If oil is so tight, why are we down $ 11 in 3 days?
From HFIR
it requires me to be brutally honest with myself. This means digesting information a little bit better than the day before, controlling my emotions a bit better, understanding myself a bit better, and so on and so forth.
So as I got up this morning, a few things didn't go according to plan.
Oil was supposed to have broken out, but it did not. It is dropping and dropping hard.
Iran deal was assumed to be the reason for the drop, but when the state department official denied it, oil did not rally.
S&P 500's drop has only allowed energy to outperform on a relative basis, but the absolute price moves are starting to run out of steam.
Copper prices are rolling over again leading to my fear that this rebound was just a "fake" growth rebound.
Instead of saying the market is just volatile and emotional, it's important to ask what this means going forward. For starters, what are the bullish catalysts in the near term?
Oil demand rebounding.
OPEC+ production cut in reaction to an Iran deal.
Geopolitical risk leading to supply outages.
As you read this out loud, none of these are exactly confidence-fulfilling. Global economies are slowing down and it's evident in the economic data released from Europe to Asia. European gas prices are so high that the official government statistic illustrated a reduction of ~30% in gas usage due to conservation. That's not exactly confidence-boosting.
In addition, last week's comments from Fed Chairman Jerome Powell also did not inspire confidence that strong global economic growth is returning anytime soon. In the speech, he said:
Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.
He further added:
We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done.
Thinking what he said through, it appears to me that the Fed won't just stop increasing interest rates if inflation falls a little bit. They will keep at it until the goal is accomplished even if it implies a softer labor market. With unemployment rates so low, the Fed has ample room to keep increasing interest rates.