Live Markets: Good times for oil will come back soon - BMO

Prairiesky Royalty

13/07/2023 15:30

* 
      U.S. stocks higher, Nasdaq leads gains
    

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      Comm Svcs leads sector gains; real estate sole decliner
    

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      Euro STOXX 600 index up ~0.8%
    

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      Dollar dips, gold flat; crude, bitcoin rise
    

        * 
      U.S. 10-Year Treasury yield edges down to ~3.81%
    

  
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    GOOD TIMES FOR OIL WILL COME BACK SOON - BMO (1016 EDT/1416
GMT)
    Recession fears continue to disturb investors' sleep as the
macro scenario remains uncertain, with crude oil prices
remaining weak in the first half of the year.
    But BMO Capital Markets believes the supply-demand balance
could begin to tighten in the fall as the growth in demand will
finally outpace the one in supply, leading to a decline in oil
inventories.
    As a result, rising commodity prices should increase
traders' appetite for energy equities in the last quarter and
into 2024, after they underperformed the market so far this
year, the broker notes.
    Its top recommendations include Canadian Natural Resources
 CNQ.TO , ConocoPhillips  COP.N , Imperial Oil  IMO.TO , Pioneer
Natural Resources  PXD.N  and PrairieSky  PSK.TO .
    The Organization of the Petroleum Exporting Countries (OPEC)
raised on Thursday its 2023 demand growth forecast by 90,000
barrels per day from last month. 
    On a longer-term perspective, it also expects that "solid
global economic growth amid continued improvements in China will
boost consumption of oil" in 2024.
    Despite an optimistic stance, concerns on a slowdown do not
disappear overnight. 
    BMO points out that recent indicators such as the difference
between 10-year and 3-month U.S. Treasury rate continue to
suggest that a recession in the U.S. over the next 12 months is
still possible, weighing on crude oil for the next several
months.
    Oil prices were high on Thursday after the latest U.S.
inflation data raised expectations the Federal Reserve was
nearing the end of its rate hike cycle, which has softened the
dollar. 
    (Matteo Allievi)
    *****
    
    U.S. STOCK FUTURES HOLD GAINS AFTER PPI, CLAIMS DATA (0845
EDT/1245 GMT)
    U.S. equity index futures are holding gains in the wake of
the release of the latest data on U.S. inflation, and jobless
claims.
    The June headline PPI month-over-month and year-over-year
prints came in cooler than expected. Ex-food/energy
month-over-month and year-over-year readings were also below
estimates.
    Initial jobless claims were fewer than expected:
    

    According to the CME's FedWatch Tool  FEDWTACH , the
probability that the Fed increases interest rates by 25 basis
points at its July 25-26 meeting has not been impacted. It is
now around 92% from 92% just prior to the data coming out. The
chance that the Fed sits on its hands and leaves rates unchanged
is now 8% from 8% just before the numbers were released.
    In any event, in the wake of an expected 25bps hike later
this month, the FedWatch Tool suggests the FOMC will then leave
rates unchanged through year-end.  
    E-mini S&P 500 futures  EScv1  are gaining around 0.40%. The
futures were up around 0.35% just before the numbers came out.
    All S&P 500 sector SPDR ETFs are higher in premarket trade,
with communication services  XLC.P , up around 0.8%, posting the
biggest rise.
    The SPDR S&P regional banking ETF  KRE.P  is gaining around
0.7%.
    In a note earlier on Thursday, Art Hogan, chief market
strategist at B Riley Wealth wrote:
    "U.S. stocks have defied skeptics and rallied this year in
the face of bank collapses, constant fears of a recession, and
what’s expected to be a slowdown in corporate profits. For our
part, we assume that inflation will look better in the second
half."
    Hogan added "Core PCE [personal consumption expenditures],
the inflation measure the Fed looks at, could be 3% or a bit
lower by the end of the year, which suggests that the Fed will
need to be less aggressive. We see markets settling into a grind
higher."
    Here is a premarket snapshot around 15 minutes after the
data came out:
    
 
    (Terence Gabriel)
     *****
    
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)