Central Bank Watch Macro Analysis Market Strategy

From talking the talk to walking the walk: the Fed’s on tapering mode

Most participants to the FOMC July meeting noted that, provided that the economy were to evolve broadly as they anticipated, it could be appropriate to start reducing the pace of asset purchases this year because they saw the Committee’s “substantial further progress” criterion as satisfied with respect to the price-stability goal and as close to being satisfied with respect to the maximum-employment goal.

Commodities Market Strategy Oil

Market focus: How tight is the US oil market?

Overall, crude oil inventories have moved back to their pre-COVID levels but gasoline inventories are still at the higher end of the 2015-2019 range. This has happened despite US refinery intake of crude oil still being below the pre-COVID 5-years range and after a severe production disruption in February 2021 as a result of an exceptional cold wave. Bottom line: the current level of oil prices is far from guaranteed. The reality check could be sobering, especially if the delta variant proves to be disruptive for the global recovery and if OPEC/OPEC+ does not manage to keep to its 2020 playbook

Market Strategy

Market Focus: Squaring the OPEC+ circle

OPEC+ failed to reach an agreement on raising crude supplies at it latest meeting. The most contentious issue was the baseline to calculate potential individual contributions be considered for an extension of the OPEC+ agreement beyond April 2022. OPEC+ agreed last year to cut output by almost 10 million barrels per day from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8 million barrels per day. As reported by Reuters, OPEC+ “voted on Friday to raise output by some 2 million barrels per day from August to December 2021 and to extend remaining cuts to the end of 2022, but UAE objections prevented agreement”. The UAE, which managed to increase its production capabilities unsuccessfully asked the coalition to revise upward its own production baseline in order to accept the extension of the production cuts in 2022. This would have de facto translated into a quota waiver and into a weakening of the established allocation structure for individual contributions. As usual in the case of “OPEC and Friends”, it is important to understand behind-the-scene negotiations and the bargaining process in order to fully grasp the significance of the latest move.

Commodities Market Strategy

Market Focus: Making sense of the Commodities rally

Over the last few months, commodity prices have surged across the board. The S&P GSCI index and related subindexes have been soaring whether you look at Energy commodities, Grains and other Agricultural commodities, Industrial Metals or Precious Metals. While oil prices and the broader energy commodities basket have rebounded from their Covid-19 slump, the price surge has been particularly impressive for agricultural commodities and precious metals.

Business & Geopolitics Business Intelligence Commodities MENA ENG Oil

Business & Geopolitics: The China-Iran strategic partnership

As summed up by the New York Times, “China agreed to invest $400 billion in Iran over 25 years in exchange for a steady supply of oil to fuel its growing economy under a sweeping economic and security agreement signed on Saturday.“ The partnership was signed by China’s Foreign Minister Wang Yi and his Iranian […]

Market Strategy

Bullish outlook for Palladium

The outlook for platinum and palladium is likely to remain bullish in 2021 after a rally in 2020 that was boosted by the prospect of a faster than expected recovery for global growth and for global vehicle sales. Platinum should benefit most from the rebound in vehicle sales and from the increased demand for Jewelry across the world as the global economy rebounds and pent-up demand is released. 

Business Intelligence China Commodities ENG Future of Energy & Mobility GCC Hydrogen Japan MENA ENG Oil Other G20 / Global United States

Business Intelligence: Is the Hydrogen Economy ready to take-off?

Hydrogen as a feedstock for the petrochemical industry Since the first demonstrations of water electrolysis some two hundred years ago, Hydrogen has witnessed many false dawns. As recorded by the International Energy Agency (IEA) in its landmark report on the Future of Hydrogen, commissioned by the Japanese Presidency of the G20 in June 2019, hydrogen […]

Currencies Emerging markets Market Strategy

Market Focus (EM): Turkish Lira’s fallout resumes

Key takeaways Turkey is once again suffering from investors defiance toward its currency, as in 2018 and in March 2020, putting it apart from other emerging markets Turkey has adopted some unorthodox policies to support the Lira while essentially continuing its loose monetary policy, which fuelled a credit boom in 1H 2020 A further weakening […]

Commodities Gold Market Strategy

Market focus: Gold above $2000/oz

Key takeaways The price of gold is testing new record highs as the yellow metal is expected to cross the $2000/oz mark for the first time in its modern history The seemingly unstoppable ascent of gold is due to a combination of negative real market interest rates and sliding dollar in the face of the […]

ENG Equities Market Strategy United States

Market focus: How smart is smart beta?

Professional Investors are familial with the Fama-French Factor model developed by Nobel Prize Laureate Eugene Fama with his colleague Kenneth French in the 1990s. According to this model, the expected return on a stock is the combination of the general equity market premium – the so-called beta of the single risk factor model – to which they added a “size premium” – on the premise that small cap stocks are expected to generate higher returns than large caps – and the value premium which is a reflection of a stock’s lower valuation compared to other stocks which trade higher on the basis of their expected earnings. This academic theory is at the heart of the so-called “smart beta” strategy based on ETFs – Exchange Traded Funds – which seek to replicate an exposure to the risk factors identified by Fama-French and by other pundits. However, since the beginning of the year, here have been a puzzling disconnect between “Growth stocks” and “Value stocks”.