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Don’t Expect A Genuine Bull Run In Oil

Oil prices were higher to begin the week on expectations that the US Federal Reserve will lower its key interest rate by 25 basis points later today. As technicians, we feel somewhat positive on the market with Brent gradually moving from $60 in mid-June to near $65 this week, but we have to admit that recent market obsession with a central bank move to come to the rescue of a slowing economy has us thinking that global growth concerns will be here to stay at least in the near term.

For starters, there is no question that the Fed’s recently dovish pivot- which has driven the expectation the bank will cut rates later today- has benefited risk assets. Crude oil prices are higher by about $2-$3 since Chairman Powell’s dovish testimony before Congress in June and the US stock market is higher by about 3% despite a lack of progress in US/China trade talks (this week Trump was lamenting the failure of Chinese firms to step-up US agricultural purchases as he hoped they would.) Unfortunately, we think market sentiment may very well focus from easy central bank policy to the need for easy central bank policy once the rate cut is presumably complete. And why is the rate cut necessary? Recent US economic data has taken a decidedly cool turn with 2Q GDP growth falling from 3.1% in 2018 to 2.1% in 2019. The US has been a star performer among mature economies in the last five years and the idea that its growth is cooling should indeed be scary to markets. Even worse, recent…




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