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Fuller Treacy Comment of the Day

Comment of the Day

Video commentary for November 23rd 2022

A link to today’s video commentary is posted in the Subscriber’s Area.

Here is a section oil declines, gold and sliver steady, dollar eases, stocks steadty, China coronavirus cases rising. 

US Business Activity Contracts for a Fifth-Straight Month

This article from Bloomberg may be of interest to subscribers. Here is a section:

The manufacturing PMI sank nearly 3 points to 47.6 this month. And when excluding the early months of the pandemic, the production and orders measures both retreated at the steepest rates since 2009.

On a more comforting note, the composite measure of input prices eased for a sixth-straight month, though it remains historically elevated. The prices-received gauge fell for a seventh month.

Output expectations over the next year picked up, the report showed, in part reflecting more stability in supply chains. The index, however, remains softer than it was a year ago.

“November even saw increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales,” Williamson said. 

“In this environment, inflationary pressures should continue to cool in the months ahead, potentially markedly, but the economy meanwhile continues to head deeper into a likely recession,” he said.

Eoin Treacy’s view – Today’s PMI figure was S&P’s estimate. The University of Michigan figure is due out on December 1st. The one thing PMI figures are useful for is a reading below 50 is a necessary condition for a US recession. That doesn’t mean every reading below 50 leads to a recession but there has never been a recession with a reading below 50.

Oil Sinks as EU Discusses a Softer Russian Price Cap at $65-$70

This article from Bloomberg may be of interest to subscribers. Here is a section:

Oil stumbled as traders assessed a higher-than-expected price cap on Russian crude between $65 and $70 a barrel and a surprising build in US products.

The European Union’s proposed range would be well above Russia’s cost of production and higher than some countries have been paying for its oil. As Russia is already selling its crude at discounts of $20 a barrel in recent months, a high cap may have minimal impact on trading, keeping the nation’s supplies flowing into the global market.

West Texas Intermediate traded around $77 a barrel as investors digested rising US product stockpiles, accelerating a selloff in thin trading. Gasoline stockpiles rose by 3 million barrels, the largest build since July, with demand plunging by the most in nearly two months heading into the Thanksgiving holiday.  

“The effectiveness of price caps as a mechanism to tighten the screws on Russia remains a big question for the market,” said Michael Tran, an analyst at RBC Capital Markets. “What such policy measures does do is raise the degree of positioning paralysis for oil traders that are already grappling with an anti-risk taking period of low liquidity.”

Russia has previously said that it won’t sell crude to nations that use the cap, which is designed to punish Moscow for its invasion of Ukraine while keeping the nation’s oil flowing. 

EU ambassadors are meeting on Wednesday with the aim of approving the cap mechanism and a proposed price level. On Tuesday, the EU already watered down its latest sanctions proposal by delaying its full implementation and softening key shipping provisions.

Crude prices have suffered several sharp downturns in recent days. Demand in China, the world’s largest importer, remains weak as the country presses on with Covid-Zero curbs. Beijing asked residents not to leave the city unless necessary, to stem the spread of the virus.

As the oil market has softened in recent days, both Brent and WTI have at times traded in a bearish contango structure for the first time in months. WTI’s nearest timespread flipped back into contango once again. 

Eoin Treacy’s view – The EU disputing what they are willing to pay for Russian oil seems to be an example of rebellion of a wish to tell the world how reality should be versus the unconvertible reality. The wish is to pay only $70 but how is that going to be enforced?

Violent Protests Erupt at Apple’s Main IPhone Plant in China

This article for Bloomberg may be of interest to subscribers. Here is a section:

In one video, irate workers surrounded a silent, downcast manager in a conference room to voice grievances and question their Covid test results. It wasn’t clear when the meeting took place.

“I’m really scared about this place, we all could be Covid positive now,” a male worker said. “You are sending us to death,” another person said.

The Zhengzhou campus was operating normally as of Wednesday evening, a Foxconn spokesperson said. The violence had erupted after a portion of recently arrived employees raised complaints about “work subsidies” — bonuses or payments on top of usual wages, Foxconn said in a statement. But the company stressed that it handles all such compensation in strict accordance with its contractual obligations. 

“With regards to the violence, we are continuing to communicate with workers and the government, to avoid a recurrence,” the company said without elaborating.

Eoin Treacy’s view – The challenge of COVID is behind most governments internationally but ahead of the Chinese government. The success of domestic quarantine versus the acceptance of mass infections virtually everywhere else suggests China has to accept that it is impossible to avoid the spread of the virus eventually.

Eoin’s personal portfolio: hedge short profits taken, trading short losses taken, investment positions initiated November 10th 2022

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.

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