Displaying items by tag: macro

Friday, 29 March 2024 03:47

What Analysts Got Wrong About Oil

Oil prices have continued to defy Wall Street analysts. Last year, the consensus view was that prices would weaken as the US economy slipped into a recession, with the rest of the world facing a sharper contraction in economic growth. While growth did slow, the US economy continued to expand, and global oil demand increased more than expected. In Q1, the IEA upped its forecast for US oil demand by 110,000 barrels per day due to stronger than expected economic data. 

Additionally, despite predictions from EV boosters, there has been no material impact on oil demand from increased adoption. Similarly, China’s economy has been mired in a slump, yet Chinese oil demand also defied expectations and increased more than expected. In fact, a major lesson of the post-pandemic period is the inelasticity of oil demand. 

On the supply side, US production also surpassed forecasts and made up for any production cuts from OPEC. A major factor is increasing well productivity due to newer drilling techniques. 

Looking ahead, many were skeptical that OPEC+ would remain disciplined, given individual countries’ incentives to increase revenues by boosting production. So far, the cartel has managed to successfully reduce production, which is contributing to the current tight market and a major factor in oil’s upward move YTD. 


Finsum: Last year, many analysts got it wrong when it came to oil. Overall, they were too bearish on the economy and overestimated how much a weak economy would impact oil demand. 

Published in Eq: Energy
Thursday, 28 March 2024 06:18

Who Should Utilize Buffer ETFs

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.


Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

 

Published in Bonds: Total Market

Invesco recently completed its Q1 update on the landscape for alternative assets. In terms of private credit, the firm sees an improving environment due to a resilient economy, inflation trending lower, rate cuts later in the year, and expectations of liquidity events in private equity. Overall, it sees investors able to get attractive yields without compromising on credit quality. It expects overall yields to remain between 11 and 12% for the year for private credit investors. 

The firm sees opportunity in distressed debt and special situations to lend to ‘good companies’ with weakened balance sheets. It believes the higher rate environment has hurt smaller companies and that many of these companies are operationally sound but are ‘liquidity-constrained’, creating an opportunity to invest at attractive valuations. 

In terms of real assets, Invesco notes that fundamentals remain strong, for the most part, despite lower transaction volume and stresses created by the high-rate environment. It’s particularly bullish on real estate due to improving monetary conditions, which should support transaction volumes. Even during the downturn, income fundamentals remained robust across most categories. The firm sees sound fundamentals in most areas of real estate except for offices and overbuilding in some markets. Additionally, recent economic data has been supportive of a ‘soft landing’ for the economy, which is also bullish for real estate. 


Finsum: Invesco shared its thoughts on alternative assets. Overall, it’s bullish on the asset class and sees the most upside for real estate and private credit due to its positive forecast for the economy in 2024.

Published in Alternatives
Friday, 15 March 2024 04:08

Gasoline Prices Expected to Rise

Lower energy prices have provided some relief for consumers over the last few months. However, this could be changing with demand set to increase as we enter the start of driving season which is due to be exacerbated by refinery outages in many parts of the country.

 

Over the last month, gasoline prices are about 5% higher but still slightly down relative to last year at this point. Higher energy prices negatively impact consumer confidence and discretionary spending but also feed into inflationary pressures. In last month’s CPI report, higher energy prices was a major factor in the hotter than expected readings. Additionally, they have political implications given elections in November.

 

According to analysts, the situation is likely to get worse before its gets better. Gasoline inventories are lower than normal, following a 5.7 million barrels decline last week, and are now 3% below their average levels for this time of the year. Inventories could continue to be drained as refineries have been running below 87% capacity for the last 8 weeks. Adding to these issues is recent drone strikes on Russian refineries by Ukraine.


Finsum: Gasoline prices have been rising due to refinery issues. The situation is likely to get worse before it gets better as we enter summer driving season, and inventories have been drawn down more than expected. 

Published in Eq: Energy
Friday, 15 March 2024 04:04

Bonds Weaken Following February CPI Data

Bond yields modestly rose following the February consumer price index (CPI) report which came in slightly hotter than expected. Overall, it confirms the status quo of the Fed continuing to hold rates ‘higher for longer’. Yields on the 10-year Treasury rose by 5.1 basis points to close at 4.16%, while the 2-Year note yield was up 5 basis points to close at 4.58%. 

 

The report showed that the CPI rose by 0.4% on a monthly basis and 3.2% annually. Economists were looking for a 0.4% monthly increase and 3.1% annual. While the headline figure was mostly in-line with expectations, Core CPI was hotter than expected at 3.8% vs 3.6% and 0.4% vs 0.3%. The largest contributors were energy which was up 2.6% and shelter at 0.4% which comprised 60% of the gain.

 

Based on recent comments by Chair Powell and other FOMC members, the Fed is unlikely to begin cutting unless inflation resumes dropping or there are signs of the labor market starting to crack. Current probabilities indicate that the Federal Reserve is likely to hold rates steady at the upcoming FOMC meeting, especially with no major economic data expected that could shift their thinking. 


 

Finsum: The February jobs report resulted in a slight rally for bonds as it increased the odds of a rate cut in June. Most strength was concentrated on the short-end of the curve.

 

Published in Bonds: Total Market
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