian production. 

The warm weather situation is bizarre indeed as near-record temperatures hit much of the United States. New York City temperature is expected to be 70ºF (21ºC) on Christmas day. 
 
warm US separator
 Turning to emerging markets, here is the latest.

1. Brazil's markets are under pressure as investors remain nervous about the new finance minister. The real (BRL) hit the lowest level since October.
USDBRL
Brazil's domestic bonds sold off, with the 2-year yield moving above 16.6%.
BR bonds
And here is the 10-year bond price. According to Bloomberg, Brazil is poised for its longest recession since the 1930s.
Brazilian recession
2. Argentina's currency free-float is proceeding reasonably well, as the peso finds a bid. In fact the currency ARS was up 2.5% on Monday.
Argentina
One reason for this stability, is Argentina's central bank raising rates by 10% (this is not a typo) in order to cushion the pesos fall. 
rates up
While drastic, the rate hike beats decimating FX reserves by defending the currency peg - which is what the previous government had been doing for some time.
Argentina peg
3. The latest currency to fall is the Azerbaijan manat, which is down 32% after the nation's central bank decided to follow Argentina by letting currency float.
Azerbaijan
Now let's look at a couple of developments in Europe.

1. German PPI hit a new post-2009 low (YoY), demonstrating that disinflationary pressures are alive and well in the Eurozone in spite of all the QE.
German PPI down
2. Swiss monetary base hit a new record as the SNB continues to expand its balance sheet.
SNB
To the horror of euro-skeptical Swiss, the SNB's foreign currency holdings also hit record, with the euro being the largest FX component of the balance sheet. In fact the euro is the largest asset on the balance sheet as the SNB was forced to buy euros to keep the Swiss franc from appreciating too much (especially in the face of the ECB's QE).
SNB FX holdings
By the way, the Swiss remain attached to their currency in bank note format. Switzerland has the highest amount of bank notes in circulation per resident in the world.
cash is king in Switzerland
At the global level, according to Credit Suisse, "This year’s global industrial production growth was about half the post-1980 trend." 
global industrial production
Finally we have a couple of notes on the equity markets.

1. Toshiba's shares are imploding as the firm takes a massive (mostly tax-related) loss and begins restructuring/layoffs.
Toshiba
2. Chipotle gets hit with 5 more e. coli cases in the Midwest.
Chipotle
Turning to Food for Thought, we have 4 items this morning:

1. 7 out of 10 top universities in Europe are in the UK.
European top universities

2. Is broadband usage in US homes hitting a plateau? It's cheaper to tap the neighbor's WiFi ...
Broadband usage in US
3. Speaking of a plateau, here is the percentage of women state legislators in the US. 
Female state legislators
4. Apparently a farmer in Uttar Pradesh (Northern India) released bags full of snakes in a government office after the officials there asked for bribe. This is how we deal with corruption ...
Snakes against corruption

— 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.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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