UPDATE: RBS advises clients to ‘sell everything’ except haven debt

The Royal Bank of Scotland’s credit team has advised clients to brace for a “cataclysmic year” and a deflationary crisis, warning that major stock markets could fall by a fifth and that the crude oil price may nearly halve, again, to $16 per barrel.

The bank’s credit team said markets are flashing stress alerts akin to the turbulent months before the Lehman Brothers crisis in 2008.

“Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small,” it says in a client note.

Andrew Roberts, the bank’s credit chief, expects Wall Street and European stocks to fall by 10%-20%, with an even deeper slide for the FTSE 100 given its high weighting of energy and commodities companies.

RBS forecast that yields on 10-year German Bunds, or government bonds, would fall to an all-time low of 0.16% in a flight to safety, and may break zero as deflationary forces tighten their grip. The European Central Bank’s policy rate will fall to minus 0.7%.

Indeed such bonds, and a few of their developed-market counterparts are about the only things RBS would be long of. It says be long “10-year gilts, USTs, Bunds and BTPs [Italian government bonds]”.

READ: Time to buy baked beans and a shotgun? 

It also recommended being long of shorter paper “as deposit rate cuts remain on the table,” especially in the eurozone, but also perhaps in the UK , which looks cheap as the few remaining Bank of England hawks (ie those who want to see higher rates) “get bounced from the table”.

“And mostly, beware of the risk-on optimists,” the bank goes on.

“One lesson from 2Q 2015 and the Bund sell-off we got caught in, is that we need to always ask ourselves what the exit door is with any trade – as we said into the credit crunch in 2008, this will be as much about limiting losses as making gains.”

This post first appeared here: https://news.markets/bonds/rbs-client-note-makes-waves-sell-everything-advice-8243/

Routed oil price may be close to trough

2015 has been another terrible year for oil prices, finished off in what seems like fitting style with an OPEC meeting that failed to reach a consensus on cutting production, leaving the cartel pumping at record levels just as Iranian crude is about to hit the market, freed from the straitjacket of international sanctions.

The cartel has spent much of this year pumping crude at elevated levels as its producers aim for market share at the expense of higher-cost areas such as the US shale fields and the North Sea.

“Oil price weakness reflects the realisation that without the Saudis acting as swing producer to offset the unfettered production of other OPEC members such as Iraq and Iran, OPEC as a price-setting cartel is basically non-existent,” write Steve Platt and Mike McElroy of ADM Investor Services.

“The market is now subject to the laws of supply and demand, which dictate that price be the final arbiter of what makes economic sense.”

The market has proven a hard taskmaster, with oil prices down more than $70 per barrel from their 2014 peak, a fall in magnitude nearly double the current price of a barrel of benchmark crude.

However, Joseph Triepke, managing director of the Oilpro journal, has some Christmas cheer for the market.

“On an absolute basis, little downside remains” for the price of crude, he writes. He notes that current prices are below breakeven rates for many new US oil projects, and that some more companies will probably go bankrupt. However, he still thinks that 2016 will be the year when things finally stop getting worse.

“Every economic metric used to measure the oil and gas industry should trough in 2016,” he writes, “for declines cannot be infinite.”

Signs of a little stability in the oil market as the year bows out may suggest that the process is already starting.
 

This post is taken from the news.markets site: http://news.markets/commodities/routed-oil-price-may-close-trough-7296/

US crude trades at brief, rare premium to Brent

US crude oil prices rose briefly to a premium over the international Brent benchmark following news of a surprise fall in US stockpiles.

Inventories fell by 3.6 million barrels in the week, to 486.7 million, according to the industry group the American Petroleum Institute, compared with analysts’ expectations of a rise of a little over a million. Official data will follow later on Wednesday.

Front-month US West Texas Intermediate crude futures were trading at $36.38 per barrel at 0340 GMT, up 24 cents from their last settlement price. Brent crude earlier traded as low as $36.28, briefly taking WTI from a discount to a slight premium for the first time since November last year.

Before the onshore shale boom was up and running in 2010, WTI was usually at a premium to Brent. However, thanks to shale, US imports have fallen from a peak of almost 14 million barrels per day to around nine million, according to government data.

 

Now, with shale output contracting in the face of low-cost competition, the US market could tighten while supplies globally keep ballooning on the back of soaring output from producers like Russia and the OPEC group. Congress this month voted to lift the 40-year old ban on exporting domestic crude supplies, and although no major large-scale exports are expected, some American oil will hit the oversupplied global market next year.

 

First published here: http://news.markets/commodities/us-crude-trades-at-brief-rate-premium-to-brent-7282/