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INSTANT INSIGHT | What's Really Driving Oil Prices

INSTANT INSIGHT | What's Really Driving Oil Prices - oil fallen and can t get up

 

Following yesterday's 4.5% pop in the price of oil on OPEC production freeze speculation, we're back to fundamentals this morning (a.k.a. stronger U.S. dollar pushing prices lower).

 

So where do we go from here? Below is analysis from Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:

 

"Another fun ramp to an immediate-term overbought signal (on an oversold USD signal) finds resistance, USD bounces, and Oil sells off -1.7% this am; OVX (oil volatility) is signaling nowhere near the end of this bear market in Oil (OVX = 48 with an immediate-term risk range of 44-53)"

 

In a recent Early Look, McCullough noted that Commodities (CRB Index) have an inverse correlation (30-day duration) of -0.88 vs. the US Dollar. That's what's driving commodity prices and oil today. 

 

If you are trying to read the OPEC tea leaves, however, watch our Hedgeye colleague and Potomac Research Group's Senior Energy analyst Joe McMonigle in the video below. 

 

 

Today, Saudi Arabia's Oil Minister downplayed the prospect of oil producers taking action saying "Forget about this topic." Furthermore, Iranian oil minister Bijan Zanganeh announced that he does not even plan to attend the Doha meeting.

 

Sound familiar?

 

McMonigle has been arguing for a while now that speculation about an OPEC oil production freeze is just talk, since Saudia Arabia and Iran's true intentions are what really matter. Here are links to other videos and research notes via McMonigle:


[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities

Takeaway: All five active equity categories continued to lose funds last week; total eq MF flow came to -$4.9 B. Meanwhile passive equity took +$2.0 B

Editor's Note: This is a complimentary research note originally published April 7, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

 

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Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

The landscape between passive ETFs and mutual funds in fixed income is starting to look a lot like the landscape in equities. An inflection point is now evident in the growth rate of passive bond products versus funds starting in 3Q15 with fixed income ETFs growing through the volatility in credit and now cumulatively ahead of running net new assets in funds. The entire equity complex has shifted toward passive products for some time now making the chart below a future look at how the pie will shift in fixed income.

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI 4 13 Theme 1 normal

 

Specifically during the week, the latest ICI survey again relayed this migration for the five-days ending March 30th; all five equity mutual fund categories experienced withdrawals, bringing the total equity mutual fund flow to -$4.9 billion. Meanwhile, passive equity ETFs took in +$2.0 billion.

 

In fixed income, taxable bond funds experienced a -$195 million outflow as investors continue to prefer tax-free municipal bonds, which took in +$1.4 billion last week.


[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI19

 

In the most recent 5-day period ending March 30th, total equity mutual funds put up net outflows of -$4.9 billion, trailing the year-to-date weekly average outflow of -$798 million and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$1.2 billion, outpacing the year-to-date weekly average inflow of +$1.1 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$2.0 billion, outpacing the year-to-date weekly average outflow of -$1.6 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$258 million, trailing the year-to-date weekly average inflow of +$2.1 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI2

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI3 3

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI4

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI5

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI12

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI13

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI14

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI15

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI7

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the long treasury TLT ETF experienced a -$415 million or -4% outflow, although it has experienced the largest inflow YTD on a percentage basis of +48%.

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI17

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$4.4 billion spread for the week (-$2.9 billion of total equity outflow net of the +$1.5 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$422 million (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI10

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

[UNLOCKED] Fund Flow Survey | Fixed Income Shift Starting to Look Like Equities - ICI11 


CHART OF THE DAY: Why We Signaled Short Oil & Gas Stocks In RTA

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... A) Mostly all of Consensus Macro missed calling the long-term breakout in USD (and commensurate commodity #Deflation)

    B) But, on shorter-term durations, consensus is right back in the saddle now, Short USD and Long Oil

    C) And this is happening as both the Long-term support for USD is holding inasmuch as long-term resistance for Oil is

 

So… in addition to keeping shorts on (in Real-Time Alerts) where Earnings Season is our catalyst, maybe what I should do is just buy Dollars, short Oil & Gas Stocks (XOP), turn off my screens for a week…"

 

CHART OF THE DAY: Why We Signaled Short Oil & Gas Stocks In RTA - 04.13.16 chart


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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Cartoon of the Day | Earnings: Dead In The Water

Cartoon of the Day | Earnings: Dead In The Water - earnings cartoon 04.12.2016

 

In what is already expected to be an ugly quarter for corporate earnings, Alcoa kicked off 1Q earnings season with a bang last night. The aluminum producer missed revenue estimates, earnings fell by 92% and reduced guidance for the year. 


McCullough: ‘We Are Vigilantly Bearish On Corporate Earnings & Junk Bonds’

In a recent excerpt from The Macro Show, Hedgeye CEO Keith McCullough responds to a subscriber’s question about the latest permabull narrative that a weaker dollar will lead to “widespread earnings beats.”


Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game

Below is a brief excerpt from our Potomac Research Group colleague and Chief Political Strategist JT Taylor's Morning Bullets sent to institutional clients each morning. For more information on how you can access our institutional research please email sales@hedgeye.com.

CLINTON'S COVER:

Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game - obama

 

President Obama has been working full time to use executive powers to cement his legacy on many fronts, and now his latest gambit is to protect Hillary Clinton's flank. Within a week, the president has defended Clinton's qualifications for the presidency and has shown support for the Democratic frontrunner through her FBI investigations. Normally, a sitting president would not get involved in the primary, but Obama can't afford to let an opportunity like this pass. For the most part, a Clinton presidency will be  closer to an Obama a "third" term, while a Sanders presidency has the potential to be problematic for the Democratic party.

GROUND GAME CHANGE:

Hillary Clinton Presidency = Obama 3rd Term ... & Trump's Ground Game - trump forward

 

After narrowly losing the Iowa caucuses in early February to Ted Cruz, Trump vowed to get his ground game in order - and we're still waiting for that to happen. At the CO Republican convention, Trump's hastily assembled team unintentionally instructed Trump supporters to vote for Cruz delegates helping him sweep the state. States where Trump lost delegate ground to Cruz include IN, GA, LA, ND, SD and TN, and the election of anti-Trump delegates in these places mean that Trump is all but certain to lose support if there is a second ballot in Cleveland.

 

These mistakes may seem trivial, but they are adding up, and this disorganization could cost Trump a delegate majority heading into Cleveland. The road ahead hardly looks brighter - Trump's campaign emailed WA supporters to encourage them to register as delegates two days after the deadline. We think the arrival of his new top strategist and Washington political veteran, Paul Manafort, will help recalibrate the campaign - Trump has been mostly quiet for the last few days, and avoided all Sunday show appearances for the first time in five months. Good first step...

UNBOUND AND UNPREDICTABLE:

While Donald Trump maneuvers to amass enough pledged delegates to secure a majority, many pundits are resigned to predicting an open convention. The delegate math supports their predictions, however, those same pundits often ignore a major factor - that at least some of the unbound delegates will also vote for Trump on the first ballot. Many of the people running to be one of the 54 unbound PA delegates have pledged to vote according to the results of their district, while other delegates could easily be swayed to back Trump if he goes to Cleveland just shy of 1,237.  Let's not forget that this is the man that wrote The Art of The Deal.


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