Posted on

kari: Close call on raising or pausing rate hikes…….. Fed’s Bullard sees two more rate hikes in 2023……. Dimon warns everybody should be prepared for higher rates

United States Federal Reserve Bank of Minneapolis President Neel Kashkari (pictured) remarked on Monday that there is a “close call” at the central bank on whether the Federal Market Open Committee (FOMC) should pause the raises in interest rates or continue with them. Speaking to CNBC, Kashkari estimated the Fed might need to raise the key rate above 6%. He stressed that inflation in services appears to be “pretty darn entrenched” while noting that the job market remains robust. He also noted he is not “seeing evidence yet” that the crisis in the banking sector is “doing our work for us” regarding inflation. Kashkari also briefly commented on the negotiations between US President Joe Biden and House Speaker Kevin McCarthy on raising the debt ceiling, saying the central bank “cannot protect the economy from a debt default.”

Fed’s Bullard sees two more rate hikes in 2023

Federal Reserve Bank of St. Louis President James Bullard stated on Monday that he expects two more 25 basis point interest rate increases in 2023. Speaking at the American Gas Association 2023 Financial Forum, Bullard specified that earlier Fed projections that estimated interest rate peak at between 5% and 5.25%, where they actually stand now, were based on the assumptions that inflation would drop fast and that United States economic growth would be around zero. However, both of those predictions have failed to materialize so far, he pointed out. Bullard also claimed that the likelihood of a recession is “overstated” and that the US economy is still seeing “fairly robust growth.” NNI: It is clear the Fed is not done raising . Rates will go north off 6%. And their is no guarantee that six will be enough,,,,,,,, Its the Teflon economy.

Dimon warns everybody should be prepared for higher rates

JPMorgan Chase & Co. CEO Jamie Dimon underlined on Monday, speaking at the company’s Investor Day, that everyone should be prepared for interest rates to go higher from here on. “There’s a chance you could have rates ticking up and not just 3.78,” Dimon said, adding that interest rates could go as high as 6% or 7%. Meanwhile, commenting on the banking turmoil, he stated that the moves the regulators made with regard to the Silicon Valley Bank will lead to smaller banks facing tighter credit.

Posted on

Morgan Stanley warns Stock Investors are rushing into a bull trap

Morgan Stanley’s Mike Wilson sees a dangerous trap. “Last week’s price action showed signs of panic by investors who are afraid they’ll miss the next bull market. We believe this will prove to be a head fake rally like last summer’s for many reasons,” Wilson told clients in a Sunday note. “With the index showing some signs that it wants to break out, market internals are much less attractive today and leadership has changed dramatically,” he says.  For example, he sees not just the top 10-20 stocks looking expensive, but the S&P 500 median stock forward price/earnings [P/E] ratio at 18.3 times, and S&P 500 ex-tech median P/E at 18 — both within the top 15% of historical levels. Second, a “very healthy re-acceleration” is baked into second-half consensus forecasts for earnings, but Morgan Stanley’s forecasts “continue to point materially lower.” Wilson says their own model has been highly accurate over time and recently. He said they started warning of an earnings recession a year ago, and got a lot of pushback. “However, our model proved quite prescient based on the results and is now projecting a much more dire outcome than consensus. Given its historical and more recent track record, we think consensus estimates are off by as much as 20% for this year,” said Wilson. What else? Stocks are pricing in Fed cuts before year end without “material implications” for growth, while Wilson sees easing only if a recession is clearly coming, or bank stress is spreading. Other worries: signs of waning consumer strength, and the possibility that raising the debt ceiling will weigh on market liquidity due to sizeable Treasury issuance seen in the next six months after it passes. Also seeing trouble on the horizon is Michael Kramer, portfolio manager of the Mott Capital Thematic Growth Portfolio. In a Substack post, he talks about a stalemate that will be tricky for investors to navigate. “Presently, the options market does not seem to provide the equity market with the necessary impetus to move higher. As long as this situation persists, both the index and the bulls remain trapped. While it is possible for the index to reach 4,225, I have reservations about its ability to surpass that level given the prevailing dynamics,” he said,  but also act as sellers of the S&P 500 below 4,150. NN: A crash is coming its a matter when!

