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Although crude oil prices did move above $30.00 USD (United States Dollars) this week after major losses last week, a correlation has definitely emerged for investors. If prices are headed down in oil the markets followed and vice versa. This was especially the case, with equity and stock markets in the United States.
The rebound in oil this week, can be attributed to a variety of different reasons. More emphasis can be placed on an increasing support among major oil producers for an agreement for a production freeze in March.
Another reason includes the return to Iran as a major oil producer, now that sanctions on the sale of their oil have been fully lifted. In addition, there was a precipitous fall in the American oil rig count and reports of more upcoming shale company bankruptcies later this year, if the price level does not return to at least over $40.00 USD.
Iran’s oil & gas production (1970-2030 est.)
The price for crude that is being mentioned among the participants that are all members of the increasingly irrelevant OPEC (Organization of the Petroleum Exporting Countries), is $50.00 USD.
However, a freeze of production from January levels, will leave the world with a daily surplus output of about 1.5 million barrels. This does not include, the additional oil that Iran is insisting it wishes to sell.
Russia and Saudi Arabia have already reached a preliminary deal and talks between Iran and Venezuela are still ongoing. The major hurdle will be the present output from Saudis Arabia. They seem unwilling to actually cut production, which is what will be necessary to get crude prices closer to the supposed target.
Friday morning for the first time in 4 weeks, prices for U.S. crude production (West Texas Intermediate) exceeded $34.00 USD. International priced Brent, also reached between the $34.00 USD and $35.00 USD a barrel range.
The United States Commerce Department reported that GDP (Gross Domestic Product) growth for the country in the 4th Quarter, was 1.0% instead of the previous 0.7% on a year to year rate. Expansion did slow, but not as much as originally thought.
Also at the beginning of the week, figures were released indicating that business activity in Europe was now at a 13 month low, for the month of February. It is along with the news that the CPI (Consumer Price Index) is rising far more slowly than expected. Inflation is now running at 0.03% instead of 0.04%.
Prime Minister of the United Kingdom
These phenomena are important, in that it increases the odds that more monetary easing is on the way by the ECB (European Central Bank) next month.
The United Kingdom is in a dilemma this week. It seems the ruling Conservative party is split over whether the country should leave the European Union. As a result of a possible Brexit, the British pound sterling has taken a plunge in valuation (2% in one day). A national referendum on the issue has now been set for June 23rd.
Sterling is already at the lowest valuation in the six year tenure of the Prime Minister Cameron, back to 2009 levels. If the United Kingdom leaves the 28 nation European Union, it is likely that the currency will drop further to $1.35 USD. That would be at the lowest position held since 1985.
Meanwhile, more than a third of the biggest companies in the United Kingdom has signed a letter in support of Prime Minister Cameron, who is pushing for his country to remain in the European Community.
Germany confirmed this week that their domestic economy, the largest in Europe grew just 0.3% in the 4th quarter of 2015. This provides further evidence, that the 4th largest global economy, is slowing down even further.
Beijing Financial Street, the economic center of Beijing
China moved this week to try to restore confidence in financial markets by replacing their top securities chief Xiao Gang. He is now being made the fall guy, for a loss of some $5 trillion USD in stocks and the failure of the circuit breaker mechanism.
That is if the exchanges drop at least 7% in valuation, the index closes down for the day. It proved to be unworkable and actually increased the lack of investor confidence.
The Shanghai Index is already down 22% in valuation for 2016.
The unprecedented Chinese government bailout of the equity markets and the ongoing instability overall, has now lead to the appointment of Liu Shiyu to the top position. He is the Chairman of the Agricultural Bank of China.
Member countries in the G-20 in dark blue. Light blue are nations represented through the European Union.
The United States is expected to call on the G-20 (top 20 economic countries) to use fiscal policy, in an effort to boost global demand this weekend at the summit being held in Shanghai, China.
U.S. officials are also likely to insist that further currency manipulation by participating nations, is merely increasing market unpredictability.
The IMF (International Monetary Fund) is also calling for bold action on the fiscal front as well, in an effort to boost public investment.
The three main issues at the Shanghai conference will be market volatility, collapse in commodity prices and the progressively worsening global economic growth rate.
On the Intercontinental Exchange, sugar futures saw the largest daily gain (8.9%) in 22 years to $0.139 a pound. The rapid price movement came after a weather forecast, predicted that the effects of El Nino and heavy rains in Brazil, will lower the yearly harvest substantially. Brazil is the largest producer of sugar in the world. It will be the first shortage in output in 5 years.
Meanwhile in a move also affecting Brazil, the third major credit rating agency took the step to downgrade Brazilian debt to junk status at Ba2. Moody’s Investor Service is responding to the present economic crisis in the country. Brazil is going through the worst recession in decades.
Argentina and a final group of hedge funds are nearing an agreement, where previous investors will be provided about 70% of what they are owed. The government of Argentina will pay the equivalent of $5 billion USD and take one step closer, to being able to rejoin the global bond market. The country had defaulted on foreign debt obligations in 2001.
There are two national elections of some importance at the end of this week. Those being held in Ireland and Iran.
The Investment Newsletter had 2 target fills to report this week.
@ 2014 The Day Trading Academy. All rights reserved. This work is based on SEC filings, interviews, corporate press releases, and extensive research done across investment articles, current events, and investment expertise. It may contain errors, and you shouldn’t make any financial decision based solely on what you read here. It’s your money and your responsibility. As with any investment, there is no guarantee against potential loss. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. This publication’s sole intended purpose is to provide investment-related information as well as education and opinions to subscribers and the recommendations and analysis presented to members is for the exclusive use of members.