Dow and S&P 500 finish 2021 at a record high after a “Santa Claus rally”

Posted on December 30, 2021 by Vrasidas Neofytou

Investors shrugged off Omicron-led fears pushing the S&P 500 and Dow Jones indices nearly 5% higher in December, thanks to a “Santa Claus rally” boosted by gains in utilities, consumer staples, real estate, and energies.

2021 has been a very good year for the financial markets and the bullish momentum has carried into the final trading days of the year, despite the record high Omicron-led covid infections around the world and the renewed travel and social restrictions.

Historically “Santa Claus rally”:

The good old-fashioned “Santa Claus rally” has been a historically strong period for equities and risky assets during the aka the last 5-10 trading days of the year and the first days in January. Statistically, the “holiday season” trading period has seen positive returns on nearly 80% of the time since 1928.

The milder-than-expected effects from the highly mutated Omicron variant on the economy gave the green light for the 2021’s “Santa Claus rally”, with most U.S. stock indices posting gains for the last six straight sessions, despite the sell-ff in travel stocks.

Market reaction: Indices rise to new record highs:

Global economic growth and record-high stock markets supported this year from the accommodative monetary policies from the Federal Reserve, the zero interest rates, the pandemic-led massive fiscal stimulus, the successful anti-covid treatment front, and high rates of vaccinations.

The S&P 500 index settled at 4,793 or up 0.15% on Wednesday, posting its 70th record close of the year so far, which has been the second highest number of record closes for the benchmark index during a calendar year, trailing just 1995′s 77 record closing highs.

S&P 500 index, Daily chart

The S&P 500 index has been overperforming Dow and Nasdaq for the first time since 2005, gaining almost 28% so far in 2021, while Nasdaq, Dow Jones, Russell 2000 advanced by 23%, 20%, and 14%, respectively, at the same time.

The industrial-related Dow Jones index saw its sixth straight positive session yesterday, also posting a new closing high of 36,488 or up 0,25% yesterday, the first closing high since November.

Looking at the 2020 pandemic-winner tech sector, the tech benchmark Nasdaq Composite lagged from the other major economic-led indices, edging lower by 0.1% to 15,766.

The weakness in the tech sector came after investors moved away from the high-growth and high-leverage tech companies (which have benefited from a zero-rate environment) into the safety of value stocks.

Travel vs Defensive stocks:

The outbreak of the Omicron has been a negative catalyst for the tourism and travel-related stocks, as more than 10,000 flights were cancelled during the Christmas holidays around the world, many cruise lines have rescheduled their cruising program, while hotels and restaurants have seen cancellations.

On the flip side, the traditionally defensive sectors such as health care and consumer stables hit fresh record highs during the Christmas period, including Pfizer, Domino’s Pizza, McDonald’s, Yum Brands, Costco, and Procter & Gamble.

Crude oil Outlook for 2022

Posted on December 27, 2021 by Vrasidas Neofytou

2021 was an exceptional year for the energy assets such as Crude oil, Natural gas, LNG, and Coal since they have outperformed other financial assets, while being the main drivers behind the surging inflation rates and electricity prices around the world.

Crude oil bulls pushed the prices of black gold up to yearly high of $85/b at end of October, almost 70% higher than where they started on Jan 01, 2021, before retreating to $70s/b due to the continued drama on the Covid-19 front.

Natural gas, Coal, and Electricity prices posted a parabolic rally during the last quarter of 2021, amid the tightness in the European gas market driven by the lower-than-normal gas supplies from Russia, the unexpected extreme weather, the geopolitical tensions around the Russian-owned undersea Nord Stream 2-Europe gas pipeline, and the growing concerns over the border tensions between Russia and Ukraine.

Russia has been such a critical source of Natural gas in Western-Central Europe, and at times that tensions are growing; that’s not making the situation any better, and unfortunately for the customers, it causes a real supply crunch, driving up gas and electricity prices.

Bullish Crude Oil Outlook for 2022:

We maintain our bullish outlook on crude oil prices for the whole of 2022 over the significant demand/supply imbalance since the global oil supply remains tight at a time the global demand for petroleum products recovers to pre-pandemic levels.

In addition, our bullish outlook is based on the tight global petroleum inventories, the lack of reinvestments in new wells amid political pressure towards green transition, and the switch from expensive natural gas to crude oil amid the energy crunch in Europe and Asia.

We also believe that the impact of the highly infectious Omicron covid-19 variant on the global economy would likely be less destructive than previous variants such as Delta and Alpha, increasing the appetite for bullish bets on the growth-related crude oil contracts later the year.

Neutral Outlook for Q1, 2022:

Crude oil in choppy waters in Q1, 2022 amid Omicron-led demand concerns:

Despite our positive view for the whole of 2022, we stay on hold for Q1 as the surging Omicron-driven infection cases, the renewed lockdowns, and the travel and social restrictions would reduce global oil demand in the short term, and weigh on the overall market risk sentiment.

