Crude oil prices are trying to balance the risks to oil supply versus the risks to demand. The risk to the demand side of the equation is coming out of Turkey. Turkish President Recep Tayyip Erdogan is vowing not to be brought to its knees even as it is him that has driven the Turkish economy into freefall. The Turkish central bank says it will provide all the liquidity that the Turkish banks need. That brought the crashing Lira and stock market back a bit, but it is unclear whether that will provide lasting support.
In this more or less quiet week, concerns that the worsening situation in Turkey could have a contagion effect on the Eurozone, particularly lenders, and other parts of the world grabbed precedent during the last 24 hours. We believe that low volume this week has exacerbated moves in currencies and equity markets.
Global stock markets are rattled as the President of Turkey, Recep Tayyip Erdogan, is running his economy into the ground, raising contagion fear surrounding other European nations. Initially, crude oil was following the stock markets down, but then turned positive on a report from the normally more bearish leaning International Energy Agency, which is warning that as oil sanctions against Iran take effect, perhaps in combination with production problems elsewhere, maintaining global supply might be very challenging and would come at the expense of maintaining an adequate spare capacity cushion.
The S&P 500 and Nasdaq held ground well yesterday after four strong sessions. This was exactly what we discussed needing to see; a healthy consolidation that kept each index within 1% of a record high. Globally, there was a bit more volatility overnight with Europe and Japan in the red while China and Hong Kong have notched solid sessions in the green.
Even in long-term bull markets, you are going to have a day like Wednesday. Crude oil and products crashed down to major support as it was hit with a confluence of headlines and bearish weekly Energy Information Administration data. Fears of the impact of sanctions on China, Iran, Russia and Turkey did not help and another big drop in U.S. gasoline demand has some worried that U.S. consumers were showing resistance to higher pump prices.
U.S. benchmarks are steady this morning and the S&P is within 1% of its all-time high. Our outright Bullish stance has paid off, but key technical resistance sits overhead (discussed in the ‘Technical’ section below). The Nasdaq is also within 1% of its record high and both levels should be watched closely, we have called for these to be achieved before the end of the week.
While the market starts to come to grips with the new sanctions on Iran and a larger than expected crude draw, as reported by the American Petroleum Institute (API), what should concern them is that U.S. crude oil production is not quite what it was fracked up to be.
Global equity bulls were lingering in the vicinity during Tuesday’s trading session as investors diverted some attention from trade war concerns to focus on strong U.S corporate earnings. Asian stock markets have ventured higher following the robust earnings-led gains on Wall Street overnight.
All major benchmarks around the world are in the green. Momentum domestically has been undeniable as the S&P 500 closed yesterday at the highest level since Jan. 29 and is nearly 1% from a record this morning. However, it is China that is joining the party with the Shanghai Composite up 2.74%. The yuan is attempting to stabilize, and this aided China’s major index in posting its best gain in two years, cutting its YTD loss to 15.96%.