Was there a “plaza” accord after all?
Yesterday’s FOMC statement and Yellen’s press comments were unequivocally more dovish than the markets and we were expecting. Going into the meeting there was a reasonable case for preparing the markets for a rate increase in early summer, given declining unemployment and increasing US core CPI. As it turned out, external factors – perhaps a euphemism for undesirable moves in global markets and the US dollar – were in contrast almost overplayed. For us, “Peak fear” was last month’s story, so why bring it up now?
Read more...Corporate profits - Too early to call an upturn
In today’s world of rock star central bankers it can feel like every move in the markets is down to the nuances of monetary policy. Last week’s ECB meeting was a prime example – EUR down on a larger than expected QE package and then minutes later a complete reversal as ever-lower interest rates were downplayed during the press conference.
Read more...ECB - Using the bazooka
With survey data pointing to a marked slowdown in the eurozone manufacturing sector, Exhibit 1; forward inflation expectations at 1.4% significantly lower than at December’s meeting; and a cut in the ECB’s projections for economic growth from 1.7% to 1.4% for 2016, anything other than a forceful response would have been received very poorly by markets. This would in our view also have been tantamount to a policy error. But unlike December, this time markets got what they wished for – an increase in the size and composition of eurozone QE.
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Genel’s Taq Taq highlights complexity of fractured reservoirs
Genel Energy surprised the market this week by downgrading the reserves in its Taq Taq field in Kurdistan. 2P recoverable reserves dropped from 683mmbbls to 356 mmbbls, with the bulk of the reduction attributed to a lower than originally estimated fracture porosity in the Cretaceous Sharanish reservoir. Yet it has taken six years and 184mmbbls of production to get to this point - so how can this be and what does it tell us about the development of fractured reservoirs?
Read more...Oil & Gas UK 2016 Activity Survey: Impressive improvements no match for oil price headwinds
In another time, the performance of the UKCS over the last year would be a cause for celebration. As reported in today’s Oil & Gas UK 2016 Activity Survey (click here), oil and gas production from the North Sea increased by 9.7% in 2015 from 2014 levels, representing the first production increase seen since the turn of the century.
Read more...Yellen’s testimony - No change to the Fed’s view
If Fed chair Yellen’s speech today was an opportunity to communicate a more dovish outlook for US interest rates it has been passed up. Yellen highlighted the decline in the US unemployment rate to 4.9%, in-line with the Fed’s own longer-run estimate of a sustainable level and only talked of the uncertainty in regard to recent external factors and financial market movements – and notably to both the upside and downside. This gives little ammunition for bulls expecting a quick and wholesale reappraisal of the trajectory of US interest rates.
Read more...Rising credit stress in the banking sector add to investor concerns
Though we do not wish to draw any apocalyptic join-the-dots conclusions, we can now add a significant increase in credit stress within the global banking sector to the lengthening list of investor concerns . For example, since the start of the year the 5y credit default swap premium on Deutsche Bank has doubled to 200bps, Exhibit 1. It would not however be fair to highlight only a single institution; outside the eurozone, bank sector credit in the US and UK has also suffered significant spread widening, Exhibit 2.
Read more...Majors still believe in higher long term pricing
Despite current low oil prices driving dividends being paid out of debt, BP did not cut its dividend yesterday. The BP board and management must therefore strongly believe that the current oil prices are temporarily low.
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Oil Macro outlook 2016 - oversupply in the short term
Edison published its latest oil and gas macro outlook on 27 January 2016. Below are highlights of the short term thoughts.
Market thesis: Oversupply to remain in the short term
The oil markets have been in turmoil now for 16 months, with recent trading at its most tumultuous in years as crude prices have plummeted to levels not seen since mid-2004. A Saudi-led OPEC market-share protectionist policy has driven a marked increase in inventories over 2015, with lifting of Iranian sanctions and potentially slowing Chinese demand set to extend the supply overhang.
Global market sell-off-are we nearly there yet
As markets fall, it is easy for a bull market in bearish analysis to develop. We are not unfamiliar with the bear case having consistently highlighted the overvaluation of developed market indices in recent years. The risk of a correction has been increasing since the US Fed in particular stepped back from policies which pushed global indices higher. Former Fed policymaker Richard Fisher’s comments on CNBC on how he was part of a group that “frontloaded a tremendous market rally” still have the ability to shock, even if not exactly groundbreaking news.
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