Leftovers: Full Week Ahead Preview

Ok, look: if you’re still hungover from a combination of turkey, greasy mashed potatoes, and copious amounts of not-quite-top-shelf red wine, it’s time to snap out of it because last week is melting into this week as tends to happen historically on Sundays.

One thing you should know right off the bat is that while you were eating Thanksgiving leftovers off a paper plate with your hands while binge watching football, the Bitcoin crowd was busy driving the price of make-believe money even further into the stratosphere. As I write this, it’s blowing through $9,600:


You can read the full story on that here, but suffice to say $10,000 looks like a foregone conclusion.

Meanwhile, back on Earth, investors will be gearing up for Powell’s Senate Banking hearing on Tuesday and then Yellen’s testimony before the The Joint Economic Committee on Wednesday.

While there shouldn’t be any fireworks involved in either of those two events, what is worth noting is the context. Remember, the dollar is licking its wounds after a third straight week of losses – that’s the worst stretch since July and comes after cautious banter on inflation from Yellen last week and amid similar overtones from the Fed minutes out last Wednesday:


With Congress returning from the break, they can get back to doing nothing. Even if there’s progress on taxes, one has to believe it’s already priced in for the dollar and yields even if there’s room for equities to rally on a “surprise.”

“Any perceived progress in the debate could offer some support to the USD, especially after having softened during the short week,” Barclays notes, before imploring you to curb your enthusiasm: “However, most positive news for the dollar is already priced in, in our view, as the new Fed chair and the tax plans have been revealed.”

There’s also OPEC. And Russia. Crude is trading at a two-year high, above $58 on expectations that Putin and the cartel have agreed on a framework for extending the production cuts.


There were a couple of upbeat headlines from Amin Nasser on Sunday, for whatever that’s worth:


“The current agreement is due to expire in March 2018, but Saudi Arabia and Russia have signaled that they intend to extend the production cuts, although they remain non-committal,” Barclays wrote over the weekend before cautioning that although “the market is pricing in a full extension of OPEC cuts on 30 November,” the bank “does not expect it to make a final decision until 2018.” Obviously, that would pose a significant downside risk. Here’s Deutsche’s take which puts things in perspective with US supply trends:

Oil prices have been free to move higher in part because of signs of restraint in US supply. We see this as justified, together with lower output from Iraq and Mexico, but Q1-18 oversupply should eventually take some wind out of the sails of the current rally. Moreover, whether the new mood in the US is the result of a new corporate credo or simply lagged WTI prices is uncertain. We should have our answer over the next three to four months as we watch for a moderate recovery in US drilling activity, but for now we should remind ourselves that tight oil is not out for the count. The US tight oil resource is both extensive and economic at a relatively low cost, and cost reinflation has been limited so far. In addition, OPEC stands at the ready to gradually bring back shuttered volumes of 1.2 mmb/ d, along with further non-OPEC volumes. We see these two forms of latent supply standing as a bulwark against much higher prices in the medium term. Regarding the upcoming OPEC meeting on 30 November we remain of the view that a positive surprise will be difficult to achieve in light of oil price strength and Libyan production remaining below 1.25 mmb/d.

One thing that’s notable in the context of the recent junk selloff is that the correlation between HY and crude has plunged, apparently indicating that managers are less concerned about macro and more concerned with micro:



We’ll also get the BoK this week and that’s pretty interesting, considering USDKRW is now sitting at its lowest level in 2 1/2 years:


Long story short, they’re probably going to hike, but everyone seems to think that’s largely already in the won. Still, the setup is notable.

Besides all of that, there’s no shortage of data. We’ll get inflation in Europe (GS: headline +1.6% yoy, core +1.0%; BofAML: headline 1.7%, core 1.1%), PCE in the US, and something that we’re all supposed to call inflation in Japan, although that will of course be a complete joke. There are also all kinds of PMIs and the second read on Q3 GDP in the U.S. (expect a Trump tweet or four). GDP in Canada is on deck too.

As far as what all of this means for stocks, I suppose the answer is: “absolutely nothing.” Because you know, this:


Oh, and watch Turkey again. The rhetoric from Erdogan on inflation, rates, and legal proceedings in the U.S. is getting increasingly shrill and the central bank is losing control of the currency.

Here’s the full calendar via BofAML



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