(Houston)

If you haven’t been paying attention, something very interesting has been happening in the oil market. That development is that the US has quietly replaced Saudi Arabia as the world’s largest oil producer. That is a major development because the US is outside of OPEC and thus is a major counter-balance (headache) to Saudi Arabia and OPEC’s ability to control oil prices. Each time Riyadh wants to cut output to boost prices, the US can raise its production to offset the cut.

FINSUM: The US is in a strategically superior position for the first time in a very long time. This whole dynamic is symptomatic of the new era of bountiful oil. We ultimately believe that prices will stay well below $100 for several years to come because of how supplied the market is.

(Beijing)

One of the scary facts of yesterday’s selloff was that there wasn’t a single identifiable catalyst for it. That said, one of those that had a certain effect was growing doubt about the strength of the Trump-Xi trade truce. Well that concern got a bit of support today as China publicly reaffirmed its commitment to the trade détente. Beijing said it was working toward a trade agreement with the US by March 1st, a sign that it intends to follow through on the promises made by Trump and Xi over the weekend.

FINSUM: We think it is a good sign China made this kind of statement. It seems an obvious reaction to the big stock market drop yesterday, but the fact that they care to help out is a good indication of where things are heading.

(New York)

Pay attention, the yield curve just inverted. And we are not talking about some esoteric swap rate most have never heard of. Yesterday the spread between two-and five-year Treasuries fell below zero, the first major inversion of this bull market. The 2- and 10-year spread is the most typical benchmark for gauging an inversion, but the 2- and 5-year is significant. Yield curve inversions are one of the most accurate predictors of recession, with one preceding the previous several recessions.

FINSUM: One very important thing to remember is that it often takes many months (or years) for a recession to begin once a yield curve starts, so there is still plenty of room for the economy (and markets) to run.

(New York)

Markets are having a very rough day. Both the S&P500 and the Dow are down almost 3%. Financials have been leading losses. The selloff appears to be centered on fears over the fragility of the US-China trade “truce”. Treasury bonds have been rallying, leading to selloffs in tech and banks. The Treasury curve started to invert yesterday, which also seems to have spooked investors.

FINSUM: What a difference a day makes! Just yesterday it seemed like stocks might be lined up for a nice end of year run. A day later, the trade trace has created more tension than before and the yield curve is starting to invert.

(New York)

This is a day where investors need to take a deep breath. Markets are plunging, the yield curve just inverted, and there are major fears about the durability of the US-China “truce”. One thing to take heart in is that even though they are good predictors, a yield curve inversion doesn’t mean everything. It is important to note that it is the two and five-year Treasuries that have inverted, not the two and ten, which could mean this is just a temporary kink. For instance, in 1998, this pair turned negative without the rest of the curve following suit.

FINSUM: On top of the last point there, remember that inversions don’t cause recessions, they are just the market predicting slower long-term growth. That said, they seem to create self-fulfilling prophecies.