Author: BlackMask Financial

TORONTO (Reuters) – Hedge fund bets against Canada’s TD Bank Group on Wednesday hit $4.2 billion, making it the most-shorted banking stock globally, according to data provider ORTEX’s calculations, with some analysts concerned about the bank’s exposure to U.S. regional lenders. Around 4.1% of TD’s outstanding shares were out on loan to hedge funds, while the second-most shorted bank stock, JP Morgan, only had $2.3 billion worth of shorts, showed the data. Hedge funds profit when they borrow a stock from an institutional investor and sell it back when the price falls, pocketing the difference, a practice known as short-selling. Turmoil in the banking sector began last month with the collapse of regional banks Silicon Valley Bank and Signature Bank, sparking a crisis of confidence. The Biden administration on Thursday called for stricter rules to reduce future risk.

TD is the midst of acquiring U.S. regional lender First Horizon Corp for $13.4 billion, though some shareholders have urged the Canadian bank to either scrap the deal or renegotiate a lower price.

The First Horizon deal would catapult TD to the sixth-biggest commercial bank in the U.S. from the tenth-largest now, according to the Federal Reserve. The next-largest Canadian bank in the U.S. is BMO, which is number 23 on the list. TD shares are down 15.7% since the beginning of the regional bank crisis and down 3.4% this week. Peer Bank of Montreal (BMO) is down 15.8% over the same time period and is down 2.2% this week. Around 2.9% of BMO’s outstanding shares were out on loan to hedge funds, or about $1.8 billion. A spokesperson for TD was not immediately available for comment. “The bank’s acquisition of First Horizon is also not looking great in the current context,” Eric Compton, equity analyst at Morningstar, told Reuters via email. “TD has the most exposure to the U.S. regional banking system,” Compton added.

He noted TD also has a material stake in Charles Schwab, which is down 40% year to date.

TD awaits regulatory approval of its takeover of First Horizon.

Schwab’s $7 Trillion Empire Built on Low Rates Is Showing Cracks

On the surface, Charles Schwab Corp. being swept up in the worst US banking crisis since 2008 makes little sense. The firm, a half-century mainstay in the brokerage industry, isn’t overexposed to crypto like Silvergate Capital and Signature Bank, nor to startups and venture capital, which felled Silicon Valley Bank. Fewer than 20% of Schwab’s depositors exceed the FDIC’s $250,000 insurance cap, compared with about 90% at SVB. And with 34 million accounts, a phalanx of financial advisers and more than $7 trillion of assets across all of its businesses, it towers over regional institutions. Yet the questions around Schwab won’t go away.  Rather, as the crisis drags on, investors are starting to unearth risks that have been hiding in plain sight. Unrealized losses on the Westlake, Texas-based firm’s balance sheet, loaded with long-dated bonds, ballooned to more than $29 billion last year. At the same time, higher interest rates are encouraging customers to move their cash out of certain accounts that underpin Schwab’s business and bolster its bottom line. It’s another indication that the Federal Reserve’s rapid policy tightening caught the financial world flat-footed after decades of declining rates. Schwab shares have lost more than a quarter of their value since March 8, with some Wall Street analysts expecting earnings to suffer.  “In hindsight, they arguably could have had more prudent investment choices,” said Morningstar analyst Michael Wong. “There would be a sufficient amount of liquidity right there to cover if 100% of our bank’s deposits ran off,” Bettinger told the Wall Street Journal in an interview published Thursday, adding that the firm could borrow from the Federal Home Loan Bank and issue certificates of deposit to address any funding shortfall. Through a representative, Bettinger declined to comment for this story. A Schwab spokesperson declined to comment beyond the Thursday statement. The broader crisis showed signs of easing on Monday, after First Citizens BancShares Inc. agreed to buy SVB, buoying shares of financial firms including Schwab, which was up 3.1% at 2:29 p.m. in New York. The stock is still down 42% from its peak in February 2022, a month before the Fed started raising interest rates. Schwab is unusual among peers. It operates one of the largest US banks, grafted on to the biggest publicly traded brokerage. Both divisions are sensitive to interest-rate fluctuations. Like SVB, Schwab gobbled up longer-dated bonds at low yields in 2020 and 2021. That meant paper losses mounted in a short period as the Fed began boosting rates to stamp out inflation. Three years ago, Schwab’s main bank had no unrealized losses on long-term debt that it planned to hold until maturity. By last March, the firm had more than $5 billion of such paper losses — a figure that climbed to more than $13 billion at year-end. 

