End of high prices of fuel?

After the escapade with the investigation of H. Clinton’s email communication, D. Trump who was almost written off got back into the game. And it puts new cards on the table.

 

Why? The result of the American presidential elections can influence even such a thing like the price of oil long-term as well!

How is it possible? Clinton who is the favored candidate so far announced in past that she will try to significantly lower the usage of energies (by one-third) and will fight against the climatic changes. Moreover, she would also make the conditions for producing the oil from alternative sources harder, which was why the USA got into the oil production highlight in past years. It is well known that to produce oil out of shale which is very deep in soil by using huge pressure of water is not a good marketing for the ecology. I would bet that the oil sheiks from the Middle East will excitedly chant for Clinton. It is her victory that could be the slap to American oil producers that could limit the oil production in the USA.

Nowadays, the USA produces 8.5 million barrels of oil a day (mbd.) According to the extreme estimations the difference between H. Clinton and D. Trump could reach in case of the American oil production 1 mbd. in favor of Trump.

But that changes nothing about the long-term conclusions. The production of oil will be growing because of the new production options. On the other hand, thanks to the boom of engines working on alternative fuels I doubt that oil will be that desirable in the future…

The elections are stirring up the situation already

The American presidential elections are on the one hand, still far away but on the other, whoever is justifying whatever by the upcoming elections. For example, something so geographically distanced from the America like European stocks is making excuses by blaming the American political situation for its condition.

Are you saying it makes no sense? But it does! I repeatedly mentioned here that the financial markets would rather see Hillary Clinton as the winner of the elections than Donald Trump who they consider to be less predictable. Financiers are especially scared of Trump’s love in various quotas, duties, and other limitations of the free market. The latest news about the new investigation of potentially sensitive emails sent from Clinton’s private email account are lowering her chances of winning in the eyes of the financial world a little bit – so in the spirit of this logic the European stocks are dropping. Because who would suffer more from the duties imposed by Americans: American or European companies? Obviously the European ones. That’s also why the stocks of the European companies are suffering more when they think about Trump’s possible victory.

I am still being very careful. Statistically, according to the survey of the public opinion there are bigger chances that Clinton will win and in that case, the financial markets would probably not even react or they would react very slightly with relief – which would manifest in slight appreciation of the dollar and stocks. Basically no real movement. If the other variant happened – and we who are still remembering the surveys of public opinion about Brexit are still considering this option too – the reaction would be very similar to the one which came after the British referendum. It would be a pretty sharp reaction and from the point of view of the dollar, stocks, and bonds a negative one.

But to be fair it is not only the politics which is making the situation worse here. There are many other tangible things in the picture which are causing this tension. For example, the weakest revenues of German retail sector in two years which are sharply in contrast with other indicators of the same economy. While according to various indicators hinting the confidence of businesses and households in Germany it is not as bad in Europe, on the contrary, considering the weak revenues it seems like the crisis is already beginning. Such ambiguity is not helping the financial markets to feel safer.

So it seems that we have at least a couple of restless days ahead of us. I have already warned here that some of the stock indexes are getting dangerously close to their so-called “support levels” – which are levels that will launch automatic trade orders that will more or less without the human interfering start selling stocks in an attempt to stop even bigger loss from happening if they are reached. Except when the automatic sales will be launched the prices will start spontaneously dropping even more. For example, the index S&P 500 is getting close to that level. It is only 10 points away from the potentially dangerous level of 2120 points. If it god forbid happened at the same time as Trump’s victory then the stock markets would experience something which I can call sort of unprofessionally only as “pretty messy”.

It cost "only couple of billion euros"...

I am not sure – didn’t the chief of Deutsche Bank John Cryan admit little bit too much than he was intending to? Bank’s chief executive wrote an open letter to his employees which sounds surprisingly honest and provides more generally known information about the bank. The good news is that Deutsche Bank surprisingly showed a somewhat bigger profit for the third quarter of this year than it was assumed. The reason for that is a slight improvement on the bonds market which the bank trades. The worse news is that the negotiation about the fine which the bank leads with American ministry of justice for the sketchy businesses with mortgage-backed securities from the times of crisis between the years 2008-2009 are not at the end.

While everybody clearly remembers how the sharp fall of the bank’s stocks was stopped only because of the speculations that the fine will be significantly lowered and that the negotiations about its reducing are basically at the end. A month later the chief of the bank still keeps talking about how he is trying to bring the negotiations to the end “as soon as possible”. Same fantasies like we heard last month. The bank also admits via chief’s mouth that the situation keeps being complicated even though the outflow of liquidity was stopped. We can understand that as that who wanted to be super-careful and decided to withdraw the money from Deutsche Bank already did it. It cost the bank couple of million euros, specifically since June 2013 23 billion on the cash reserves but now there are no more super-careful clients anymore and no more withdrawals are happening.

