Everything is Awesome 

SPX +10% off the lows, set for 4th best month in a decade, VIX at 13, bonds on track for best month in 40 years...what’s not to like? Everyone who’s missed this move may want to get in, or maybe it’s now done? Was that the FOMO phase? It’s clearly not all awesome but we have seen broadening in participation in the rally and we now look to see what kind of move takes place into the year-end with the market braced – maybe prematurely – for a deluge of rate cuts by central banks.  

Elsewhere in the Market 

Big rejection of the attempt to breach 4,600 yesterday and the S&P 500 closed slightly in the red at the lows, about 0.8% off a closing high for the year. Treasury yields remain well anchored – 10yr at 4.275% this morning having fallen below 4.3% for the first time since September. Europe a bit mixed this morning – FTSE 100 down half a percent with utilities hit, the DAX firmer again. Miners rose with copper, oil majors up with higher crude prices ahead of OPEC today. EZ inflation due at 10am – yesterday’s signs from Germany and Spain, and today from France, indicate cooling is taking place. 

Time for Cuts? 

Fed policymakers are making noises like they think they are done. Bostic sounding more cautious, says inflation to trend lower, economic activity to slow in the coming months. Mester said "Monetary policy is in a good place for policymakers to assess incoming information on the economy and financial conditions.” Barkin was a tad less certain: "I'm still in the 'looking to be convinced' category, rather than the 'convinced' category.” Still – it means the bar to a hike is still very high and the question is how long. Meanwhile OECD out yesterday to say the ECB won’t hike until 2025 despite the market pricing in 100bps of cuts next year.  

Oil and OPEC+ 

Oil rallied for a third day as sources indicated OPEC+ could do as much as 1m bpd extra in production cuts...this would be at the top end of market expectations and is not unachievable and would in the short-term give further impetus to stabilising prices above $80/85. But we would question the long-term impact of such a cut given the strength in non-OPEC output. This is a critical meeting – it comes amid the Middle East conflict so there is prestige at stake for the Arabs; it’s going to set the tone for 2024, it’s faced problems with baseline quotas so resolution of these thorny topics would be good; and there is a lot of questions over how much OPEC can achieve with slowing growth into 2024 and rising non-OPEC output.  

Currency Fluctuations, Oil Shifts, and China's Record Demand  

China PMI’s weak but raise hopes of stimulus...AUD catching some bid, USD showing some resilience to climb a bit off its lows. Sterling is holding around the $1.27 but EURUSD has lost some ground further after touching 1.10 at one point yesterday to trade near 1.0950. Remember China’s demand this year has hit a record. And next year the prospect of a slowdown in global growth as rate hikes bite is a very real fear. And supply issues only grow – Russian exports and volumes from Iraq are on the rise, too, while Iran has ramped its exports. Critically though we have seen a shift in the supply balance – growth ex-OPEC from Guyana, Brazil and the US has shown OPEC doesn’t have the iron grip on the market it once commanded. Even if Saudi Arabia extends its production cuts in 2024 the oil market will return to surplus…so lower for longer? 

WTI – sellers giving up a bit, 200-day line breached, MACD positive  

Brent – clear of the 200-day line now