[Original Author, by Nigel Ng]
In my previous article, spooz was 250 points lower and I explained why we were close to a turning point. The covid situation in China continues to improve, but part of it explains the past 8% rally. Regulation in China is also getting better, with Didi (the spark of the regulation crackdown) now spurs hopes that the self-inflicted damage can possibly be reversed. Stocks like $BILI and $NTES also benefited from the new video game license issues.
This reopening has however led to a rally in oil, and despite a 200k increase in OPEC production, the oil market remains tight and supply issues remain unresolved. The backwardation in the oil curve does not help as 4- and 12-week returns for long oil futures positions in backwardated oil markets have averaged 1.3% and 2.9%, respectively, compared with returns of -1.7% and -3.8% for the same periods during contango markets. Biden’s Saudi meeting also ended up a dud. In the petroleum refined products space, commodities have been ripping higher day after day.
Brainard essentially invalidated any pause that Bostic/Bullard were hoping for, and it’s hard to see how the Fed can’t more hawkish here. We couldn’t even get a rally from the goldilocks NFP print, which showed signs of a looser labour market and wage inflation abating. It’s the typical ‘price can’t move despite good data’ kind of thing, which should be interpreted as bearish. Equities have been consolidating for about a week now. I was bullish spooz at 3900. It’s now 4150 and I’m marginally bearish.
