Morning Market Overview

The early Monday market is starting off weak again but off the overnight lows for now. Oil prices gave back some of the previous week’s gains in a very volatile trading environment in just about all asset classes.

Last Monday we raised the caution flag that oil, equities and the US dollar (versus most major currencies) were ready for a correction. Simply put last week’s trading for all the above can be characterized as a week of corrections of varying degrees. Oil prices were lower across the board with refined product prices leading the complex to the downside even though crude oil inventories built more than expected and refined product stocks fell.

Overall total combined US stocks of crude oil and refined products increased on the week suggesting that the inventory destocking pattern may be entering a transition period as the spring refinery maintenance season is slowly approaching. On the external front the main move was in the global equity markets with the US stock indices falling well over 2 percent just on Friday after a very robust monthly jobs report that showed more than the expected new jobs created along with a push higher on wages. The market viewed the report as a signal that the US Central Bank (Fed) may get more aggressive across 2018 in raising short term interest rates.

As said last week the equity markets have been ripe for a downside correction especially after a way above normal monthly gain for the month of January. Friday’s jobs report was the catalyst. The decline in equities was a negative price driver for the oil markets as well as the broader commodity complex as the move could be interpreted as a prelude to a slowing of the global economy.

We are not of that view nor of the view that the global equity markets are entering a sustained downtrend. The global economy is doing very well, and most major companies are doing even better.

A few increases in short term interest rates is not going to have a major or significant impact on slowing the economy and even with a few increases in rates the absolute level will still be well below historical standards.