Big Investors Steer Clear of French Debt as Government Finances Creak

Bond

Economic

Summary:

Franklin Templeton, LGIM, Vanguard underweight French debt. France expects budget deficit above 5% this year…

Some of the world's biggest investors are staying away from France's government debt, feeling underpaid to take on exposure to its deteriorating public finances.

France's budget deficit came in well above target at 5.5% of economic output in 2023, rising from the year before in contrast to other major euro zone economies.

The government has already hiked its 2024 deficit target to 5.1% from 4.4%. Deficit reduction plans lack credibility without further details to curb spending, France's public finance watchdog said on Wednesday.

None of this is likely to sound encouraging to credit ratings agencies, which begin reviewing the country next week.

Euro zone debt sustainability worries have typically centred on poorer Southern European states rather then the bloc's second largest economy and biggest government bond market with 2.46 trillion euros ($2.62 trillion) outstanding.

But unease around surging debt levels globally, including in the United States, is growing, with the IMF on Wednesday urging countries to rein in spending.

"We're heavily underweight French bonds," said David Zahn, head of European fixed income at Franklin Templeton, which manages $1.4 trillion in assets. "It's really the fiscal situation that concerns us."

France's finance ministry declined to comment for this article, but a government spokesperson told journalists on Wednesday its deficit reduction plans were "solid, coherent and responsible".

French bond yields have edged higher relative to top-rated Germany and the Netherlands in recent weeks, while lower-rated Italy and Spain's borrowing costs have narrowed relative to France's over the past twelve months.

Fitch, which downgraded France to AA- last year, and Moody's are due to publish their reviews of the country on April 26. S&P Global follows on May 31.

Moody's, which rates France Aa2, said last month that Paris would need to step up spending cuts. S&P Global's negative outlook on the country's AA rating raises the risk of a downgrade.

Underestimated?

Chris Jeffery, head of macro strategy at Britain's largest investor Legal and General Asset Management, said markets are underestimating French risk.

Underweight French bonds since mid-2023, he notes Spain's credit ratings are several notches below France's despite a lower deficit and debt-to-output ratio - an "unsustainable" difference.

France has "some of the weakest macro fundamentals of the major European economies and the rating agencies are excessively generous to them because of their political status and size", Jeffery said.

The roughly 50 basis point premium France currently pays over Germany's debt is in line with 2022 and 2023's average, LSEG data shows, but is around double pre-pandemic levels.

Franklin Templeton's Zahn said French bonds weren't compensating investors for the risks and should trade like Spain's, which offer an additional 30 basis points in yield over Germany's debt.

However, investors said fiscal slippage may be tolerated for longer as France's bonds are seen as a relatively safe asset for the euro zone which faces a shortage of high quality debt, given the size of its market and its AA rating - the second highest category.

"We're neutral on France, because we just don't think that the fiscal story can cause enough volatility," said Schroders fund manager James Ringer, who expects France to retain its AA ratings for some time.

France may also benefit from economic growth which is still higher than the euro zone average. Big Investors Steer Clear of French Debt as Government Finances Creak_2

Big Investors Steer Clear of French Debt as Government Finances Creak_2

Reforms

France, like Italy, is expected to face a deficit reduction procedure with its budget gap unlikely to fall below the European Union's 3% limit, despite announcing 10 billion euros of budget cuts in February with a further 10 billion planned.

Markets have also shrugged off the risks in Italy where bonds have outperformed regional equivalents despite worse metrics than in France, albeit helped by a juicier premium.

Rabobank expects a French deficit of 3.6% by 2028 as interest costs surge. A fall below 3% would require the deficit excluding interest payments to stay near 0% for a few years, it added - challenging for a government which spends the most relative to output among developed economies.

Absent policy changes, Morgan Stanley sees France's debt rising to 132% of output by 2040 from 111% now, while it expects Spain and Italy's to be roughly unchanged at 111% and 136%, respectively.

France's scattered party system makes reforms harder, said Ales Koutny, head of international rates at Vanguard, the world's second largest asset manager.

Underweight France, he prefers Spanish debt.

Reforms or higher growth would mean "a better trajectory that would give us a bit more confidence to own French bonds," said Koutny.

