BP (BP) led the FTSE 100 higher after delivering bumper profits in the final quarter to round out a record year for the company, with shares up almost 4 per cent to a three-year high. While London rose, shares in Frankfurt declined somewhat and Paris was flat in early trading on Tuesday. German industrial production fell 3.1 per cent in December – a big miss and worrying sign of contraction at the end of the year.
Crude oil rose for a second day after Saudi Arabia raised selling prices for Asia for the first time in six months. The earthquake in Turkey and Syria also raises near-term supply concerns after the former halted flows to the Ceyhan terminal – though this morning it has ordered resumption of flows, whilst crude flows from Iraq and Azerbaijan have also been affected.
Yesterday, yields moved higher in the wake of the jobs report as markets priced out rate cuts and bought a little more into the higher-for-longer narrative. We have seen some very abrupt moves, particularly in the front end of the yield curve as markets have reacted rather aggressively to the jobs report. We saw the 10-year yield up 11 basis points at 3.64 per cent and the 2-year yield adding around 18 basis points to 4.48 per cent – something like 40bps since Friday morning. Higher yields undid some of the multiple expansion-driven rally this year, nudging the Nasdaq down 1 per cent and leaving the Dow Jones almost flat for the session.
Jay Powell speaks today. There may be some push back against a pause in rate rises or maybe he’s going to clarify those remarks about disinflation and how financial conditions had “tightened” when in fact we know they have loosened.
The BP update was interesting given what it tells us about future energy security. Profits doubled to $27.7bn, the most ever. The company also increased the dividend by 10 per cent and announced $2.75bn in buybacks – not quite keeping up with the Jones after Shell (SHEL) did 15 per cent and $4bn.
It all displayed a confidence of investing more in short-cycle oil and gas projects to deliver what we need now, and more investment in transition growth and green stuff to deliver what we will need in the future. Scaling back plans to reduce oil and gas production signals that for all the chatter, energy security right now is all about fossil fuels. But bumper profits also make it an easy target for a venal Treasury looking for someone to squeeze. And all the usual suspects will be calling for yet more windfall taxes.
Read more on BP’s results here
Read Taking Stock’s view on decarbonisation here
Golden crosses
There have been a few ‘golden crosses’ (a bullish signal) in FX lately; but the talk is about the S&P 500 after last week’s bullish signal. I’m not convinced about it, but BofA analysts point out that “returns after a golden cross are the most solid 30, 65 and 195 days after the signal with the index up 75 per cent of the time on stronger than average returns.”
And they point out that this is a bullish signal particularly around a recession. "Unless the US economy is already in recession, or the US equity market is extremely forward-looking this cycle, these golden cross signals typically occur toward the end or just coming out of the recession."
Neil Wilson is the Chief Market Analyst at Finalto
