Surging COVID-19 Cases Dampen U.S. Consumer Confidence, House Prices Post Record Gains

The survey from the Conference Board on Tuesday showed consumers less inclined to buy a home and big-ticket items like motor vehicles and major household appliances over the next six months, supporting the view that consumer spending will cool in the third quarter after two straight quarters of robust growth.

Still, more consumers planned to go on vacation, indicating a rotation in spending from goods to services was underway as economic activity continues to normalize following the upheaval caused by the coronavirus pandemic. Increased spending on services, which account for the bulk of economic activity, should keep a floor under consumer spending.

“The report does raise the warning flag that if the pandemic worsens, and given the continued unwillingness of many to get vaccinated that is a real possibility, we could see people stashing away funds just in case,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “We could see growth moderate faster than expected.”

The Conference Board’s consumer confidence index dropped to a reading of 113.8 this month, the lowest since February, from 125.1 in July. Economists polled by Reuters had forecast the index falling to 124.0. The cutoff for the survey was Aug. 25, before the killing of 13 service members in Afghanistan and Hurricane Ida slammed Louisiana.

The measure, which places more emphasis on the labor market, held up well compared to other surveys. The University of Michigan’s survey of consumers showed sentiment tumbling to near decade lows in August because of rising prices for goods like food and gasoline, as well as the resurgence in COVID-19 cases that has been driven by the Delta variant of the coronavirus.

“While the resurgence of COVID-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead,” said Lynn Franco, senior director of economic indicators at the Conference Board in Washington.

Consumers‘ inflation expectations over the next 12 months rose to 6.8% from 6.6% last month. There are signs, however, that price pressures have peaked, with data last week showing the Federal Reserve’s preferred inflation measure posting its smallest gain in five months in July.

Wall Street’s main indexes hovered near record highs. The dollar was steady against a basket of currencies. U.S. Treasury prices were lower.

LABOR MARKET HOLDING UP

The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, slipped to a still-high reading of 42.8 this month from 44.1 in July, which was the highest since July 2000.

This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report.

“It continues to send a pretty favorable signal about labor market conditions,” said Daniel Silver, an economist at JPMorgan in New York.

Nonfarm payrolls likely increased by 750,000 in August after rising 943,000 in July, according to a Reuters survey of economists. The unemployment rate is forecast falling to 5.2% from 5.4% last month.

Though fewer households intended to buy long-lasting manufactured goods such as motor vehicles and household appliances like washing machines and clothes dryers this month, more expected to travel domestically, with many intending to fly to their destinations.

Households accumulated at least $2.5 trillion in excess savings during the pandemic, laying a strong foundation for consumer spending. Gross domestic product growth estimates for the third quarter are around a 5% annualized rate. The economy grew at a 6.6% pace in the second quarter.

The Conference Board survey also showed less enthusiasm among consumers for home purchases over the next six months amid higher house prices, which are sidelining some first-time buyers from the market.

Demand for housing soared early in the pandemic as Americans sought more spacious accommodations for home offices and home schooling, but supply severely lagged, fueling house price growth. COVID-19 vaccinations have allowed some employers to recall workers to offices. Schools and universities have reopened for in-person learning.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index jumped a record 18.6% in June from a year ago after rising 16.8% in May. Economists, however, believe that house price inflation has peaked, with homes becoming less affordable especially for first-time buyers.

“Some early data suggests that the buyer frenzy experienced this spring is tapering, though many buyers still remain in the market,” said Selma Hepp, deputy chief economist at CoreLogic. “Nevertheless, less competition and more for-sale homes suggest we may be seeing the peak of home price acceleration. Going forward, home price growth may ease off but stay in the double digits through year-end.”

A third report from the Federal Housing Finance Agency (FHFA) showed its house price index rose a record 18.8% in the 12 months through June. House prices surged 17.4% in the second quarter compared to the same period in 2020. FHFA believes house prices peaked in June.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lucia Mutikani; Additional reporting by Evan Sully; Editing by Paul Simao and Andrea Ricci)

Summer’s Gasoline Recovery Could Fizzle on Rising Infection Cases

By Stephanie Kelly, Jessica Jaganathan and Bozorgmehr Sharafedin

Gasoline demand in the United States, the world’s top oil consumer, has nearly recovered to 2019 levels following the plunge in travel and business activity during the worst of the pandemic in 2020.

Coronavirus cases worldwide, however, have started to rise after largely falling in May and June, according to the Reuters global COVID-19 tracker https://graphics.reuters.com/world-coronavirus-tracker-and-maps, undermining the recovery.