(Just between us one thing is to warn about the stocks of the bank which we are still doing but the security of the deposits is something else. I can hardly imagine safer bank from the point of deposit security than the biggest German bank and even in the case that it would totally hypothetically go bankrupt. For the German government it is unimaginable to not protect these deposits.)

Either way, just as important is the sentence in the letter to employees mentioning the fact that bank is going to “restructure faster and with higher intensity, specifically in the form or cutting down the number of employees so it can face the tough banking environment in Europe”. Bingo! Finally, somebody admitted that the entire banking environment in Europe is getting riskier. We have already known that but so far it wasn’t acknowledged by any official authorities.

If we are going to read very carefully in between lines we are able to identify new and very obvious risk not only for Deutsche Bank but also for other European banks as well. Unexpected profit in the third quarter was the result of slight improvement of the bond market’s condition. And the chief of Deutsche is admitting that the involvement of the bank in the trade with bonds is still very significant. Except at the same time, we know that European central bank (ECB) is announcing ending the bonds buyout programme in the spring. Which in other words means that ECB will stop artificially pushing the prices of bonds up. These bonds could be another problem for those banks that are too involved in this kind of trade. So all we have left is to say that this affair of the “bank” is definitely not at its end.

Trust in banks is shaking again

Just when ECB managed to sweep the panic about the high fine for Deutsche Bank under the carpet just for a minute, well at least so it would be forgotten for a while without anything getting actually solved, another European bank is asking for a word. Italian bank Banca Monte dei Paschi di Siena – bank house with the longest history in the world. This bank hasn’t learned how to avoid crisis in its entire 500-year long history.

For example the summer stress tests of European banks evaluated it as the most vulnerable among 51 evaluated bank houses. Third biggest Italian bank has a balance full of bad loans. Moreover, to bet on derivatives didn’t work out for its previous board. (Here we can see a resemblance with Deutsche Bank.) The stocks of the bank lost more than 80 % of their value in last 12 months which is proof of the investors’ losing trust. Except under the impression of improved mood in Europe, the trust in Monte dei Paschi di Siena grew as well in past couple of days. Bank’s stocks added more than 30 % in one day on Monday. Bank announced that as part of its rescue plan it’s planning to get rid of the bad loans (under the value), which they have in the amount of 28 bn. EUR. It is also planning to increase its capital for about 5 billion euros. This make or break plan also counts with firing one tenth of the employees.
 
But everything turned different on Tuesday and when the speculators got to think about the rescue plan for a bit they didn’t like it as much anymore. While the stocks were growing like mushrooms after rain on Monday business with them was stopped after they fell 23 % on Tuesday. The price of Monte Paschi’s stocks was 17 % lower on Tuesday afternoon then it was in the morning. The bank will need the support of market when it wants to try to restructure. And this trust is missing. That means that Monte Paschi will continue to be ECB’s nightmare. Second – after Deutsche Bank which is in the same condition as before except this condition stopped to be talked about so much on public and that is the only difference between now and the days when the stocks of Deutsche fell so sharply. The troubles of the third biggest Italian bank can get other Italian bank houses under the pressure as well. It is known that many of them don’t have their loan balances spotless.

Why should we feel bothered by troubles of one Italian bank? Because the past had shown us many times that plague of one bank can make many other banking institutions suffer too. On top of that, it is very obvious that the bank’s stocks started intensively moving and the trust in the banking sector has been experiencing shakes past few months. If let’s say construction businesses were in troubles then it is nothing pleasant either but it would be enough to wait for when the mood in the economy gets better and construction would get going again. But the banking sector is crucial because it arranges the payment communication which is based on trust and if that vanishes it’s going to be bad. The stock markets would be the first to go. That’s one of the main reasons why I wouldn’t touch the stocks (and especially the banking ones) not even with a 10-foot hygienic pole.

BREXIT: Everybody is bluffing

Europe fears Britain again. It fears because the British banks are threatening to leave Britain because of the BREXIT. Media are full of news that the British banks are paying roughly 60 bn. pounds to the budget and they make 10 % of GDP. If they leave it will be a catastrophe. Banks are creating fear using PR agencies and forcing politicians to do something and looking for economic exceptions for their segment. They simply used this tensed situation to unleash lobbying to their advantage. Politicians see right through them and they refuse to accept the so-called soft BREXIT because the voters voted for so-called hard BREXIT.

In this pile of bad news I can see at least one good one too: Businesses want united EU because they want united markets so from this point of view they are clearly saying that it is worth to fight for EU – except the voters see it differently and they don’t want united EU because they don’t want the European migration policies and a joint European funds. So the businesses want something that voters don’t care for and voters want something that doesn’t interest the businesses much. From this, I assume that if the Brussels pressured less the political integration and more the economic liberalization everybody would be satisfied! (Well everybody but the Brussels where would all the European leaders lose their power.)

