Scoreboard: Crude shale awakening

Crude surged on the muted impact of shale, while a sterling spike and strong labour data were welcome in the UK.

It was dead quiet for equities overnight, with most of the global indexes either side of the Atlantic hovering around zero. Rates weren’t much more interesting, with the US 10-year yield up to 2.86 per cent from 2.83 per cent.

But that doesn’t mean to the session was devoid of action. Check out crude. It surged 1.8 per cent on WTI ($96.7) and 1.3 per cent on Brent (108.2) on the growing realisation that US shale production and its impact on global energy markets is grossly exaggerated – just as the effects of peak oil were exaggerated. Shale is the new peak oil, so to speak.

Recent data shows that US oil consumption is surging. It is growing at a 4-5 per cent annual rate, well above any forecasts. According to the International Energy Agency, US oil consumption is now growing faster than China’s for the first time since 1999. Throw into that a cold weather snap and a surge in gas futures to a seven month high - and there is your surge in crude.

The other noteworthy price move was sterling. It spiked almost 120 pips overnight, a big move whichever way you look at it – especially in a session where currency moves elsewhere were subdued. The euro was little changed at 1.3545, ditto the Australian dollar at 0.8847 and the yen at 104.40. Anyway, the sterling shot higher after another jobs surge in the UK.  

While Australian businesses are overcome with fear, in the UK – a country that actually experienced a crisis – business are employing with gusto.  Employment surged another 280,000 in the three months to November and the unemployment rate dropped to 7.1 per cent from 7.4 per cent. Meanwhile, the drop in the number of unemployed (167,000) was the largest in 17 years.

Now the market talk is that this poses a quandary for the Bank of England. Don’t forget that a 7 per cent unemployment rate was a threshold the Bank named for hiking rates. The issue is how they credibly manage that now.  For those watching UK markets - I wouldn’t take seriously concerns over credibility.

Let’s get real. The Bank doesn’t have any credibility, and you can see that from their actions. They lost it when they dumped their inflation target. So should we be surprised that they now look like they will dump their unemployment target as well? The Bank meeting minutes out last night suggest that the bank is in no mood to hike rates even if the threshold is met.  I’ve said it many times and the action of central banks in the US and UK have borne me out. These guys have no intention of sticking to their targets, so let’s not feign surprise.

For the price action elsewhere, gold was off a few bucks to $1239.2 and copper fell 0.7 per cent. For equities, with an hour or so left to trade, the S&P500 is up 0.09 per cent (1845), the Dow is 45pts lower (16369) and the Nasdaq is up 0.3 per cent (4240). Over in Europe the major benchmarks were flattish (-0.1 per cent to 0.03 per cent). In other news and in a further sign of a region on the mend, Spain issued a record amount of debt overnight: €10billion of 10-year bonds at the lowest yield in seven years (3.845 per cent). The auction was four times oversubscribed.

For our market today, the SPI was off 0.3 per cent, which suggests a quiet session for our market. Data wise there isn’t much:  a Chinese manufacturing PMI at 1245, while the European PMIS are out tonight as well. US data includes jobless claims, house prices, existing home sales and a couple of regional surveys: Chicago and Kansas City Fed.

Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.

Follow @AdamCarrEcon on Twitter.

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