Oil Futures Are Lower This Morning After Turmoil In Turkey

Monday, July 18th, 2016

Oil Futures


Oil Futures Are Lower This Morning After Turmoil In Turkey – Today

Looking at the broad indexes around the world would not suggest that there was a relatively significant geopolitical event over the weekend.  The attempted coup in Turkey is almost a non-event as far as the markets are concerned.  Stocks are mixed and the (political) safe haven of sovereign bonds are mixed around the world, with yields on Treasuries still moving higher despite the events.

In currencies, we have seen a little bit of flight to safety of the big dollar.  US$ are slightly higher again this morning after starting the weekend higher as well.  Loonies are holding up, while is it the EM currencies feeling the pain this morning.

Bespoke highlights that for the first time since March, all ten S&P sectors are overbought.  Despite that, futures this morning are pointing to a modestly higher opening.  Earnings and M&A are in the spotlight this morning offsetting the macro concerns.  Along with the equity markets coming back to hit new highs, rate traders have also wiped out any probability for a rate cut and starting pricing in a 50/50 chance of another hike within the next 10 months.

Bill McBride looks at hotel occupancy rates to see they are tracking just behind 2015’s record year.  This is obviously good news for the travel industry.  We wonder what the numbers would look like when adjusted for AirBnB.

In this week’s Weekly Market Insights we wrote on the sustainability of U.S. growth. It seems were not the only ones. In this Bloomberg article, they note that doubts of future growth seem to be diminishing. Bets based on CFTC data are rising on the U.S. dollar and the market is progressively increasing the likelihood of an increase in U.S. borrowing costs this year. When the rest of the world looks increasingly cloudy, the U.S. remains a bright spot.

You know this was going to flare up again, the old rivalry between Bombardier and Brazilian firm Embraer. The Brazilian Finance Minister has said that it might be going to the WTO against the company as the recent financing from Quebec unfair competition by government subsidies. Losing out to Bombardier on the recent Delta order must have been tough. Reuters has more on this long standing dispute.

“As you may have suspected, your car is spying on you.”  Bloomberg Technology discusses the battle playing out over the data that you create operating your car.

The Brexit has not been kind to London’s property market. “The number of cuts to asking prices surged by 163% in the 12 days following the referendum,” according to the FT. So far, these cuts have not stimulated sales. Completions are down across the board and so are homes under offer. In other words, buyers are waiting for lower prices while sellers are waiting for higher ones. It will probably take some time for the market to find balance.

What’s interesting is that London’s property market first started to show weakness back in 2014. At that time, an “overhaul of stamp duty” made purchases of luxury homes more expensive. Then, another charge on “second and additional homes” was imposed, putting more pressure on the market. Even though prices may continue to decline in the near term, at some point, buyers will come in. Anecdotal accounts suggest that foreigners are already interested. Buyers with currencies other than the GBP are looking at a double discount: Lower prices and a more favorable exchange rate. Despite the Brexit, London remains a premier, global city. As such, it is unlikely that its property market will undergo a prolonged slump. Especially in a world where high quality hard assets are hard to find. More from the FT here.

How Brexit will affect London’s luxury property market. via the FT

The UK economy at a glance. via the FT

Diversion: Portal in Real Life – Cake Slingshot


Company News

Bank of America reported strong earnings this morning with each of their four major divisions showed stronger than expected profits. However, net income came in 21% lower than the year prior on the heels of a $1bb accounting charge. Softbank is buying ARM Holdings for $32bb putting the combined company into basically every mobile device on the planet. The offer price is a 43% premium to the closing price on Friday. Softbank is a majority owner of U.S. wireless carrier Sprint, which is trading down nearly 5% lower in premarket. Merck was downgraded by BMO this morning as they foresee continued pricing pressure in many of their major categories.


Commodities

Oil futures are lower this morning after turmoil in Turkey caused little disruption to the important Middle East transportation conduit. The Turkish Straits are one of the region’s biggest choke points with over 3mm barrels passing through daily. With only a brief disruption Saturday, where tankers were not allowed to sail through the Bosphorus waterway, everything seems to be undisrupted. Gold prices spiked Friday afternoon as the turmoil in Turkey began to play out but are currently giving up those gains and some as the Turkish President has reassert control after Friday’s failed military coup.

Oil Futures


Fixed Income And Economics

The selloff in benchmarks continues again this morning with markets completely shrugging off political issues in Turkey that partially incited a coup. Treasury yields are higher for a third straight day (and fifth in sixth) and it almost seems that the volatility we’ve seen in the past two weeks was just a bad dream. The long U.S. benchmark currently sits at 2.28% which is exactly where it was on the eve of the Brexit vote. Despite lingering uncertainties in the U.K., terrorist attacks in France, Italian banks announcing double digit loan insolvencies, hawkish comments from some Fed voters, the BoJ failing to rein in the Yen, Australia on the verge of a credit rating downgrade, a rising high yield corporate default rate, and WTI off more than 10% since Q3 started, you’d be hard pressed to even notice if you went on a summer vacation the past couple weeks. I suppose it’s worth mentioning that the Treasury curve also recently traded at the flattest we’ve seen since the global financial crisis (and spurred in part by more than 1/3 of global government debt below 0%) but that would be akin to trying to understand how a Japanese RPG played on a Game Boy 20 year ago is taking the world by storm. #PokemonGo

The data calendar is devoid of anything meaningful today save for StatsCan reporting that foreigners bought $14.7 billion in Canadian-denominated securities during the month of May, a touch less than prior but still marking five straight months of net purchases. More than $17.2 billion in bonds were purchases versus just $800MM in equities and underscoring the global environment searching for the highest yielding benchmarks as most European debt started dipping into negative territory. Government ($9.4 billion) and corporate ($7.9 billion) were popular amongst investors while money markets shed $3.3 billion. Canadians bought $5.05 billion in foreign-denominated securities over

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