Risk assets rule for now, but for how long?

Equities have still got a bid over the weekend, continuing its bear market rebound(or its bull run if you are in the other camp). Eur/USD has also edged back up above 1.35 and JPY shooting above 101, the combination is again giving oil prices the underlying bid tone to begin the week. The more eye catching move in comodities have been Gold in the last few sessions. It seems there is now a view gold will take a back seat, as trader/investor group focus on the weak underlying demand and momentum in equities. However, given how the Gold/Oil ratio trade has moved over the past few months, SFOT will not be involved in this ratio group, but look to perhaps buy some Gold on this down move. The sea is calmest before the storm, and we sure look to be fairly calm now in all markets when safe haven currencies like JPY, CHF are being sold off so hard. It might not be wise to go against the flow, but SFOT will look for cheap downside strategies in all risk assets.


This move up in crude oil prices is harming refining margins again, and this is probably why the integrated oil companies have not performed much in this move up dominated by the financial. The first round of run cuts have done what was expected, increased crude stocks and create a bigger contango in crude. Refined product stocks remains harmed by the lowered demand and run cuts have not even drawn down inventories. Traders are happy to keep products in storage and running the very profitable cash+carry trade. The situation will continue to stay like this and spreads are going to stay weak while flat price cannot establish a new higher range than current.

One thing of interest is the dislocation of the front WTI again. The time spreads in the front are weak again, due to the roll period of the indices peaking sometime this week, while WTI-Brent spreads are wildly negative again in the prompt. The small draw in cushing stocks seems unable to to take prompt WTI higher, and SFOT believes in a shift of investor behaviour, from the ever losing USO ETF to indices that invests longer out. One just need to look at how the forward curve has behaved in the run up in prices to tell that most of these investments have gone 6 months out.

So we kick off champions league actions this week, and SFOT is queitly confident of Arsenal's return to form recently. They have not lost a single match in the premier league in 2009, and looked in form on saturday. Now, we may not be able to win the league, however, we have a say in where it goes when we have to play the top 3 still. And fingers crossed, we shall remain on target for 2 cups. Write us off at your own peril.....