Base-case scenario for Q1: Averaging between $70-75/b:

Our base-case scenario sees both Brent and WTI crude oil contracts trading in the range between $70-80/b and $65-75/b respectively on Q1, 2022, as the Omicron-led fuel demand concerns would be offset by the tight supplies and the multi-year low inventories.

We expect price volatility in the first weeks of the year as the crude oil prices will remain vulnerable to a deteriorating crude demand outlook thanks to the rapid spread of the Omicron across the fuel-consuming regions of Europe, the U.S., and Asia, which would potentially dent fuel demand growth in Q1.

Contango in the oil market: Fears that crude supply growth will exceed demand in Q1:

We also anticipate a small discount – a market structure known as “Contango” – between the front-month oil contract to the second month, reflecting a near-term flattening in crude oil demand driven by the social restrictions, flights cancellations, and lower demand from refineries on the one side, and additional supplies from OPEC+ alliance on the other side.

Trade the price volatility: Energy investors may look to take advantage of the oil price volatility by adding long-term positions in every significant price drop below $70/b during Q1, mainly due to the bullish oil demand fundamentals in the pragmatic market, and prospects for higher oil prices from Q2 until end of the year.

On the other side, we believe that the oil price upside in Q1 would be limited due to the demand destruction that could result from fresh lockdown measures taken to curb the spread of the new Omicron variant.

Bullish crude oil outlook for Q2-Q4, 2022:

Our base-case scenario sees both Brent and WTI crude oil contracts trading higher between $75-90/b and $70-85/b respectively for the final three quarters of the year, as we believe that the Omicron-led oil price pressure would play its role only for short-term, and the strong bullish fundamentals will prevail in the energy market.

Why we are bullish on crude oil prices for Q2-Q4, 2022:

1. We are bullish on the crude oil outlook for Q2-Q4, 2022, as we believe that the fears over the overall impact of the Omicron variant on the fuel demand growth would be eased at the beginning of Q2.

2. We also expect strong growth in the global economy during the second half of 2022 which will help the fuel demand growth, despite the willingness of Central Banks to tight their pandemic-led accommodative monetary policies to fight the surging inflation.

3. Global crude oil consumption will return to pre-pandemic levels of 100mbpd in the second half of 2022 amid the robust gasoline and diesel consumption as more countries will open to international travel after Omicron fears will be erased, and strong demand for petrochemicals.

4. The ongoing energy crunch in Europe and Asia during the winter heating season in Northern Hemisphere is a positive catalyst for the oil prices since some industries would switch fuel from high-priced natural gas to much cheaper crude oil.

5. The global energy market might face a series of new supply disruptions in 2022 which will deteriorate the supply/demand imbalance, mainly from the ongoing civil conflicts in Libya, and Nigeria, the decreasing output from Malaysia, Angola, and Venezuela, together with the threat of additional hurricane-led supply disruptions in the oil-rich Gulf of Mexico.

6. We don’t expect a repeat of the March-April 2020 scenario when the total lockdowns and the strict social and travel restrictions (to tackle the spread of the virus) decreased the global demand for petroleum products by approx. 30%.

7. The energy market feels more confident for the oil demand growth since the Omicron variant causes (until now) only a milder level of illness with fewer hospitalizations, while a large percentage of the global population has been already fully vaccinated.

8. Furthermore, the news from the anti-Covid treatment front has been very positive for the oil demand outlook as the booster doses of Moderna’s and Pfizer-BioNTech’s Covid-19 vaccines appeared to be protective against the fast-spreading Omicron variant in laboratory testing. Hence, the FDA-authorised Pfizer’s antiviral pill (oral) Paxlovid reduced the risk of hospitalization or death by nearly 90% in high-risk adults with COVID-19 in a clinical trial.

9. OPEC+ supply compliance: OPEC+ compliance with oil production cuts has climbed above 115% in the last months of 2021, indicating production levels might remain well below agreed targets for 2022.

10. OECD (Organisation for Economic Co-operation and Development) total petroleum inventories are entering 2022 at their lowest level since the start of 2015, with crude oil, gasoline and distillates holdings accounting for the most of declines, especially in the region of Europe.

Potential downside risks in 2022:

1. We might see a surging oil output from the Shale oil producers in the United States in the coming months, which would add pressure on the oil market. The surging oil prices have increased the operating U.S oil and gas rigs to their highest level since April 2020 according to the energy services firm Baker Hughes.

2. Potential tensions between OPEC+ and U.S administration regarding the elevating oil prices might create the prospects for additional release of million barrels of oil from the U.S. Strategic Petroleum Reserve (SPR) to help cool oil prices.

