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3 Things Under the Radar This Week

1. Shale Production Momentum to Continue

U.S. crude oil production remained at a very strong 12.4 million barrels per day last week, the Energy Information Administration said in its weekly report.

That’s up about 1.5 million bpd from the same period a year ago, with shale oil adding to strong U.S. output.

And shale supply will continue to rise, hitting 14.5 million bpd by 2030, according to research firm Rystad Energy.

“In the past decade, crude oil coming from shale patches such as the Permian in the U.S. has grown from a negligible contributor to an upstream behemoth, reshaping the industry and the oil market,” Rystad said in a note this week.

The 14.5 million bpd level is based on Rystad’s base-case price scenario of an average price for WTI of $55 per barrel in 2019, $54 in 2020 and 2021, and $57 in 2022.

At a flat $45 per barrel scenario, the firm sees a 2030 peak of 11.5 million bpd.

“Based on our analysis, the oil price would need to be as low as $42 per barrel WTI going forward for the 2030 U.S. (light tight oil) supply to be as low as EIA presents in their reference case,” Rystad product manager Sonia Mladá Passos said.

2. Value Stocks Reigned Supreme, but Sustained Rally Uncertain

Rotation, Rotation, Rotation.

Investors’ go-to plan to stay ahead of the boom and bust in markets saw value stocks make the list of fashionable investments this week, while high-swinging growth stocks got the boot.

The iShares Edge MSCI USA Value Factor ETF (NYSE:VLUE) jumped 4% for the week, while the iShares Edge MSCI USA Momentum Factor (NYSE:MTUM) dropped 2% this week.

In the hunt for value, investors scooped up the cheapest stocks boasting the lowest price-to-earnings ratios like JPMorgan Chase (NYSE:JPM) or Deere (NYSE:DE), while casting aside more expensive names like PayPal (NASDAQ:PYPL) and Adobe Systems (NASDAQ:ADBE).

With stocks ending the week within touching distance of all-time highs, the change in fortunes for value against momentum stocks suggests that investors may be growing nervous about frothy valuations, particularly in high-flying tech names, which have largely driven the broader market higher.

But calls for value stocks to put together a sustained run higher and steal momentum’s crown may be somewhat farfetched, as some doubted whether beaten-down value names in sectors such as energy and financials would need to show meaningful growth to keep prying investment dollars away from momentum stocks in sectors such as tech.

"This (value) trade can work for a while, but it is hard to see it lasting for a while unless those groups [(ike financials, energy and retail) really perform fundamentally,” Kari Firestone, Aureus Asset Management CEO, told CNBC.

3. What percent?

President Donald Trump continued to rail against his own Federal Reserve this week, calling them “boneheads” for not cutting rates to zero (or below).

But over in Africa, Zimbabwe’s central bank went the other way – big time.

The Zimbabwe central bank hiked its overnight borrowing rate to 70% from 50% as its currency plummeted on the heels of runaway inflation.

As the country faces a dearth of foreign investment following its introduction of the new Zimbabwe dollar in the middle of the year, its annual inflation rate has jumped into triple digits.

The inflation rate was officially 176% in June, lower than only Venezuela, according to Reuters. But analysts said the actual rate could be much higher now, particularly factoring in black market transactions.

The hope is the huge rate hike will stem the tide.

“Since the abolishment of the multicurrency system and re-introduction of the Zimbabwe dollar in June 2019 as well as the upward reviewing of the Bank policy rate, the inflation pressures are expected to dissipate,” Central Bank Governor John Mangudya said in a monetary policy statement this month. “Both the annual and monthly inflation are expected to moderate over time.”

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