Mark Cudmore is back and he’s characteristically optimistic on Tuesday.
Specifically, Mark sees further upside for crude and reckons that might presage all kinds of good things for the beleaguered global reflation trade.
Needless to say, we’re skeptical about this thesis for all kinds of reasons that will be intimately familiar to regular readers.
That said, those of a bullish persuasion might find the former FX trader’s morning missive a pleasant way to start your Tuesday and because we aim to please…
Oil’s strong rebound can be the catalyst to revive the global reflation theme.
- Oil’s bounce from a multi-year low in early 2016 has been one of the primary factors driving most markets during the past year — whether the global turnaround in PMIs to rising interest rate expectations to currency movements
- The recent slide in U.S. inventories, combined with the expected extension of OPEC supply cuts, is pushing WTI crude futures back up toward $50 a barrel. After a 12% jump from the low in early May, WTI prices are forecast to rise a further 15% to $56.50 by year-end, according to the median forecast in analyst estimates compiled by Bloomberg
- Global economic data, from China’s PMI to U.S. CPI, seem to have peaked already, taking the steam out of reflation trades. However, if oil analysts are correct, inflationary expectations will soon rise again, pushing bond yields higher despite the fallout from Trump’s Comey firing and his revelation of classified information to Russia
- After years of underperforming, emerging market stocks are continuing to push higher relative to developed market peers — and that relative performance has a good long-term correlation with oil prices
- Oil gains provide a sentiment boost for other raw materials. Currencies of commodity-producing countries such as the Australian dollar and the Russian ruble look set for further appreciation, though the increasing probability of a Fed hike in June remains an uncertainty for EM currencies
- We all know oil’s climb will be limited by U.S. shale oil producers providing a proxy cap on the market. Nevertheless, the median forecast of oil adding another 15% for the remainder of 2017 is sufficient to have large ramifications across other assets — from bonds to currencies and other commodities. Prepare for another round of “reflation trade” excitement