3. The threat for additional barrels of oil in the global market in case of a nuclear deal between Iran and Western countries, in a time OPEC+ alliance ramps up production.

LNG arbitrage as European gas prices hit fresh records

Posted on December 22, 2021 by Vrasidas Neofytou

A parabolic rally in European natural gas prices continued Tuesday morning, with the Dutch TTF hub front-month futures price rallying by more than 20% to €182/MMBtu, posting a fresh record high, at a time winter heating season has just kicked-off in the Northern Hemisphere.

Dutch TTF hub natural gas index, Monthly chart

The rally was extended this morning after reports that Russian gas flows to Europe via Yamal gas pipeline run in reverse for the second day, together with declining wind power output in Germany, lower-than-normal nuclear output in France, and extremely cold weather in the continent.

According to reports, energy traders pushed gas prices to the roof after gas flows entering Germany at the Mallnow compressor station plunged to zero, with flows diverting eastward to Poland.

The lower-than-normal gas exports from Russia forces European utility companies to drain their gas storages, which have fallen to below-the-average levels for this time of the season and start using fossil fuels such as coal for power generation to avoid grid disruption.

How it started:

Several catalysts have pushed the European energy prices to the sky, with the most important to be the delay until July 2022 of the certification for the Russian government-controlled Gazprom’s controversial Nord Stream 2 pipeline by German energy authorities, under the pressure of U.S. and allies.

As a result, Putin’s administration has been steadily reducing gas flows from Siberia’s gas fields to Europe via Yamal pipeline since summer, to add pressure in EU and Germany for the certification of the Nord Stream 2, together with the sign of longer-term gas supply contracts with European countries-customers. mounting pressure on the Ukraine/Russia border.

Meanwhile, the energy crisis has worsened lately after the mounting geopolitical crisis on the Ukraine/Russia border, the lower-than-normal North Sea’s and German’s wind output due to mild weather, the decline by 30% of France’s nuclear power capacity due to unexpected maintenance, and the persistent cold weather in the continent.

LNG arbitrage:

European natural gas is priced with premiums much above Asian and the Henry hub-linked U.S. gas, creating massive arbitrage opportunities for U.S. liquefied natural gas (LNG) commodity traders.

According to reports, uncommitted LNG cargos from the Atlantic basin headed to Asia via LNG carriers are changing their routes to supply European customers willing to pay a heavy premium.

The spread between European and U.S. gas prices is nearly €50/MMBtu, well above its 15-year average due to unexpected gas shortages in Europe and oversupply in the U.S.

The price differential makes the perfect opportunity for gas traders to load LNG cargos in the U.S. on the Henry Hub-linked index and schedule passage to thirsty-for-gas Europe.

Global stocks tumble nearly 2% over Omicron worries and U.S. fiscal concerns

Posted on December 20, 2021 by Vrasidas Neofytou

Global markets kick off the Christmas week on the left footing, tumbling almost 2% on early Monday’s trading session on worries over the rapid spread of Omicron variant around the world ahead of the winter holiday season, coupled with U.S. fiscal concerns.

Stocks and Crude oil fall on Omicron worries:

Asian-Pacific and European stock markets opened the week sharply lower as traders moved away from sectors that have a negative impact from the outbreak of Omicron variant such as travel, leisure, financials, retail, and energy.

The newly high mutated Omicron variant has rapidly spread across the European Union, with the Netherlands being the latest country to enter full lockdown during the weekend until mid-January.

Hence, many E.U countries have already imposed tighter social restrictions measures over the Christmas holidays amid the elevating Omicron cases in the continent.

The impact of the virus is spreading across society, with sports games being rescheduled in U.K and U.S. and entertainment venues cancelling shows.

As a result, the German major index DAX 30 opened with a gap down of 2,5% on Monday morning, extending the over 3% losses from last week, while same similar losses have been posted from the Japanese Nikkei 225 index, the South Korean Kospi and Hang Seng.

WTI crude oil, Daily chart

WTI and Brent crude oil prices hit hard on Monday morning, losing more than 4% to $67,50/b and $70,50/b respectively as energy traders were concerned that the spread of the variant and the travel restrictions would slow down demand for petroleum products in a time that OPEC+ supplies increase.

U.S stocks extend last week losses:

The U.S stock futures have also opened lower by 1,5% on Monday following the fast spreading of the variant across the U.S, with the New York state and the District of Columbia posting record daily cases for consecutive days.

All 3 U.S. major indices ended last week into deep red, with S&P 500 and Dow Jones losing nearly 2% while the tech-heavy Nasdaq Composite led the losses with 3% as investors moved away from high-flying growth stocks and moved into value stocks on the prospect of higher interest rates by Federal Reserve.

