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The oil market has a habit of looking settled right before it stops being settled. That is the setup now.
Traffic through the Strait of Hormuz has dropped sharply as the conflict around Iran has intensified, and more vessels are going dark by switching off AIS, or Automatic Identification System, signals that usually show where ships are moving. Hormuz is not just another shipping lane. It is one of the world’s most important energy chokepoints, so when visibility starts to disappear, supply risk moves back to the centre of the conversation.
Why this matters now
This matters for a couple of reasons.
The headline move is one thing. The market implication is another. Oil is not only about how many barrels exist, rather, it is also about whether those barrels can move, who is willing to insure them, how long buyers are prepared to wait and how much extra risk traders feel they need to price in.
Right now, three things are colliding at once: disrupted shipping, fragile diplomacy and a market that is already leaning heavily in one direction. That combination can make Brent move faster than the fundamentals alone would normally suggest.
What is driving the move
1 Supply visibility is deteriorating
The first driver is simple. The market can see less, and that tends to make it more nervous.
Transit through Hormuz has fallen sharply, while a growing share of traffic has involved ships that are no longer broadcasting standard tracking signals. In plain English, fewer vessels are moving normally through a critical corridor, and more of the activity is becoming harder to track. That does not automatically mean supply is about to collapse. But it does mean uncertainty is rising.
2 Iran’s storage buffer may be limited
The second driver is Iran’s export and storage constraint.
Onshore storage capacity is estimated at about 40 million barrels, and the market is watching what some describe as a 16-day red line. That is the point at which a prolonged export disruption could begin forcing production cuts to avoid damage to reservoirs. For newer readers, the takeaway is straightforward. If oil cannot leave storage for long enough, the problem may stop being about delayed exports and start becoming a genuine supply issue.
3 Positioning could amplify the move
The third driver is positioning, which is just market shorthand for how traders are already set up before the next move happens.
In this case, speculative crude positioning looks heavily one-sided. That matters because when a market is leaning too far in one direction, it does not take much to trigger a sharp adjustment. A fresh geopolitical shock could force traders to move quickly, and once that starts, price can run harder than the underlying news alone might justify.
Why the market cares
An oil shock rarely stays contained inside the energy market.
Higher crude prices can start showing up in freight, manufacturing and household energy bills. That means inflation expectations can start creeping higher again. Central banks are already trying to manage a difficult balance between sticky inflation and softer growth, so higher oil can make that job harder.
And this is not just a story about oil producers getting a lift. Airlines, transport companies and other fuel-sensitive businesses can come under pressure quickly when energy costs rise. Broader equity markets may also have to rethink the policy outlook if higher oil keeps inflation firmer than expected.
The ripple effects go well beyond oil
There is also a currency angle, and it is less straightforward than it first appears.
Commodity-linked currencies such as the Australian dollar often get support when raw material prices rise. But that relationship is not automatic. If oil is climbing because global demand is improving, that can help. If it is climbing because geopolitical risk is spiking, markets can shift into risk-off mode instead, and that can weigh on the Australian dollar even as commodity prices rise.
That is what makes this kind of move more interesting than it looks at first glance. The same oil rally can support one part of the market while putting pressure on another.
Assets and names in the frame
Brent crude remains the clearest read on broad supply risk. If traders want the cleanest expression of the headline story, this is usually where they look first.
- ExxonMobil is one of the more obvious names in the frame. Higher oil prices can support realised selling prices and near-term earnings momentum, although it is never as simple as oil up, stock up. Costs, production mix and broader sentiment still matter.
- NextEra Energy adds another layer. This story is not only about fossil fuels. When energy security becomes a bigger concern, the case for domestic power resilience, grid investment and alternative generation can strengthen as well.
- AUD/USD is another market worth watching. Australia is closely tied to commodity cycles, so stronger raw material prices can sometimes support the currency. But if markets are reacting more to fear than growth, that usual tailwind may not hold.
For newer readers, the key point is that oil moves do not spread through markets in a neat, predictable line. They ripple outward unevenly, helping some assets, pressuring others and sometimes doing both at the same time.
What could go wrong
A strong narrative is not the same as a one-way trade.
A ceasefire could stabilise shipping flows faster than expected. OPEC+ could offset some of the tightness by lifting production. Demand data from China could disappoint, shifting the focus back to weak consumption rather than constrained supply. And if the geopolitical premium fades, oil could pull back more quickly than the current mood suggests.
