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Weekly Market Review & Target Fills September Week 2

Weekly reports on crude oil inventories or total stockpiles in storage facilities like these tanks have a strong bearing on oil prices

Weekly reports on crude oil inventories or total stockpiles in storage facilities like these tanks have a strong bearing on oil prices

The big news in the market this week is the rally in oil prices near the end of the week. American West Texas Intermediate (WTI) had advanced from $44.36 USD (United States Dollar) a week ago, to $46.84 USD.

This is an increase of 5.59% in a week. Similarly, International Brent during the same period went from $46.72 USD to $49.12 USD. That indicates a 5.14% increase in the price.

The price surge that arrived on Thursday which saw gains of 4% with the WTI Index and 3.54% on Brent was the result of two main factors. There was a temporary big draw down in the weekly American inventory of 14.51 million barrels.

This was the result of the recent storms in the Atlantic and the Gulf of Mexico, resulting in an interruption in production. It was the biggest weekly drop since April of 1985.

Chinese oil reserves 1960-2015

Chinese oil reserves 1960-2015

The other cause was the increasing importation of crude by China. As the second largest global user of crude after the United States, the Chinese imported 32.85 million tons of oil in August.

This is an average of 7.8 million barrels a day, a 7% increase over a year ago. The last time China imported this amount of oil, was in December of 2015.

There are also the ongoing talks between Russia and Saudi Arabia, in limiting crude output to provide support for higher oil prices. There has been no real progress as of yet.

A further complication will be the position of Iran. The government is determined to increase domestic production of oil, to capture a larger share of the global export market.

Seat of the European Central Bank in Frankfurt Germany

Seat of the European Central Bank in Frankfurt Germany

The major finance news was the decision by the European Central Bank (ECB) not to change interest rates at this time,despite the slow rate of economic growth. The bank kept the deposit rate at -0.4% and the main refinancing rate at 0.00%.

The ECB quantitative easing measures, keeps the purchase of 80 billion euro monthly asset buys in place until at least next March.

The contentious purchases by the ECB of government bonds, has now passed the 1 trillion Euro mark the equivalent of $1.13 trillion USD. There is a scarcity safe assets to purchase. Despite the massive effort, inflation remains well below the 2% target within the Euro-zone.

There are two major trends in American equity markets this week, which has been the case for awhile. Whereas the Dow Jones Industrial Averages (Dow) and the Standard and Poor (S&P 500) continue to trade within a rather narrow band, the NASDAQ has proceeded to hit all time highs for a number of trading sessions.nasdaq_logo-1

The NASDAQ is comprised of high technology firms that remain innovative and can continue to report profits in a slowing economy. Companies like Amazon and Facebook were once again, able to report life time highs in their respective share prices this week.

2015 G20 Antalya summit group photo.

2015 G20 Antalya summit group photo.

International News The G-20 summit where world leaders from the largest 20 economies met in China this past weekend, made a number of policy announcements. Participants promised to use fiscal, monetary and structural instruments to achieve more economic growth.

There also made verbal commitments to support greater cooperation in taxes, financial matters and environmentally sustainable development. They also presented a common front in opposing policies of protectionism in both investment and trade.

However, real progress in any of the aforementioned issues have been postponed for a later date.

Europe Gross Domestic Product (GDP) for the Euro-zone was just 0.3% in the second quarter. This was lower than the 0.5% that was posted in Quarter 1. Furthermore, recent data shows little likelihood of more growth for the second half of 2016.

The headquarters of HM Revenue & Customs in London

The headquarters of HM Revenue & Customs in London

In the United Kingdom, the service sector increased the most on record in August. This provides evidence that the immediate impact of the Brexit decision of leaving the European Union (EU), has mostly been mitigated.

The IHS Markit’s Purchasing Managers Index spiked to 52.9, from a 7 year low of 47.4 in July. It was the biggest monthly gain, since the survey came into use 20 years ago.

In addition it was announced by the new government, that the present immigration policy of allowing EU citizens preferential access to the United kingdom, will continue in the near term.