($1 = 0.9385 euros)

Source: Reuters

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Remarks of Officials

The Federal Reserve's latest Beige Book shows that economic activity has expanded slightly since late February, and prices have been basically stable. Ten out of twelve Districts experienced either slight or modest economic growth, while the other two reported no changes in activity.

Consumer spending barely increased overall, but reports were quite mixed across Districts and spending categories. Several reports mentioned weakness in discretionary spending, as consumers' price sensitivity remained elevated. Auto spending was buoyed notably in some Districts by improved inventories and dealer incentives, but sales remained sluggish in other Districts.

Tourism activity increased modestly on average. Manufacturing activity declined slightly, as only three Districts reported growth in that sector. Contacts reported slight increases in non-financial services activity, on average, and bank lending was roughly flat overall. Residential construction increased a little, on average, and home sales strengthened in most Districts. In contrast, non-residential construction was flat, and commercial real estate leasing fell slightly.

In the labor market, employment rose slightly overall. Most Districts noted increases in labor supply and the quality of job applicants. Several Districts reported improved retention of employees. Despite the improvements in labor supply, many Districts described persistent shortages of qualified applicants for certain positions. Wages grew at a moderate pace in eight Districts. Multiple Districts said that annual wage growth rates had recently returned to their historical averages. On balance, contacts expected that labor demand and supply would remain relatively stable, with modest further job gains and continued moderation of wage growth back to pre-pandemic levels.

Price increases were modest, on average. Six Districts noted moderate increases in energy prices. Contacts in several Districts reported sharp increases in insurance rates. Firms' ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins.

Inflation would hold steady at a slow pace moving forward. There are upside risks to near-term inflation in both input prices and output prices.

Beige Book

Risk Warnings and Disclaimers

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Thomas

Economic

Bond

The yield on 10-year Treasuries slumped as much as 11 basis points to 4.52%, while a gauge of the dollar climbed as much as 0.6% to its highest since November. Israel launched a retaliatory strike on Iran less than a week after Tehran's rocket and drone barrage, according to two US officials.

“With the Middle East spiraling into a tit-for-tat escalation, long-end US Treasuries are set to rally strongly on a safe-haven bid,” said Wei Liang Chang, macro strategist at DBS Bank Ltd. in Singapore. “We could see US 10-year yields easing towards 4% if Iran decides to respond to the attacks in another round of escalation.”

The haven rush is giving US bonds a much needed boost after they came under significant pressure from a rethink of expectations for the path of US interest rates. Benchmark yields hit their highest since November this week in response to strong economic data and hawkish remarks by Federal Reserve officials.

That included a signal from Fed Chair Jerome Powell that the central bank is in no hurry to cut rates.

On Thursday in the US, swap rates that predict Fed decisions edged higher, pricing in a cumulative 38 basis points of rate cuts by the December policy meeting — compared with 43 basis points as of Wednesday close. An initial quarter-point cut was priced in for the November policy meeting.

“I would say that we've seen a material rise in US yields over recent weeks, and a lot of investors and traders, including systematic accounts, will likely be running short US bond positions,” said Andrew Ticehurst, rates strategist for Nomura Holdings Inc. in Sydney. “So there is clear risk that some of these positions will be covered, which could lead to out-sized moves.”

Israel earlier vowed to retaliate against Iran for its barrage of some 300 drones and missiles, the vast majority of which were destroyed before hitting their targets. Iran said it was responding to a strike on its diplomatic building in Syria that killed several Iranian officers on April 1.

Australian and New Zealand government bonds followed Treasuries higher as Asian currencies tumbled and oil surged.

The moves pared in early afternoon trading in Asia, after local Iranian media appeared to downplay the attack.

“This is a textbook case of flight to safety,” said Keisuke Tsuruta, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The exchange of retaliation reminds us that the situation in the Middle East is becoming more tense, and investors are buying bonds to avoid risk.”

Source： Bloomberg

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Thomas

Economic

Stocks

The Overview of the DAX Performance

The DAX advanced by 0.38% on Thursday. After a 0.02% gain on Wednesday, the DAX ended the session at 17,837.

June ECB Rate Cut Bets and Corporate Earnings

Rising bets on a June ECB interest rate cut drove buyer demand for DAX-listed stocks. ECB members aligned in recent sessions, supporting the first ECB interest rate cut since 2019.

Corporate earnings contributed to the session gains.