For newer readers, the takeaway is simple. Oil rallies can be real without being permanent. A move may be justified in the short term by disruption risk, then reverse quickly if those risks ease or if demand softens.
The market is no longer pricing oil in isolation. It is pricing visibility, transport security and the risk that supply disruption spills into inflation, currencies and broader risk sentiment.
That is why Hormuz matters, even for readers who never trade a barrel of crude themselves.
This is only Part 2 of a 3-part series containing a full 21 page analysis, highlighting the global opportunities as a result of the introduction of negative interest rates in Japan. Click here to access the full analysis. After looking at the reasons why the Bank of Japan decided to opt for negative interest rates in the first part of this series, we will now see the factors that can help explain why the yen is not going south.
When there is nothing out there: As discussed earlier, part of BOJ’s decision to go into negative rates was to push financial institutions, companies and investors to move their money out of the banks and put those funds to work. However, this is easier said than done. Equity markets across the world are almost in a bear market.
Emerging economies (i.e. China, Brazil) are all weak or at least not inviting. The economic outlook for the developed countries (including U.S) has sharply declined in recent weeks.
The outlook for the commodities is still not clear (to say the least). World indices and commodities performance from 21/5/2015 to 17 Feb 2016 Measured from close to close Germany Shanghai US Australia Japan Commodities Return -21.0% -36.7% -9.6% -12.8% -21.6% -26.7% Max. Draw Down -25.2% -41.4% -14.2% -15.0% -26.0% -29.8% Therefore, not only do the cash rich Japanese companies have nowhere to go, but in the face of current global uncertainty, they became more conservative and started to roll back their foreign investments and wound up their carry trades.
What is a carry trade? A carry trade uses currencies with lower rates to buy those currencies with higher interest rates. For example, a hypothetical carry trader in Japan could borrow from a local bank, convert the proceeds to a foreign currency (shorting the yen) and invest the money in a foreign country (long the foreign currency) to collect a higher interest (in practice, it gets a little more complicated than this, but the idea is the same).
Since the interest that the carry trader receives from the foreign bank is more than the interest he/she has to pay to the Japanese banks, the carry trade makes money. The Risk off Scenario The biggest risk to the carry trades is the currency fluctuations. When risk-off events (such as the existing market turmoil or the commodity rout) forces the currency of the higher interest rate to rapidly depreciate, the Japanese investors would rush back to close those carry trades by selling the foreign currency and buying back the yen.
The unwinding of the carry trades will naturally bid the yen up. To us, this seems to be the biggest driver of JPY’s strength these days. Yen has had a prolonged history of low interest rates.
Therefore, it has been the world’s funding currency for various carry trades for many years. Given this, it is not surprising to see yen strengthening each time there is some sort of a crisis. The red line in the chart below is the S&P 500 index and the black line is the Japanese yen versus US dollar.
The squares on the chart highlight the four most recent market corrections. As you can see, each time that market posted a significant decline in the past 10 years, yen responded by a notable appreciation against the US dollar. To put this relationship into context, the chart below shows yen (the black line) vs the VIX index (the red line).
VIX or the Volatility index is a measure of market nervousness. It has an inverse relationship with the equity markets. Each time traders get worried about stocks, the VIX index increases in value.
The blue line on the lower section of this chart is the 50 day moving average of a 20-day correlation between net changes in yen and VIX. As you can see, there is a generally high correlation between yen and VIX. So whenever VIX rises (as a result of chaos in the stock market) yen rises too.
Impact on Japan Equities: Currency market is not the only market which has disappointed Kuroda. Japanese equities did not behave well either by showcasing higher volatility than the rest of major indices. The table below compares Japan’s stocks return and maximum drawdown from 29 of Jan (when the negative interest rates were announced) through to 17 of Feb 2016.
As you can see Nikkei has depreciated more than any other major indices. Major indices performance since 29 of Jan Japan US Australia Germany Return -9.60% -0.69% -1.33% -4.30% Max. Drawdown -14.65% -5.73% -5.45% -10.67% Additionally, since the beginning of February there has been three cases that Nikkei 225‘s daily returns stretched beyond their three or five times standard deviation band.
On Monday the 15 th of February, Japan’s equities rallied by almost 7.15% (measured from close to close on the cash index) after dropping by more than 5% just in the preceding trading day. A move like this represents five times the standard deviation of the average daily ranges. History has only seen 12 of these moves since 1965.
