Euro is largely oversold and “should” correct
Outlook: We’re getting a flood of data today before the markets close early for the Thanksgiving holiday tomorrow. First it’s durable goods, jobless claims and Q3 GDP at 8:30 a.m., followed by consumer confidence and new home sales at 10 a.m., with personal income and spending at the same time. This is probably the most important because it includes the PCE deflator and core PCE, the Fed’s preferred measure of inflation.
The forecast is that the PCE is slightly above 5% and the core also just over 4%, new highs. Since we already know the CPI this should be old news, but the markets are obsessed with inflation so maybe not. The recent news could be the Atlanta Fed’s GDPNow for the fourth quarter, which was 8.2% last week, but likely leans a little more.
Unemployment claims can make headlines if they show another drop on top of the seven weeks of decline already recorded. It is also the penultimate publication before the payroll next Friday, expected at 500,000 at least. Finally, if anyone is still around at 2 p.m., we get the November 2 FOMC report. It was then that the vote to start declining was unanimous. It’s hard to see how the details of who said what can add anything.
Interestingly, it’s not the US economy that should get the attention, it’s Japan and Germany. Japan has weathered the pandemic better than anyone except China and is experiencing growth and possibly even some inflation. Inflation is not organic but due to supply constraints, but never mind. The new stimulus package will contribute to growth, although we have to worry that it will undermine.
The other economic prospect of great interest is Germany, where Covid has slaughtered much of the economy and turned sentiment sour. Given the latest Covid epidemic and Chancellor Merkel’s agitated statements, reprieve is a long way off. Germany will probably get its new government in the next few days and my boy is inheriting a messy, crisis-ridden economy. This is new to the eurozone – Germany has been the stable and reliable touchstone, even as it reeked of Grexit, then Spain, then quantitative easing (remember those court cases). Now he risks becoming a poor man and a sledge. It’s hard to see what will save the euro from Germany’s fall, possibly down to 1.10.
But again, note that the Euro is largely oversold and “should” correct, although we don’t see a reasonable reason. But the positioning of the players could be enough. We recommend that you go straight into the American long weekend.
Treats: The release of oil from the Strategic Reserve, as well as contributions from other countries, is disparaged with great sarcasm. That’s low – will reduce the cost of gasoline by just 10 cents. Bloomberg writes that no one is impressed. The world uses about 96.5 million barrels a day, according to Statistica data last August. We might get lucky and manage to inject ourselves a whole day of drug use, probably less.
The WSJ writes that the combined discharges from six countries will be around 65 to 70 million barrels, or “just over half of daily global consumption, which the Energy Department says will exceed 100 million barrels. barrels in the last three months of 2021. That rate would increase global consumption by almost 5% from a year ago, as the recovery from the pandemic has steadily increased consumption.
The sarcasm is in the details – that other countries are offering only token amounts and that the US release will be spread over several months, and some had already been planned. By the time this is done, the amount of additional oil will be symbolic, not a market driver.
But while true, not useful – and all the critics miss the point of sending a message to producers and players. The oil market is a nest of vipers, spiders, and scorpions, including the oil companies themselves (see Rachel Maddow’s Blowout or any JD Rockefeller biography [distant cousin many times removed, alas]). No one, not even the United States, has ever faced the OPEC cartel, let alone as an alliance. A few years ago, an attempted WTO lawsuit was ignited.
The world is fed up with OPEC determining our standard of living, partly because it is regressive but also because producing countries do next to nothing to build economies that do not depend on a single product. Talks about America’s energy self-sufficiency have been going on for decades and while the United States hit it a few years ago and scared off the Middle East, OPEC + still thinks they are running the show. , with all the arrogance of a monopoly / oligopoly.
For the United States and China, taking the initiative to break their bones, if not their backs, is a huge foreign and economic policy initiative. It can’t last very long – we don’t have enough reserves for a dead end – and it is possible that OPEC will call the bluff, but if all the bullies are cowards at heart, we will get an increase in production. at the next OPEC Meeting. This will be the first time that the Reserves will be used in a joint effort and with a clear understanding of the battle lines. The old colonialists would have been proud.
The Strategic Reserve was created in 1975 specifically to counter Middle Eastern interference in the US economy and to mitigate foreign affairs blackmail. But it has never been used effectively or consistently as a foreign affairs management tool. Even the madly brave Reagan didn’t use it. The first and only press release related to foreign affairs was issued by Big Bush in 2001 (Kuwait War) and later by Shrub (2005) because of Katrina. See the list on Wikipedia. The former president is critical now, mainly because he sympathized with the Saudis (and did a silly dance) instead of using American power – he’s jealous of Sleepy Joe for getting the jones.
Of course, it can end badly. This is probably the reason why no one has tried it before – the risk of failure is very high. Of course, that won’t do much to bring inflation down. Of course, this will do next to nothing to change the price of oil in the long run. Again, not the point. The point from the national perspective is that this is a bold and unprecedented initiative that sends a message: The lights are on in the White House. Biden doesn’t play golf.
This is an excerpt from “The Rockefeller Morning Briefing”, which is much larger (about 10 pages). The Briefing has been published daily for over 25 years and represents experienced analysis and insight. The report offers in-depth information and is not intended to guide FX trading. Rockefeller produces other reports (spot and forward) for trading purposes.
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