October 24, 2024 | Large US Inventory Build And Weaker Consumption Pull WTI Down Over US$1/b On The Day.

With less than two weeks left until the US elections the US stock market is gyrating and looks heavy to me. It is fighting the uncertainty of two different visions for America going forward and US interest rates have been climbing on the fears of inflation reigniting and debt crowding (too much borrowing for the US budget deficit and corporate and individual needs). The US 10-year Treasury yield has risen 17.5% in just over a month, or from 3.60% to 4.23%. This has lifted mortgage costs and slowed home buying. The US Dollar liked the yield strength and has risen 4.5% over the last few weeks to 104.4 versus 99.87 in late September.

This morning the Bank of Canada lowered its key borrowing rate by 50 BP, following the move by the US Fed. The Governor in his comments mentioned that further rate cuts were likely as inflation has reached their 2% target and the economy has slowed down. The Canadian Dollar has retreated to US$0.7214 from US$0.7440 at the beginning of October.

Some of the interesting economic and market data points over the last week are:

• US Retail Sales lifted by 0.5% on a core basis in September.
• Industrial Production in the US fell in September due to the two disastrous hurricanes and the Boeing strike.
• US Bank and Investment firms reported strong profits as Investment Banking was stronger than expected and net interest margins expanded.
• The Conference Board Leading Economic Index fell 0.5% in September following a 0.3%  decline in August.
• Earnings and guidance from the consumer side of the economy were weaker. Today Lululemon and Starbucks are down on these consumer spending concerns.
• Cash on the sidelines by professional money managers is at 3.9% the lowest level since the tech bubble peak in 2000. The effort to perform has required money managers to be fully invested and in the small number of momentum stocks.
• China stocks continue to retreat after the stimulus rally as the government actions are perceived as insufficient to stabilize the economy. The real estate loan problem remains to be tackled.

North Korea, in support of Russia, has deployed over 1,500 special forces combat soldiers alongside Russian troops in the Donetsk region to help Russia target Ukraine with North Korean built ballistic missiles. More ammunition is flowing into the area by North Korea as the alliance with Russia expands. In addition, over 10,000 North Korean troops are in eastern Russia (Russia’s Republic of Buryatia) training to incorporate Russian command and control communications so that they can be deployed in the battle efforts by Russia in Ukraine. A report today says this growing relationship will now include North Korea sending fighter pilots to Russia to be trained on Russian equipment. The report says over 500 officers and three generals were part of this new support. In return North Korea is gaining financial support and nuclear technology.

This has the US and NATO very worried as this would give Russia an edge to regain the offensive initiative when the spring battle season commences in early 2025. Ukraine has announced that they have killed or captured ethnic Indians, Nepalese and North Koreans (18 captured on October 21st) in recent battles.

Israel has killed the mastermind of the October 2023 massacre, Der Yahya Sinwar and then his successor as they continue to degrade Hezbollah. Iran is next in their sights but the US has  pressured Israel not to attack their energy or nuclear facilities. Targets are focused on military assets of the IRGC. In preparation for the Iran move, Israel has staged some tanks on the Syrian  border to ensure Syria’s President Assad does not join Iran in its war with Israel.

The Fed’ s next meeting is on November 6-7, and is expected to have a cut of only 25 BP due to recent overall healthy data.

Regarding energy, our 2H/24 WTI price target of US$66-69/b was reached once and is likely to do so again. When we got the first decline it triggered a BUY signal and we sent out an SER Action BUY Alert on September 10th of five companies from our Coverage List. We also reiterated BUYS on three names already on the Recommended List which had fallen to bargain levels. We expect a period of backing and filling for WTI crude in the coming weeks and another test of the recent lows (US$66-68/b). If this occurs we should see another BUY signal triggered. We plan to add additional BUY ideas at that time. Subscribers please watch your emails on weak market days as this is when such an Action Alert would be issued. Many of the ideas currently on our SER BUY List presented at the 2024 ‘Catch The Energy’ Conference.

Josef Schachter October 24th, 2024

Posted In: Schachter's Eye On Energy

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