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Market Sell-Off Sets Up Critical Test Of Support

The market’s sell-off yesterday sets up a critical test of support at the 100-dma. Last week, the market was able to regain the 100-dma as stocks rallied…

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This article was originally published by Real Investment Advice

The market’s sell-off yesterday sets up a critical test of support at the 100-dma. Last week, the market was able to regain the 100-dma as stocks rallied off lower support. The decline yesterday left stocks touching the running moving average. It is a critical technical juncture for stocks. If stocks can hold the 100-dma, it will provide a support level stocks can build off of for a push higher to the 50-dma. A failure of that support will lead to a retest of recent lows or potentially more. With a lot of economic news and earnings releases this week, it is hard to guess where markets will head to next.

What To Watch Today

Economy

  • 6:00 a.m. ET: NFIB Small Business Optimism, September (99.5 expected, 100.1 during prior month)
  • 10:00 a.m. ET: JOLTS Job Openings, August (10.954 million expected, 10.934 million during prior month)

Earnings

  • No notable reports scheduled for release

Politics

Courtesy of Yahoo

Pain In The Supply Chain

(By @marketoonist)

Oil Prices May Peak Here Soon

Crude oil has gotten a lot more interesting as of late. After a brutal 2020, the price of oil futures going negative at one point, oil is now pushing above $80/bbl. Given current views of “inflation” from the massive liquidity infusions and supply chain disruptions, the focus on speculative positioning is not surprising.

As shown in the monthly chart below, the price advance in crude oil is now back to historical extremes that have previously denoted tops in oil prices. The current extreme overbought, extended, and deviated positioning in crude will likely lead to a rather sharp correction. (The boxes denote previous periods of exceptional deviations from long-term trends.)

The speculative long-positioning is driving the dichotomy in crude oil by NCTs. While levels fell from previous 2018 highs during a series of oil price crashes, they remain elevated at 398,307 net-long contracts and rising quickly.

The good news is that oil did finally break above the long-term downtrend. However, it is too soon to know if these prices will “stick,” or as the economy decelerates towards the end of the year, oil prices will decline.

Furthermore, the deflationary push and the dollar rally will likely derail oil prices if it continues.

Earnings Will Begin To Slow

As we kick off the Q3 earnings season, expectations are still for a very robust earnings season. However, given much tougher year-over-year comparisons, rising inflationary pressures, ongoing supply chain disruptions, and declining consumer confidence, there is risk to those outlooks. We expect forward estimates will start to ratchet down sharply over the next couple of quarters as slower economic growth drags on margins.

Staples Getting Historically Cheap

In last Friday’s Technical Value Scorecard in RIA Pro we discussed how cheap the consumer staples sector was getting. To wit: “However, staples are nearly three standard deviations below its 50dma, arguing for a bounce in the coming days.

SentimentTrader follows up our work with a much longer-term view. As shown below, staples, at about 6% of the S&P 500, have the lowest weighting in the S&P 500 since the tech boom in late 1999. In the year 2000 when that bubble popped, staples (XLP) ended the year up 42%. The S&P was down 10% and the technology sector (XLK) was down over 40%.

The Real Impact of $80 Oil

A Big Week Ahead

Buckle up!  This is a big week for key economic data. The JOLTs report on Tuesday will provide more color on the labor market and specifically if job openings continue to at record levels. Wednesday features CPI and the Fed minutes from their September meeting. Given the importance of inflation to the Fed, CPI will help them further hone in on how to taper QE, in regards to amounts and timing. More inflation data follows Thursday with PPI. Retail Sales and the University of Michigan Consumer Sentiment Survey come out on Friday.

Also on tap are the 10 and 30-year Treasury auctions on Tuesday and Wednesday respectively. It will be interesting to see if demand is strong given the recent backup in yields.

If you crave more information, have no fear, earnings for the major banks start on Wednesday with JPM. Many of the largest banks follow them on Thursday. Most other companies will release earnings over the coming six weeks. Beyond earnings and revenues, investors will be paying close attention to forward guidance, in particular how inflation is affecting their bottom line.

Dividends Over Oil Production

Last Friday we wrote how oil rig counts were rising slower than is typical considering the current price of oil. Another consideration is the transition to cleaner forms of energy. As Reuters writes below, companies like Occidental are not clamoring to increase production.

(Reuters) – U.S. oil and gas producer Occidental (OXY.N) wants to raise margins and re-establish dividend payments for its shareholders rather than focus on growing its production volumes, Chief Executive Vicki A. Hollub said on Thursday.

Oil companies can best contribute to the energy transition by producing just enough oil to meet demand in a way that is more efficient and produces fewer emissions, the CEO said.

“We don’t see that in 2022 and beyond that we need to grow significantly,” Hollub said at an online event by the Energy Intelligence Forum.

“Our growth in the period, and maybe over the next ten years, will more be to reestablish dividend and grow that dividend”.

The post Market Sell-Off Sets Up Critical Test Of Support appeared first on RIA.