Gasoline demand in the United States and Europe is hitting a plateau, and those two regions account for roughly a third of global petroleum consumption, making them key to the rebound in oil and refining markets.

Monthly growth in mobility and transport fuel demand are believed to have slowed in June, the International Energy Agency (IEA) said in a July report. [IEA/M]

Currently, the energy watchdog expects global fuel demand to reach pre-pandemic levels by next year, but analysts say that could be pushed further out if coronavirus infections and the slow pace of vaccinations worldwide further entrenches structural changes in demand – including more telecommuting and less air travel.

“We’re still very much actively dealing with new cases here in the U.S. and also abroad, and that is putting greater pull on demand and what was originally anticipated for this recovery process in the middle of the summer for this year,” said Devin Gladden, manager of federal affairs at motorist group American Automobile Association.

The IEA, which represents oil-consuming nations, also said in March that gasoline demand was unlikely to return to 2019 levels, in large part due to a shift to electric vehicles.

Global gasoline demand is expected to total 25.4 million barrels per day (bpd) this year, down 4.5% from 2019 levels, the IEA said in March.

Countries in Asia are restricting movements again, affecting travel patterns. Indonesia, Asia’s top importer of gasoline, is grappling with the worst coronavirus outbreak in Asia. The country, with more than 270 million people, now has Southeast Asia’s biggest caseload, and is extending some restrictions.

The latest update of aggregated travel patterns Google collected from its users’ phones showed https://www.google.com/covid19/mobility retail and recreation visits fell from June 10 to July 22 by 21% in Indonesia and travel to work fell by 33%. Several other countries are dealing with outbreaks, including Vietnam, Thailand and Malaysia.

China’s refineries continue to process oil at high rates, suggesting strong consumption, but the world’s largest crude oil importer just announced a crackdown on the misuse of import quotas, which could cut its demand.

Fuel sales increased in early July in India as motorists took back to the roads after states eased COVID-19-related lockdowns, helping offset declines in other nations. However, crude imports by India, Asia’s second top importer, fell to a nine-month low in June, after the lockdowns and low demand boosted inventories.

EUROPE’S MIXED PICTURE

In Europe, road traffic has started to plateau following gains in May and June. Daily average petrol and diesel sales at sampled filling stations in Britain have stagnated, while travel is declining in Russia.

Europe is one of the top consumers of global oil, taking in about 14% of the world’s petroleum in 2017, according to the U.S. Department of Energy.

“While transportation demand is still improving in many countries, demand-flattening has started in some key consumers and conditions are deteriorating in others,” Standard Chartered analysts said in a note.

England scrapped nearly all COVID-related curbs last week, while in Germany, Chancellor Angela Merkel warned more people needed to be vaccinated against COVID-19 before restrictions could be lifted in Germany.

Infections are rising in the United States, which consumes about a fifth of the world’s oil. U.S. gasoline demand recently reached 9.4 million bpd, near levels not seen since 2019, but some analysts expect that demand to plateau.

Officials in some areas, like Los Angeles, are reinstating precautions like mask mandates due to the rise in COVID-19 cases.

Demand “has been tracking at around 2-3% below 2019 levels. That’s a number you’re going to continue to see,” said Robert Campbell, head of oil products research at consultancy Energy Aspects.

(Reporting by Stephanie Kelly in New York, Bozorgmehr Sharafedin in London and Jessica Jaganathan in Singapore; Editing by Marguerita Choy)

Will EIA Inventory Data Confirm Bullish Price Action?

What is our trading focus?

  • OILUKJUL20 – Brent Crude Oil (July)
  • OILUSJUL20 – WTI Crude Oil (July)
  • GASOLINEJUNE20 – RBOB Gasoline (July)
  • XOP:arcx – Oil & Gas Exploration & Production
  • XLE:arcx – Energy Select Sector SPDR Fund (Large-cap US energy stocks)

Crude oil has experienced a sharp turnaround in sentiment since last Wednesday when the ‘Weekly Petroleum Status Report’ from the US Energy Information Administration showed that a through in gasoline demand had been reached. Since then the July WTI crude oil futures contract has rallied eight dollars while reduced fear of another collapse to negative prices have seen the front-month contract of June jump by 12 dollars.

Source: Saxo Bank
Source: Saxo Bank

Adding to the turnaround in sentiment has also been numerous announcements of voluntary production cuts from producers outside OPEC+. The agreement by this group to cut production by 9.7 million barrels/day from May 1 and onwards has now begun. Reports from the major producers, such as Russia and Saudi Arabia have so far been promising but in order for the impact to be felt there will be no room for cheating this time round.