Posted on

Hedge Funds’ Ultra-Bearish Oil Bets Signal US Recession Angst

https://youtu.be/kB-NTBJ9h_M

  • Non-commercial positions are near most bearish since 2011
  • Aggressive positioning risks over-correction and volatility

Money managers that trade derivatives linked to oil and fuel prices are about as bearish as they’ve been in more than a decade, suggesting they’re braced for a recession that could cause contracts from crude to jet fuel to take another tumble. The trading positions of non-commercial players such as hedge funds are near the most bearish levels since at least 2011 across a combination of all major oil contracts. And in bets that are perhaps most indicative of recession expectations, speculators’ combined views on diesel and gasoil — fuels that power the economy — are near the most bearish levels since early in the Covid-19 pandemic. NN BlackMask Blog:

hedge funds got it wrong again
Posted on

Biden opens door to use 14th amendment to solving debt crisis

 

  • Biden said he wants to see if courts would rule use of 14th amendment constitutional to solve debt limit issue
  • ‘I think we have the authority. The question is could it be done and invoked in time,’ he said at press conference
  • Clock ticking toward June 1 deadline on defaulting 

President Joe Biden on Sunday said he would consider using the 14th amendment to solve America’s debt limit but conceded it is probably too close to the June 1st default deadline to use it in this round.

‘I’m looking at the 14th Amendment as whether or not we have the authority,’ he said at a press conference in Hiroshima. 

‘I think we have the authority. The question is could it be done and invoked in time that it would not be appealed and, as a consequence, pass the date in question and still default on the debt?’

Biden said he would be open to exploring the option in the courts to see if they would rule it legal or not. The president had previously ruled out using the constitutional amendment – which some legal scholars argue has a clause that would make it unconstitutional for the U.S. to fail to make its debt payments – to raise the debt ceiling. Biden also accused Republicans of trying to tank the debt talks to hurt his re-election bid, conceded he may be able to stop them from making a default, and said he’ll be stepping in to deal with Speaker Kevin McCarthy one-on-one. Many legal scholars suggest a clause in the 14th Amendment that says the ‘validity of the public debt, authorized by law … shall not be questioned’ could apply to the debt limit.

Legal experts argue that Section 4 of the 14th Amendment allows the Treasury Department to keep borrowing money past the debt limit and that it would be unconstitutional for the U.S. to fail to make payments.

Some Democrats are urging Biden to invoke the constitutional amendment to keep the country from defaulting.  In his press conference, Biden had tough talk for Republicans, slamming them for taking an ‘extreme position’ in the talks and said he would speak to McCarthy from Air Force One as he flew home from Japan.  ‘My guess is he´s going to want to deal directly with me in making sure we´re all on the same page,’ Biden said of McCarthy, adding that he believed a compromise remained within reach. ‘I´m hoping that Speaker McCarthy is just waiting to negotiate with me when I get home. … I´m waiting to find out. The White House had accused House Republicans of taking the talks backwards by refusing their offer to cut spending and instead make what Democrats call outrageous demands to cutting the federal budget. NN: The 14th amendment gives Biden an escape hatch. Its not a good move and i think the markets will take it badly as i think they should. Their is a ground swell in the democratic party to pull a rabbit out of their hat.

 

Posted on

Bank Of America Sees Oil Prices Heading Toward $90 This Year

  • Bank of America believes oil prices will head back above $80 in the second half of the year and rise toward $90 due to a supply deficit.
  • While Bank of America’s forecast for the second half of the year was bullish, it believes the second quarter will average in the mid-$70s.
  • The main drivers behind Bank of America’s bullish prediction are rising demand, the OPEC+ cuts, and a lack of response from U.S. shale.
Oil prices will return to above $80 per barrel in the second half of this year and could continue rising toward $90 due to a deepening supply deficit, Francisco Blanch, head of commodities research at Bank of America, told Bloomberg Television on Friday.

This quarter will be a little weaker, with oil prices averaging in the mid-$70s, Blanch said.  “We’ll get back up over $80 in the second half of the year, toward $90, because the deficit is going to get deeper over the course of the next six to nine months,” BofA’s head of commodities research added.   The supply deficit will widen due to the OPEC+ cuts and the lack of response from U.S. shale, as seen in previous cycles, Blanch noted. “Demand will eventually turn around and get a little better in the developed markets. So those three things start to push inventories lower again into the year-end and into 2024, and that’s what gets you higher in terms of prices,” he added.

