March 8th, 2011 8:02 AM by Lehel S.
Crude oil is up again this morning, the same struggles in Libya but over the weekend focus has shifted slightly to Saudi Arabia, the giant in the room when it comes to oil prices and Mideast unrest. Dissidents in Saudi Arabia have called for a protest on Friday, so far the Saudi situation has not been a direct factor for oil markets therefore for all markets; that there is an organized protest coming is heightening fears that it may lead to some form of revolution. While we don't believe it is likely, the demand for oil versus supply is so tight it doesn't take much to send prices higher. Websites have called for a nationwide “Day of Rage” on March 11 and March 20, according to Human Rights Watch. Unrest in the region is increasing, in Libya war between dissidents and Qaddafi increased over the weekend.
Crude at 9:13 this morning up $1.23 at $105.65 (see below for 10:00 price). The US stock market is opening better this morning, somewhat out of character with oil prices increasing. Recent trade in equities has been selling on higher oil prices based on the view that as energy prices increase the economy will cool. So far not the case today, apparently some investors don't believe higher energy costs will actually cool of consumer spending. We do not subscribe to that view; the economic recovery remains questionable as to its strength and sustainability with high unemployment, depressed housing sector and only a moderate increase in consumer debt expansion. $4.00/gallon gasoline will have a dampening impact on consumers here and around the globe. Later this afternoon Jan consumer credit will be released, looking for an increase of $3.3B, not much.
This Week's Economic Calendar this week is thin on data:
3:00 pm Jan consumer credit (+$3.3B)
1:00 pm $32B 3 yr note auction
7:00 am weekly MBA mortgage applications
10:00 am Jan wholesale inventories (+1.0%)
1:00 pm $21b 10 yr note auction
8:30 am weekly jobless claims (+14K to 382K; con't claims 3.750 mil frm 3.774 mil last week)
Jan trade deficit (-$41.5B)
1:00 pm $13B 30 yr bond auction
2:00 pm Feb Treasury budget (-$196B)
8:30 am Feb retail sales (+1.0%, ex autos +0.6%)
9:55 am U. of Michigan sentiment index (76.5 frm 77.5)
10:00 am business inventories (+0.8%)
Gold futures for April delivery rose as much as $16.10, or 1.1%, to $1,444.70 an ounce and were at $1,443.60 at 8 a.m. on the Comex in New York. Prices beat the previous high of $1,441 set March 2 and gained the past six weeks, the longest winning streak since September 2007. Safety moves on Libya's increasing violence and increasing fears of inflation. Inflation fears are always with us especially with concerns over how high commodity prices will go as most commodities keep moving higher. Last week Trichet said the ECB may increase interest rates as inflation is increasing; we don't see it here because markets and the Fed refuse to recognize the implications from increasing food and energy prices; if we don't want something we simply refuse to pay it much attention.
The equity markets are shaking short term traders a little this morning, rallying when oil is increasing. Recently its been easy; sell stock indexes on higher oil, buy when oil is lower. The bond and mortgage markets are pressured this morning on oil prices, the stock market better and this week's $66B of borrowing by Treasury. The bellwether 10 yr is swinging in a 20 basis point yield range taking mortgages with it. Both markets remain bearish for the longer term. Unless the economy flips, and that isn't likely, the path for interest rates is up. Those sitting and waiting for substantially lower mortgage rates are going to end up disappointed; as we have noted previously the likelihood of much lower rates doesn't look good now.