There were no stats for Germany or the Eurozone to influence market risk sentiment.

US Jobless Claims and Manufacturing Data Support Fed Policy Shift

On Thursday, US jobless claims and the Philly Fed Manufacturing Index supported expectations the US would avoid a recession.

Initial jobless claims remained unchanged at 212k in the week ending April 13. The Philly Fed Manufacturing Index unexpectedly increased from 3.2 to 15.5 in April.

FOMC member John Williams supported patience over cutting interest rates, warning there was no reason to cut interest rates.

On Thursday, the Nasdaq Composite Index and the S&P 500 declined by 0.52% and 0.22%, respectively. The Dow gained 0.06%.

The Thursday Market Movers

Auto stocks found much-needed buyer support. Continental AG rallied 2.58%. BMW and Volkswagen saw gains of 0.94% and 0.74%, respectively. Porsche advanced by 0.71%, with Mercedes Benz Group gaining 0.55%.

Bank stocks were also among the front runners. Investors reacted to a positive outlook from Bankinter. Deutsche Bank and Commerzbank ended the session up 2.04% and 2.49%, respectively.

Adidas extended gains from Wednesday, rallying 2.68% after reporting better-than-expected Q1 earnings results and a rosier outlook for 2024.

However, Infineon Technologies extended its losses from Wednesday, declining by 1.94%. ASML continued to trend lower after reporting weaker-than-expected earnings results.

Sartorius AG was the worst performer, tumbling 15.41% after missing revenue and order expectations.

The Middle East in the Spotlight

On Friday, media reports of an Israeli missile hitting Iran impacted the Asian market session.

However, the Asian equity markets reversed some losses after Reuters reported the explosions were not because of a missile attack.

Mixed reports could keep the markets on edge as the weekend approaches. Iran attacked Israel on Saturday, April 13.

The futures markets reflected the impact of the news on market risk sentiment. On Friday, the Nasdaq mini and DAX were down 171 and 281 points, respectively.

News updates from the Middle East will likely remain the focal point on Friday. Nevertheless, investors should consider economic data from Germany, central bank commentary, and corporate earnings.

German Producer Prices, the ECB, and Corporate Earnings

On Friday, German producer prices could influence the ECB interest rate trajectory. Economists forecast producer prices to decline by 4.2% year-on-year in March. Producer prices fell by 4.1% year-on-year in February.

Forecasts support investor bets on a June ECB rate cut. Producers reduce prices in a weaker demand environment, dampening inflationary pressures.

Following mixed reports from the Middle East, investors should monitor ECB commentary. ECB President Christine Lagarde and Executive Board member Piero Cipollone are attending the IMF/World Bank Spring Meetings. Implications of an escalation in the Middle East need consideration.

Beyond the economic calendar, corporate earnings results will also move the dial.

US Economic Calendar: Fed Speakers in Focus

On Friday, FOMC member speeches need monitoring. FOMC member Austan Goolsbee is on the calendar to speak. Increasing support to delay Fed interest rate cuts until Q4 2024 could impact buyer demand for DAX-listed stocks.

However, there are no stats from the US to consider, leaving corporate earnings in focus. Procter & Gamble (PG) and American Express (AXP) are among the big names to release earnings results.

Near-Term Outlook

Near-term trends for the DAX will hinge on news updates from the Middle East. Confirmations of an Israeli response could leave the markets on tenterhooks going into the weekend.

DAX Technical Indicators

Daily Chart

DAX Index Today: News From the Middle East Sends DAX Futures Down 281 Points_1

The DAX remained above the 50-day and 200-day EMAs, sending bullish price signals.

A DAX break above the 18,000 handle would support a move toward 18,200. A return to 18,200 would bring the all-time high of 18,567 into view.

News updates from the Middle East, corporate earnings, producer prices, and central bank commentary need consideration.

However, a break below the 50-day EMA would bring the 17,615 support level into play. A fall through the 17,615 support level could give the bears a run at the 17,500 handle.

The 14-day RSI at 44.65 indicates a DAX fall to 17,500 before entering oversold territory.

4-Hourly Chart

DAX Index Today: News From the Middle East Sends DAX Futures Down 281 Points_2

The DAX remained below the 50-day EMA while hovering above the 200-day EMA, affirming the bearish near-term but bullish longer-term price signals.