Just days after the unexpected OPEC+ oil production cut, Saudi Aramco, the Saudi state-owned oil company, has raised prices of crude to Asia by 30 cents per barrel. The price hike in Aramco’s flagship Arab Light crude to Asia for May delivery represents the 3rd  monthly increase in a row, Bloomberg reports.  The move to increase the May OSP was not unexpected, though prior to the surprise OPEC+ announcement traders surveyed by Bloomberg had expected Arab Light prices to fall by 43 cents per barrel. Earlier this week, analysts speculated that Aramco could potentially hike May crude prices to Asia by 20 cents per barrel, to $2.7 per barrel, based on a Reuters survey of Asian refiners.

Already tight supply will now be further squeezed with the additional 1.6 million bpd cut. This, in turn, will increase the upward momentum for Middle East medium and sour grades, which are closing that gap with light grades, Reuters reports.

The benchmarks major GCC producers use to price their crude bound for Asia have soared, narrowing the gap with the price of Brent Crude in the past couple of days. Analysts are not discounting the possibility for Dubai crude to entertain a premium to Brent in the coming months, with China’s economic recovery. PetroChina is forecasting a 3% rise in refined fuel demand this year, from 2019, while other state-sponsored Chinese analysts are eyeing a 7.8% increase in oil refinery throughput. While Wednesday’s OSP increase was anticipated in light of the OPEC+ output cuts, the first in the three consecutive hikes that came in February took the market by surprise. The February hike for March OSP of 20 cents per barrel (to a premium of $2 a barrel over the Dubai/Oman average) was the first increase in six months and was primarily based on Chinese demand expectations.  The May OSP price increase further solidifies analysis that the Saudis view coming Chinese demand as particularly robust.
Saudi Aramco sells some 60% of its oil to Asia. NN: After all its a CHINA binary trade.

The price of yellow metal broke over $2,000 on Tuesday, reaching its new one-year high following the release of data on the United States’ labor market, which showed a large drop in the country’s job openings. The lower-than-expected job openings figure in February could indicate that the United States labor market might be slowly cooling off following Federal Reserve’s aggressive monetary tightening to tame the raging inflation in the country. The traders will now shift their focus to nonfarm payrolls, slated for release later this week. Gold jumped 1.62% to go for $2,016.40 per ounce at 10:16 am ET, hitting its highest level since March last year. Silver surged 2.73%, selling at $24.64 per ounce at the same time. Platinum gained 1.84% to $1,011.91 per ounce and palladium rose 0.86% to go for $1,464.13 per ounce. NN: Gold is screaming out sell me. We are at the ending stage of inflation because the FED knows it has got to raise rates to kill inflation. the gold rally is ending its peeking….. FED FUNDS will be north of 6%.  We are within 200 bases points of fed funds peeking….. its closer to the end of the inflation cycle. IF you trade as you should you need to look over the horizion. And it tells me soon its time to lock in higher rates, sell stocks and prepare for the coming  real estate and stock market crash. And yes oil will peek between 100 to 150 a barrel.

so we want to:

be long oil

short gold

short stocks

short real estate

and get ready to lock in long rates on treasuries

The OPEC+ plus announcement Sunday that it would cut production by 1.6 million barrels per day led to an immediate increase in gasoline futures, which will be passed on to consumers quickly.
Wholesale gasoline prices as reflected in the RBOB were up 3.14% at 11:55 a.m. EST on Monday.  Meanwhile, AAA showed the national average price per gallon at the pump as $3.506, up from $3.439 a week ago.  “I think OPEC is reawakening the inflation monster,” said Tom Kloza, global head of energy analysis for OPIS, which tracks gas prices for AAA, as saying.

“The White House has to be shocked and major-time pissed. It certainly alters the calculus for a while.”

Kloza warns that prices at the pump could run up to $3.90 in a short time frame, though he dismissed fears that prices could spike beyond in the medium-term.  Just last week, ahead of the OPEC+ announcement, gasoline prices were starting to trend higher, with analysts blaming high demand and low supply.  For the week ending March 24, gas reserves fell to 226.7 million barrels, from 229.6 million barrels, while there was a narrow increase in demand, according to the Energy Information Administration (EIA). At the time, AAA said “we may be seeing a return to seasonal trends in demand with warmer weather and longer days, but waffling oil prices could mitigate any increase at the pump for now.”

Oil prices could continue to march higher, with the International Energy Agency warning that OPEC+ cuts could add fuel to the inflationary fires. Various analysts, in the meantime, warn that oil could even reach $100 by June, putting further pressure on consumers in the summer driving season.

