It looks as if the Biden administration is trying to run interference with the idea that on gaining the keys to the White House, Donald Trump will put pressure on Ukraine to settle the war with Russia. According to a piece on Bloomberg, and repeated elsewhere, a new phalanx of sanctions is being considered on oil exports from Russia with a joint effort including the European Union that targets both the shadow fleet servicing the lucrative trade and eventual customers. Each would be hard to enforce given the nature of ship ownership and that end use is by China and India, countries having no problem with ignoring the US. End of term gives President Biden the freedom to be more severe on oil sanctioning because frankly his government will not have to deal with the fallout of increase prices if such a new bout of restrictions proved both viable and successful. 

Elsewhere the main influences today will be firstly how the US CPI reads. There is little to indicate much change from the readings of last month, which if proved correct will see the US Federal Reserve continue with its careful reduction in interest rates. Next week's FOMC decision for a 25-basis point is still pricing toward 90% on the CME FedWatch tool. Secondly, and touched on below, the Central Economic Work Conference in China awaits in the wings and whatever aid is brought to bear must be significant as markets are becoming immune to vague promises and even vaguer delivery. 

The collapse in Syria has already seen pre-emptive positioning from various factions but none have been so aggressive as Israel. The Israel Defence Forces (IDF) said late on Tuesday that it carried out more than 350 strikes over the previous 48 hours with the Defence Minister saying it had deployed to create a “sterile defence zone free of weapons and terrorist threats”. This leads to a consideration on who Israel might target next in Syria and whether another front of operation will open in the Middle East. 

Overnight the API inventory report registered a build in Crude of 0.5mb against an expectation of a 0.9mb draw and with Gasoline at +2.9mb and Distillate a +2.5mb, the overall increases ought to have cowed upward momentum. However, the above influences keep interest bubbling and despite the almost unchanged forecast of global oil consumption in the EIA STEO. The agency decreased its outlook to 103.03mbpd from the previous forecast of 103.13mbpd. We now await the OPEC and IEA monthly reports, but in a world chock full of news, their say in market progress might just be a little muted.

Investors are rightly wary

Markets are experiencing something of a hiatus in proceedings and there is little wonder given the enormity of the year both in politics and market movements. Donald Trump’s unapologetic interview over the weekend in which he almost salivated in the word ‘tariff’ is causing reaction before the Biden’s furniture removers have even been in to itemise and quote. Yesterday’s trade data from China continues to evidence how it has been front-loading activity in anticipation of a trade war with the United States and possibly Europe.

Even though China’s November exports failed to match expectation, 6.7% versus 8.5% year-on-year, and that imports were very much lower adding more alarm after the deflationary data earlier in the week, its trade surplus increased again and 2024 will see the highest level of positive trade balance since 2022 with its value now likely breaching $1 trillion. A red rag to the Donald Trump bull and not one that the belligerent incoming president will ignore. A sign of things to come is playing out in the hefty and important microchip sector. It would take a brave soul to declare a top in the upward spiral in value of Nvidia, but its targeting by China should bring concern. Washington declared a further embargo on semiconductor deliveries to over a one hundred Chinese companies recently which brought a swift Beijing response of ban to the US of rare minerals. The south-east Asian’s ire was not satisfied, and not only did it declare US chips ‘unsafe’ for import, but this week also it launched an anti-monopoly probe into Nvidia.

Whatever measures might emerge from the Central Economic Work Conference, and there is growing belief or fear in fact, that it will be a watered-down affair, they will unlikely trump (Trump) the tariff narrative. Tinker all it likes with interest rates, unless the PBoC/Conference/Communist Party comes up with anything other than supply side assistance as it has done all year, there is little reason to believe that the China malaise will not continue and keep investors interested elsewhere. Similarly in Europe, the ECB has little much more to offer than a 25-basis point cut to rates tomorrow. The fear of inflation and debt problems of France does not augur well for much more of an accommodative action and decisions in Brussels are hampered by the looming tariff tussle.

One of the biggest issues that bond traders and their like face is how to deal with investments in a fast-unravelling France. Having off-loaded the brief premiership of Michel Barnier, whosoever steps up to the plate in Paris is going to face the very same problems. Not in just the economy but in garnering anything like a voting consensus that tackles the burgeoning debt that not only breaks the rules of the European Union but will also find very few underwriters of any sort of fresh debt issuance, if allowed, because of the complicated political and financial restrictions. Evidence of this can be found in the soaring yields in France’s 10-year bonds that are now not only above Portugal and Spain’s but run alongside the almost junk status of those in Greece. Whatever hierarchical financial accoutrements and status France once deserved, they have disappeared and with Germany barely registering a pulse in term of economic activity, Europe remains an investment avoidance.

As for our market, it is still unfancied. Not only from those that see a tightening situation after the recent OPEC+ roll of voluntary cuts. That decision is two-sided. The cartel is risking membership division for short-term pain avoidance, but it has now declared to the market that oil is coming in the future, and in size. The powder kegs of conflict in and around Ukraine and Gaza have been given an extra fuse in the guise of Syria. The fallen country has no direct link to oil flows, but its strategic importance and possible malware of intent from the varied factions can only bring an answer of ‘I do not know’ if one is asked what the fall of Assad means for oil prices? The OPEC, IEA and EIA reports this week will not bring relief in mixed feelings, therefore, oil will continue in short-termism and crowded ‘top of the board’ trades.

Markets are entering the ‘silly season’, and we are used to historical trimming of expectation. But the usual end of year fatigue and profit and loss assessment are accompanied by very tricky global markets and in just over one month’s time the inauguration of a president who might just turn world trade normalcy on its head.

Overnight Pricing