A DAX break above the 18,000 handle and the 50-day EMA would bring the 18,200 handle into play. Selling pressure could intensify at the 18,000 handle. The 50-day EMA is confluent with 18,000.

Conversely, a fall through the 17,615 support level and the 200-day EMA would bring the 17,500 handle into play.

The 14-period 4-hour RSI at 42.94 suggests a DAX fall to the 17,500 handle level before entering oversold territory.

Source: FX Empire

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Samantha Luan

Economic

Commodity

India's imports of gold are taking a hit as prices have hit a record high – and industry experts say this in turn will affect flows from the UAE, the South Asian nation's second-largest source market for the precious metal.

“The gold price surge has dented consumer demand,” says Sachin Kothari, director at Augmont Gold For All, a gold refinery and bullion company based in Mumbai.

“Indian investors are not able to digest higher gold prices. Wholesale demand by jewellers has also decreased in March and April due to rising prices – therefore gold imports are expected to come down.”

Gold prices have risen globally, crossing $2,400 an ounce last week, amid geopolitical tensions as investors expect interest rate cuts by central banks later this year.

The UAE is the largest source of gold imports into India after Switzerland. The UAE accounted for almost 20 per cent of its gold imports in the quarter ending in December, according to the World Gold Council. Data from India's Ministry of Commerce shows that gold imports into India reached $35.95 billion between April and December last year.

“The gold price surge has dented consumer demand,” says Sachin Kothari, director at Augmont Gold For All, a gold refinery and bullion company based in Mumbai.

Gold prices have risen globally, crossing $2,400 an ounce last week, amid geopolitical tensions as investors expect interest rate cuts by central banks later this year.

The high prices will inevitably affect India's source markets including the UAE, says Colin Shah, managing director of Kama Jewelry and the former chairman of the Gem and Jewellery Export Promotion Council.

“April, May, June, you will see a dip [in gold demand in India],” said Mr Shah. He forecasts that imports from the UAE into India will halve in the quarter to June compared to the same last year.

Reuters has reported that India's gold imports fell by more than 90 per cent last month as steep prices hit demand.

This is particularly significant given that India is the world's second-biggest consumer of gold after China, with India's demand for gold standing at 745.7 tonnes last year, the World Gold Council's figures show.

Why UAE?

Gold is revered across India. It forms an important part of Indian weddings and it is still a way of storing wealth for many people. The lull comes despite it being generally a peak time of year to purchase gold, as India's wedding season is under way.

The UAE has become an important supplier of gold due to its role as a hub for the precious metal, mined from countries including Zimbabwe, Russia, Mali, and Ghana. India also imports gold from Saudi Arabia, which accounts for about a 1 per cent share of total gold flows into India, according to the World Gold Council. But the UAE plays a much more significant role in the global gold trade, and in India's purchases of the precious metal.

“The biggest reason is that UAE has built a very nice ecosystem for all the bullion dealers, who operate through Dubai for a variety of reasons, with taxation being the biggest one,” said Mr Shah.

“Most of the large refiners are either routing their gold through the UAE, or are refining in the UAE.”

“The supply comes from across the world, but most of the trading companies are based out of Dubai,” says Naveen Mathur, director, of commodities and currencies at Anand Rathi Share and Stock Brokers in Mumbai. “The miners, the suppliers have their presence there.”

With the UAE dirham pegged to the dollar, that makes trade much easier for gold suppliers worldwide which typically operate in dollars, he says.

Another factor that has helped increase the appeal of the UAE to India is an import duty cut of 1 per cent under a Comprehensive Economic Partnership Agreement between the two countries, which came into effect in 2022. This reflects the two nations more broadly expanding their trade ties, to double their non-oil trade to $100 billion by 2030.

“Instead of the standard 15 per cent duty, Indian importers can import gold from the UAE for a 14 per cent duty”, says Mr Kothari.

This has been “a major factor that has been prompting these imports”, says Kavita Chacko, research head, India, at the World Gold Council.

Lacklustre demand

Gold is typically bought in the form of jewellery, bars, and coins. Higher demand for the precious metal is usually married to the months of October to December and April to June, deemed as the ‘wedding seasons’ in India.

“Anecdotal evidence suggests that both rural and urban centres have experienced a broad-based drop in demand despite the ongoing wedding season. It appears that jewellers and consumers alike are awaiting a price correction before they add to their stock.” says Ms Chacko.