Precious Metals

Bitcoin Soars to Highest in 5 Months as Correlation With Gold Turns Negative

The price of bitcoin hit the highest in over five months, as an increasing number of traders dived into the
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The price of bitcoin hit the highest in over five months, as an increasing number of traders dived into the cryptocurrency in hopes that it would once again soar to the record highs witnessed earlier this year.

Bitcoin was up by more than 1% on Tuesday morning before settling to just above $56,000, marking a weekly gain of over 15% and the highest since May. The latest rally is the result of a number of factors, particularly the fading of concerns regarding regulatory efforts in the US and China, as well as the SEC potentially approving the first bitcoin ETF.

In the meantime, according to Ned Davis Research strategist Pat Tschosik, the one-year correlation between gold and bitcoin has been steadily declining, and is about to turn negative, suggesting that the prices are no longer moving in unison. “Bitcoin could be seen as the preferred inflation hedge if the dollar and real rates are rising,” Tschosik told CNBC.


Information for this briefing was found via CNBC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Bitcoin Soars to Highest in 5 Months as Correlation With Gold Turns Negative appeared first on the deep dive.

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Economics

Stocks Stink As Curve Pancakes On Stagflation Fears

Stocks Stink As Curve Pancakes On Stagflation Fears

It was another choppy day in the market which saw an overnight attempt to recover from…

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Stocks Stink As Curve Pancakes On Stagflation Fears

It was another choppy day in the market which saw an overnight attempt to recover from losses get sabotaged at the open when a sell program knocked spoos lower and the result was a rangebound, directionless grind for the rest of the day as the continued pressure of negative gamma prevented a move higher, and since they couldn't rise, stocks sold off closing near session lows. 

Granted, there was the usual chaos in the last 30 minutes of trading, when a huge sell program was followed by an almost identical buy program...

... but it was too little too late to save stocks from another down day.

While the Russell, energy stocks and banks managed to bounce and drifted in the green for much of the day - perhaps as investors looked forward to good news from JPMorgan tomorrow when the largest US bank kicks off earnings season - the rest of the market did poorly with most other sectors in the red.

Earlier today we noted that the SPY remains anchored by two massive gamma levels, 430 on the downside and 440 on the upside...

... however that may soon change. As SoFi strategist Liz Young pointed out, "It's been 27 trading days since we hit a new high on the S&P 500. The last time we went this long was...exactly this time last year. New highs happened on Sept 2nd, both years, before a pause."

In rates we saw a sharp flattening with another harrowing CPI print on deck tomorrow which many expect to roundly beat expectations...

... with the short end rising by 3bps, a move that was aided by a poor 3Y auction which saw a slump in the bid to cover and a plunge in Indirect takedown, while the long end tightened notably, and 10Y yields on pace to close 4bps lower.

The dollar went nowhere, and while oil tried an early break out and Brent briefly topped $84, the resistance proved too much for now and the black gold settled down 31 cents for the day at 83.34 although WTI did close up 4 cents, and above $80 again, at $80.54 to be precise. Still, with commodity prices on a tear, it's just a matter of day before Brent's $86 high from October 2018 is taken out.

With stocks failing to make a new high in over a month, investor sentiment has predictably soured with AAII Bulls down to the second lowest of 2021, while Bearish sentiment continues to rise.

There is another reason sentiment has been in the doldrums: traders are concerned that price pressures and supply-chain snarls will drain corporate profits and growth, and expect disappointment from the coming earnings season which according to Wall Street banks will be a far more subdued affair compared to the euphoria observed in Q1 and Q2.  Quarterly guidance, which improved in the runup to the past four reporting periods, is now deteriorating, with analysts projecting profits at S&P 500 firms will climb just 28% Y/Y to $49 a share. That’s down from an eye-popping clip of 94% in the previous quarter.

Meanwhile, adding to the downbeat mood, Atlanta Fed President Raphael Bostic finally admitted that inflation is not transitory, and the Fed should proceed with a November taper amid growing fears that inflation expectations could get unanchored. Earlier in the day was saw that 3Y consumer inflation expectations hit a record high 4.3% confirming that the Fed is on the verge of losing control.

Vice Chair Richard Clarida agreed and said that conditions required to begin tapering the bond-buying program have “all but been met.”

Finally, the IMF delivered more bad news today when it cut its global GDP forecast while warning that inflation could spike, and cautioned about a risk of sudden and steep declines in global equity prices and home values if global central banks rapidly withdraw the support they’ve provided during the pandemic. In short, the world remains trapped in a fake market of the Fed's own creation.

Tyler Durden Tue, 10/12/2021 - 16:02
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Economics

Carbon prices are on the rise and businesses already decarbonising are ahead of the pack

Remember the carbon tax? Back in 2012 PM Julia Gillard got slammed for putting a price on carbon emissions, and … Read More
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Remember the carbon tax?

Back in 2012 PM Julia Gillard got slammed for putting a price on carbon emissions, and the heat is on current PM Scott Morrison with the issue set to be a hot topic at the Glasgow Climate Conference later this month.

