I will be traveling next week so there will be no ‘Eye On Energy’ report. Our next issue will be out on Wednesday January 10, 2024. 

The stock and bond markets continue to enjoy strong year end performance. There are a lot of excesses in both markets but for now investors are ignoring the negatives. 

It is quiet on the economic front as the holiday season is underway but a few releases are of note:

• Wage inflation persists and unions are gaining power in their negotiations. President Biden has been one of their biggest political supporters and with Presidential elections due in 2024 we may see him support unions even more to get their voter, organizational skills and funding support. 
• US Consumer Credit showed a slowdown as spending slowed as household budgets were strained. It grew at a 1.2% pace in October down from a 3% pace in September. Nike last week reported a weaker sales outlook and unveiled US$2B of cost cuts and the stock sank that day by 12%. 
• A positive for inflation was that the Fed’s favourite measure, the PCE price index fell 0.1% in November. It was up 2.6% year over year. Core was up 3.2% in the month. This is closing in on the Fed’s target of 2%. The biggest benefit has been from lower energy costs and we expect them to swing upward in 2024 making future data problematic. 
• The US Deficit widened in the first months of fiscal 2024 and is projected to rise to US$2T from US$1.7T in fiscal 2023. 
• The deficit and ongoing inflation pressures may make the forecast by the markets of six or seven cuts in 2024 unlikely. Even the Fed’s indications of four cuts may prove too optimistic if we are right about rising energy costs and wage inflation persists. Housing is another problem area as it is rising much faster than headline inflation data. 
• The first two weeks in January are critical for the US Congress to pass spending bills or face closure. In addition, aid to Ukraine and Israel need progress on the US southern border which looks to be gridlocked. 

On the war front:

• The US has attracted sufficient warships from allied countries to keep the Red Sea from having additional attacks. Some shippers like Maersk are now planning more shipping via this route. While there is still danger from the Iranian backed Houthis, saving over 8,000 miles from the African route around the Cape of Good Hope saves materially in fuel costs. If all shipping had to be redirected it could have added over 1 Mb/d of incremental demand. The Red Sea moves 12% of world crude trade and 40% of European total trade. One negative was that Spain, Italy and France requested joining. They would prefer the effort be led by NATO and not the Pentagon.
• Both the US and Israel have killed Iranian generals in Syria and Iraq that were responsible for recent attacks. 
• The US shot down last week Houthi missiles aimed at the Israeli port of Eilat. The missiles were directed by an Iranian spy ship in the Red Sea. If it directs more attacks one can expect the US or Israel to destroy the vessel. 
• Iran is now via its Revolutionary Guards threatening to close waterways in the region. This is just bluster as they do not have the warships. They could do something of a short term nature, via mining, but this can be removed quite quickly by allied forces.   

Market Update:  We expect general stock market weakness in Q1/24 as markets are extremely overbought. Over the last two weeks since our BUY recommendation (December 7th) energy stocks have had a very nice bounce. However, if the general stock market retreats over the coming weeks then energy stocks, which are high beta, will test the lows of early December. When that happens be ready to buy the bargains that develop across all markets. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.