Saudi Arabia slashed oil prices for sales to Asia next month by more than twice the expected amount in a sign the world’s largest crude exporter is getting aggressive about capturing market share and dump more output in the continent. On Sunday, state oil giant Saudi Aramco rolled back pricing on all of its grades to its biggest market in Asia, following three successive months of increases in the company’s official selling prices which had left refiners smarting as the coronavirus pandemic crippled energy demand.
Aramco lowered for the first time in four months the official selling price (OSP) of Arab Light crude for delivery to Asia in October to a premium of $1.70 per barrel versus the average of DME Oman and Platts Dubai crudes, according to a company pricing document. The price differential in September was a premium of $3 per barrel, the highest since February 2020.
The $1.30 price cut for October versus September was the largest monthly reduction in a year, and it took the market by surprise as buyers had been expecting prices to drop 20-40 cents a barrel, in line with changes in Dubai benchmark prices
Saudi Arabia finds itself competing on price again after OPEC recently hiked production again by 400K b/d following a 40% run-up in the price of Brent this year (but only after a crash in 2020). That increase means more barrels competing for cautious buyers. Saudi Arabia, which sells all of its oil on long-term contracts to refiners, risks alienating customers if its sets monthly prices too high.
"Because of the high Saudi OSPs in previous months, traders have diverted to the spot market instead of using long term contracts,” said Giovanni Staunovo, a commodities analyst at UBS Group AG. Now Aramco wants buyers to take more Saudi crude, he said. “With domestic demand likely leveling off in autumn, they have more barrels to be exported, so that’s another reason to offer more attractive OSPs.”
The deep price cuts were likely to increase demand for Saudi crude, Asian oil traders told Reuters, encouraging buyers to nominate full volumes for October. "This is what Saudi wants," one of the traders said. However, the chances of Saudi Arabia engaging in another price war with other producers were slim, traders and analysts said.
"Demand is tentative. If they go down that route, they will reverse a lot of the inventory normalisation achieved over the past 12-18 months," Energy Aspects analyst Virendra Chauhan said.
Elsewhere, Saudi Aramco kept the price differential of light crude to northwest Europe unchanged, at a discount of $1.70 per barrel versus ICE Brent crude. It also kept the price differential of light crude to the United States unchanged at a premium of $1.35 per barrel versus ASCI.
After rising on Friday, oil slid overnight on the news Saudis is chasing after market share in Asia, raising the prospect of fierce competition among sellers as the resurgence of Covid-19 continues to cloud the demand outlook.
Prices did recover modestly after BSEE reported that about 88% of oil production in the Gulf of Mexico remained shut in. As reported overnight, authorities were responding to a 14-mile long oil spill in the Gulf of Mexico discovered in the aftermath of Hurricane Ida, officials said Saturday.
Research Review | 17 Sep 2021 | Financial Shocks And Crises
Banking-Crisis Interventions, 1257 – 2019 Andrew Metrick and Paul Schmelzing (Yale) September 7, 2021 We present a new database of banking-crisis interventions…
Banking-Crisis Interventions, 1257 – 2019
Andrew Metrick and Paul Schmelzing (Yale)
September 7, 2021
We present a new database of banking-crisis interventions since the 13th century. The database includes 1886 interventions in 20 categories across 138 countries, covering interventions during all of the crises identified in the main banking-crisis chronologies, while also cataloguing a large number of interventions outside of those crises. The data show a gradual shift over the past centuries from the traditional interventions of a lender-of-last-resort, suspensions of convertibility, and bank holidays, towards a much more prominent role for capital injections and sweeping guarantees of bank liabilities. Furthermore, intervention frequencies and sizes suggest that the crisis problem in the financial sector has indeed reached an apex during the post-Bretton Woods era – but that such trends are part of a more deeply entrenched development that saw global intervention frequencies and sizes gradually rise since at least the late 17th century.
Can Financial Soundness Indicators Help Predict Financial Sector Distress?