“The new cuts are underpinning that the OPEC+ group is intact and that Russia is still an integral and important part of the group,” SEB analyst Bjarne Schieldrop said, as reported by Reuters.

Fitch: OPEC+ output cuts may lead to market deficit in H2

The surprise OPEC+ cuts are making oil balances look “insanely bullish” for later this year, provided that the global economy holds up, Amrita Sen, founder and director of research at Energy Aspects, said on Monday. On Sunday, OPEC+ members, led by Saudi Arabia and other major Middle Eastern producers, announced a fresh combined cut of 1.16 million bpd until the end of this year, on top of Russia’s announcement that its own 500,000-bpd cut until June would be extended to the end of 2023, too. Saudi Arabia will cut 500,000 bpd of its production starting in May and is joined by OPEC heavyweights Iraq, the United Arab Emirates (UAE), and Kuwait, plus OPEC’s Algeria and Gabon, and non-OPEC Oman and Kazakhstan. Prices rallied on the news on Monday morning, and the U.S. benchmark WTI Crude bounced back to above $80 per barrel. The latest cuts come on top of the 2 million bpd cut announced in October 2022 and running through the end of 2023. All those cuts are expected to tighten the market further in the second half of the year. Tightening was already evident in some counter-seasonal drawdowns in March, Energy Aspects’ Sen told CNBC today. “The pure oil market fundamentals are not bullish, but they are ok,” Sen added. But as long as the economy is holding up – and that’s a big ‘if’ – and Energy Aspects already has a mild recession baked in, then “it is looking a very, very bullish second half of the year,” she noted. Asked if we will see oil at $100 this year, Sen told said “I absolutely think we will see a $100 oil, yes.” Hours after OPEC+ announced the new cuts, Goldman raised its Brent Crude forecast to $95 from $90 at the end of the year. The bank also raised its Brent Crude forecast for 2024, now seeing it at $100 at the end of the year from an earlier projection of $97.   NN: I see $150 dollar oil in the next 12 months. After all its a binary trade.. And everyone is helping us….

Oil prices spiked, after Saudi Arabia led a surprise oil production cut across several OPEC+ nations that will remove more than 1 million barrels of oil a day from May. In an announcement on Sunday, Saudi Arabia’s Ministry of Energy stated that the kingdom will implement a voluntary cut of 500,000 barrels a day from May until the end of 2023, in conjunction with other countries. It said that the “voluntary cut is in addition to the reduction in production” agreed at the OPEC meeting in October and “is a precautionary measure aimed at supporting the stability of the oil market.” OPEC+ agreed in October to cut production by two million barrels a day from November, a move that angered the Biden administration. Russia’s deputy prime minister, Alexander Novak, said his country would extend a March production cut of 500,000 barrels a day through the end of the year. OPEC+ is made up of members of the Organization of the Petroleum Exporting Countries and its allies, including Russia. “Today, the world oil market is experiencing a period of high volatility and unpredictability due to the ongoing banking crisis in the U.S. and Europe, global economic uncertainty and unpredictable and shortsighted energy policy decisions. At the same time, predictability in the global oil market is a key element in ensuring energy security,” Novak said in a statement. The cuts come after a first quarter that saw a sharp decline in crude prices. Oil bulls were disappointed that China’s lifting of strict COVID curbs didn’t provide stronger support to prices, while aggressive tightening by central banks and fears that banking woes in the U.S. and Europe could turn into a full-fledged crisis stoked recession fears. Elsewhere, Kuwait’s oil ministry said the country will cut 128, 000 barrels a day, while the United Arab Emirates said it would cut its production by 144,000 barrels a day, according to a statement by Energy Minister Suhail Al Mazrouei, reported by Attaqa Breaking News. Oman said it would implement a voluntary cut of 40,000 barrels a day. Kazakhstan said it would cut by 78,000 barrels a day and Algeria said it would cut by 48,000 barrels a day. Ole Hansen, chief commodities strategist at Saxo Bank, said the announcement “came out of the blue.” “Producers were clearly frustrated by the recent slump which was speculative more than fundamentally driven. They will likely achieve a return to the $80s while also trying to pre-empt a smaller than expected increase in global oil demand in the coming months. Remember most of the +2 m b/d increase expected for this year is backloaded into the second half with plenty of room for error should economic slowdown be as severe as currently priced in by the market through expectations of U.S. rate cuts,” Hansen told MarketWatch.