Boockvar on WTI Futures Prices, IPO Fail
The following is from Peter Boockvar:
Higher for longer/Credit vs Equity crowd/Disastrous IPO/Other notables
Not only is the November WTI futures contract making a new high in this cycle, up $5 today to $109, noteworthy too is the 2027 contracts are moving higher as well as the possible reality of higher for longer oil prices sink in. For example, the May 2027 WTI futures price is now above $90 for the first time. While not good for users of crude, aka the refiners in terms of margins and consumers of their products, it’s what investors such as us in E&P and service companies want to see.
May 2027 WTI futures price
Talking about Coreweave again, the stand off between credit and equity participants is quite fascinating. While Coreweave still has about $35 billion of equity market cap currently, the 5 yr CDS yesterday closed at 1089 bps (down 38 on the day) which means it cost almost $1.1mm per year for 5 years to hedge against $10mm worth of Coreweave bonds. That implies about a 55% chance of default and, which means if it were to be the case, the equity would likely have no value. Who will be right?
Coreweave 5 yr CDS
I never heard of the company Elice until today. It is a South Korean based neocloud that went public overnight in a disastrous debut. They priced its shares at 90,500 won and the stock closed at just 61,500 won, a decline of 32%. The main reason for this is that the initial pricing took place on October 6th and we know a lot in the neocloud world has happened since. I’m not clear why this is their IPO process, allowing two weeks to pass before letting a stock trade publicly.
In a fast moving tech world, who in their right mind in South Korea would fund their next IPO with such a large gap in time between pricing and trading?
Elice
To a few earnings calls of note.
From Cleveland Cliffs, a company that has been a vocal supporter and financial beneficiary of steel tariffs in contrast to those who use that steel as an input and whose stock popped 16% yesterday:
“All three of our major profit drivers improved. Shipments increased, selling prices rose in line with our expectations, and costs performed better than we had guided.
“One thing that has become very clear over the past year is that a healthy domestic steel industry happens when trade blocks are enforced and when foreign producers are no longer allowed to dump steel into our markets without consequences.”
“As a consequence of the renaissance of manufacturing in the US, we are currently selling steel under the best price environment in three years.”
And that customer of theirs will certainly have to pay, “All these contracts reset on January 1st of next year and nearly all of these customers want more steel under contract in 2027 than in 2026. Suffice to say that we have been very successful in renewing these contracts.”
From Fifth Third Bancorp, up marginally yesterday and one of my go to regional bank calls:
“On credit, performance remained in line with our expectations. Net charge-offs were $139 million, or 31 bps, up 1 bp sequentially, and at the low end of our 30 bp to 35 bp range we guided to in July.”
“We are focused on limiting exposures most sensitive to higher rates and continue to grow in categories where we have long underwriting histories and structural protections. Our exposure to non-depository financial institutions was 8% of total loans at quarter-end, concentrated in subscription and capital call facilities, corporate facilities to traditional financial institutions, and secured lending to mortgage related entities, with private credit exposures representing less than 1% of total loans.”
“We expect average loan growth of 1% to 2% sequentially, led by continued commercial loan growth, primarily in C&I and CRE.”
On the impact of higher rates on the decision making of their customers with respect to taking out a loan, “Certainly as people talk about high rates, it influences how they think about the world, but I think in general, the feedback that we’re hearing overwhelmingly is that it is still a growing economy, and high rates are not the meaningful driver of decision making from here. It’s like they need investment because they’re worried about continued inflation and input costs and things where they know they need to make this investment, they want to go ahead and get it done. Another 50 bps to 100 bps on rates does not impact their view.”
“They do worry about demand from here, if there were a broader slowdown because of rates. But in general, most of our clients are saying that they are going to continue to move forward with investment.”
There was a negative preannouncement from Werner Enterprises, the trucking company that said the same thing that JB Hunt did last week and whose stock fell 8% yesterday:
“Financial results for the 3rd quarter 2026 were negatively impacted by approximately $.18 per share of cumulative cost headwinds compared to the 2nd quarter of 2026, primarily consisting of: rapidly rising fuel prices; driver recruitment and retention investments; and a late quarter insurance reserve adjustment related to past claims.” This is offsetting strong revenue growth mostly driven by higher trucking rates.
The CEO of Ryanair, the European airline, was speaking today ahead of their earnings on November 2nd and said this:
“You’re going to see the biggest increase in airfares, I would say, in history in Europe in the next 12 months. The question is, will that increase in airfares be enough to cover the dramatically higher oil bills? I don’t think it will be.”
The overseas data of note was out of Germany and the UK. The German October ZEW investor expectations survey on their economy fell to 28.1 from 34.7. The estimate was 30. The Current Situation though did improve to -35.9 from -47.1. ZEW said “The German economy is slowly emerging from stagnation, but the recovery is not self-sustaining. Private consumption and investment remain weak because of high energy prices: They put real incomes under pressure, increase production costs and keep inflation higher for longer.”
This is not market moving as the IFO is more relevant but does highlight the challenges for German business.
Germany also said its September PPI rose 6.7% y/o/y, up from 4.6% in August. That is well above CPI, similar to the story in the US.
In September, the UK jobs number was better than expected with a gain in those employed rising by 13k vs the estimate of down 8k. Also, August was revised up to a gain of 1k, up from the initial print of down 26k. Jobless claims though jumped by 30.3k but August was revised down by 20k.
Thru August, the UK unemployment rate held at 4.7% and wage growth ex bonus rose 3.7% y/o/y which is decent but really only just keeping up with inflation.
The better jobs data has the pound higher while the 2 yr gilt yield is up by 3 bps and the 10 yr gilt yield is higher by 1 bp. The FTSE 100 is lower by .6%, though up 8% ytd.
German PPI y/o/y
