Daily Agenda: Debating the Oil Rally

Crude futures rise for third day; Trump wins big while Sanders scores Michigan upset; Deutsche and UBS lose U.K. tax case; pharma braces to fight Medicare proposal.


The recent rally in oil markets extended through this morning. In trading on Wednesday, Brent crude-oil futures in London rose above $40 per barrel while U.S. futures for front-month delivery climbed above $37. The question being asked by market strategists is whether the rebound in public markets is being driven by fundamentals or technical factors. On one hand, despite data that indicates that the global supply glut is still weighing heavily on prices, the upcoming meeting of the Organization of the Petroleum Exporting Countries in Moscow on March 20 holds out hope that the consortium may finally begin curtailing production with Russian cooperation. On the other hand, exchange data for U.S.-traded West Texas crude futures show that professional investors closed short positions at the highest rate in nearly a year last week, suggesting that the rally is driven, at least in part, by profit taking. Regardless of the cause, rising oil prices appear to have supported sentiment in global equity markets this morning with advances in primary European indices and U.S. equity-index futures.

Trump solidifies lead while Sanders takes Michigan. Real-estate developer and reality TV star Donald Trump secured victory in Republican primaries in Michigan, Mississippi and Hawaii on Tuesday while Texas Senator Ted Cruz won in Idaho. Trump, arguably the most divisive presidential candidate in a generation, continues to lead the pack for the GOP nomination as Florida Senator Marco Rubio and Ohio Governor John Kasich remain in the race. Kasich performed well in Michigan, but Rubio trailed badly in several key races. The battle for the Democratic nomination took a surprising turn when Vermont Senator Bernie Sanders narrowly upset vformer Secretary of State Hillary Clinton in Michigan, keeping his hopes of securing the nomination alive.

Deutsche Bank and UBS lose tax case in the U.K. Britain’s highest court ruled in favor of HM Revenue and Customs on Wednesday, stating that a bonus scheme used by Frankfurt, Germany’s Deutsche Bank and Basel, Switzerland’s UBS Group to compensate bankers in 2003 improperly avoided taxation. The bonus plan involved the distribution of restricted securities shares via offshore facilities. The ruling is important because it marks the latest in a string of cases in which British courts have ruled against tax schemes that, while based on legal technicalities, violated the spirit and intent of tax regulations.

Medicare drug proposal attacked by lobbyists. On Tuesday the Centers for Medicare and Medicaid Services announced a proposed rule initiated by the Obama administration that would lower the Medicare reimbursements to doctors using certain drugs when less expensive alternatives are available. The move comes as part of an ongoing push by lawmakers to rein in the cost of medical entitlements in the face of rising drug costs. The announcement met with sharp rebukes from pharmaceutical industry lobbyist groups and specialized medical consumer advocates.

Japanese treasuries vacillate. One day after yields on seven, 10- and 30-year Japanese government bonds (JGB) set record lows, the market sold off sharply on Wednesday with the yield for 30-year paper climbing by as much as 24 basis points. Analysts ascribe the selloff to profit taking in an environment of reduced liquidity. Aggregate JGB indices have led global sovereign debt markets with a gain of more than 5 percent year-to-date.

Saudi Arabia seeks loan. On Wednesday, Reuters, citing anonymous sources, reported that the finance ministry of the Kingdom of Saudi Arabia has asked global banks for terms for a U.S.-dollar denominated loan of up to $8 billion with the option to borrow more. With the decline in oil prices in recent quarters, the Kingdom finds itself running a record budget deficit as it struggles to keep social benefits flowing for nearly 25 percent of its population that lives below the poverty line. Standard and Poor’s recently downgraded Saudi Arabia’s credit rating While Moody’s has placed the nation on review status.