Well, just as we said on Monday evening, we’re still sleepwalking ahead of Yellen.
A Wednesday in August ahead of a hotly anticipated Jackson Hole speech by a Fed chair is about the sleepiest scenario one can possibly imagine, but there are some notables (thank God).
First of all there’s crude. EIA data was actually consistent with last night’s API print (imagine that) which sent crude tumbling:
Here’s the breakdown:
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Cushing crude +375k
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PADD 3 crude +515k
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Gasoline +36k vs est. -1,700k
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PADD 1B gasoline -192k
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Distillates +122k vs est. +500k
Honestly, the reaction to this is bizarre. Here’s Citi:
“While the 2.5 mmbls build in crude stocks for last week was not as bearish as the 4.5 mmbls increase in Tuesday’s API data, this was still a bearish outcome relative to expectations and versus the historical draws. Unchanged gasoline stocks were also bearish, leaving a substantial 8.5% year-on-year inventory surplus in place with little time left in the driving season. Total inventories netted to a 6.6 mmbls build to a new record high. We think that should be bearish overall.”
(Table: Citi)
Did we not already know this was going to happen? TheoTraders certainly did. As we’ve discussed here on any number of occasions, this isn’t rocket science. If you’ve got elevated gasoline inventories and the summer driving season is coming to an end without a big dip in the inventory numbers, well then refinery demand is going to plummet.
That said, all it will take is one headline about an OPEC production freeze to make crude soar anew, which is why we contend that forecasting this on a daily basis is a complete crapshoot. By the way, Turkey has now invaded Syria (officially), which means the Sunni-Shiite proxy wars are about to escalate even further and as we’ve noted repeatedly, that’s actually oil bearish these days as the sectarian divide is now driving a veritable production war.
Meanwhile, gold is down and the dollar firm:
That of course makes no sense and frankly, we were waiting on it to revert before going to print, which it kind of did, but we finally gave up on any meaningful “correction.”
We’re not entirely sure why anyone would want to bet on a hawkish lean out of Janet Yellen on Friday. That seems exceptionally unlikely despite the smoke signals from Dudley and Fischer. Sure, she’ll preserve the Fed’s optionality but we doubt seriously that she will deliver anything that could materially upset markets ahead of the September meeting.
We also got a five year auction today which went off great (no sarcasm there) with a bid-to-cover of 2.54 versus 2.27 previously. That’s against a backdrop of higher costs for hedging dollar exposure (i.e. cross currency swaps), but apparently that didn’t matter on Wednesday as the indirect bid was 68.7%.
Basically, it’s just a guessing game at this point and it’s kind of self-fulfilling. Yellen’s speech shouldn’t be as important as it apparently is. Everyone’s just kind of squaring their shoulders ahead of a few words from one policymaker.
That’s what it’s come to folks. Sorry.
R.I.P. real markets.