Links to Saxo’s equity theme baskets for commodities and nuclear power
Our nuclear power theme basket is the best-performing basket this month and, together with semiconductors, cyber security, mega caps and travel it has joined the +20% year-to-date performance club. With the fallout of wind turbines and the acknowledgement of the need for a clean and reliant baseload, nuclear power is fast becoming a critical option for governments among developed countries to expand clean electricity. Another driving force behind this has been steadily higher uranium prices which are a function of a squeeze in the physical uranium market as industry players scramble to deal with a potential ban on Russian nuclear fuel, or lower shipments due to lack of insurance cover – which would severely constrain the industry’s access to fuel. The uranium spot price (Ux U308) has surged to a 15-year high around $73.5 per pound, an increase of more than 50% over the past 12 months. Our nuclear power theme includes heavyweights like Cameco Corp in Canada and Kazakhstan’s National Atomic Company Kazatomprom, both trading up by more than 50% during the past year.
Apart from uranium, only the commodities equity theme has managed to stay in the black this month, and it's no surprise that the stellar performance has been driven by oil majors from Shell Plc and Exxon Mobil to Equinor, all benefitting from higher energy prices, during a month that has seen crude oil and product futures rally strongly.
US yield curve sends recession warning to markets
There has been a lot of talk recently about the US yield curve, the so-called bear-steepening move, and what this signals. Since early July, the US 2-10 yield curve spread has steepened from a very inverted level around -110 basis points to the current -50 basis points. The latest steepening has been driven by a faster increase in the 10-year yield while the 2-year yield held steady amid doubts about how much higher the FOMC will be able to raise rates without damaging the economy.
Bear steepening does not only raise red flags for stock market investors but also the wider economy. Rising long-dated yields have a large and rapid tightening effect on the real economy given the impact on private mortgage rates and corporate borrowing rates. In a situation where the economy is running hot, rising interest rates pose limited risks as rising yields are a normal reaction to robust growth. However, in the current situation where sticky inflation is driving long-end yields higher, it may pose a threat as the economic outlook looks increasingly challenged and could deteriorate faster.
Crude oil: Focus on Saudi Arabia following a week of heightened volatility.
Crude oil extended its month-long advance this past week with Brent moving closer to the psychological important 100-dollar level while WTI touched $95 per barrel after the EIA reported another drop in crude stocks at Cushing, the massive storage hub in Oklahoma used as the delivery point for WTI futures. The price action briefly turned disorderly after stockpiles fell closer to historic low levels, prompting concerns about the quality of the remaining oil and the potential for it to fall below minimum operating levels.
As opposed to April 2020 when WTI briefly hit a negative price of $40 per barrel on fears the pandemic-led collapse in demand would fill up Cushing, the opposite is now being felt due to months of strong refining and export demand. This has resulted in a widening of the premium buyers are prepared to pay for immediate delivery as opposed to later and, following the report, the prompt WTI spread raced to a $2.50 backwardation before easing back to a still elevated $2.1 per barrel.