Anyone who followed today’s trading action with a very distinct sense of summer of 2008 deja vu dread, where soaring crude led to just one thing, soaring stocks, they are forgiven, because this is precisely how one can summarize today’s action. In a day devoid of any news (except for the JOLTS survey of course, which confirmed the gaming of NFP payroll numbers), in which bonds did absolutely nothing, with the 10 Year trading in a very tight range just shy of 2.65%, it was all about low-volume levitating equities and the energy complex.
Equities, in a New Normal world in which neither fundamentals, nor corporate results, nor newsflow matter, and just central banks are relevant, did their usual thing, rising for the fourth straight day on the now traditional low volume, also pushing the NASDAQ to fresh 2013 highs.
The story of the day, however, was WTI which started the day at the lows and stormed out of the gates without looking back. And with average gasoline prices per AAA once again rising, and having about 50 cent of upside from current levels based on implied WTI fair values, we wonder: just how long before the blame the speculator cards is whipped out and/or the CME hikes CL margins by 30% or more?
And most notable in this otherwise boring day, was that the Brent-WTI spread is now back to under $4 – the tightest it has been in over two years.
Keep a close eye on the spillover of soaring energy prices into corporate input costs. After all US multinationals already have a soaring USD to worry about. The one thing that will truly put an end to the party will be a surge in COGS. Or would, rather, if stuff like cash flow and profitability actually mattered.