Economic Contraction

Here’s why this trader is returning to one of the hottest commodities of the year

The end of June is near and good riddance.

Down about 7%, only March delivered a win for the S&P 500 SPX,
investors this year, as the fallout from the pandemic was compounded by Russia’s brutal and deadly invasion of Ukraine, which apparently drove up the prices of everything.

While still a lousy month, equities have recently seen a small rally, thanks in part to a potentially flawed theory that recession is good and falling commodity prices. Brent BRN00,
and CL.1 crude West Texas Intermediate,
are set for the first monthly losses – around 2% and 1.5% – in eight months.

This brings us to our call of the day MacroTourist newsletter editor Kevin Muir, who said he’s gone back to the “long side of the energy market”, buying those oil futures, energy stocks and even some natural gas on his short-term shopping list.

He said there was really no reason for crude’s $10 freefall last week, noting that “the best upside moves have the strongest corrections… They go higher, then come out of nowhere leaves, fall sharply, to resume their incessant march upwards. It’s no different.

Oil pulled back because “investors got too long,” but the longer-term trend is there, with Crude, a big energy ETF XLE,
and even natural gas charts repeating the pattern of a “sharp decline from support,” he said.

The MacroTourist

As for challenges to his bullish view, Muir said his worries about increased supplies were allayed by recent reports that French President Emmanuel Macron told President Joe Biden that oil giant Saudi Arabia would not had no spare capacity.

“Others might have previously felt comfortable that Saudi Arabia had little additional supply to offer, but for me, that Macron/Biden interaction was when I accepted that theory,” he said. said Muir, who also doesn’t see Russia pulling out of Ukraine anytime soon. , which would theoretically drive prices down.

On longer-term supply, Muir doesn’t see energy companies fixing the problem with capital expenditures because “most of the rhetoric” blames them and “threatens to take drastic action.”

The last hope of the energy bears comes down to the hope of an economic rout. “What’s shocking is that some bears seem to want Powell to throw us into a recession — somehow believing losing their jobs is better than high gas prices,” Muir said.

While some strategists believe high oil prices will cause economic contraction, Muir says oil at $112 a barrel is not expensive, given that between 2009 and 2014 oil prices ranged from $100 to $150. dollars with little economic damage.

He argues that in reality the economy is strong, with pandemic fiscal stimulus, a strong labor market and pent-up demand making it harder to tip the economy into recession. And then Muir said that sooner or later we will have increased Chinese demand once the COVID lockdowns end. Read the full blog here.

Lily: Wells Fargo takes a look at the history of bear markets, says don’t buy the dip yet

The buzz

Tesla’s TSLA,
Elon Musk may have heeded job cut warnings, with reports that 200 Autopilot Unit workers have been laid off and job offers to some new hires rescinded, according to reports.

follows a crisis in Hong Kong after the electric vehicle maker denied claims of “accounting games” by short seller Grizzly Research LLC.

The only economic data available is a revision to US GDP for the first quarter, expected before the market opens. Another global shock to inflation came from Spain, which recorded an annual rise of 10.2% in June, the highest since April 1985.

And we’ll hear from the world’s top central bankers at the ECB conference in Sintra, Portugal. Fed Chairman Jerome Powell, ECB Pres. Christine Lagarde and the Bank of England Pres. Andrew Bailey, with Cleve Fed Pres. Loretta Mester and St. Louis Fed Pres. James Bullard are all on the speakers list.

Chinese stocks fell after President Xi Jinping said the country should stick to its zero COVID policy during a visit to pandemic epicenter Wuhan.

The steps

US Equity Futures ES00,

drifted south, with bond yields TMUBMUSD10Y,
scrap and oil CL.1,

ascend. BitcoinBTC USD,
holds about $20,000.


Here’s one from Goldman Sachs showing that US households took in $81.5 billion in equity (seasonally adjusted) in the first quarter.

Federal Reserve Board, Federal Housing Finance Agency, Goldman Sachs Global Investment Research

That marks a 15-year high in dollar terms, but still only 0.75% of the $11 trillion in actionable equity accumulated over the years, notes macro strategist Vinay Viswanathan.

And “the record net worth of idle property should continue to serve as crucial ballast against foreclosures. In our view, concerns about the sustainability of mortgage debt are overblown,” he said in a note to clients on Tuesday.

Stock tickers

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