Energy markets truly came off the rails Wednesday as the Fed chose to make another rate hike, and Treasuries, especially on the short end of the curve, really took a hit.
The impetus for the sell-off in energy, and commodities in general might have been the Fed’s move, but the real gasoline that kept the fire going through Thursday was the continuing indications that the U.S. trade war with China isn’t going to see a quick end as it did in Mexico and Canada.
We know commodities are the tip of the spear in trade wars, taking the initial brunt of the damage, while stocks and consumer prices are hit later on, if the damaging behavior continues. We had noted a number of indications that energy prices were due for a retracement last week anyway, including the ratio of long specs to shorts in crude oil and the flattening of the crude curve. And, on balance to the last drop from these indications we saw in August, oil is still putting up a better fight, “only” down $5 dollars to August’s $10 from top to bottom, at least so far as of this writing. We’ll have to see as the trade war escalates, whether the strong fundamentals will continue to overshadow these threats to global growth.
Most of the indicators that we noticed this week aren’t looking immediately promising.
Again, crude spreads came in steadily, with the curve of prices now getting perilously close to reverting from a backwardated to a contango condition.…