Many governments around the world have either introduced an Emissions Trading Scheme (ETS) or imposed carbon taxes – because carbon pricing is one of the most effective ways of reducing greenhouse gas emission levels on the domestic and international level.

With ETS, governments set the quantity of emissions permitted and let the market find the market-clearing price.

For carbon taxes, governments impose a tax on emissions and then let the market find the market-clearing quantity of emissions.

According to CRU Group research analysts Clifton Hoong and Frank Eich, ETSs come out on top.

“When comparing their respective contributions in addressing greenhouse gas (GHG) emissions, ETS does come out top, covering 16.1% of global GHG emissions, almost three times the 5.5% that carbon taxes cover,” they said.

The UK and Europe have adopted emissions trading schemes and even China – the world’s largest carbon emitter – launched a nationwide ETS in July after experimenting with regional ETSs.

And in Singapore, a new global carbon exchange, Climate Impact X, is expected to launch by the end of the year.

Pic: Range of external carbon price forecasts (2020 prices $/ tCO2).

 

Carbon prices are set to rise

The analysts said that the sharp increase of the carbon price on the EU ETS over recent months gives an idea what might be in store in the years and decades ahead.

“In 2021, European carbon taxes averaged $42/tCO2, which is relatively cheaper compared with the $56/tCO2 average that has been traded in the EU ETS so far in 2021,” the analysts said.

“We have conducted a survey of recent carbon price forecasts published by international organisations, governments, think tanks and corporates to get a sense of where carbon prices are headed.

“The range of forecasts is huge, but we should not be surprised to see a global carbon price of around $100/tCO2 by 2030 and around $300/tCO2 by 2050 if the world gets serious about climate change mitigation.”

And as carbon prices keep rising, commodity markets across the value chain will need to adapt.

“In some markets, carbon prices have been rising rapidly over the recent past and are forecast to do so for years to come,” Hoong and Eich said.

“The commodities markets across the value chain will need to prepare for and adapt to these new prices.”
 

EU and UK carbon market outlook

The EU was first to launch a major ETS in 2005 and by making carbon permits an increasingly scarce ‘good’, the EU is raising the market-clearing carbon price.

“These measures appear to be delivering,” CRU said.

“Having in the past frequently been criticised for being too low to make a difference, the EU ETS carbon price has increased sharply since the beginning of the year, reaching a new record €65/tCO2 (i.e., $75/tCO2) on 26 September.”

And word on the street is that the UK Government might have to step in and intervene in its national carbon market in December if crises remain elevated through November, given the current energy crisis causing the prices to average £58.36 per metric tonne in September.

“Even small increases in energy or fuel costs frequently lead to protests or even social unrest,” Hoong and Eich said.

“How to sell the necessity of increasing the price of energy to the electorate in the name of climate change mitigation when increasing prices are deeply unpopular and – often – also considered to be socially unfair?

“The latest spike in European natural gas prices is a reminder of that.

“Finding a way through this conundrum will be one of the biggest challenges for policymakers in the years ahead.

“As the recent outcome of the Swiss referendum on tougher climate change legislation forcefully demonstrates, we should be ready for major setbacks on the way to net zero over coming years.”

EU carbon price
Pic: EU carbon price reaching €65 on 26 September.

 

Commodities markets will have to adapt

“Major setbacks are not the same as abandoning the ambition and the commodities markets – just like all other sectors of the global economy – will need to prepare for and adapt to higher carbon prices,” the analyst said.

“The likely dramatic increase in carbon prices in the future will have fundamental implications for many parts of the economy, more so for businesses in the carbon-intensive industries.”

But not all players will be affected equally.

“For those industries where switching electricity to a low-carbon alternative is a solution (e.g., mine sites, aluminium production), the transition could be ‘relatively’ simple and at lower cost,” Hoong and Eich said.

“By contrast, changing the way how a key raw material is produced (e.g., hydrogen for ammonia) will likely prove more challenging and, almost certainly, more costly.

“Where a wholesale shift in technology is needed (e.g., hydrogen steel production), the transition will potentially be painful.

“Even operations that are already low carbon as a result of access to low-carbon electricity (e.g., hydro feeding aluminium smelters) will see cost inflation as supply contracts are renegotiated in the context of rapidly rising electricity prices.”
 

Businesses already decarbonising will benefit

The analysts said that often implementing decarbonisation plans means a significant upfront investment in electrifying energy inputs, integrating renewables and reducing the carbon footprint.

That cost is a barrier to transformation for many businesses – but inaction isn’t the way to go,” Hoong and Eich said.

“Implementing these decarbonisation plans often incurs substantial upfront investment cost, which can act as a barrier to transformation.

“Up to now this made the alternative route of action – doing nothing – attractive to many.

“But as the opportunity cost of doing nothing increases as carbon prices go up, this alternative route will become increasingly unattractive.

“Those who have already placed their bets on hefty investments to decarbonise their production operations are starting to reap the benefits as the cost of carbon continues its way up.

“We should expect others to follow suit.”

The post Carbon prices are on the rise and businesses already decarbonising are ahead of the pack appeared first on Stockhead.

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