Analysts in the latest monthly Reuters survey also see prices rising toward $90 per barrel by the end of this year, driven by Chinese demand and a tightening market following OPEC+’s latest production cuts.

So far this year, Brent prices have averaged around $82 per barrel. Earlier this week, the International Energy Agency (IEA) said that the decline in oil prices over the past few weeks contrasts with an expected tightening of the market later this year when demand is set to exceed supply by nearly 2 million barrels per day (bpd). Since the middle of April, oil prices have lost all the gains from OPEC+’s latest announcement of new production cuts. “The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d,” IEA said in its monthly report.  NN: We are fighting powerful forces who have positioned themselves wrong Wrong WRONG.   I have been in this position many times. And its hell on earth. SO why do it you may ask. Because you can make a tones of money if your right and stand the heat. Hedge funds are famous for holdout losing positions and use their might and media spin to TRY and bail their bacon out of the fire.

Posted on

Oil slips as debt talks pause, Fed warns of high inflation…….. WH: Parties still at odds on debt ceiling

  • US debt ceiling talks paused
  • No decisions yet on US interest rates -Fed’s Powell
  • Crude benchmarks notch first weekly gain in a month
  • U.S. oil rig count falls by 11 to 575 this week

Oil prices fell on Friday, as investors worried that U.S. politicians will fail to agree on a new debt ceiling and trigger a default that would hurt the economy and reduce fuel demand. Brent futures settled 28 cents, or 0.8%, lower at $75.58 a barrel, while West Texas Intermediate U.S. crude for July expiry fell 25 cents, or 0.3%, to $71.69. The less active U.S. crude contract for May , due to expire on Monday, closed down 31 cents, or 0.4%, to $71.55. Brent and U.S. crude prices nevertheless notched their first weekly gains in a month, with the both benchmarks rising about 2%. Oil gave up gains of as much as a dollar after Republicans in the U.S. House of Representatives and President Joe Biden’s administration on Friday paused talks on raising the federal government’s $31.4 trillion debt ceiling. The Treasury Department has warned the government could be unable to pay all its bills by June 1.  A White House official said a deal remained possible.Markets were also spooked by Federal Reserve Chair Jerome Powell’s comments that inflation was “far above” the Fed’s objective, adding no decisions had been made yet on the next interest rate action. “It doesn’t look they are going to get the debt deal done today… the chance of a 25 basis point (rate) increase in the June meeting is rising by the day… There’s not a lot for the bulls to hang their hats on,” said Mizuho analyst Robert Yawger. Following reports of the paused debt ceiling negotiations and Powell’s comments, U.S. stocks, Treasury yields and the dollar all moved lower. Providing some support for markets, U.S. Treasury Secretary Janet Yellen reaffirmed the strength and soundness of the country’s banking system in a meeting with bank CEOs on Thursday, the Treasury Department said in a statement. U.S. oil rig count, an indicator of future production, fell by 11 to 575 this week, the biggest weekly drop since September 2021, energy services firm Baker Hughes Co (BKR.O) said. Money managers cut their net long U.S. crude futures and options positions in the week to May 16, the U.S. Commodity Futures Trading Commission (CFTC) said. While the potential for additional rate hikes increases concern about demand weakness in the United States, prices could rise on higher Chinese demand throughout 2023, said analysts from National Australia Bank.

China’s oil refinery throughput in April rose 18.9% from a year earlier to the second-highest level on record, data showed this week.

Chinese refiners maintained high runs to meet recovering domestic fuel demand and build stockpiles ahead of the summer travel season.

WH: Parties still at odds on debt ceiling

White House Press Secretary Karine Jean-Pierre stated during a press briefing that Democrats and Republicans remain at odds on the subject of the debt ceiling and spending. The press secretary asserted that although there is no question “we have serious differences and this is going to continue to be a difficult conversation,” United States President Joe Biden’s team “is going to continue to work hard towards a reasonable bipartisan solution” that can pass Congress. Jean-Pierre noted that negotiations work as a “give and take,” adding that all the parties must understand “you don’t get everything you want when you have negotiations.” She reiterated that the Biden administration remains optimistic the issue will be settled.