In any case, the fear sent the British stocks down and the pound is depreciating again. Since BREXIT it appreciated against the dollar 18 % and against the euro 16 %. That is a lot and. I assume that now when the fast BREXIT didn’t happen right after the vote, slight pressure on pound will continue. Until the markets fear that the banks and industrial businesses will leave Britain the pound is going to depreciate. I think that only game of poker is being played in the media right now. Everybody is bluffing. Where would the banks go? Will they go to the continental Europe where they are constantly being threatened by special taxes for the financial sector and financial transaction tax? Or will they all stay in Britain at the end which is even considering lowering the corporative taxes? The pound will come back there’s no doubt about it. On top of that, its weakness will keep helping the British industry in following months. In a year the pound is going to be stronger than it is today.

American presidential elections: A true debacle??

Have you ever experienced a true debacle? It would be something like when your (just in case) unnamed colleague buys the most expensive ticket possible to the business club in Frankfurt book fair, heads out for the business trip, meets his own Slovak clients (also unnamed but this is my greeting to them), lets the Slovaks brotherly get him incredibly drunk, unwillingly gets lost to the red district, runs away from it in fear, and with navigation in his hand gets lost again, allows unknown Czech girl to find him, release him from curse of getting lost, leads him “home”, there he annoys his friend who works in serious European finance institution at 3 am and following day which is the reason why he even came to the fair sleeps through the entirety of it with hangover. That is roughly the extent of the debacle which the hopes of finance market that the American presidential elections could go smoothly after all experienced today.

The scandal was caused – of course – by Donald Trump. I am not judging which of the candidates is “better”; that is something everybody needs to decide for themselves. I am just saying that the finance market is handling the idea of Donald Trump as president much worse and it is also difficult to deal with his latest quote: “I’ll keep you in suspense. OK?” Which we could translate as: however the elections end you will hear about me, about Trump because I might not make peace with my possible loss and acknowledge it. By the way, Clinton reacted that this is not how the democracy works in the USA. Although, the outraged reaction of politicians is one thing but the reaction of the financial market is something different.

 Financial markets want to get over with this masquerade already. They are clinging to the idea that it will end on 8th November. Now it seems that the odd present agony could have another sequel. Even though it is obvious that especially thanks to this fresh new affair the bet of the financial markets that Clinton will win got significantly stronger (because the investors are thinking that Trump shot himself to the foot with this quote). It can be seen on the exchange rate of Mexican peso which is currently the strongest against the dollar in past 6 weeks. It is understood that Trump’s victory would be a disaster for Mexican immigrants into the USA and for Mexican peso as well. To bet so unequivocally only on one candidate carries risks that are pretty big. Let’s remember the Brexit vote. Just because almost everybody under the impression of the public opinion surveys was betting against the Brexit, was its positive result so shocking for the financial market next day that it was like a small tsunami. We must consider that if Trump at the end really wins the situation will be similarly repeated. Or in other words that would mean that the next day dollar would depreciate, the stocks would globally depreciate and the euro would appreciate.

What the stocks dislike in these days

American presidential elections are fast approaching and the stock markets don’t like it one bit. At the beginning of the new week majority of the world’s stock indexes dropped. You can’t see something disturbing in all the stock indexes on the first sight. For example, the index DJIA is stagnating just above the 18 000 level since circa 10th September which is certainly not suggesting any danger. German index DAX is stagnating around the level of 10 400 points for about the same time. Also no big problem. But if we look at the index S&P 500 we can see a gradual but continual drop since the end of September. What is worse: Index is very closely approaching the level of 2 120 points which from the view of trading mechanism can be seen as somewhat relatively strong “support” – or value on which the automated trading starts.

If this level got conquered, understood as if the index dropped under this level, the setting of automated trading would sharply depreciate it even more. Index S&P could obviously take other markets down with it as well. While today there is only 12 points left to reach this level… This is what I mean when I’m saying that the stock markets are not liking the upcoming presidential elections one bit.

There is more of what the financial markets don’t like. For example, central banks (especially in Europe) were asking to get the inflation increased for years. And when the first signs of inflation started to show the financial markets are more disgusted from it than a cat from the idea of getting into the bathtub. (Paradox is that understandably the first signs of inflation weren’t induced by the steps of central banks in form of loose monetary politics but they were induced by the current movement of oil prices on the world markets.) Said disgust has its even though a bit twisted, logic. When central banks reach its goal in form of higher inflation they will stop supporting financial markets with a flow of cheap money which will stop supporting the growth of stocks and bonds. The result of this bitter mood of financial markets is again just a negative influence on the prices of European stocks and bonds.

Better not to think about how the central banks longed for higher inflation because – according to us wrongly – assumed that this higher inflation will bring bigger economic growth. With higher inflation they will start ending their support of economies except this end will come just at the time when the economic growth started slowing down (!), not speeding up how it supposedly should with bigger inflation.