Oil Rallies Like A Monster And European And American Equities Love It

At 3PM in New York, West Texas Intermediate is up 5% and Brent North Sea is over the moon, rallying more than 6%.

This was in spite of U.S. data showing a larger-than-predicted rise in record high crude and gasoline stockpiles. Provocatively, that report prompted buying among traders who had feared the figures would be even worse, (meaning inventories would have been higher than high).

Still, only a handful of big traders expected a quick recovery from this year's 20 percent slump. Oil has been under pressure from a deepening glut and because of economic weakness in China.

What we are really looking for is not so much a price rise but rather pricing stability. This may be on the horizon. The return of Iran’s production to world markets, and a record level of production in Iraq, (Yes! Iraq!), are beginning to be baked into price considerations. Iraq, in fact is planning to increase its output this year by 400,000 per day to 4 million bpd.

Venezuela is having a major economic meltdown because essentially like many petro-states, oil is all the economy the country has. Deep, completely equitable socialism – real sharing of the wealth works well when the soup pot is full. When it’s half full, well…

The bottom line is that we have probably not seen the final support level for oil yet.

Although Asian equities suffered today, we believe that region-to-region their declines are feeding off one another. Shanghai fell below 2900, not a good sign for China.

Because the ECB seems to have made a firm commitment to increased monetary stimulus, European stocks jumped a healthy bit. The DAX, CAC and FTSE were all up just a bit under 2.00% at close.

In New York, the Dow was up 9/10ths of a percent, while the S&P 500 was up around 0.70%. The NASDAQ seemed to flounder on thoughts that tech stocks are still overvalued, climbing only about 0.25%.

The S&P is of major interest because it seems to be stuck in a range as well as taking a beating – even though it is somewhat of a bystander – during the oil melee. Our own sense is that the S&P has only a bit more to fall and that fundamentally it may have been hurt by oil all that it really can be hurt.

Needless to say, on a risk-on day, safe plays had little to offer investors.

Gold traded more or less sideways. Silver, however, fell by 0.35%. On the bond side of safe-haven plays, 10-year U.S. yields were up, so face price fell. The U.S. dollar was up against the yen, which has been a shadow safe-haven play. The greenback also traded higher against the euro, the pound and especially the Swiss franc. The dollar-franc pair is flirting with parity.

While we experienced much less volatility today, nevertheless it was a mesmerizing day around the world. Hang on for more volatility, but look for the waves to be longer and gentler.

Wishing you as always, good trading,