Marcin Pietrzak (IMF)
July 23, 2021
This paper shows how the role of Financial Soundness Indicators (FSIs) in financial surveillance can be usefully enhanced. Drawing from different statistical techniques, the paper illustrates that FSIs generate signals that can accurately detect, with 4 to 12 quarters lead, emerging financial distress—as measured by tight financial conditions.
Financial Crises: A Survey
Amir Sufi (U. of Chicago) and Alan M. Taylor (U. of California)
August 17, 2021
Financial crises have large deleterious effects on economic activity, and as such have been the focus of a large body of research. This study surveys the existing literature on financial crises, exploring how crises are measured, whether they are predictable, and why they are associated with economic contractions. Historical narrative techniques continue to form the backbone for measuring crises, but there have been exciting developments in using quantitative data as well. Crises are predictable with growth in credit and elevated asset prices playing an especially important role; recent research points convincingly to the importance of behavioral biases in explaining such predictability. The negative consequences of a crisis are due to both the crisis itself but also to the imbalances that precede a crisis. Crises do not occur randomly, and, as a result, an understanding of financial crises requires an investigation into the booms that precede them.
Macroeconomic and Financial Risks: A Tale of Mean and Volatility
Dario Caldara (Federal Reserve), et al.
We study the joint conditional distribution of GDP growth and corporate credit spreads using a stochastic volatility VAR. Our estimates display significant cyclical co-movement in uncertainty (the volatility implied by the conditional distributions), and risk (the probability of tail events) between the two variables. We also find that the interaction between two shocks–a main business cycle shock as in Angeletos et al. (2020) and a main financial shock–is crucial to account for the variation in uncertainty and risk, especially around crises. Our results highlight the importance of using multivariate nonlinear models to understand the determinants of uncertainty and risk.
Pre-crisis conditions and financial crisis duration
Thanh Cong Nguyen (Phenikaa University)
July 3, 2021
This paper examines how pre-crisis conditions affect the duration of different types of financial crises using a data sample of 244 financial crises in 89 countries over the period 1985-2017. Results from our parametric survival analysis show that the duration of any type of financial crisis is longer for countries having higher levels of public debt prior to financial crises, whereas it is shorter for countries characterised by higher pre-crisis levels of (i) current account balance, (ii) international reserves, and (iii) institutional quality. Similarly, while pegged exchange rate regimes are associated with a longer duration of financial crises, majority governments help countries emerge faster from crises. Moreover, banking and currency crises tend to be more prolonged when preceded by higher credit growth. We also find a positive effect of pre-crisis fiscal balance on the probability of crisis ending, and it is noteworthy that this effect is strengthened under majority governments and a stronger institutional environment. Finally, our duration dependence analysis suggests that banking, currency, and twin and triple crises are more likely to end when they grow older.
Monetary policy, financial shocks and economic activity
Anastasios Evgenidis (U. of Newcastle) and A.G. Malliaris (Loyola U. Chicago)
March 1, 2021
This paper contributes to a deeper understanding of macroeconomic outcomes to financial market disturbances and the central bank’s role in financial stability, by using Bayesian VAR (BVAR) models. We document that a shock that increases credit to non-financial sector leads to a persistent decline in economic activity. In addition, we examine whether the behavior of financial variables is useful in signaling the 2008 recession. The answer is positive as our medium-scale BVAR generates early warning signals pointing to a sustained slowdown in growth. Finally, we suggest that the expansion phase of the business cycle can be subdivided into an early and a late expansion. Based on this distinction, we show that if the Fed had raised the policy rate when the economy moved from the early to late expansion, it could have mitigated the severity of the last recession.
Stress Testing the Financial Macrocosm
J. Doyne Farmer (University of Oxford), et al.
August 30, 2021
What kind of models do we need to guide us through the next crisis? If past crises are any indication, we need to explore new approaches. During the Great Financial Crisis, the models that existed at the time were of little value because they focused on firm-level interactions and did not capture the system-wide dynamics that fueled the crisis. In this paper, we sketch a vision for a new approach to understanding and mitigating financial and economic crises. We argue that next-generation stress test models must take a comprehensive a view of the financial macrocosm to enable the regulator to effectively regulate and supervise the macro-financial dynamics of the global economy.
Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno
monetary reserve policy fed central bank monetary policy
Technical Value Scorecard Report For The Week of 9-17-21
Relative Value Graphs
This week’s results are interesting as the divergences between growth/low beta and value/cyclical sectors are not as evident as…
Relative Value Graphs
- This week’s results are interesting as the divergences between growth/low beta and value/cyclical sectors are not as evident as over the last few months.
- Transports are the most overbought sector, albeit not at a very high score. Energy has moved up as well. That said, materials and industrials, two other sectors affiliated with cyclical sectors, are the most oversold sectors.
- Energy stocks had a great week, beating the S&P by over 3.5%. Over the last four weeks, it has been the best performing sector with an excess return of 7.42%.
- Most factors/indexes remain oversold, with small and mid-cap stocks the most oversold. Inflation, worker shortages, and higher wages have a more significant adverse effect on these companies than many larger S&P 500 companies.
Absolute Value Graphs
- Materials and Industrials are the only sectors oversold on the absolute graphs. Like small and mid-caps, higher wages and input costs are weighing on those sectors. Discretionary is the most overbought sector, but with a score just north of 50%, it has room to strengthen before we offer caution. Energy, trading better due to higher crude and natural gas prices, had the largest increase in its absolute score. It is overbought but not terribly so.
- The S&P 500, bottom-right in the second set of graphs, is overbought as well, but within the year’s range. Its low scores earlier in the week almost brought it to fair value. For now, fair value seems to mark the lows for any local sell-off.
- There are no sectors more than two standard deviations from its 50 or 200 dma. The only close one is Technology at 1.75 standard deviations above its 200 dma.
- Broadly speaking, there is little in this report to offer a warning that the recent sell-off could worsen. The new trend worth consideration is the bifurcation of the cyclical sectors due to inflationary concerns on profit margins.
The technical value scorecard report is one of many tools we use to manage our portfolios. This report may send a strong buy or sell signal, but we may not take any action if other research and models do not affirm it.
The score is a percentage of the maximum score based on a series of weighted technical indicators for the last 200 trading days. Assets with scores over or under +/-70% are likely to either consolidate or change the trend. When the scatter plot in the sector graphs has an R-squared greater than .60 the signals are more reliable.
The first set of four graphs below are relative value-based, meaning the technical analysis is based on the ratio of the asset to its benchmark. The second set of graphs is computed solely on the price of the asset. At times we present “Sector spaghetti graphs” which compare momentum and our score over time to provide further current and historical indications of strength or weakness. The square at the end of each squiggle is the current reading. The top right corner is the most bullish, while the bottom left corner is the most bearish.
The ETFs used in the model are as follows:
- Staples XLP
- Utilities XLU
- Health Care XLV
- Real Estate XLRE
- Materials XLB
- Industrials XLI
- Communications XLC
- Banking XLF
- Transportation XTN
- Energy XLE
- Discretionary XLY
- S&P 500 SPY
- Value IVE
- Growth IVW
- Small Cap SLY
- Mid Cap MDY
- Momentum MTUM
- Equal Weighted S&P 500 RSP
- NASDAQ QQQ
- Dow Jones DIA
- Emerg. Markets EEM
- Foreign Markets EFA
- IG Corp Bonds LQD
- High Yield Bonds HYG
- Long Tsy Bonds TLT
- Med Term Tsy IEI
- Mortgages MBB
- Inflation TIP
- Inflation Index- XLB, XLE, XLF, and Value (IVE)
- Deflation Index- XLP, XLU, XLK, and Growth (IWE)
The post Technical Value Scorecard Report For The Week of 9-17-21 appeared first on RIA.inflation deflation markets inflationary
Canoo Stock May Be Headed for the Junk Heap Before Long
If electric vehicle manufacturer Canoo (NASDAQ:GOEV) stock ends up imploding, it wouldn’t be for nothing.