Price hikes over recent months compounded by this months ongoing new records will further dampen India’s gold demand in the months to come, she adds.

While India over the past couple of years has been importing around 700 to 800 tonnes of gold, “we expect the imports to be in the lower range of this estimate this year mainly due to record higher prices that gold has touched and also slowdown due to trade restrictions due to impeding general elections”, she says.

But she adds that “we expect the overall percentage share of gold imports from UAE to be similar to last year”.

General elections in India are due to begin on Friday and will continue until early June.

“During the general election period for the next two months, there will be heightened scrutiny on the movement of gold and cash,” says Sachin Jain, regional chief executive, India, World Gold Council. “Except during festivals, gold jewellery demand will likely remain subdued during a large part of the second quarter, even if prices moderate over the coming months.”

But Mr Shah says he expects to see a pick up in gold demand immediately after the election.

“Whenever there is an unprecedented spike in the gold price, once the price stabilises, it's business as usual again,” says Mr Shah.

The medium to longer-term outlook is also bright for the gold trade relationship with the UAE, he says, because its proximity to India makes it an increasingly attractive market to import the precious metal.

“The freight cost is lower than say importing from Switzerland,” says Mr Shah. “As the cost advantages become more significant amid high gold prices and freight costs, “I think there will be more and more gold imported through the UAE.”

Source:TheNationalNews

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Samantha Luan

Economic

Central Bank

The German economy — Europe’s largest — is set to avoid a winter recession thanks to a pick-up in manufacturing, rising exports and surging construction at the start of the year, according to the Bundesbank.

After warning just four weeks ago that output probably shrank for a second straight quarter between January and March, the central bank said the period may, in fact, have seen a “slight increase.” It did, though, caution that a sustained recovery isn’t assured.

“Germany’s economic situation has brightened somewhat, but it remains weak at its core,” the Bundesbank said Thursday in its monthly report. “It’s therefore not yet certain that the increase in economic output will continue in the second quarter.” German GDP Probably Grew In First Quarter, Bundesbank Says_1

German GDP Probably Grew In First Quarter, Bundesbank Says_1

Once the continent’s growth engine, Germany has trailed its peers of late, with its outsized industrial sector suffering from supply snarls, the end of cheap Russian energy deliveries and trade shifts caused by weak global demand and geopolitical shocks. It was the only Group of Seven country to see output contract last year.

Some don’t see an end to the nation’s struggles just yet: A Bloomberg survey of analysts published this week showed gross domestic product probably decreased by 0.1% in the first quarter.

But there were encouraging words this week from European Central Bank President Christine Lagarde, who told CNBC that Germany “might have turned the corner,” with industrial production having “ramped up” more than anticipated.

Indeed, optimism among consumers, businesses and investors has grown recently — feeding hopes that Germany can leave its woes behind. “If this improvement continues, the economy could also pick up more significantly than was expected a month ago,” the Bundesbank said.

There are caveats. Industry remains weak and construction is likely to decline after being boosted by a mild winter, the central bank warned. High interest rates are also damping investment, while export demand is still weak and households are hesitant to spend — despite a healthy labor market, rising wages and slowing inflation.

Factors like that are reflected in this week’s downgrade by the International Monetary Fund to its forecast for German economic growth in 2024. It now sees GDP increasing by just 0.2%, from 0.5% three months ago.

Speaking in Washington later on Thursday, Bundesbank President Joachim Nagel was more upbeat, predicting annual growth in a range of 0.3% to 0.5% for 2024 and then more than 1% next year.

If the Bundesbank’s first-quarter “assessment is correct, we assume that the momentum would continue over the course of the year,” he said. “Of course, these are not exuberant growth figures. Here too we must not get carried away, but it looked much more difficult just a few weeks ago. And we also assume that the global economy will perhaps pick up speed in the second half of the year, which in turn could help German foreign trade.”

Source:Bloomberg

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Devin

Palestinian-Israeli conflict

Energy

Petroleum prices have fallen following Iran's missile and drone assault on Israel, confounding expectations that the escalation of the shadow war would cause them to rise.

Like major industrial accidents, extreme moves in oil prices, spikes or slumps, are always the product of multiple factors rather than a single cause.