The ill-timed price war, just before the global meltdown in demand, that Saudi Arabia started last month, resulted in OPEC increasing production by 1.7 million barrels/day to $30.4 million last month (Source: Bloomberg production survey). The charts below highlight the challenge many producers now face in order to comply with the agreed voluntary cuts.

With the market constantly trying to gauge the global pandemics impact on demand it is now clear that some of the overly bearish forecasts, including those predicted by the International Energy Agency in their Oil Market Report for April, have been overly pessimistic. A 29 million barrels/day demand drop in April followed by 26 million in May, as the agency predicted, would have sent the level of global storage towards tank tops within weeks. Instead a speculative frenzy, both by retail and hedge funds traders have sent the price sharply higher in the belief that the worst is now behind us.

Whether true or not very much depends on many moving parts such as:

  • The speed with which global demand can recover and to what level compared with before
  • OPEC+ implementing the cuts and maintain them in order to bring down the overhang of stocks
  • The Covid-19 pandemic doesn’t mutate to resurface in a different format
  • The price of oil not reaching levels where planned production cuts are scraped or new begin

Later today at 14:30 GMT the Energy Information Administration will publish its weekly status report on crude oil storage, production and trade. The American Petroleum Institute in their report from yesterday saw a bigger than expected rise at Cushing, the major storage facility with a capacity of 76 million barrels and delivery hub for WTI crude oil futures. Off-setting this was another weekly drop in gasoline stocks, something the market took as a confirmation demand from US motorist continues to recover.

The four major areas to focus on in today’s EIA report are the crude oil storage change at Cushing, total US refinery demand, motor gasoline supplied and not least estimates on production. Overall the current strong momentum in the market would require the report being somewhat worse than expected in order to trigger a turnaround.

As per usual I will be posting the results and charts into my Twitter feed here

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

End Of Week Technical Take on Indexes, Metals, Currencies, Oil: April 3, 2020

See what to expect today and next week as we have some huge moves about to start up again. Chris Vermeulen of http://www.TheTechnicalTraders.com shares his take on all the major asset classes in this quick but high-level view on key assets.

Indexes, Metals, Currencies Video Analysis for 03.04.20

 

Natural Gas Price Prediction – Prices Drop and is Poised to Test All-time Lows

Natural gas prices moved lower on Friday, dropping more than3% for the day and down 11% for the week. A larger than expected build in natural gas inventories, in conjunction with warmer than normal weather, has led prices lower. The weather over the next 8-14 days is expected to be warmer than normal according to the most recent report from the National Oceanic Atmospheric Administration.

Technical Analysis

Natural gas prices tumbled more than 11% this week, keeping pace with the drop in the equity markets. A decline in LNG exports is reducing demand in conjunction with warmer than normal weather. Target support is the 2016 lows at 1.61. A break of this level would be a fresh low on natural gas prices. Resistance is seen near the 10-week moving average at 1.95.

Weekly momentum is negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices. The fast stochastic generated a crossover sell signal in oversold territory. The current reading on the fast stochastic is 4.4, well below the oversold trigger level of 20 which could foreshadow a correction.

Th EIA reported that net withdrawal from storage totaled 143 Bcf for the week ending February 21, compared with the five-year average net withdrawal of 122 Bcf and last year’s net withdrawal of 167 Bcf during the same week. Working natural gas stocks totaled 2,200 Bcf, which is 179 Bcf more than the five-year average and 637 Bcf more than last year at this time. The average rate of withdrawal from storage is 9% lower than the five-year average so far in the withdrawal season. If the rate of withdrawal from storage matched the five-year average of 8.3 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,876 Bcf on March 31, which is 179 Bcf higher than the five-year average of 1,697 Bcf for that time of year.

Holiday Offers No Break from Thinking About Retail Sales, Rising Natural Gas Prices, Cheap Gasoline

The U.S. financial markets are closed for business on Thursday for the Thanksgiving holiday and there are no major earnings reports. This is likely to lead to a low volume directionless trade in the Forex markets. The banks in Japan are also on holiday, adding further to expectations of light trading and well-below average volatility.

However, even with the holiday, one can’t escape the markets. At some time during this short break you will be thinking about Black Friday retail sales, rising natural gas prices, cheap crude oil and gasoline and a possible Santa Claus rally.

