Market 01/08: Oil prices and freight rates fluctuate strongly at the start of the week

Oil prices plunge after Saudi Arabia's price cut move

Oil prices are currently plummeting, WTI at risk of slipping below 70 USD threshold.

This occurred after Saudi Aramco cut the selling price of Arab Light crude from above 2 USD/barrel down to higher than >1.5 USD/barrel compared to the regional benchmark oil price.

• This is the lowest level since November 2021.

Cosco stops ships through Red Sea, container freight rates continue to climb

Chinese shipping giant Cosco has stopped all container ships passing through the Red Sea to Israel.

Major shipping companies like Maersk and Hapag-Lloyd have also stopped container ships through the Red Sea in recent weeks

=> This forces shippers to reroute cargo around the Cape of Good Hope, adding 1-2 weeks to time and higher costs

Since November 2023, Shanghai Containerized Freight Index [SCFI] has risen 91%.

• The global supply chain is the lifeblood of the globalized world. Cold War 2.0 between the US and the Dragon-Bear duo (China and Russia) is further disrupting the global supply chain

US Congress passes $1.59 trillion government funding agreement

US Congress announces $1.59 trillion deal on top-line public spending caps to avoid government shutdown.

• Includes: 886 billion USD military spending + 704 billion USD non-defense spending

• → Defense now accounts for ~56% of discretionary spending and 15% of total US government spending.

Total federal government spending reached over 6 trillion USD in 2023:

Banks' reported losses surge, Fed expected to stop QT from March 2024.

Banks are carrying unrealized losses (including large losses from holding Treasury bonds) of nearly 700 billion USD ~33% of total equity capital.

• Even in 2008, this figure was only ~5% of equity capital.

• Before the regional banking crisis, this ratio was ~22%.

• Bank of America forecasts Fed will announce plan to gradually reduce Treasury bond holdings in March (gradually easing QT monetary tightening policy) — coinciding with projected first Fed rate cut of +25 bps.

Boeing: 737 Max 9 emergency door blows out mid-air

On the afternoon of 5/1, Boeing 737 flight 1282 of Alaska Airlines (US) made emergency landing after window and part of fuselage blown out mid-air.

Some airlines have grounded Boeing 737 MAX 9 aircraft such as: Alaska Airlines, Copa Airlines (Panama), Turkish Airlines (Turkey)

• Boeing stock drops sharply due to this incident

Other news

1. Chinese stocks continue to decline. $HSI index nears 2022 low.

2. Apple's iPhone sales in China are increasingly declining, Jefferies analysts forecast double-digit drop in 2024

3. Apple Vision Pro to launch in the US on February 2

• Pre-order starting price $3,499 (256GB storage).

• Reader $99

• Prescription lenses (for nearsighted people) $149

FYI: Apple Vision Pro is a virtual reality headset developed by Apple, first introduced on June 5, 2023 at WWDC conference.

4. According to Redfin, December rent prices continue to fall -0.8% Y/Y to 1,964 USD — third consecutive month of decline

5. Donald Trump dominates among Republican voters due to their confidence in him on economic development aspects.

6. Consumer inflation expectations fell significantly in December 2023:

• 1-year ahead inflation expectation at 3.0% (lowest since January 2021)

• 3-year ahead expectation at 2.6% (lowest since June 2020).

Key events for the week 01/08 - 01/14

1. 10-year bond auction - Wednesday

2. Crude oil inventories - Wednesday

3. December CPI inflation data - Thursday

4. Initial jobless claims - Thursday

5. December PPI inflation data - Friday

6. Q4/2023 earnings results of some major banks - Friday