The CEO of Exxon talking about the unsustainable price of Natural Gas is just the latest of bullish news coming out about the needed reduction of supply in gas production. The talk of the damages caused by fracking being local and short term is not exactly good news about the process, admitting that there are negative effects. As this news continues to come out about the industry, I will look at the inventory levels and the news, but continue to remain long term bullish on the commodity, not necessarily the producers.
The markets are sending a signal that they are not in a state to rally without assistance. Whether this is a cause of expectations or a general deterioration of the global economy, it still has to be dealt with in order to bring optimism back to the market place. The ‘make or break’ news out of Greece that should have calmed the markets didn’t flow through world markets intact, which was the same scenario as the Spanish bailout. This leads me to believe that any upside potential without the news of pending stimulus will be in the anticipation of said news coming out, other than that there is no real reason to be bullish in the short term.
The talk of stimulus has gotten into a fever over the past week. While the markets did see bad news coming out of almost every major economy, the shift to a QE environment may be a bit premature. While China did announce a .25bps rate cut, there is a lot of speculation that today’s fed meeting will bring about more stimulus as well. I think that this will be the case, eventually, but it is risky to think that the Fed and other central banks will think short term as the markets do. The news is bad but may not be enough for the Fed to start a policy now or even talk strongly of one. I think this meeting may come down to perception. I expect stimulus, given the conditions but you have to be prepared for disappointments in the near term (as with the ECB yesterday) and build positions on bad data days.
The horrible jobs report has taken the equity and commodity markets to the shed today, one interesting move in the sea of red is from gold. The price has spiked nearly $50 on the news, which is a clear 180 from its recent risk asset correlation. This is the clearest confirmation of the global situation getting so bad that the safe haven/QE buyers of gold are outnumbering the risk on sellers. If the situation continues to get worse (especially in the US) then the possibility of QE will become greater, upping the price of Gold. This should be looked at in the coming weeks.