Wall Street Analysts React To Biden’s Not-So-Strategic Petroleum Reserve Release
As noted earlier, Biden’s announcement of an exchange-based release from the SPR has been a dud, with Brent sliding from $85 to $78 on the rumor of the imminent “not-so-strategic” release – which it appears was meant to be an emergency backstop for true emergencies as well as to sliding Democrat poll numbers – and then promptly recovered more than half the drop, spiking from $78 to $82 today following news of the coordinated, global SPR release of some 32mm bbl, an amount that we said earlier was a “rounding error” and far too small to make a real difference, and the market seems to agree.
And then there is the matter of payback.
But while the market’s verdict is clear, and Joe Biden will certainly not be happy with the outcome, here is what Wall Street analysts think in their kneejerk reactions to the announcement, courtesy of Bloomberg:
RBC Capital Markets analysts including Helima Croft
- The U.S. administration “believe they have the ability to do another release of a similar magnitude” if prices rise further
- Any such release would be through an exchange mechanism, meaning the barrels will have to be replaced
- The U.S. is keenly focused on reducing gasoline and diesel prices ahead of the holidays but also sees SPR releases as part of a plan to deal with inflationary pressure
- Next week’s OPEC+ meeting will be crucial in determining the efficacy of Tuesday’s announcement
- It’s most likely that OPEC+ will stick with its existing plan to proceed with output increases next week, but Saudi Arabia may push to scale back the plan
UBS strategist Giovanni Staunovo
- Outlook for crude prices remains positive, as oil demand still expected to increase and OPEC+ remains in control of most of the oil market
- SPR releases are not a fix for imbalances caused by a lack of investment and still-rising demand
- Traders will shift their attention to the OPEC+ meeting on Dec. 2
- OPEC+ may be encouraged to stay on hold and not increase production in Jan. due to lockdowns in Europe
Bloomberg oil strategist Julian Lee
- The OPEC+ group of oil producing countries will have to defer at least two months’ worth of planned output increases if it wants to offset the impact of coordinated crude releases from strategic stockpiles by the end of March
- That may be no hardship for those members struggling to keep up with their rising output targets, but it will come as a blow to others hoping for a quicker restoration of shut-in production
- Meeting consumers part way, perhaps by bringing forward half of the output boost intended for January, would probably have been enough to avert the release of strategic stockpiles
JPMorgan strategists led by Marko Kolanovic
- While the top consuming nations are preparing to release oil from their national reserves to rein in rising prices, crude is actually cheap relative to other financial assets
- Among global stocks, bonds and commodities, oil is in the 19th percentile over the last 20 years, and to rise to the 50th percentile relative to historical levels, it would need to be at $115/bbl
- China may sell at least 1 million tons, or 7.33 million barrels, of Russia’s ESPO crude from reserves soon
- This would be the second time China sells oil from reserves in a public auction this year
BI analysts Will Hares and Salih Yilmaz
- Release of crude from strategic stockpiles may drive near- term pressure on Brent, but ultimately represents only a temporary solution to elevated U.S. gasoline prices and global- market tightness
- The move is likely to met by a response from OPEC+ either adjusting or delaying its monthly increase of 400k b/d at its next meeting on Dec. 2.
End of an Era: Everything at Dollar Tree Will Soon Cost More Than a Dollar
Dollar Tree has announced that some items will rise up to $5 in 2022.
You might have to dig a little deeper the next time you shop at Dollar Tree. The discount giant has announced that it’s rolling out a $1.25 price point at all its stores by next year. And items could cost as much as $5 at its Dollar Tree Plus stores.
The company attributes its price increases to supply chain issues, “higher freight costs and other inflationary pressures.” This marks the end of a discount era as Dollar Tree has been known for selling items for no more than $1 for more than 40 years.
And even as inflation choked out most dollar store chains, Dollar Tree was one of the last ones to resist and price the overwhelming majority of their items for $1 or less. But that’s all going to change as we roll into 2022.
Why is Dollar Tree raising its prices?
Like many retailers, Dollar Tree is feeling the heat from inflation. Across the board, the prices for goods and services are increasing: The annual inflation rate in the U.S. soared to 6.2% in October 2021, marking the highest upward tick since 1990.
As a result, manufacturers are paying more for the basic materials used to make their products, and that price increase is getting passed on to you. To make matters worse, the COVID-19 pandemic is still tightening supply chains and making it harder and more expensive for companies to distribute their products.
Which Dollar Tree products will cost more?
The company wasn’t specific about which items are getting heftier price tags. But you can expect to pay $1.25-$1.50 for most items by 2022, according to the company. Dollar Tree is known for selling everyday goods like canned food, school supplies and toys. The company also noted that items priced at $3 and $5 at Dollar Tree Plus stores would include “arts and crafts, sports, home decor, apparel, and holiday and seasonal items.”
Are these price increases temporary?
Based on Dollar Tree’s latest earnings report, it looks like the “$1.25 Dollar Tree” is here to stay.
Dollar Tree CEO and president Michael Witynski said in a press release, “We believe testing additional price points above $1 for Dollar Tree products will enable us over time to expand our assortments, introduce new products and meet more of our customers’ everyday needs.”
Moreover, Dollar Tree expects to convert more of its stores into Dollar Tree Plus stores, where items can be priced as high as $5. The retailer plans to have 500 Dollar Tree Plus stores by the end of 2021 and another 1,500 next year.
