Friday was a relatively uneventful day, a very welcomed day given the intense volatility experienced during the past two weeks.
Some would suggest one of the greatest surprises of last week was the incredible 18% two day rally in crude, the sharpest two day advance since 2009. Oil rallied almost 11% on Thursday and another 7% on Friday. Friday’s gains were the result of data indicating incomes grew in July which enabled greater consumer purchases.
Moreover there are concerns of additional supply disruptions from Nigeria and rumors that Venezuela is requesting an emergency OPEC meeting. Crude had its best week in four years breaking a record nine week of declines that pushed oil lower by over 33%. Wow!
But should this advance really be a surprise? It has been reported that short interest in oil futures is at a record high, the result of the incredibly negative oil narrative that ignored all issues that could potentially cause a drop in supplies.
I ask was there the proverbial short market squeeze on crude? Perhaps but as inferred above I can argue oil should not be this low given the current geopolitical and socio economic dynamics.
What will happen this week? Traditionally trading gets quieter and quieter during the two weeks leading to Labor Day. I think it safe to write that this year is an anamoly.
This is a heavy data week with multiple employment surveys leading into Friday’s BLS labor report, various manufacturing indices, the trade balance, and the release of the Beige Book which is the statistical compilation utilized at the upcoming FOMC meeting.
How will the markets interpret the statistics?
Last night the foreign markets were mixed. London was up 0.90%, Paris down 0.73% and Frankfurt down 0.57%. Japan was down 1.28% and Hang Sang up 0.27%.
The Dow should open moderately lower, extending its worst monthly decline since 2012. Today’s weakness is blamed on uncertainty over Fed policy and Chinese concerns, the same fears that have plagued the markets for many months. The 10-year is up 4/32 to yield 2.17%. Oil is down nominally following last week’s incredible advance.