Focus Will be on Retailers

Although U.S. trading will resume on Friday, volume and volatility are likely to be limited a second day, which is typical at the start of the more than month-long holiday season. Tomorrow is also Black Friday, which is a very important day for U.S. retailers. The name says it all. It’s called Black Friday because sales are often large enough to make a company profitable, or put a retailer “in the black” for the year.

Being “in the black” is very important this year to U.S. retailers. Just ask Sears, which is on the brink of bankruptcy. We all saw what happened in the U.S. stock markets on Tuesday. The Dow dropped over 500 points and turned negative for the year. Traders said one of the factors driving the blue chip average lower was an earnings miss by U.S. retailer Target.

Target shares fell 10.5 percent after reporting weaker-than-expected earnings for the previous quarter. The company also posted lighter-than-forecast same-store sales, which is a key metric for retailers.

The Target news spread across the U.S. Retail sector rather quickly sending the SPDR S&P Retail ETF (XRT) down 3.4 percent. Other retailers like Kohl’s, L Brands and Macy’s also fell 9.2 percent, 17.7 percent and 3.4 percent, respectively.

So if you’re looking for the next event that could make or break the stock market into the end of the year, watch the Black Friday sales results.

Record Cold Could Limit Retail Sales in the East

If you live in the northern U.S. especially on the East Coast then your choice will be to shop or stay indoors. If you choose to shop then you’ll be helping the economy. If you choose to stay at home then you’ll be enjoying the heat created by expensive natural gas.

Heating costs are expected to rise sharply this winter because natural gas inventories are well below their one-year and five-year averages. Furthermore, winter has arrived weeks earlier this year, putting supply issues at the forefront.

On Wednesday, the U.S. Energy Information Administration announced a 134 billion cubic feet draw during the week-ending November 16. This was well above the highest estimate at 121 billion cubic feet. The five-year average draw during this same period is 25 billion cubic feet. So it’s been cold and it’s going to continue to be cold over the Thanksgiving break with several areas in the Northeast hitting record lows.

Cheap Gasoline May Make Driving to Grandmother’s House an Option

If you choose not to take advantage of Black Friday sales or enjoy your expensive natural gas heat then you can take a long ride to your grandmother’s house for Thanksgiving dinner and leftovers. This may be viable option to flying because gasoline prices are cheap in the U.S. at this time, thanks to excessive crude oil production from the United States, Saudi Arabia and Russia. And of course, President Trump, who may have duped the Saudis and Russians into overproducing while granting exemptions from the Iranian sanctions to eight major customers of the rogue nation.

Gas up and drive as much as you want for the next two weeks because OPEC and its friends are expected to announce crude oil production cuts for next year in an effort to rebalance the markets. The decision to cut 1 to 1.4 million barrels from the market is expected to be made at the OPEC meeting in Vienna on December 6.

Will There Be a Santa Claus Rally in the Stock Market?

I have not eliminated a Santa Claus Rally in the stock market just yet. Given the results of the mid-term elections, President Trump’s approval numbers, the threat of impeachment, the Mueller investigation and warnings about a recession, I think Trump could trigger the start of a Santa Claus rally to save his presidency and boost his re-election chances as early as December 1 if he strikes a trade deal with China at the G-20 summit in Argentina.

WTI Near 2015 Highs after Libya Blast

US Oil Rig Counts from Baker Hughes was released on Friday evening. The headline number remained unchanged at 747. Natural Gas came in at 184 against the previous figure of 183. Totals were 931 against the previous 930. WTI Crude moved very little after the data release and finished the session on Friday at around $58.31. However, Oil gained after a pipeline in Libya was sabotaged on Boxing Day. The explosion damaged a pipeline feeding the port of Es Sider and reducing supply by 90,000 bpd. The price gained $1 to trade at the highest levels since June 2015 and stopped short of the $60.00 mark.

US S&P/Case-Shiller Home Price Indices (YoY) (Oct) was out on Tuesday at 6.4% v 6.3% from a previous reading of 6.2%. GBPUSD moved higher with the data from 1.33502 to 1.33677. An hour and 30 minutes later, Dallas FED Manufacturing Business Index (Dec) data came in at 29.7 v 20.0 expected. The previous data was 19.4. This sent GBPUSD higher again to the 1.33748 area where there was a brief pause before the next leg up commenced.

Coming up on Thursday 28th, US Initial Jobless Claims are expected to come in at 240K, down from the previous 245K. US EIA Crude Oil Stocks data will be out. The Forecast is for -5.504M compared to -6.495M last week.

