Maverick EnergyEnergy and equities markets continue to run into selling, as fears connected to the euro-zone remain. That said, the EU isn’t the only reason to be turning bearish as yesterday’s PPI data and a double-digit fall in housing permits indicate growth here in the U.S. may be slowing as well as stimulus efforts begin to sunset. Adding to that today was the Mortgage Bankers Association reading on mortgage applications which fell an astonishing 27.1% for the week, its lowest reading since May 1997 (13 yrs) and further confirmation that any housing stability has been government-driven and artificial. Furthermore, this comes as mortgage rates for an average 30-year sit at 4.83%….just a few basis points from March 2009’s record low of 4.61% (the point is housing hasn’t been driven by rates but free tax money).
Looking at the 2010 economic powerhouse, Asia and more specifically China, the Shanghai Index is down more than 20% from its peak and already signs of slowing are being seen in China’s high-end property market. Demand for commodities also appears to be waning from the massive YoYo increases seen in the last 6 months, and so no matter where you look we are seeing signs of slowing. The U.S. still looks to be performing well near-term, but the now sharply higher dollar isn’t going to do anyone here any favors moving forward. The equities market (and similarly the energy complex) has been pricing in a robust and near-perfect V-shaped recovery all along, and now we are seeing that this view may be a little too optimistic.
Looking at gasoline demand alone, the EIA still indicates that consumption is more than 360,000 bpd below 2007 levels….undoubtedly part of the reason why inventories remain above the high-end of the 10-year range. The energy complex remains decidedly bearish as the macros continue to influence the complex negatively. Further weakness in equities will likely lead to still lower energy futures near-term.