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3 Things Under the Radar This Week

Investing.com - Here’s a look at three things that were under the radar this past week. 1. Glencore Puts a Cap

Investing.com - Here’s a look at three things that were under the radar this past week.

1. Glencore Puts a Cap on Coal

Glencore (LON:GLEN), the world’s biggest mining group, bowed before the winds of change this week, saying it plans to cap the amount of coal it produces each year at current levels of around 150 million tons.

The move is, in part, a response to pressure from investors worried that the billions they have at stake in fossil fuels could be at risk.

“To deliver a strong investment case to our shareholders, we must invest in assets that will be resilient to regulatory, physical and operational risks related to climate change,” CEO Ivan Glasenberg said.

That means no new mine developments.

It also means the cash it earns from coal -- $5.3 billion last year before interest, taxes, depreciation and amortization -- will go to fund investment in cobalt, zinc and copper, which all figure prominently in low-carbon energy technologies (especially batteries). Glencore also promised more thorough and regular updates on its own carbon footprint.

But this is no Damascene conversion. Glencore actually plans to increase coal output by 12% this year thanks to two big acquisitions that closed in 2018. Nor does it plan to wind down any current operations ahead of schedule.

In that light, Glencore’s announcement looks more like a prudent decision not to sink billions of dollars into new mines that may not have a market. Global coal demand isn’t widely expected to peak for another decade or two, but China and India’s struggles with pollution -- and the inroads made by renewable energy sources -- clearly have the potential to leave expensive new long-term projects stranded. That’s not a risk that Glasenberg and his team, with still-fresh memories of a scrape with bankruptcy in 2015, are likely to underestimate.

2. U.S and OPEC in Harmony?

When he announced OPEC’s landmark production cut deal in December, Saudi Energy Minister Khalid al-Falih said he shared Donald Trump’s vision of continued growth for the U.S. oil and gas industry.

“We have no problem with that,” Al-Falih said. “Hopefully, we can grow together, not one at the expense of the other.’

This week it looked like both the U.S. President and Al-Falih got their wish.

Data on Thursday showed U.S. crude exports hit a record high of 3.6 million barrels per day for the week ended Feb. 15, while achieving all-time peaks in production at 12 million bpd.

And it’s not just U.S. oil exports and production that’s growing.

Midland County, Texas, which sits within the prolific Permian shale basin, had the largest county employment growth in the third quarter of 2018, according to data released this week by the Bureau of Labor Statistics.

Employment jumped 11.9% in Midland, with 5,824 new jobs in natural resources and mining, a gain of 23.7% year over year.

The Saudis, on their end, are sitting on a near-35% hike in oil prices since the lows of Christmas Eve, thanks to relentless production cuts carried out in the two months since the OPEC meeting.

Seldom have U.S. and Saudi goals for oil aligned like this.

Yet analysts aren’t sure if the game will stay mutually beneficial.

That’s because while Riyadh is closer to its desired oil price of $80 per barrel, it has gotten there by cutting production aggressively -- to the extent of even ceding market share in Asia, its most prized destination.

Underscoring that notion, the Indian Oil Corporation said this week that it has signed a $1.5 billion deal to buy U.S. oil to reduce dependence on traditional suppliers.

In December, Al-Falih said U.S. shale operators were “probably breathing a sigh of relief that we’re providing some certainty and visibility for 2019.”

The Saudis may have provided the American oil industry with a lot more than that.

3. Market Holds Its Breadth

Anyone can get caught up in the euphoria of a swashbuckling market rally or panic selling in a downturn. But whether the move is led by a few stocks or a broad range can be the difference between a trend and a fake-out.

Enter the Advance-Decliners Line, a measure of market breadth.

The New York Stock Exchange’s AD line hit an all-time high on Wednesday, indicating the market breadth has never been better.

With the AD line at record highs and market breadth showing little sign of breaking down, momentum is clearly with the bulls.

But in recent weeks, many have questioned whether the recent run-up in the major averages is overdone, with the S&P 500 about 5% off its all-time highs during a week that saw major economic reports sink to multiyear lows.

The Philadelphia Federal Reserve's business index fell to its lowest level since May 2016. The Conference Board's index of leading economic indicators fell for the second month in a row in January, the first time that's happened since early 2016. Existing home sales slumped to their lowest levels since Nov. 15.

Advancing stocks have also bulldozed decliners thanks to traders covering short positions, but this will soon run out of road, according to analysts.

"Buying to close out unsuccessful bets against U.S. stocks may fade as a source of market resiliency," according to Jonathan Krinsky, chief market technician at Bay Crest Partners. Krinsky cited changes in short interest on S&P 500 and Nasdaq 100 index exchange-traded funds.

The number of SPDR S&P 500 (NYSE:SPY) ETF shares sold short fell 22% in January to a four-month low.

Still, stocks can count on the Federal Reserve's accommodative policy to remain in place. And the gloomy clouds over U.S.-China trade, which many believe is key to either ending the rally or triggering a downturn, have begun to clear.

With the clock running down on the March 1 trade deadline, any whiff of a meaningful deal in the coming days will likely support another wave of buying, staving off the risk the AD line peaks and ODs.

Written by Geoffrey Smith, Barani Krishnan and Yasin Ebrahim