Daily Brief - 18 Dec 2023

Wall Street turns to short-dated debt to trade the Fed’s pivot

With the Federal Reserve hinting at interest rate reductions in 2024, Wall Street's attention is now on short-term government debts that offer over 4% yield. This change in strategy stems from a declining inflation rate and a belief that the economy might avoid a recession. Investors are moving away from long-term debts, expecting the yield curve to return to a normal upward slope. Big names in investment predict a positive yield curve by the end of 2024, aligning with the Fed's plans to cut rates. This shift has sparked interest in Treasury notes, especially two-year ones, as safer and more attractive investments.

US shale oil makes a comeback shaking OPEC's strategy

US shale oil production is on the rise, surprisingly exceeding forecasts and adding a significant amount of oil to the global market, similar to Venezuela's output. This increase challenges OPEC's efforts to control oil prices by limiting supply. Despite a decrease in drilling rigs, US companies have boosted efficiency, producing more oil faster. This surge is largely driven by private companies, with some like Mewbourne Oil Co. and Endeavor Energy Resources LP leading in production increases. The industry, however, is focusing on controlled growth, with a projected modest spending increase in 2024, signalling a shift from rapid expansion to more strategic development.