Smallcaps starting to outperform
Macro & Overnight
Oil prices plummeted yesterday. In the last month, the price of a barrel of Brent crude has fallen 17%.
The fall reflects three main things:
- OPEC+ production restraints are not holding.
- Iran has said it does not want the Hamas-Israeli war to escalate.
- Oil-consuming nations are on the edge of a deflationary recession, causing higher oil inventories.
Perhaps now is a good time for the US to replenish its Strategic Petroleum Reserves (SPR).
There are plenty of other emerging signs of looming deflation: US manufacturing data is showing slower growth than expected, UK retail sales are falling, and all measures of producer and consumer prices are weakening, with some already in negative territory.
Walmart warned overnight that sales have fallen noticeably and that prices “came down a little more aggressively in the last few weeks.” Its shares fell 8%.
In the UK, DX Group confirmed its sale to US PE firm HIG Capital for GBP 315m yesterday, bringing the total for agreed bids in the UK smaller company space to over GBP 1bn in one day.
Since the central banks first established their interest rate holding pattern at the end of October, the UK (and other) smaller company indices have started to outperform.
One swallow doesn’t make a Summer, but let’s see.
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