The number of times Nikkei 225 daily range has gone Beyond 3 and 5 standard deviation since 1965 Index Above 5 Sigma Below 5 Sigma Above 3 Sigma Below 3 Sigma $N225 12 19 107 81 To make the situation worse, we only need to remind ourselves that Japan’s stock market has an inverse relationship to its currency. This is because most of these companies are export driven and cannot naturally perform when yen is too expensive. The chart below clearly shows this relationship.
The black line is JPY against US dollar and the red line is the Nikkei 225 index. Notice how the pair has gone almost perfectly in the opposite direction since 2005. So based on the above, as long as Mr.
Kuroda is not capable of controlling its own currency and as long as the global market turmoil remains intact, the negative interest rates do not seem to be able to help him. But if for some reason, yen starts to depreciate again, except for the banking sector, other sectors may get back on their feet. The reason we are pessimistic on banks is that, as it turns out, Japanese banks (like other European banks) are not intending to pass the negative interest rates on to their customers.
Therefore, further advancement into negative rate territory will eat into banks’ profit margin. The table shows the performance and maximum draw down of Japan’s banking sector (Measured by TOPIX 1615 banks ETF) between 29 of January to 17 of February period. As you can see, banks have massively underperformed the Nikkei 225.
Banks vs the rest of the market in Japan Nikkei 225 Japanese Banks Return -9.6% -20.3% Max Drawdown -14.65% -26.3% Want Access to the Full 21 Page Report? If you want to take advantage of the trading opportunities around the introduction of negative interest rates in Japan, then click here to download the full 21-page analysis. Ramin Rouzabadi (CFA, CMT) | Trading Analyst Ramin is a broadly skilled investment analyst with over 13 years of domestic and international market experience in equities and derivatives.
With his financial analysis (CFA) and market technician (CMT) background, Ramin is adept at identifying market opportunities and is experienced in developing statistically sound investment strategies. Ramin is a co-founder of exantera.com which is a financial website dedicated to risk analysis and quantitative market updates. Connect with Ramin: Twitter | LinkedIn | Ramin's posts
Procter & Gamble Co. reported its second quarter fiscal year 2022 earnings before the opening bell on Wednesday. The US consumer goods company reported total revenue of $20.953 billion, above analyst forecast of $20.335 billion. Earnings per share at $1.66 per share vs. $1.65 a share expected by the analysts on Wall Street.
Jon Moeller, President and Chief Executive Officer commented on the latest results: ''We delivered very strong top-line growth and made sequential progress on earnings in the face of significant cost headwinds.'' ''These results keep us on track to deliver our earnings outlook and to raise estimates for sales growth, cash productivity and cash return to shareowners. Our focus remains on the strategies of superiority, productivity, constructive disruption and continually improving P&G’s organization structure and culture. These strategies have enabled us to build and sustain strong momentum.
They remain the right strategies to deliver balanced growth and value creation,'' Moeller added. Procter & Gamble Co. chart (1Y) Shares of Procter & Gamble trading higher after the latest results – up by around 4% during the trading day on Wednesday. The stock is up by 23% in the past year at $163.27 per share.
Procter & Gamble Co. is the 19 th largest company in the world and with a total market cap of $395.64 billion. You can trade Procter & Gamble Co. (PG) and many other stocks from the NYSE, NASDAQ and the ASX with GO Markets as a Share CFD. Sources: Procter & Gamble Co., TradingView, CompaniesMarketCap
Netflix released its Q4 2021 financial results after the US market close on Thursday. The online streaming service company reported total revenue of $7.709 billion in the quarter, slightly falling short of analyst forecast of $7.71 billion. Earnings per share at $1.33 a share, above analyst estimate of $0.88 a share. ''We achieved several milestones in 2021: we had the biggest TV show of the year (Squid Game), our two biggest film releases of all time (Red Notice and Don’t Look Up) and Netflix was the most Emmy-winning and most nominated TV network and the most Oscar-winning and nominated movie studio of 2021.
Full year revenue of $30 billion grew 19% year over year while operating income of $6.2 billion rose 35% year over year. We finished Q4 with 222m paid memberships (with 8.3m paid net adds in Q4). Even in a world of uncertainty and increasing competition, we’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world.
We're continually improving Netflix so that we can please our members, grow our share of leisure time and lead in this transition,'' the company wrote in a letter to shareholders following the latest results. Netflix chart (1Y) Share price of Netlfix traded lower on Thursday, down by 1.48% at $508.25 per share. The stock is down by 12% in the past year.
