Delta Variant: Strength or weakness for markets?
Newsletter 155
Assets Covered: CME COMEX Copper, ICE Brent Crude Oil
Risk has been in focus with the specter of the Delta Variant looming (see the CDC data below). Nearly everyone is trying to figure out the extent of impact on public health, economies, supply chains and individual companies. Will economies be shuttered again? Weren’t supply chains supposed to back to normal by now? And so on.
While the risks with the Delta Variant are real, pockets of protests are beginning to emerge as people wonder how long Covid-linked restrictions will last. France and Australia were the hotspots for protests earlier this week after some severe restrictions were reimposed. Whether we’ll see more protests at least partly depends on whether the political response to Covid’s current and future variants match the severity of each wave of outbreak.
Like it or not, markets are often a good gauge of the correct path for public policy. So far, markets have rallied on many of the Covid relief measures. According to the St Louis Fed and the Bureau of Economic Analysis, America’s personal saving rate has skyrocketed at least in part to waves of generous stimulus packages (see chart below). As a result of this and many other factors, broad equity indices, industrial metals, and energy, especially, have rallied strongly in the first half of 2021.
If stimulus is over (for now) and risk is higher on Covid and other factors, what’s ahead for equities and commodities? Last week, we spoke with Tracy Shuchart of Hedge Fund Telemetry and Samir Madani of TankerTrackers.com on how OPEC+, JCPOA, and Covid lockdowns may affect markets this year.
Both are bullish on commodities over a medium-term horizon. Tracy Shuchart said, “I’m very bullish on commodities, particularly industrial metals, base metals and minerals needed for this energy transition. Copper and things of that nature.” The view aligns nicely with our CI Futures forecast, as we expect copper to revisit the highs from Q2 later in Q4.
This is CI Futures July forecast for COMEX Copper until January 22.
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Sam Madani has a similar view on crude: “I remain bullish when it comes to oil in particular, and I pat myself on the back for having gone long at the end of March last year, when the mutual funds were at the all-time lowest in regards to oil. …. My original intended investment horizon was around three to four years. I’m going to be cutting that short until September of next year….” Sam Madani continues, “There’s still one big run up towards the three-digit oil price and that would be most likely to happen next year rather than now.”
OPEC+ and other factors are keeping crude from a big breakout this year. Tracy Shuchart explains: “Because of those factors in the Middle East, because I am of a belief we will see a deal [for OPEC+] and we will get some more barrels on the market, the market is actually very tight right now. But we’re also having lockdowns in some places in Asia. So right now, we already are seeing a pullback in crude. Until we get a little bit more certain that $65–75 range will probably hold us for a while, I see some consolidation there.” Below, our CI Futures forecast for ICE Brent Crude shows range bound trading likely through year’s end.
This is CI Futures July forecast for ICE Brent Crude Oil until January 2022.
Discover the forecasts for nearly 1,000 other assets.
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We finished the discussion on the prospect of further Covid lockdowns. Tracy Shuchart doesn’t believe we’ll see nationwide lockdowns in the US: “The United States is so big. I don’t believe that they’re going to lock down the whole country again. It just won’t happen. You would literally have riots on the streets in some places.”
When asked about further lockdowns in Europe, Sam Madani said, “I would think that it would be mostly in the countries with the high population density. Germany is obviously one of those countries and the UK is another. In other countries, not so much the case. I live here in Sweden. We never had lockdowns.”
There is much more in the interview on natural gas, crude oil, the JCPOA and OPEC. You can find it here.
This CI Newsletter is originally published at https://www.completeintel.com/2021/07/27/delta-variant-markets/.
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