Dow Jones index, Daily chart

Dr. Anthony Fauci, the chief White House medical adviser, emphasized on the weekend that the Omicron virus is raging across the world as the winter holiday season approaches, making Covid-19 vaccinations and booster shots more crucial than ever for traveling Americans.

The health experts around the world say that the Omicron variant will likely overcome Delta as the dominant variant and urge the people who are traveling during the holidays to get a booster, wear masks and avoid crowded public spaces to help slow the spread of the variant.

Biden’s fiscal agenda under pressure:

On top of that, U.S. indices pushed further lower on Monday morning from an unexpected political decision from Sen. Joe Manchin, a conservative Democrat from West Virginia, who said on Sunday that he won’t support the Biden administration’s “Build Back Better” plan.

Safe havens move higher:

The risk-off sentiment has pushed safe havens higher as investors moved into Gold, U.S. dollar, Japanese Yen, Swiss Franc, and Treasuries for safety over Omicron fears and U.S. fiscal concerns.

The price of precious metal Gold climbed above $1,800/oz key resistance level for the first time since late November, despite the strength of the dollar.

Looking in the forex market, the U.S dollar trades to near monthly highs of $1,125 against the Euro, supported from the weakness of the Euro and the hawkish Fed, and surging Treasuries, while the havens Japanese Yen and Swiss Franc extend their last week gains into the new week.

‘Tis the season of giving: A donation to families in need

Posted on December 17, 2021December 28, 2023 by Exclusive Capital Team

Christmas is a time of joy and happiness, but not for everyone. Unfortunately, many families don’t get to experience the joy of the season because they can’t afford to.

At Exclusive Capital, we believe that those of us who are lucky enough to smile during the holidays, open fancy presents and enjoy lavish meals with our families must show up for those who are not as fortunate, anyway we can.

So, this year we continue our annual donating tradition as we seek to deliver holiday cheer to families in Cyprus in the form of gift baskets with included food and clothing vouchers.

Coming together as a team to create these beautiful baskets as a way to put smiles on the faces of children and families across the country is, as always, the most fulfilling experience.

We want to encourage you, our friends, family, and clients to help those less fortunate however you can in the hopes that we can positively impact our community by enriching the lives of others.

Let’s spread smiles. Isn’t that what the Christmas Spirit has always been about?

Merry Christmas, Happy New Year and the heartiest wishes from our Exclusive Capital family to yours.

The hawkish stance from BoE, ECB, and Fed as inflation pressures mount

Posted on December 17, 2021 by Vrasidas Neofytou

Pound Sterling and Euro bounce off yearly lows against U.S. dollar after the Bank of England and European Central Bank adopted more hawkish stances than markets had expected on Thursday, despite the emergence of highly mutated Omicron covid variant and uncertainty over its near-term economic growth impact.

The BoE and ECB monetary decisions came after Wednesday, when the Federal Reserve said it would accelerate a tapering of its bond-buying stimulus to end the program in March, setting up three quarter-point rate increases in 2022.

The different paths taken by major central banks underline deep uncertainties about how the fast-spreading omicron variant will hit economies and about how much each should do to fight surging inflation, which is hitting hard in the United States and Britain, but less so in Europe.

Bank of England’s first-rate hike after pandemic:

UK-based FTSE 100 index rose 1% and Pound Sterling jumped to as high as $1,337 yesterday, its highest since the end of November, as investors reacted positively to the surprising decision of the Bank of England- BoE to hike its key interest rate by 0,15% to 0,25% as inflation pressures mount.

GBP/USD pair, Daily chart

As a result, BoE became the first G7 major central bank to raise interest rates since the beginning of the Covid-19 pandemic in March 2020, driven by a strong labour market recovery and the need to return inflation towards its 2% target from a 10-year high of 5,1% in November.

BoE expects UK inflation to remain at around 5% through most of the winter period, peaking at around 6% in April 2022 on elevating consumer prices.

European Central Bank cuts pandemic bond-buying program:

Despite the surprised BoE rate hike and hawkish stance from U.S. Federal Reserve, European Central Bank kept a less hawkish but flexible tone, leaving its benchmark refinancing rate unchanged at 0% on Thursday, keeping the rate on its marginal lending facility at 0.25%, while the rate on its deposit facility was kept unchanged at -0.5%, in line with market expectations.

Hence, ECB said that it will slow down its pandemic-era 1.85 trillion euros ($2.19 trillion) Pandemic Emergency Purchase Programme bond-buying program from April and stay accommodative through 2022 and beyond.

EUR/USD pair, Weekly chart

The common currency bounced off 1,5-year low of $1,118 to near $1,137 yesterday, but far below its 2021-high of $1,23 amid the economic weakness in the Eurozone, the outbreak of Delta variant, and the strengthen of the U.S. dollar due to hawkish Federal Reserve.