Is this week's relief real or just borrowed from the future?
On Friday, the G7 agreed to release up to 100 million barrels of oil and diesel from emergency reserves, briefly sending Brent below $100. Then a weak US jobs report knocked the odds of another Fed rate rise and the Nasdaq jumped to a 52-week high. Look closer though and it's yet more intervention to prop up markets and the consumer.
In a week we've had a new equity loan for homebuyers, a Fed pause and an emergency release of fuel reserves. Each intervention buys relief but also uses up ammunition.
Part one: a reserve release is a loan from the future
The average price of diesel in the UK passed £2 a litre for the first time on Friday, according to the RAC. The answer from the G7, after pressure from Donald Trump, was to release reserves over the next four months.
But this doesn't add a single barrel of supply. It simply moves barrels from next winter to this autumn. Britain holds only around 40 days of diesel stocks. Paul Sankey, the independent oil analyst, argues that the world's emergency buffers are already largely used up. This is simply spending more of what's left. If another shock comes this winter, what is left in the tank (literally!)? The market seemed to agree: Brent dipped as low as $98 on the news, then finished the day back above $102.
Diesel in the US Midwest has hit a record $6.50 a gallon, and US farm states, many Republican-held, are at risk in the midterms. DJT threatened to restrict US diesel exports unless Europe released its stocks, so they obliged. Like Help to Buy 2.0 a week ago, it treats the symptom, not the disease.
Part two: it's not a bull market, it's a reload
The US added just 29,000 jobs in September, against forecasts of nearly 100,000, with the previous two months revised down too. The Nasdaq hit a 52-week high anyway.
Citadel's Scott Rubner calls it the "Q4 reload": September cleared out borrowed money and crowded positions, leaving big investors plenty of room to buy back in.
That's a positioning story, not a fundamentals story. When funds cut their exposure but the market rises, they're forced to chase it. That's the pain trade: the move that hurts the most people is upwards, so that's where it goes. The rally is narrow too. Bank of America's Michael Hartnett notes that around 400 of the S&P 500's stocks are trading below their 50-day average.
So perhaps the market isn't saying that everything is suddenly brilliant. More like everyone sold a little too much and now they have to buy it back.
The flipside
This isn't a dead-cat bounce. The earnings are real: S&P 500 profits are on track for a third straight quarter of 25%-plus growth. Accenture's record bookings this week showed AI is creating demand, not just destroying it. A Fed pause is genuine relief & French President Macron says shipping through the Strait of Hormuz is recovering.
My read
The AI profits are real, but this week's move was about positioning. The oil intervention doesn't fix the underlying problem: supply is tight & money is expensive. The 10yr Treasury yield fell to 5.17% on the jobs data, then reversed to close higher on the day, at around 5.28%. The Fed can influence the short end of the curve. It cannot simply order investors to accept cheap long-term money.
Relief bought with reserves is simply a market on borrowed time. A rally from positioning eventually has to find earnings. Both can work. Neither is free.
What's left in the tank?
So what else is left to prop up the consumer, markets and an administration heading into the midterms?
Rate cuts: the Fed hiked in September and US factory input prices are still rising fast.
More government spending: UK 30-year gilts just hit 6%, and French bonds pay their biggest premium over German debt since the euro crisis.
More reserves: that's what was just spent.
Hormuz reopens: DJT signs an agreement with Iran.
More political pressure: from who I wonder!??
Only one of those adds supply rather than borrowing it.
The Comms Read
For any company that runs on diesel, from hauliers and supermarkets to food producers and airlines, this week brings a temptation: point to the G7 release and tell investors that cost pressure is easing. Resist it. The relief is temporary though, so if prices climb again this comment will be quoted straight back at you.
Greggs showed the better approach on Wednesday. It didn't try to predict energy prices. It gave investors facts they could use: about half of next year's energy is hedged, and higher energy and diesel costs could feed into ingredients in 2027. Tell people what you've locked in, what you haven't, and what happens if it goes the wrong way. Investors can price uncertainty. What they punish is surprise.
What to watch
OPEC+ meets on Sunday and is expected to keep output unchanged, so no help there. The UK's fuel duty freeze expires on 31 December, which makes extending it one more bill for Healey's Budget. And on 28 October, the Fed meets on the same day as the Budget.
Every rescue works, for a while. So how many more times can the system buy relief before it starts having to pay for it?
Time will tell. GLA & DYOR.
Disclaimer
This newsletter is published by James Lea / CorpCast for general information, educational and journalistic purposes only. Nothing in it constitutes financial, investment, legal or tax advice, or a personal recommendation, and it is not an offer, invitation or inducement to buy, sell or hold any security, cryptocurrency or other financial instrument.
Any views, opinions, forecasts or interpretations expressed are the author's own personal opinions at the time of publication, do not reflect the views of any business or entity the author is affiliated with, and may change without notice. No account is taken of any reader's personal circumstances, objectives or financial situation, and nothing here should be relied upon as the basis for any investment decision.
The author may from time to time hold long or short positions in securities, cryptocurrencies or other assets referenced in this newsletter, and may transact in them at any time without further notice. This is a standing disclosure covering all issues and is not repeated or itemised per asset.
Investing and trading involve substantial risk of loss, including the potential loss of your entire investment. Past performance is not a reliable indicator of future results. Figures, data and third-party information are believed reliable but are not guaranteed to be accurate, complete or up to date.
James Lea / CorpCast is not authorised or regulated by the Financial Conduct Authority. Always conduct your own independent research and consult a suitably qualified, FCA-regulated financial adviser before making any investment decision.