Greece will be deprived further bailout money from the Euro-zone. The reason is the the Greek government has been slow to implement, the required economic reforms. Only 2 out of 15 have been put in place. The main impediment has been the slow progress in privatizing state assets.

In response, the Greek government promises to fulfill all requirements to receive the next round of funds equal to $3.15 billion USD.

Recep Tayyip Erdoğan President of Turkey

Recep Tayyip Erdoğan
President of Turkey

Middle East Turkey is intending to consolidate control over recently captured territory in northern Syria and possibly extend it further south.

President Erdogan wants to establish a safe zone, that can become a place where the millions of Syrian refugees can be placed. Many of them have been living in Turkey since the civil war began 5 years ago. He would also like the U.S. led coalition, to establish a no fly zone over this area.

Saudi Arabia is taking further action to shrink its budget deficit. At 16% of GDP, it is the highest in the G-20. Although the country is the largest exporter of oil in the world, it has become necessary to scale back subsidies for fuel and utilities.

The government is now moving to cancel some $20 billion USD worth of projects. It is reported that there is also a decree, to cut all ministry budgets by 25%.

In related news, Egypt is attempting to secure $2 to $3 billion USD out of a $6 billion financing deal from Saudi Arabia. It is the only way that Egypt can be granted a new loan from the IMF (International Monetary Fund). The country needs the money to help stabilize its currency and economy.

President Rodrigo Duterte

President Rodrigo Duterte

Asia An international incident has taken place between the American President Obama and President Duterte from the Philippines. Obama was expected to challenge the new president on the numerous deaths involved in the internal war on drugs.

Duterte stated that he would refuse to discuss humanitarian issues inside his country and referred to the United States (U.S.) president in a derogatory manner. The Filipino leader later regretted the statement.

China reported better trade data in August. Imports increased for the first time, in almost two years. In addition, the slowdown in exports has lessened. Imports are up 1.5% from a year ago, which is a dramatic change from July, when imports had plunged 12.5%. Exports dropped 4.4% last month, a 2.8% loss from a year ago.

2016 Mong Kok civil unrest in Hong Kong

2016 Mong Kok civil unrest in Hong Kong

The Chinese trade surplus was the equivalent of $52.05 billion USD in August, just below the $52.31 billion USD in July.

Meanwhile, Chinese consumer price inflation has slowed to the lowest pace in almost a year.

Marking the highest turnout since independence in 1997, the legislative elections in Hong Kong saw a number of pro-independence proponents win seats to the assembly. This prompted a stern warning from China.

GDP growth for Japan in Quarter 2 was 0.7%, which was far better than the projected 0.2%. Yet, the Nikkei stock exchange is still down 10% for the year.

North Korea on Asian map

North Korea on world map

North Korea conducted its 5th and most powerful nuclear test. The government claims it now has mastered the ability, to mount a warhead on a ballistic missile.

Australia has avoided a recession for a quarter of a century. Yet, the increasing strength of the currency could further slow growth inside the country. It was only 0.5% in Quarter 2.

Low commodity prices have also been a drag on economy. However low inflation in the end, was the deciding factor in the central bank decision, to keep interest rates steady at an already record low of 1.5%.

logo_der_bayer_ag-svg-1Business News The news for the week, was the increased offer German based Bayer is making for Monsanto. At $127.50 a share, the total value of the deal is worth over $65 billion USD. If successful this will be the largest all cash purchase on record.

It is continuing the consolidation in the chemical industry. ChemChina bought Syngenta for about $43 billion and Dow Chemical and DuPont are still in the process of a merger worth $130 billion USD.

Gold has been declining of late, after reaching a high of $1,370.80 last month. The price is now listed at $1334.90, an increase of $15.10 USD from last week. Gold is still up over 20% in 2016. In contrast, the price for silver increased to $19.49 USD, a +$0.23 rise for the week.

The Investment Newsletter had 1 target fill to report this week, and 0 early stock target fills.

BJ’s (BJRI) was bought on 10/15/15 for $43.99, with a buy fill on 10/23/15. Medium Term Target Fill at 38.25, a 15.01% return.

 

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