Precious Metals
As confidence in the sustainability of corporate sector profitability declines, the multiple accorded to equities should recede. Ten reasons to stay underweight the tech sector. Initiate an overweight position in gold shares.
The relief rally is not over, and could benefit from commodity and currency market movements. Oil prices likely are banging out a bottom. In general, however, a healthy dose of caution is warranted. Our bias is to sell into, rather than chase, rallies in risk assets.
A stunning 9.9 million-barrel build in U.S. oil inventories this week failed to arrest the upward climb in prices.
The remarkable admission by OPEC's secretary-general, Salem el-Badri, earlier this week that with "any increase in (oil's) price, shale will come immediately and cover any reduction" in output only hints at the larger impact of light-tight-oil (LTO) going forward.
Where is the most likely mispricing of interest rates today? Plus our latest thoughts on the U.K.'s June 23 referendum on EU membership, and its market implications.
While the oil market looked right through the Russian-Saudi production-freeze announcement earlier this week, we believe these states may be attempting to put lipstick on the proverbial pig, to provide a plausible narrative to explain the physical reality of lower oil production in a sub-$30/bbl world.
Somewhat like 1998, the dilemma for the Fed is that the labor market is approaching full employment and may justify eventual interest rate hikes.
Oil markets will continue to be buffeted by Russian overtures to OPEC suggesting a desire to orchestrate a production cut-back, while uncertainty over the Fed's next move keeps markets on edge.
The Fed will upset the rebalancing of oil markets if it misreads the current sell-off as weakness in oil demand.