Despite freight and logistics issues, Dollar Tree unveiled some healthy earnings for the third quarter of 2021, which ended on October 31. Consolidated net sales increased 2.6% to $19.23 billion from $18.74 billion in the same period last year. Shares of Dollar Tree rose 16% Wednesday to more than $100. However, the stock is down 6% for the year.
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Reports are rolling in from tree farmers and sellers across the country, and they all have a common, interconnected theme: Supply is down, and prices are up. New York’s Newsday reported that customers will likely have to pay 10% to 30% more than usual for both live and fake Christmas trees in 2021.
“It’s one for the records,” Neil Courtney, manager of the Buffalo Valley Produce Auction in Mifflinburg, Pennsylvania, told PennLive.com. “You can’t find trees to buy anywhere. I knew it was coming, but it is more serious than we thought.”
Why are Christmas trees so expensive right now?
The Christmas tree situation is the perfect storm of factors.
The first is inflation. The U.S. Bureau of Labor Statistics reported earlier this month that prices are generally up 6.2% from last October as the economy recovers from lockdowns and government stimulus packages tied to the coronavirus pandemic.
The second reason for the Christmas tree shortage dates further back. In the wake of the 2007-2009 Great Recession, farmers slashed the number of trees they planted. Because Christmas trees take a decade or so to mature, we’re still feeling the effects now.
Third, farmers are coping with climate change, which led to wildfires and droughts this summer in Oregon, a major supplier of Christmas trees for West Coasters.
Oh, and that’s all on top of the ongoing supply chain crisis and labor shortage snarling shipping times for the nearly 30 million real Christmas trees Americans purchase every year.
“Truck drivers are just scarce,” Chris Saraceni, the owner of Savvy’s Christmas Trees in Plano, Texas, told WFAA. “There’s a delay in getting what you need on time.”
How much do Christmas trees cost?
According to American Christmas Tree Association, or ACTA, the average live tree costs $78 in 2021. The average artificial tree costs $104. (Fake trees, however, give way to better cost savings over time.)
“Manpower, trucking, transportation, all of those things factor in. It just keeps going up and going up,” Kevin Pressley, the co-owner of Simpson’s Produce in Charlotte, North Carolina, told WBTV. “Trees that you could usually buy for $75 — just to give an example — that tree will cost you 100-plus [dollars] this year.”
How to get a Christmas tree in 2021
Christmas tree shortages are an annual concern, given their central place in family holiday traditions. But “we’ve never run out of Christmas trees in the U.S.,” Tim O’Connor, the executive director of the National Christmas Tree Association, told HuffPost in October.
To avoid any hiccups, ACTA recommends would-be tree buyers head to stores — or forests, or parking lot tents — early. Shop smartly: The best live Christmas trees still smell sappy and don’t have pests. Make sure to ask for at least a half-inch of wood to be sawed off the trunk before taking it home for maximum longevity.
If you’re shopping online, read reviews and consider how much storage space your fake tree will take up. And buy soon.
“This is not the year to find a tree last-minute, or to wait for a retailer sale. It’s possible that those sales won’t occur, or that when they do, the inventory will be limited,” ACTA says. “Plan ahead, and buy early.”
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Upbeat PMIs help stabilize euro
The euro stabilized on Tuesday, after two days of losses. Currently, EUR/USD is trading at 1.1249, up 0.14% on the day. PMIs points to higher inflation…
The euro stabilized on Tuesday, after two days of losses. Currently, EUR/USD is trading at 1.1249, up 0.14% on the day.
PMIs points to higher inflation
In Germany, the PMI reports for October painted a mixed picture. Business activity rose slightly, as Services PMI climbed from 52.4 to 53.4, marking a 2-month high. Manufacturing PMI dipped to 57.6, down from 57.8 points. Although this reading indicates strong expansion, there is cause for worry as it was the lowest level since January. Manufacturers continue to grapple with supply delays and material shortages, which have led to growing inflationary pressures for businesses. This holds true across the eurozone, where the manufacturing sector is seeing growth while at the same time is being hampered by shortages, such as chips for motor vehicles.
With both the services and manufacturing sectors recording higher costs, companies will have to pass on these costs to consumers, which means that consumer inflation will likely continue to rise in the coming months. This will put more pressure on the ECB to tighten policy. The central bank is expected to announce at the December meeting that the EUR 1.85 trillion PEPP will wind up in March 2022. Governor Christine Lagarde has said that the ECB will not raise rates prior to 2023, but many investors expect the ECB to bring forward this timeline, particularly if consumer inflation moves higher.
It is not only the markets that are nervous about inflation. ECB Executive Board member Isabel Schnabel said in an interview on Monday that “risks to inflation are skewed to the upside”. This assessment wasn’t earth-shattering, but a hawkish opinion from an ECB member is very unusual and therefore newsworthy. Following her comments, the markets factored in a 0.10% rate increase in December 2022.
The markets appear pleased with the renomination of Jerome Powell, which provides stability and consistency at the Fed. Powell is under pressure to accelerate its timeline of raising interest rates, and there is growing expectation that the Fed will raise rates in June 2022, after the central bank winds up the bond purchase program.
In Turkey, another rate cut, despite high inflation, triggered sharp losses for the Turkish lire against the US dollar and the euro. With the country’s monetary policy flying in the face of traditional economic theory, the lira could be headed for further gusty tailwinds.
- There is support at 1.1201, which has held since July. This is followed by support at 1.1118
- There is resistance at 1.1415. Above, there is resistance at 1.1546
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