Spikes usually occur when the business cycle is mature; inventories are well below normal; spare production capacity is low; and there is an actual or threatened disruption to production.

In this instance, however, the escalation is occurring in a market that is otherwise comfortably supplied, with inventories near the long-term average and plenty of idle production capacity.

Traders have concluded Iran will not risk any disruption of its exports; the United States will not risk significantly higher oil prices in an election year; and the United States will restrain the next round of responses by Israel.

As perceptions about the war risk have fallen, prices and calendar spreads have retreated to pre-crisis levels, with the underlying fundamentals of production, consumption and inventories reasserting themselves.

Shock Absorbers

Commercial inventories of crude oil and refined products across the advanced economies in the Organisation for Economic Cooperation and Development (OECD) were estimated at around 2,735 million barrels in March.

Commercial inventories were around 95 million barrels (-3% or -0.61 standard deviations) below the prior 10-year seasonal average, based on an analysis of data from the U.S. Energy Information Administration (EIA).

The deficit had increased from 51 million barrels (2% or -0.34 standard deviations) in December 2023 but was only very slightly wider than a year ago when it stood at 74 million barrels (-3% or -0.44 standard deviations).

The global market is tightening, but gradually, and inventories are still relatively comfortable, able to absorb any short-term interruptions of production.

Saudi Arabia and other OPEC members in the Middle East were estimated to have more than 4 million barrels per day of idled production capacity in March, according to the EIA.

Unused capacity was at the highest level since the coronavirus pandemic in 2020-2021 and before that the recession following the financial crisis in 2009-2011.

With comfortable inventories and plenty of spare capacity, the market did not appear primed for a large and sustained spike in prices.

Production outside OPEC⁺ is expected to grow strongly this year, especially in the United States, Canada, Guyana and Brazil, sufficient to cover the increase in consumption in 2024.

Strong production growth is likely to ensure that inventories remain reasonably comfortable in all but the most extreme scenarios about conflict in the Middle East.

Prices And Spreads

Inflation-adjusted front-month Brent futures prices averaged $85 per barrel in March, putting them almost exactly in line with the long-term average since 2000.

The futures market had already moved into an aggressive backwardation, with the front-month contract trading at an average premium of almost $4 per barrel compared with the contract for delivery six months later.

The backwardation was in the 91st percentile, implying traders expected inventories to deplete further in the near term, but with supplies expected to remain comfortable in the longer term.

Saudi Arabia and its OPEC⁺ allies are expected to maintain production cuts through June 2024 to deplete inventories further and support prices before gradually increasing output in the second half and into 2025.

U.S. Oil Inventories

In contrast to the rest of the world, where data on inventories is only available with a delay of several months, if at all, in the United States the EIA publishes stock data with a lag of less than a week.

With some justification, traders tend to use high-frequency data on U.S. inventories as a proxy for the production-consumption balance in the broader global market.

U.S. commercial crude inventories were almost exactly in line with the prior 10-year seasonal average on April 12, and there has been very little net change over the last three months.

Inventories around the delivery point for the NYMEX futures contract at Cushing in Oklahoma were 13 million barrels (-29% or -0.88 standard deviations) below the ten-year seasonal average.

The deficit explains the strong backwardation in both U.S. crude and Brent futures prices, but it has been narrowing over the last three months.

U.S. commercial crude inventories are consistent with a market only a little tighter than the long term average, not the sort of conditions that precede a large and sustained spike in prices.

No Catastrophising

The cycle of retaliation between Iran and Israel has potential for uncontrolled escalation, as each government tries to restore deterrence and demonstrate resolve to domestic and international audiences.

The conflict could escalate to the point it disrupts production and tanker traffic from Iran and other countries around the Gulf. Traders are not ignoring the risk, but treating it as a less-likely tail risk, rather than a central scenario.

Refusing to catastrophise about loss of Iranian oil production and closure of the Strait of Hormuz is rational given how many times these extreme scenarios have been predicted but failed to materialise over the last 30 years.

The risk of a sudden loss of production and exports is not zero, but nor is it high enough to require prices to rise sharply to restrain consumption, build even larger inventories and create more spare capacity to mitigate it.

Unless and until the threat to Gulf production and exports becomes more concrete, rather than just perennial speculation, current prices and spreads look consistent with a market that is only moderately tighter than usual.