Netlfix is the 46 th largest company in the world, with a total market cap of $225.13 billion. You can trade Netflix (NFLX) and many other stocks from the NYSE, NASDAQ, HKEX and the ASX with GO Markets as a Share CFD. Sources: Netlfix, TradingView, CompaniesMarketCap
It is set to be a busy week over in the US with major companies, including General Electric, Johnson & Johnson, Microsoft, Tesla, Apple and McDonald's set to release their earnings figures for the previous quarter. International Business Machines Co. (IBM) released their latest figures after the closing bell on Monday. The US technology giant reported total revenue of $16.695 billion in Q4, beating analyst forecast of $15.96 billion.
Earnings per share reported at $3.35 per share, also beating Wall Street analyst estimates of $3.39 per share. Arvind Krishna, IBM chairman and CEO commented on the latest results following the announcement: "We increased revenue in the fourth quarter with hybrid cloud adoption driving growth in software and consulting." "Our fourth-quarter results give us confidence in our ability to deliver our objectives of sustained mid-single digit revenue growth and strong free cash flow in 2022," Krishna added. International Business Machines Co. chart (1Y) Shares of IBM little changed on Monday, ending the day down by 0.41%.
The stock is up by 8.64% in the past year at $128.82 per share. IBM is the 123 rd largest company in the world and with a total market cap of $115.46 billion. You can trade International Business Machines Co. (IBM) and many other stocks from the NYSE, NASDAQ, HKEX and the ASX with GO Markets as a Share CFD.
Sources: International Business Machines Co., TradingView, CompaniesMarketCap
Verizon Communications Inc. (VZ) released their previous quarter financial results before the market open on Tuesday. The US telecommunication giant topped Wall Street analyst expectations on both revenue and earnings per share. The company reported total revenue of $34.1 billion vs. $34.056 billion expected.
Earnings per share at $1.31 a share vs. $1.28 a share forecast. "Verizon delivered another strong earnings performance this quarter,” Verizon Chief Financial Officer Matt Ellis said about the latest results. Verizon Chairman and CEO Hans Vestberg commented on the past years results for the company and made predictions for the year ahead: "2021 was a transformational year for Verizon that will serve as a catalyst for us." "We delivered on all of our goals in 2021 and made great progress on our five paths of growth, finishing the year with strong operating and financial momentum. As we move into 2022, we have the necessary assets to realize our strategy that we laid out in 2019.
We are laser focused on executing our 5G strategy and providing value to our customers, shareholders, employees, and society, as 2022 will be the most exciting year yet for Verizon," he added. Verizon Communications Inc. chart (Weekly) Verizon share price little changed during the trading day on Tuesday, down by around 0.31%. The stock is down by around 9.63% in the past year at $52.84 a share.
Verizon Communications Inc. is the 45 th largest company in the world and with a total market cap of $220.99 billion. You can trade Verizon Communications Inc. (VZ) and many other stocks from the NYSE, NASDAQ, HKEX and the ASX with GO Markets as a Share CFD. Sources: Verizon Communications Inc., TradingView, GO Markets MT5, CompaniesMarketCap
Tesla Inc. (TSLA) reported its Q4 2021 results after the market close on Wednesday. The world’s largest automaker exceeded analyst expectations on both revenue and earnings per share. The company reported total revenue of $17.719 billion in the fourth quarter vs. $17.132 billion expected.
Earnings per share reported at $2.54 vs. $2.36 per share forecast. Tesla produced 305,840 cars in the fourth quarter and deliveries reach 308,600 vehicles. Last year, Elon Musk’s company delivered a total of 930,422 vehicles. ''2021 was a breakthrough year for Tesla.
There should no longer be doubt about the viability and profitability of electric vehicles.'' ''After a successful 2021, our focus shifts to the future. We aim to increase our production as quickly as we can, not only through ramping production at new factories in Austin and Berlin, but also by maximizing output from our established factories in Fremont and Shanghai. We believe competitiveness in the EV market will be determined by the ability to add capacity across the supply chain and ramp production.'' ''While 2021 was a defining year for our company, we believe we are just at the very early stages of our journey.
Thank you for being part of it,'' Tesla said in a letter to shareholders. Tesla chart (Weekly) Share price of Tesla ended the trading day up by 2.07% on Wednesday at $936.70 a share. The stock is up by 8.48% in the past year.
Tesla is the 6 th largest company in the world and with a total market cap of $941.40 billion. You can trade Tesla Inc. (TSLA) and many other stocks from the NYSE, NASDAQ, HKEX and the ASX with GO Markets as a Share CFD. Sources: Tesla Inc., TradingView, GO Markets MT5, CompaniesMarketCap