 

Posted on

Powell: Fed ‘Strongly Committed’ to 2% Inflation Goal

Federal Reserve Chair Jerome Powell says the central bank is “strongly committed” to bringing inflation down to 2% during a panel discussion at the Thomas Laubach Research Conference in Washington. Powell went on to say that continued supply shocks remain a possibility, but added that the extent of it could be hard to predict. The Fed’s chair stated that the negative supply shocks contributed to the present rise of the inflation rate, given the shocks to the supply chains for commodities, which saw a significant shift in demand as well as for services for goods and the supply of workers. “Positive supply shocks during globalization probably did help keep inflation low but they are not likely to be repeated,” Powell underlined, adding that central banks are responsible for price stability regardless of supply shocks.

Posted on

US debt ceiling deal could END high tech rally

NEW YORK, May 19 (Reuters) – A potential deal to lift the U.S. debt ceiling could spur money managers to pare holdings in the massive technology and growth stocks that have been havens this year and shift into the rest of the market, some investors believe. Strong balance sheets and predictable cash flows have made megacap stocks such as Google parent Alphabet (GOOGL.O), Microsoft Corp (MSFT.O) and Amazon.com (AMZN.O) attractive places to hide over the last few months as investors worried about everything from the debt ceiling to a U.S. banking mess. That has boosted their share price and buoyed market indexes, while leaving other stocks behind.

Megacap tech stocks command heavy weightings in major indexes. Their rally has been responsible for all of the 8.3% year-to-date gain in the S&P 500 (.SPX) through Wednesday’s close, a Deutsche Bank report showed. Without them, the index would be down 0.5% for the year otherwise, according to the research. Through Thursday’s close, the index was up 9.3%.

Should a deal on the debt ceiling be reached, “the pattern that we’ve seen over the last few months will reverse,” said Michael O’Rourke, chief market strategist at Jones Trading, who is more bullish on equal-weighted S&P 500 exchange-traded funds than the market-cap weighted index. “The market as a whole is pricing in a lot more risk than those mega-cap names, and going forward a resolution could mean the market broadens out and outperforms that group.” Investors are watching Washington for signals that the White House will come to an agreement with congressional Republicans to increase the U.S. borrowing limit before the so-called X-date of June 1, which the Treasury Department has said is the day the federal government will run out of money to pay its bills. President Joe Biden and top U.S. congressional Republican Kevin McCarthy both expressed confidence Wednesday that a deal would be reached, avoiding fallout that would be sure to roil financial markets. Spreads on U.S. government one-year credit default swaps – market-based gauges of the risk of a default – have been declining over the past few days amid signs of progress on debt ceiling discussions, standing at 154 basis points on Thursday, about 20 basis points below last week’s levels, according to S&P Global Market Intelligence data. A recent survey of global fund managers from BofA Global Research showed that 71% believe a deal to raise the debt ceiling will be reached before the X-date. Randy Frederick, Managing Director of Trading and Derivatives at the Schwab Center for Financial Research, believes a deal would prompt investors to move back into shorter-term U.S. Treasury maturities, which some have been avoiding due to debt ceiling concerns. A deal could also boost shares of companies in sectors that are benefiting from the continued strength in the U.S. economy, such as consumer discretionary, Frederick said. “Giant mega cap companies that have huge balance sheets have been a nice place to hide,” he said. “We expect to see some movement back into Treasuries because you’re getting a nice yield, and some other parts of the equity market that have lagged behind.” Of course, investors are unlikely to abandon tech stocks entirely, after a decade during which the category has led markets higher. Excitement over artificial intelligence, which has boosted some megacap names this year, is another factor that could support the category. Many would also view a broadening of the equity rally as an encouraging sign of the market’s overall health. “For the market to send a stronger signal substantiating direction, we will need to see … improved breadth/participation,” John Lynch, chief investment officer at Comerica Wealth Management wrote earlier this week. At the same time, the debt ceiling has been only one of of several worries weighing on the market. Concerns that the Federal Reserve’s aggressive monetary policy tightening could reduce economic growth, and worries about the recent tumult in the banking sector are likely to remain, even if a default is avoided. Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, expects lawmakers will reach an agreement to extend the debt ceiling through September. Among the sectors he is bullish on is healthcare, a part of the market seen as a haven during troubled economic times. “It’s been a very tilted market,” he said. “We think investors are going to look through this soon and try to find areas that are going to generate revenue if growth comes down.” NN BlackMask Podcast:

Breakout OR Breakdown?

