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 [December 07, 2022] A
look at the day ahead in U.S. and global markets from Mike Dolan.
With everyone on Wall St seemingly hand wringing about stagflation next
year, the price of crude oil has plummeted by up to 10% this week to its
lowest since early January - offering some relief in an otherwise murky
outlook.
Even though China proceeded to lift its strictest COVID curbs on
Wednesday and incoming U.S. and G7 economic numbers continue to come in
ahead of forecasts, Brent crude plunged below $79 per barrel for the
first time since Jan. 4.
Crucially for inflation worriers, year-on-year crude price gains - which
were running at 50-100% between February's Ukraine invasion and midyear
- have now fallen to just 4% and could soon be a disinflationary force
in consumer price baskets. U.S. gas pump prices are down almost 30% from
June peaks.
Oil prices have been undercut generally by 2023 recession fears, the
lack of fresh OPEC output cuts at last weekend's meeting and evidence in
dire China November trade numbers of the damage to date from China's
draconian zero COVID stance.
But, contrary to many prior energy market assumptions, the impact of
Monday G7's Russian oil price cap at $60pb for seaborne crude is
anchoring prices and underscoring massive discounts for Russia oil -
already selling for as low as $55pb.
U.S. Treasury officials reckon the price cap is "institutionalizing"
current market discounts.
Aside from weighing down energy stocks themselves, the oil move has had
little direct impact equity markets yet - rattled as they are by
recession angst and the prospect of four more major central bank
interest rate rises over the next week.
The Bank of Canada is the latest on the list on Wednesday and expected
to hike rates by another half point, as are the Federal Reserve,
European Central Bank and Bank of England next week.
S&P 500 futures stayed in the red on Wednesday after a fourth down day
in a row on Tuesday. European and Asia bourses - even Shanghai and Hong
Kong despite the lifting COVID restrictions - were in negative territory
too.
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A maze of crude oil pipes and valves is
pictured during a tour by the Department of Energy at the Strategic
Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016.
REUTERS/Richard Carson/File Photo
Ten-year U.S. Treasury yields held about 3.5%, but the recession
flag embedded in the 2-10 year yield curve inversion deepened
further to 84bp overnight. The dollar was a touch firmer.
In politics, Democrat Raphael Warnock won re-election to the U.S.
Senate in a hard-fought Georgia runoff on Tuesday, strengthening his
party's razor-thin majority as he fought off a challenge by
Republican former football star Herschel Walker.
Walker's defeat is also another setback for Donald Trump as he seeks
the Republican nomination to run for the White House again in 2024,
not least with the Trump business found guilty of tax fraud on
Tuesday. The former president endorsed Walker and dozens of other
high-profile Republicans in this year's midterm elections.
In Europe, there was some unease after German authorities detained
25 members and supporters of a far-right group that the prosecutor's
office said were preparing a violent overthrow of the state, with
some members suspected of plotting an armed attack on the
parliament.
Key developments that may provide direction to U.S. markets later on
Wednesday:
* US Oct consumer credit, Q3 Unit Labor Costs, productivity
* Bank of Canada policy decision
* U.S. corporate earnings: Brown Forman, Campbell Soup, GameStop
* European Central Bank board member Fabio Panetta speaks
(By Mike Dolan, editing by Alexander Smith; mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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