U.S. Stocks Under Pressure- Set To Open Sharply Lower; Oil Shows Weakness Again; European Equities Set To Surge By As Much As 70 Percent?
U.S. stock futures are tanking this morning, down more than 150pts. as I write this note. Weakness in Europe and oil once again declining, are at least two of the reasons, and I suspect the anticipation of Fed tightening of ‘easy’ money and a rise in interest rates, and the strong dollar are contributing to the decline as well. Oil is showing weakness in the aftermath of Goldman Sachs call yesterday that it expects U.S. crude to test the $40 range in the short-term. Despite all the rig shutdowns, production hasn’t suffered as the more productive wells continue to pump out the black gold, adding to an oversupply problem “You could touch a surprisingly low price sometime in the next month, or two,” said Citigroup Energy Analyst Eric Lee. “As we get into summer, refineries come back from maintenance…demand could pick up stronger than it was before the rig and capex cuts; and globally, those capex cuts will start to have a [negative] effect Lee and other commodities analysts said West Texas Intermediate Crude (WTI) could “easily head to the $40 range.” Lee added that there is even a chance that we could see WTI trading in the $20 range, before bouncing back above $40. U.S. crude supplies are at their highest level in 80yrs., and we’re running out of room on where to store it Andrfew Lipow, who also sees WTI trading in the $40 range in the near-term, said :the catalyst is going to be over the next four to six weeks. We continue to to build inventory here in the U.S., due to refinery maintenance; but, as we exit the maintenance season, demand will pick up and we’ll turn this crude petroleum into products. Baker Hughes said Friday, that “the number of rigs exploring for oil and natural gas in the U.S. fell to 1,192, a decline of 75; and, down from 1,792 from one year ago — the largest decline in nearly four decades. Despite this significant shuttering of 600 rigs, production remains at or near all-time highs.
European Stocks Could Surge By 70 Percent By End Of 2016
While the U.S. Federal Reserve appears on the verge of tightening interest rates here at home; Mario Draghi and the European Central Bank is just beginning its Quantitative Easing (QE) campaign. Citigroup yesterday, said “European equities offer investors a historic yield pick-up, over both corporate, and government bonds, adding that the regions stocks haven’t been this cheap compared with credit in the past 50yrs. Share prices will respond in the near, to medium term, to a more general search for yield from investors,” the firm said in a note to clients.
Citi raised its year-end 2015 Stoxx 600 target from 450, from 400, and introduced a year-end 2016 target of 550, as a “gray-sky scenario,” compared with the index’s close around 393 on Monday. “It’s blue-sky scenario is for around 70 percent upside by the end of 2016, or a target of around 670 — using higher growth and rating assumptions,’ wrote Leslie SShaffer, on the March 10, 2015 CNBC website,
“The Euro is on its way lower, but European asset prices are on their way higher,” said Julius Baer, in a note to clients last week.
So, it is time to move some of the investment portfolio into a European ETF; and, I will probably do so today. All for now V/R, RCP