 

Posted on

Signs Of Strong U.S. Fuel Demand Should Boost Oil Prices

U.S. gasoline and diesel inventories are drawing down and sitting below the five-year average for this time of the year, pointing to resilient fuel demand and supporting both crude oil prices and U.S. refining margins.  Although global refining margins have halved since February as Russian oil supply remains elevated despite the embargoes, U.S. refiners are optimistic about cracks going forward, and most do not see signs of fuel demand dropping.     As we head into the driving season and peak annual gasoline demand, the tight gasoline and diesel markets are bullish factors for oil prices. The oil market, however, is ignoring these fundamentals as investors and speculators focus on concerns about economic growth and a potential slip in fuel demand in case of a full-blown recession later this year.

In the week ending May 5, total motor gasoline inventories fell by 3.2 million barrels and were about 7% below the five-year average for this time of year. EIA data showed. Distillate fuel inventories declined by 4.2 million barrels last week and are about 16% below the five-year average for this time of year. 

According to Reuters market analyst John Kemp, gasoline crack spreads remain strong ahead of the driving season, but diesel cracks are weaker amid concerns of weakening diesel demand, one of the first signs a recession may be looming.   Refining margins have fallen since the fourth quarter of 2022, but they are still higher than historical norms, executives at some of the top U.S. refiners said on the Q1 earnings calls earlier this month.

“Despite recent declines, refinery margins also remain well above mid-cycle, but have moderated from the distillate to ’22 levels. A key theme for 2023 is recovery in the demand for jet fuel and gasoline, supported by a stronger summer driving season,” PBF Energy’s CEO Thomas Nimbley said in early May. 

Marathon Petroleum’s CEO Mike Hennigan also expects strong refining margins this year, although not as high as at the end of last year.  “We believe supply constraints and growing demand will support strong refining margins throughout 2023. Cracks have decreased from 2022 levels but still above historic mid-cycle levels,” Hennigan said on the earnings call.

“In alignment with what we said last quarter, we remain bullish into the driving season, and gasoline strength is expected to improve the diesel situation, while jet demand continues to improve. As we continue through the year, much will depend on the ongoing recovery in China and the extent, if any, of recessionary impacts,” he added.

Despite optimistic views on summer fuel demand, oil prices have fallen by $10 per barrel since the middle of April, erasing the gains they made after OPEC+ announced additional cuts through the end of the year.  Concerns about the economy and high interest rates have overshadowed signs that a market tightening is in the cards later this year, analysts and forecasters, including the International Energy Agency (IEA) say.

“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d,” the IEA said in its Oil Market Report this week. 

According to the IEA, China’s oil demand recovery continues to exceed expectations, with March demand at an all-time high of 16 million barrels per day (bpd).  NN: Its the times we live in. Market manipulators taking markets as far away from the fundamentals  and as long as they can. The lesson we have learned is this strategy eventually blows up in their faces. With disastrous results for the manipulators as markets snap back to the fundamentals. So the question is why do it. And the answer is very simple. They have to because they bet the wrong way on interest rates. They are in a daily flight for their survival.

Posted on

Gold falls over 1% after jobs data, lowest since early April

The price of gold and silver slid more than 1% on Thursday, after the Federal Reserve official underscored that there might not be sufficient evidence to support a pause in the Fed’s interest rate cycle following recent data releases.

“The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet,” Dallas Federal Reserve President Lorie Logan said.

Gold plunged 1.43% to sell at $1,953.23 per ounce at 11:26 am ET. The price of yellow metal has dropped to levels not seen since early April of this year. The price of silver plummeted 1.58% to trade at $23.37 per ounce, hitting its lowest level since March 30. Platinum dropped 1.03% a minute later, to go at $1,062.90 per ounce. Palladium lost 0.47% selling at $1,467.42 per ounce. NN: we took profits on our gold shorts today. We will be back for another piece of their ass a little later.