Good morning! Here's what you need to know:
Oil Exports Are Coming Back."The Obama administration cleared the way for the first exports of unrefined American oil in nearly four decades, allowing energy companies to start chipping away at the longtime ban on selling U.S. oil abroad," reported the WSJ's Christian Berthelsen and Lynn Cook. "In separate rulings that haven't been announced, the Commerce Department gave Pioneer Natural Resources Co. and Enterprise Products Partners LP permission to ship a type of ultralight oil known as condensate to foreign buyers. The buyers could turn the oil into gasoline, jet fuel and diesel."
Prices Initially Spike. WTI crude oil futures prices spiked to above $107.50 per barrel from around $105.75 as speculators anticipated the impact of this new overseas demand. Currently, prices are around $106.50.
Condensate Is Not Crude Oil. Morgan Stanley commodities analyst Adam Longson wasn't that impressed by the WSJ story. His quick take: "No change in crude export policy." Longson clarifies that condensate is actually a form of refined product, and refined product exports are already legal. "[T]he application was only allowed because the condensate will be lightly processed through a distillation tower," he explained. "In other words, this permit is effectively a refined product under US law – unrefined condensate is not allowed."
...But It's Promising. "That said, we view the expanding definition of refined products as a positive, and a step closer to greater export opportunities," Longson continued. Rather than waiting for outright crude exports, energy players are pushing for near-crude which at least is a step in the right direction in moving the flood of oil in the US. "We continue to believe more opportunities remain to absorb light crude oil in the US, particularly if the industry is creative"
Markets Are Lower. In Europe, Britain's FTSE 100 is down 0.6%, France's CAC 40 is down 0.6%, Germany's DAX is down 0.3%, Spain's IBEX is down by 0.6%. In Asia, Japan's Nikkei closed down by 0.7%, Hong Kong's Hang Seng closed down 0.1%, and Australia's S&P/ASX closed down by 0.6%.
Bad Sign For US Housing. Mortgage application activity fell by 1.0% during the week ended June 20, which follows the prior week's 9.2% drop. This conflicts with encourage sales and sentiment data. "Homebuilders likely are gaining market share from private sellers - builders are more motivated sellers, and have better access to information - but sales cannot trend higher indefinitely with mortgage demand still so weak," said Jana McTigue at Pantheon Macroeconomics.
Get Ready For An Ugly GDP Report. At 8:30 a.m. ET, the BEA will publish its final revised estimate of Q1 GDP. Economists estimate GDP growth will be slashed to -1.8%, down from an earlier estimated of -1.0%. Morgan Stanley's Ted Wieseman explains: "Data released since the first revision to Q1 GDP growth to -1.0% from +0.1% point to a significantly lower number again. Indeed, Q1 looks to have been the worst quarter outside of an actual recession on record by a wide margin. BEA had been assuming strong growth in healthcare spending based on significant expansion of insurance coverage this year under Medicaid and insurance exchanges, but the Census Bureau’s quarterly services report instead showed a pullback in healthcare spending after strong growth in Q4, and BEA’s incorporation of the Census Bureau data should account for most of a cut in consumption growth to 2.1% from 3.1%. The other big expected revision is to trade. Annual revisions pointed to the Q1 net exports contribution being revised down to -1.5pp from -1.0pp, we estimate."
A More Current Reading On The Economy. Also at 8:30 a.m., we'll get the durable goods orders report. Economists estimate orders showed 0.0% growth in May. However, nondefense capital goods orders excluding aircraft is estimated to have climbed by 0.5%. "Our expectation is that durable goods orders likely reversed course in May, declining 0.2 percent with the volatile transportation component weighing down the headline number," said Wells Fargo's John Silvia. "However, once transportation goods are excluded, we expect new orders to rise 0.1 percent for the month, further reflecting a more broad-based firming in manufacturing sector activity."
Dudley Isn't Worried About Inflation. The NY Fed's William Dudley spoke about monetary policy in Puerto Rico on Tuesday evening. "We think we can get the unemployment rate considerably lower and still not have an inflation problem," he said. "We also don't have inflation at a level consistent with price stability."
KFC Says It Was A Hoax. Outrage ensued on reports that a disfigured 3-year-old girl and her family were asked to leave a KFC restaurant in Mississippi. However, KFC is now saying it was all a hoax. "After the alleged incident was reported to us, two investigations took place, including one by an independent investigator," said a KFC spokesman in a statement emailed to Reuters. "Neither revealed any evidence that the incident occurred, and we consider the investigation closed."
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