Monday Market Musings 020923
Long-Term Energy Value
Looking for long-term energy recovery
Report out this week:
Investment Strategy Focus for September 2023
Buying opportunity in US government bonds: the Fed probably reached its terminal rate and should hold its target rate steady at 5.5% until Q1 2024. The recent sell-off in US Treasury bonds offers long-term investors a good entry point. We favour US Treasury Inflation Protected bonds (TIPS) given elevated real yields.
Recent US dollar movements are exaggerated: we still expect the Fed to start cutting its benchmark interest rate in late Q1 next year as economic momentum softens. Cumulative rate cuts from peak to trough should be much bigger for the Fed than for most other central banks. This should be a key driver of US dollar weakness, once the uncertainty around the Fed’s interest rate path reduces.
Small stock market correction in August, but no breakdown in the upwards trends in Euro, Japanese, US and Latin American stock markets. We maintain our Positive stance on global stocks, favouring the Eurozone, UK, Japan and Latin America on a regional basis.
Healthcare sector is a key quality defensive sector that has consistently outperformed other defensive sectors, and benefits from the ageing population megatrend. We continue to rate Healthcare as Positive.
Summary
OPEC+ cuts global oil supply
US oil inventories at a seasonal low
Brent crude oil breaks out above $88/barrel
Oil majors perform well, led by ExxonMobil and ConocoPhillips
Value to be found especially in European/UK majors
Even more potential value in oil & gas small-caps
Don’t overlook US Master Limited Partnerships (MLPs) to play energy infrastructure
Focus on Energy
As we approach the latter part of 2023, we are presented with a resurgent oil price as global demand remains steady, while supply is cut by OPEC+ producers Saudi Arabia and Russia - both producers have pledged to maintain current quota cuts into October, at a time when OPEC+ oil production is at its lowest since mid-2021.
At the same time, US oil inventories have dipped to a seasonal low, at the lower end of its 5-year seasonal range.
