Need to Know: Here’s why now might be a good time to cash in on oil gains

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Enough of politics — it’s time for some good old-fashioned central-bank distraction.

Stock futures are showing that Wall Street’s gains may be running out of steam after Tuesday’s run, which is why investors will keep a close eye on the flurry of Federal Reserve officials coming our way today. It wasn’t just the appearance of a win for Hillary Clinton at Tuesday’s debate that helped prop up stocks, but also the prospect of the Fed pushing out rate hikes to December.

When the central bank’s chief Janet Yellen testifies on Capitol Hill this morning, investors will be looking for her to “bridge the gap” between policy makers’ divided views, says Interactive Investor’s Rebecca O’Keefe.

In between Fed speakers and some economic data, oil may provide another distraction, though a meeting of big producers on the sidelines of an energy conference in Algiers isn’t expected to produce much.

Oil prices have had an impressive run this year, nonetheless, with a whopping 21% year-to-date gain for WTI futures (on a continuous basis). However, our call of the day says the good times may be over soon, and it’s time to start booking those profits.

While stock futures are panting a little this morning, European stocks are running higher on a whiff of optimism over banks, particularly Deutsche Bank. Since last night, we’ve had the lender’s chief denying that it needs any help on capital, a report that the German government is working on a rescue plan (in case it’s needed) and a denial from the German finance ministry of any such thing.

The market is fairly desperate that Deutsche Bank’s problems don’t morph into another crisis. Our chart of the day, though, shows that it’s not just one bank we need to watch in Europe.

Key market gauges

Dow












YMZ6, +0.07%










 and S&P












ESZ6, +0.01%










 futures are tilting lower. Crude












CLX6, +1.16%










 is up slightly after Tuesday’s meltdown, as the market adjusts to the idea that the next chance for an output deal has been pushed back to the November OPEC summit.

Asian markets












ADOW, -0.30%










closed in the red, led by a 1.3% drop for the Nikkei












NIK, -1.31%










 as banks fell and the yen












USDJPY, +0.21%










 remained strong. Europe












SXXP, +0.96%










 has turned higher, as Deutsche Bank shares rally and oil prices are firm.

Gold












GCZ6, -0.08%










 and silver












SIZ6, +0.16%










 are slightly lower.

The economy

Durable-goods orders and core capital equipment orders are due at 8:30 a.m. Eastern. There’s a cluster of Fed speakers: St. Louis Fed President Jim Bullard, Chicago Fed President Charles Evans and Cleveland Fed Pres. Loretta Mester. At 10 a.m. Eastern, Fed Chairwoman Janet Yellen will testify on bank regulations.

The call

Oil’s nice ride looks set to end this autumn, says a blogger for Slope of Hope.

Since late 2014, WTI crude prices have closely tracked U.S. inventories (via the Energy Information Administration), which means rises in prices have matched falls in stockpiles, says Rohit Goel.

However, this chart shows how the relationship has been diverging since February, he notes. Higher inventories haven’t been denting crude’s rise.

Slope of Hope


Crude breaking away from inventories

The strength of oil’s rally can partly be attributed to the rumors of a production freeze, which came in the leadup to the Doha summit back in April. That chatter kept WTI prices high, as market players anticipated inventory levels would be lower in future.

That relationship should have corrected and pushed WTI prices back down when no deal emerged. But it didn’t, due to constant jawboning from OPEC officials, natural disasters and terrorist attacks, says Goel. The blogger then lists a lot of other reasons why the oil market should be correcting.

“Putting it all together, the supply/demand imbalance and the headwinds posed by the U.S. dollar paint a very bleak picture for oil prices,” says Goel, adding that oil and its fundamentals usually don’t stay disconnected for too long. The break is coming.

“As we head into the fall maintenance period, the divergence between WTI prices and cumulative inventories should reverse, and a retest of the recent low of $39 is on the cards. If support at $39 … breaks, expect fast money to pile into the short side and WTI to drop to mid-$30s in a hurry,” says Goel.

Read the whole thing here.

The quote

“I think we’re very far in terms of how solid banks are now, in terms if where we were in 2007 and 2008,” Axel Weber, former German Bundesbank president and UBS chairman, brushes aside worries about Deutsche Bank’s troubles infecting the rest of the industry.

The chart

Listen to that, but then feast your eyes on this chart:

wOLF s


It’s from Wolf Street blog’s Wolf Richter, who says European banks are still right on the edge of mayhem.

“All it takes is for one of the big ones to suddenly topple. The flow of credit would freeze up instantly. In an economic system that depends on credit, and whose lifeblood is credit, such an event is a financial crisis,” writes Richter on his blog.

The buzz

The Wells Fargo












WFC, +0.47%










 fallout continues. One executive is gone, and a probe has been launched after an sales-tactics scandal. The bank’s head of community banking has left the company without severance, and CEO John Stumpf will forfeit around $41 million in equity awards.

Alphabet












GOOG, +1.14%











GOOGL, +1.01%










 shares are down nearly 1% in premarket after the Google parent was downgraded at Wedbush.

South Korea has ordered Honda












7267, -1.08%










 , Toyota












TM, +1.04%











7203, -1.13%










 , Ford












F, -0.25%










Volkswagen












VW, +1.11%










 and 10 other foreign car makers to recall hundreds of thousands of imported autos with defective Takata air bags.

Tesla












TSLA, -1.52%










 and SpaceX CEO Elon Musk has unveiled how he will send humans to Mars, without laying out any specific funding plans. Some say, enough with the sci-fi dreams — what about the problems with his other companies?

Reporting late Tuesday, Nike












NKE, +1.73%










 posted higher sales and profit, but order growth slowed and shares are down 3% in premarket trade.

A quarterly sales warning for Tempur Sealy












TPX, -0.07%










 is hitting shares, off 24% in premarket.

Amazon












AMZN, +2.12%










 has even bigger plans than we think. It wants to compete against UPS












UPS, +1.07%










 and FedEx












FDX, +1.12%










 , say sources cited by The Wall Street Journal.

The stat
Getty Images


Arizona stumping for Clinton.

126 years — That’s how long it’s been since The Arizona Republic has backed a Democratic candidate. The conservative newspaper editorial board endorsed Democratic nominee Hillary Clinton, saying her flaws are far fewer than Donald Trump’s.

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