Rising oil prices spell trouble

00:00:00: Reescalating Middle East tensions send oil prices into this stress zone again, fueling inflation expectations around the globe and pushing global yields higher hence waiting on equity valuations.

00:00:12: In this context, Korean shipmakers remain under a heavy selling pressure as investors question whether the sell-off reflects the ugly geopolitics or rising bargain costs Really.

00:00:27: The weakness has also spread to European and US technology stocks yesterday, mind you!

00:00:31: And that despite encouraging sales figures from TSMC.

00:00:35: So it is under these conditions Under the circumstances That attention turns toward U.S inflation data.

00:00:42: And then new Fed Chair Kevin Warsh's testimony Before the U. S Congress today As markets price a growing risk of renewed Fed tightening.

00:00:52: Welcome to Swiss Coats Daily Market top, it's Tuesday the fourteenth of July.

00:00:58: I'm Ipe Kiosk-Ardeshkuya.

00:01:00: We are going to discuss about the ugly geopolitics and their implications across global economies And financial markets.

00:01:07: but before we do and as always please keep in mind that opinions Are my own?

00:01:12: This is not financial advice.

00:01:22: So a quick glance at the oil chart this morning tells us about what's going on across global financial markets today.

00:01:28: because U.S.

00:01:29: created jumped nine percent in yesterdays trading session past a two hundred day moving average, the limit that I was watching to distinguish between this is just another blip and we are back to distress levels in oil markets.

00:01:42: And US Crit is up by another two point thirty percent this morning at the time i'm talking here.

00:01:47: so overall us crit gained up to twenty per cent since the July second dip below the seventy dollar per barrel level and it's now flirting with the eighty dollars per barrel.

00:02:01: prices are rising faster than the futures, which is a sign of rising stress regarding supply in the short run.

00:02:08: So as I said we're now in this stress zone in terms of oil price.

00:02:12: The Middle East tensions re-escalate.

00:02:14: US attacks Iran.

00:02:15: Iran attacks neighboring Gulf countries.

00:02:20: back in the straight-off format but not only because this time around, The US also demands a twenty percent fee on all cargo shipping through the straight off formats.

00:02:31: Well that's really bad news mind you as such a fee will feel the transit cost way past two million dollar fees Iran wanted to charge by ship.

00:02:41: Because if you do the math, a fully loaded oil cargo is worth about one hundred and fifty to one hundred seventy million dollars today at the current oil prices.

00:02:50: And twenty percent of it comes down to around thirty-to-thirty four million dollars fee.

00:02:56: Bloomberg says It would be against international law... ...and I say that some people in the helm are going out their minds!

00:03:03: And well literally goes very negatively across financial markets starting with the sovereign bonds.

00:03:09: The US two year yield For example, that best captures the Federal Reserve rate.

00:03:14: expectations spiked to nearly a full point thirty percent level.

00:03:18: That's the highest level since February, and benchmark for the European Ten-Year Yield is up to almost a three point ten percent mark again.

00:03:29: While the Japanese Ten Year Yield has eased today despite their rising oil prices because Japan's Finance Minister Katayama said that JGBs could be added in tax free programs to attract some funds.

00:03:42: but overall the rising oil price feels global inflation expectations again higher and the higher yields weigh on equity appetite.

00:03:52: So looking around as in early days of the Iranian war, higher oil and higher yields look to hit the Korean stocks harder than their rest though I'm not necessarily sure that the geopolitical tension then rising yields are the main cause...the main responsible for the sharp sell-off we see across the Korean chip makers today because i think it is maybe simply a correction of a parabolic rise to make stock prices.

00:04:25: the Korean index into the medium term bearish consolidation zone and will likely call for a deeper downside correction until the volatility here comes down.

00:04:57: And unfortunately, before the rest of technology stocks, the tech sell-off that started in Korea yesterday rippled through European and US markets as well not helped by rising yields there.

00:05:08: Of course ASML in this context retreated one point eighty percent in Europe while Van Aksmai conductor ETF tank more than four percent just in yesterday's trading session.

00:05:19: and that despite good news from TSMC.

00:05:21: The company announced yesterday June sales rose six per cent for a month earlier, and sixty-eight percent from one year earlier.

00:05:30: both of these numbers landed near the high end own projections.

00:05:36: The last number sparked no major reaction from investors at all, TSMC stock was up one percent yesterday and is down by one per cent today.

00:05:45: it seems like a set of strong earnings due later this week from TSM C must be much stronger than the official banalist expectations to meet whisper numbers that are circulating among investors today.

00:06:00: And it gives you an idea on how this earning season may fall short of lifting investor's mood as inflation expectations take to lift again.

00:06:08: Speaking of inflation, the US will reveal its latest inflation update for the month of June Today.

00:06:14: The expectations are encouraging to say at least.

00:06:17: the headline inflation in the U S May have East from four point two percent to three point eight percent year over a year and core from two point nine to two-point eight percent.

00:06:28: That would be great but the problem is US credit came down twenty five percent during the month of June and U.S.

00:06:34: gasoline prices fell around ten per cent during this same month, But right now u.s.

00:06:39: gasoline price are already back above the June levels meaning that next inflation report will come in heated again.

00:06:48: So today's CPI figures will matter less than the re-escalating geopolitical tensions in the Middle East and their impact on inflation expectations.

00:06:56: And later, today, the new chair Kevin Warsh will speak in front of US Congress for his very first time and he'll tell his plans about how to conduct its monetary policy.

00:07:14: Right, inflation is exactly what the activity on funds futures are pricing today.

00:07:22: A seventy-seven percent chance for at least a twenty five basis point hike in their FOMC September meeting.

00:07:29: In reaction The US dollar was up yesterday and it's slightly lower this morning.

00:07:33: but short term outlook for greenback is tilted to upside of these hawkish Fed expectations.

00:07:40: And if oil prices continue rise, demand for U.S dollars will also rise as well in US dollar terms and letter.

00:07:48: along with the hawkish shift in Federal Reserve rate expectations should also continue to give support.

00:07:56: Rising energy prices do feel inflation expectations elsewhere as well and could lead to rate hikes from other major central banks, but differential in growth rates between the US and these economies suggest that the Federal Reserve today has a bigger margin-to act than say the European Central Bank which is dealing reading member and the Bank of England, which is dealing with its own political chaos.

00:08:48: metal because as we face another period of spike in energy prices, some central banks around the world could be brought back to selling their gold reserves again.

00:08:58: To stabilize their currencies and pay for this.

00:09:01: more expensive energy And leather could prevent gold from acting like a safe haven asset.

00:09:06: Again has been decays on first four months off these Iranian war.

00:09:11: In longer run however Gold outlook remains positive Comfortably positive I would say.

00:09:16: any price pool back is an opportunity for long-term investors to strengthen their bullish goal positions.

00:09:23: This episode of Market Talk has been helpful and it's been insightful to you, so please do not hesitate to leave your comments, reactions or questions below as usual.

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00:10:05: And until then, good day

00:10:21: trading!