If electric vehicle manufacturer Canoo (NASDAQ:GOEV) stock ends up imploding, it wouldn’t be for nothing.Source: shutterstock.com/rafapress
Entering the public market via a business combination with a special purpose acquisition company, GOEV stock offered a tantalizing proposition to retail investors.
Unlike traditional initial public offerings, SPACs represent a far more democratized process. In a typical IPO, underwriters distribute new issues of a soon-to-be-public company to their choicest clients for pure profitability reasons.
As a result, this primary market transaction invariably butts out regular retail investors, who are forced to buy shares on the open market.
On the other hand, once a SPAC launches its own IPO, its equity units are free for the buying. From pre-merger announcement to post-business combination, the average Joe or Jane investor can participate in any phase of a SPAC offering.
Hopefully, though, the sponsors behind the blank-check firm know what they’re doing. That might not have been the case for what eventually became GOEV stock.
On a year-to-date basis to Sept. 13, shares of the EV maker are down 44%. Over the trailing 365-day period, GOEV stock has shed almost the exact same magnitude, down 45%.
From legal troubles to questions about Canoo’s ability to meet its production goals, it hasn’t been an easy time leading this company.
Even promising long-term catalysts don’t seem to make much of a lasting difference for GOEV stock.
For instance, our own Chris MacDonald pointed out in late August that the “National Highway Traffic Safety Administration (NHTSA) is set to consider higher penalties for automakers who fail to meet fuel efficiency requirements. While a negative catalyst for traditional auto makers, this announcement turns out to be very bullish for EV-focused companies.”
Predictably, GOEV stock popped on the news but since the announcement, the equity unit’s air has been slowly bleeding out. Is it time to jump ship?
Subscription Service Might Not Pan Out for GOEV Stock
To be fair, Canoo is an EV manufacturer geared toward the millennial lifestyle. In that sense, the company is going to do things differently because millennials do things differently. Thus, there’s an argument to be had that you shouldn’t judge GOEV stock based on traditional metrics.
To an extent, I can appreciate that line of thought. Moreover, Canoo’s ethos is directed toward its core consumer demographic. While I might never get over the toaster-on-wheels look of its flagship EV, Canoo asserts that the design concept is in line with the average millennial’s adventurous personality.
Also, GOEV stock benefits from another millennial quirk — an apparent inability to commit. Mostly, this deals with relationships but I suppose that could translate to professional and financial matters as well. Either way, Canoo has young consumers covered with its planned subscription service model.
While that sounds intriguing for GOEV stock, in practice, subscription-based business models haven’t worked out well for legacy automakers.
But BMW wasn’t alone in encountering headwinds with subscriptions, with most consumers balking at the price tag. For instance, BMW had a $3,700 per month program, which was simply ridiculous. Rival Mercedes-Benz offered a similar (though not identical) plan costing almost $1,100. A relative discount, yes, but a steep price nonetheless.
Of course, Canoo is planning to offer a much more reasonable subscription fee, and subscribers can quit at any time. While appealing on some levels, the millennial focus in this case works against GOEV stock.
According to a Wall Street Journal report, the “average age of vehicles on U.S. roadways rose to a record 12.1 years” in 2020, suggesting that at some point, vehicle owners want their payments to end.
Switch to Outright Sales?
An easy answer to the above problem is for Canoo to abandon subscriptions, as other automakers have, and move exclusively to direct sales. That could work but it would raise the question about other administrative concerns, such as who’s going to insure a Canoo EV?
Generally speaking, owning an EV will increase your auto insurance rate relative to owning a similar combustion-engine counterpart. Mainly, the reason has to do with cost and specialized parts. Usually, EVs are more expensive than a similarly featured combustion car and while EVs are reliable, when things go wrong, they can get ugly.
On the other hand, crash a Honda (NYSE:HMC) and you can easily acquire original parts. Or, because the automaker is so popular, multiple third-party options exist. You cannot say the same about a specialized EV maker like Canoo.
Therefore, I have too many questions about the viability of Canoo for me to be comfortable with GOEV stock. Yeah, it’s on discount but this is a case where it might be for a reason.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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