Those of us who bought into the idea of a tightly run US election watch, agog, as the stunning victory by the President-Elect unleashes the full 'gold rush' mania of those that pursue the Trump trade. Strangely, the idiom does not apply to the yellow stuff, Gold was a haven buy before the result, it now suffers under the roaring US Dollar. The principal beneficiaries are the mega-caps that chase the US stock markets to record highs, and because the investment world believes a Trump administration will be one of deregulation, Bitcoin's performance is so dramatic that if it were an athlete it might have to undergo a drugs test. It is an incredible paradox that the rest of the world suffers with worry under the prospect of what a Trumpian tariff system might look like and what it all means for inflation and interest rates. However, in the US, bulls have no such concern at present and will address the markets accordingly when such weighty considerations become too prompt to ignore, until then the attitude of 'rather buy them, than count them' will continue.

If the world of populism could be reflected within the investment suite at present, the oil market would be deemed an undesirable. For too long oil prices have relied upon geopolitical and weather events to relieve a growing concern of oversupply, the spectre of when OPEC+ might reintroduce shuttered barrels and the diminishing appetite for oil stuffs within China. Take WTI prices for example. They have been stuck within an approximate $10/barrel range for 4 months and technical analysis, for those that follow such things, see the moving averages in daily, weekly and monthly charts all converging giving a graphic picture of inertia. It is then hardly surprising oil does not attract attention from either flighty investment tourists or institutional interest and the longer it goes on the more price fortunes are scrutinised. Flat price in many ways is often ignored by the oil trading profession, expressions of tight or loose balances are expressed within spread or structure positioning. However, in a flat price environment that is stalled, supply and demand become even more magnified and at present it would appear that oil market participants do not like what they see. Backwardation is eroding in the futures curve at present and is very much likely to see some form of contango, at least in the next 6-months of spreads. Evidence for this new negative realisation came yesterday from reports of 'cash' WTI November/December trading under flat. No doubt, there will be a rush to call the oil market in a state of glut, which at present is a touch premature as refinery run data is slow to collate. However, warnings are being served as to the future of prices and at present the wider investors that avoid oil as a 'buy' investment seem wise.

China, a Global Let Down

It takes a lot to move the market gaze from all that is Trump, but the continued disappointment emanating from China is a contender. The world has been teased by stimulus chat from the talking heads that represent the mindset of the trading giant’s hierarchy for months. ‘Baiting the swim’ as fishermen do to attract attention can be overdone and eventually the fish, or market practitioners in this case, become immune especially if the final morsel proves insubstantial. Frankly, what China needs is a spending population, lifting consumer consumption and allowing saved capital back into the market. But the clue is in the data marker, China’s Consumer Confidence 5 years ago stood at an average of over 122, last month’s reading of 86 points is close to the low seen just before the Communist Party had to abandon its disastrous zero-Covid policy.

In China, consumption comes from a low basis when compared with the rest of the world. According to Reuters data, consumption as a share of GDP is 75% in the rest of the world, in China it is just over 50%. The mathematics follow that investment as a share of GDP is 25% elsewhere, whereas domestically it is 50%. These are austere numbers, and hawks might say balanced, but investment can only work when ‘stuff’ is being used, and in a mirrored way that at present represents the oil market, spare capacity is outgunning demand. China must encourage personal behavioural change by stimulating the western idea of ‘gratification’, something that is shared by many an economist. Invest it might, but without a free-spending populace, who is going to buy up the wastelands of unoccupied houses or use immaculate roads to nowhere or buy EVs that use the massive electrification infrastructure that serves them?

This is why investors last Friday, shelved all their speculative accommodation of a Trump win to concentrate on what should have been something of an economical game-changer to not only recapture the narrative of a stymied Chinese financial system, but something that might just act as an antidote for what a future President Trump might mete out on China in terms of tariffs etc. Whispers of stimulus being between CNY2 trillion and CNY10 trillion seemed to come from government sources and markets did indeed ready themselves for something to cheer. So, when it came, 10-trillion Yuan it was, but not in the form needed. Instead, it would come via a debt swap which had the sole purpose of dealing with overstretched local authorities and even allowing them to borrow more. This is a stabilisation move, and one that is probably designed to keep risks to the financial systems contained, probably partly to defend GDP, but in no way stimulates domestic demand. For that to happen, injections need to be directly into banks and the likes of property companies and ultimately giving something to hope and wallet loosening.

Build and burn commodities such as Iron, Copper and Oil are very much backfooted and the weekend’s inflation data pours more ice on a cooling China economy. CPI for October came in at 0.3%, below both the anticipated and previous month’s reading of 0.4%. This is the lowest level since July and whatever previous stimuli China has rolled out in the recent history of 2024, it has had no effect. With the supposed ‘bazooka’ stimulus fired at the wrong target, consumption will not rise, and inflation will remain tepid at best. Inflation readings come in pairs, and the PPI (factory gate inflation) makes for even poorer reading. At -2.9%, it is not only lower than an expected -2.5% but as with the CPI, lower than September’s reading of -2.8%. With such weakness in China’s manufacturing sector persisting, PPI has been in negative territory for over 2-years, one wonders how the monthly reports of the EIA, IEA and OPEC, due this week, can put any sort of positive spin on oil demand.

OPEC’s forecasting has been forced to downgrade global demand for the last three months and such down-casting has been inspired by a stalled China. Last week, customs data revealed the extent of demand degradation. Crude imports for October fell to 10.53mbpd from 11.07mbpd in September and in the 10-month period showed a decline of 3.7% when compared with the same period as last year. With refinery runs down, fuel exports down and financial trouble signalled across its petrochemical sector due to all the reasons listed above, oil markets and wider global investors will remain in a state of China disappointment.
 

Overnight Pricing