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Markets Rebound As Trump Plays Down Trade War

Trump

Monday, April 9, 2018

Stocks move higher as trade fears ease. Last week, news surfaced that President Trump was considering an additional $100 billion in tariffs, a move that would dramatically escalate the brewing trade war with China. Over the weekend, however, the Trump administration emphasized that nothing was decided yet, and earlier tariffs had also not yet taken effect, comments that tamped down trade fears. "President Xi and I will always be friends,” President Trump tweeted over the weekend, before predicting that China would remove trade barriers “because it is the right thing to do.” Stocks moved higher out of the gates on Monday.  

Chart of the Week


(Click to enlarge)

- Hedge funds and other money managers cut their bullish positions on WTI futures by the most in a single week since last August.

- Investors did not liquidate Brent futures by nearly as much, marking a shift in interest from WTI to Brent.

- Much of the reason is the shift from backwardation to contango in the WTI futures curve, according to Reuters.

Markets

Russian stocks, currency down on new round of sanctions. Washington slapped sanctions on Russian companies on Monday, including Russian oligarch Oleg Deripaska and his aluminum company Rusal. Rusal’s shares fell nearly 30 percent in trading on Monday as the company warned of a possible debt default. The damage spread across Russian stocks, as well as the currency. “We haven’t seen such a united, mass retreat from Russian assets for a long time,” Kirill Tremasov, director of the analysis department at investment company Loko-Invest in Moscow, told Bloomberg. “The situation is ever more reminiscent of 2014," he said, referring to sweeping western sanctions on Russian assets after Russia invaded Crimea. To make matters worse, President Trump pointed the finger at Moscow after a chemical weapons attack in Syria. Trump said there would be a “big price to pay.”

No NAFTA deal yet. The Trump administration had hoped to wrap up negotiations on NAFTA ahead of the Summit of the Americas in Lima this week, but Reuters reports the U.S., Canada and Mexico have still not reached an agreement. The three sides have said that progress has been made and that a “deal in principle” could be reached by the end of the month or in early May. The Trump administration’s confrontation with China over trade has made the U.S. eager to finish up on NAFTA. Related: 5 Industries Amazon Could Destroy

Warning signs for global economic growth. The global economy expanded at a 3.7 percent rate in 2017, about 0.5 percent higher than the year before. But now, there are some cracks in the growth story, the WSJ reports. Manufacturing activity, retail sales, auto sales, construction spending and employment are all slowing and U.S. Copper prices, which tend to track economic growth, have fallen by nearly 7 percent this year. German industrial activity fell recently and Japan has struggled to expand at all. "There was nothing ever automatic about a pick-up in synchronous growth,” said Mohamed El-Erian, chief economic adviser at Allianz.

Commodities 

Gold looks to break higher, but would represent threat to stocks. Gold has held steady above $1,300 per ounce this year, and analysts say further price increases would pose a danger to global equities. "You've got to get a break above $1,365 specifically to really suggest that gold is starting a new leg higher," Craig Johnson, chief market technician at Piper Jaffray, told CNBC. "If we get this break above $1,365, I got to tell you, that's going to be a real negative event for the overall market itself." Trade fears, financial turmoil and geopolitical unrest have all bolstered the case for safe haven assets like gold.

4 reasons to invest in commodities. The stock market has sky-rocketed since 2016, but it ran into a wall in the first quarter. With stocks on shaky ground, commodities might make more sense. ETF Trends makes a case for investing in commodities this year. A weak dollar, high OPEC compliance, backwardation for oil futures and the potential for higher inflation are four key reasons why commodities could be a smart bet in 2018.

Don’t fear a lithium glut. The soaring price of lithium in recent years has been met with a surge in lithium investment. That has raised the prospect of a wave of new supply, which could result in a glut. Morgan Stanley warned earlier this year that a surplus would emerge in 2019. But lithium miners say that strong demand will prevent a glut from materializing. Reports of a lithium glut are “grossly overstated,” CEO of Canada-based Nemaska Lithium, Guy Bourassa said, according to Bloomberg. As electric vehicles start to take off in a big way, lithium supplies will be taken up.

Energy

Gasoline prices at multi-year high. Average U.S. gasoline prices rose to $2.70 per gallon last week, the highest price level in years. Moreover, refiners are starting to switch from winter fuels to summer blends, which tend to be more expensive. As a result, gasoline prices could rise further in the coming months. “This summer, in terms of average gas prices, will likely be the highest since 2014,” Patrick DeHaan, petroleum analyst at GasBuddy, told the Wall Street Journal. “There’s been very little question about that.”

Saudi Arabia signs deals with U.S. companies. Saudi-owned Motiva Enterprises LLC singed a series of memorandums of understanding (MOUs) with Technip (NYSE: FTI) and Honeywell International (NYSE: HON) to explore petrochemical opportunities. The agreements come after a visit to Houston by Saudi crown prince Mohammed bin Salman.

Related: Citizenship For Sale: The Business Of Patriotism

Kinder Morgan suspends work on Trans Mountain Expansion. A crucial pipeline project in Canada was thrown into doubt after Kinder Morgan (NYSE: KMI) halted work on the Trans Mountain Expansion. Opposition from a variety of corners, combined with regulatory delays have frustrated Kinder Morgan. The pipeline is the most important outlet for Alberta’s oil sands, which has struggled to find adequate takeaway capacity.

Commodities 

South Korea to scrutinize banks over cryptocurrency exposure. South Korea’s financial regulator said that it would inspect three domestic banks that provide services to cyrptocurrencies over their compliance with anti-money laundering protocols. South Korean regulators have previously sought to ban anonymous cryptocurrency trading with anonymous virtual bank accounts at domestic banks.

India’s central bank bars banks from cryptocurrencies. The Reserve Bank of India ordered regulated banks to no longer provide services to cryptocurrencies. "In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [virtual currencies]," the bank said in a statement. It does not amount to a ban on cryptocurrencies within India, only a prohibition by banks to do business with the likes of Bitcoin and other digital currencies.

Gold-backed cryptocurrency compliant with Sharia law. The Islamic faith bars interest-bearing financial transactions, as well as overly speculative investments. But, a new Sharia-approved cryptocurrency has just launched in Dubai. OneGram conforms with this stringency by arguing that one unit of value is backed by a physical gram of gold held in a safe, according to Quartz Media. That limits speculation and volatility, making it acceptable to Islamic banking doctrine.

By Josh Owens for Oilprice.com

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