The Middle East Islamic factions are at it again, but the world of oil trading cares little about it. Egypt, Syria, Iraq, Tunisia all have violent outbreaks between the sects of Islam. The UN Secretary General has said that over 100,000 people have been killed since the outbreak began. In Egypt, the call by the armed forces for demonstrations against the Morsi regime has been called an act of civil war by the opposition. This is not going well for the ousted government and it will not end well for all involved.
We thank Dennis Gartman for this tidbit of information. One of the true sages of Wall Street, Dennis is a must read in the morning. He noted that Harvard has completed a study regarding the production rate of oil liquids. They say that the U.S. production will expand from 11.3 million barrels per day to 15.9 million in four years. The U.S. currently uses about 18.6 million barrels per day. North America will be self-sufficient in oil in four years. OPEC is aghast! The geopolitics has been greatly altered. Perhaps the oil producers in the Middle East that are enemies of the U.S. will not be able to afford their donations to Al Qaida or the Hezbollah. Wishful thinking on our part, but we too can hope – posted by Stanton_Analytics.
U.S. Asset Managers: Weekly Fund Flows: Continued Strength in Equity and Fixed Income Flows, MMFs See Outflows. AMG/Lipper released mutual fund flows data for the week ending July 24, 2013. This week we are continuing to see strength across equity and fixed income flows. Equity flows had another $3bn+ week and taxable fixed income had its best week since March, also with $3bn+ in flows. While domestic equity and taxable FI are doing well, munis continue to show weakness, with another week of $1bn+ outflows. Money funds saw significant outflows as well.
Today started with 215k ESU and 900 SPU traded on Globex, trading range was 1674.90 – 1688.70. Thursday’s regular trading hours range was 1686.20 – 1675.20 before settling at 1684.00, up .2 handles. Probably the last busy night for U.S. earnings; [AMZN] underwhelming and [EXPE] outright disappointing along with a handful of so-so and another handful of decent earnings. Asia was soft as Japan dumped 3% on earnings and CPI gained (CPI causing some to wonder if Kuroda accommodation could be eased). Nikkei futures fell below 14,000 – just last week they poked above 15,000.
We are on the back side of 2nd quarter earnings season and it appears to be less than stellar, with an overall better performance beating lowered expectations as the S&P faces first weekly loss since late May. As Pantheon economist Ian Shepherdon put it, “all it takes now is a sneeze in the wrong direction for the U.S. to print a negative Q2 GDP number.” Let’s hope the second quarter tells us little about the third quarter. Most economists still expect growth to rebound to a range of 2% or more in the second half of the year. The things that hurt the second quarter – higher taxes, sharp federal spending cuts and a soft global economy – are not expected to cause as much damage in the months ahead – Jeffry Bartash.
Today’s pit hours gapped 6 handles lower to 1678.30 – 1678.00 on overseas weakness. The SPU traded a high of 1680.80 at 9:01- after the University of Michigan consumer sentiment checked in at 85.1, highest since 2007 vs. 84.0 expected, 83.9 prior. The Fed is monitoring inflation… The inflation expectations component fell from July preliminary data – both 1Y and 5Y periods: (1Y) +3.1% from +3.3%; (5Y) +2.8% from +2.9%. Sell programs pushed through yesterday’s weekly low of 1675.20, electing small sell stops down to 1670.50, down 13.5 handles at 10:00. The [DJIA] was off 140 points, the Nasdaq was down only 5 handles and the [DJT] was down just 30 points, faring the best out of the major indexes and the bulls wrestled away the momentum. The SPU was retesting the opening range by 11:11.
US Treasuries prices held a tight higher range midday Fri after 1) Overnight, NY morning buying spurred by a dovish WSJ (Hilsenrath) article about next week’s FOMC meeting; 2) Tsys this morning then continued higher, with short-covering reported and also macro funds buying in Tsys and also 5/30Y flatteners done too; 3) Tsys did not even come off much when July Univ of Michigan consumer sentiment came in at 85.1, a six-year high; 4) Traders said that’s because there are more shorts from macros still to be covered, with such shorts expected to need to cover by the day’s end; 5) Others eyed early month-end buying; Barc Tsys index extends 0.06 years but MBS extend 0.13 years and European Tsy index a chunky 0.16 years and TIPS empirical 0.27 years; 6) US swaps spread proved mixed amid light two-way flows, dealer receiving in 2Y swaps, underlying interest to put on wideners; 7) Old 3Y note mildly tight in overnight repo market; 8) US stocks indexes traded mildly weaker (see 12:02, 11:54 technical bullets on Nikkei, S&Ps, Eminis.) 9) NY Fed bought $1.464B of $2.92B offered in 2036-43 Tsys
At 12:00 1678 area was trading and the index stepped quietly higher through the afternoon as the bulls targeted last Friday’s close at 1689.50. The SPU traded up to a new high of 1686.00, testing yesterday’s high going into the closing imbalance. The closing imbalance was a moderate $478M to the buy side and the S&P continued to grind to new intraday high(s) of 1687.50. On the cash close 1686.70 area traded before settling at 1686.60, up 2.6 handles on the day. We enjoyed a 17-handle trading range today – Whoa! Last Friday closed at 1689.50.
We have a bunch of big “macro” events next week – including an FOMC decision Wednesday 1:00 pm CT, BOE decision Thursday 6 am CT, ECB decision 6:45 am CT, followed by the US jobs report on Friday at 7:30 am CT. Also, the final PMIs will check in – China (Wed night) and the US/Europe (Thurs morning). Data from these latter two countries has generally been moving in the right direction and the formal July prints will likely continue that trend. China is the big wild card – the Markit flash reading deteriorated further in July although the official government NBS calculation is a bit different and thus could hold in better.