EURUSD is up 0.19% overnight, trading around 1.18811.

USDJPY is little changed in early session trading at around 113.197.

GBPUSD is flat trading around 1.3415.

USDCHF is largely unchanged this morning trading around 0.98897

Gold is unchanged in early morning trading at around $1,289.50.

WTI is down 0.17%, trading around $59.58.

Major data releases for today:

At 07:00 GMT Swiss UBS Consumption Indicator (Nov) is expected with the prior number of 1.54.

At 11:00 GMT Swiss ZEW Survey – Expectations (Dec) will be released. The previous number was 40.7. Any deviation from this number may create volatility in Swiss Franc crosses.

At 15:00 GMT US Pending Home Sales (MoM) (Nov) expected at -0.5% from a prior reading of 3.5%. Pending Home Sales (YoY) (Nov) data will also be released. Last month this figure was 1.2%. USD pairs may see movement in price action as a result of data missing forecasts.

This article is written by FxPro

Energy Annual Market Recap – 2017

WTI Crude oil price will continue to hover near current levels but could see further risk toward higher prices as demand remains solid, and supply divergences offset one another. U.S. production is likely to accelerate again in 2018 unless there are political missteps that derail this outcome. Venezuelan barrels could come off the market as the country falls further into geopolitical chaos. Gasoline demand could be mixed as driving mile declines will likely be offset by increasing exports. OPEC will likely play a large role in future production especially if prices reach historical averages.

A Glance at 2017

For most of 2017, traders heard that shale producers were sitting at $50 per barrel and ready to produce as much as they could at these levels. Despite the recent run-up in production to 9.78 million barrels per day, production dropped in the third quarter, in the wake of the three massive hurricanes that affected the United States. The most recent data released by the International Energy Agency and OPEC shows that U.S. shale would increase production by 870K barrels and 1-million barrels a day respectively.

These respective production levels would overwhelm demand, but growth could compensate for these increases. Economic growth in the United States is headed for a 3-plus-percent increasing in Q4, which would buoy consumption for petroleum products and liquids.

The EIA’s Forecast is Becoming More Bullish

Separately, the EIA believes there will be supply growth that will also overwhelm demand but at the same time describes the accelerating demand for products driven by gasoline. U.S. demand is at a record high, and refiners are trying to take advantage of this demand by running their refiners at elevated levels.

WTI Crude Oil Daily Chart
WTI Crude Oil Daily Chart

If refinery operations are high then it makes sense that demand for crude oil remains high, as refiners are running at record levels, to take advantage of high refining margins. With cracks at elevated levels, prompt crude oil is getting soaked up. The backwardation in the crude oil term structure shows that prices for February 2018 crude are more expensive than WTI crude oil delivered in December of 2018. Backwardation occurs when current demand is strong, generating an incentive to use crude oil now, and avoid storing it and selling it for a lower price in the future.

OPEC

OPEC has been very active, and the most recent extension of their current production quotas have kept the crude oil markets in balance. Production fell in November and put production compliance at a 115% rate, which shows determination from OPEC members. If OPEC can continue to remain vigilant, upward pressure on prices will help offset the weight of increasing shale production.

The question oil traders will contemplate is the ability of OPEC to employ consistent compliance throughout 2018. If inventories rebalance quickly there is the chance that cheating will begin. Russia has already stated that if inventories balance to average levels they would like to increase production.

Inventory Levels

OPEC’s production tactics will depend on what happens to global inventories. Total commercial stocks declined to put total global stocks at 2,940 million barrels down 40-million which was the lowest in 2-years. If compliance continues the current 100-million barrels surplus will evaporate putting global stocks back in balance. If prices drop, it will incent producers to cheat to recapture revenues.

Cheating in tandem with increasing shale production could make rebalancing elusive. The Energy Information Administration said in its recent Short-Term Energy Outlook that inventories will begin to rise in 2018 largely due to growth from U.S. shale. If the Agency is correct, prices will likely move lower.

Energy Markets – 2018 Forecast

Economic growth could be a catalyst that drives oil prices higher. WTI broke through resistance near 55 and has consolidated above that level. The 200-week moving average has been robust resistance as prices hover near that level at 57.76. Prices have not significantly closed above that 200-week moving average since October 2014. Prices could target the $75 level on a close above the 200-week moving average.

WTI Crude Oil Weekly Chart
WTI Crude Oil Weekly Chart

If you combine these technicals with rising sentiment that global economic growth will accelerate and OPEC production cuts outpace U.S. Shales production increases, at $75 target could be realistic.