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Markets Soaring Alongside Oil Prices

Barrel

Monday, May 7, 2018

Oil prices hit 3-year highs as key deadline looms on Iran deal. WTI topped $70 per barrel for the first time since late 2014 as we approach the deadline for the Trump administration’s decision on the Iran nuclear deal. “There is some scope for profit-taking now that prices are at 42-month highs but that is being overshadowed by the potential re-imposition of sanctions on Iran,” Ehsan Khoman, head of research for the Middle East and North Africa region at MUFG bank, told the WSJ. Energy companies saw their share prices jump on the news, which helped pushed up broader stock market indices. The Down Jones Industrial Average was up 0.7 percent in early trading on Monday.

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- U.S. sanctions on Russian aluminum giant Rusal set off a wild ride for aluminum prices in April.

- In April, prices traded in their widest range in more than 20 years.

- As the WSJ reports, that has threatened profits for a variety of companies, producing everything from jets to beer cans.

- Higher prices could stoke inflation, prompting stronger rate tightening from the Fed, ultimately resulting in more headwinds for the global economy.

Markets

Euro hits lowest level to dollar in 2018. The euro dipped to its lowest point relative to the dollar so far this year, a reflection of slowing growth in the Eurozone. The euro dipped to 1.19 per dollar on Friday. GDP growth is slowing while the U.S. economy looks strong. The jobless rate in the U.S. fell below 4 percent, and the Fed is proceeding on its path to withdraw monetary stimulus. Related: The Wild World Of Weed Laws

U.S. companies boost spending. The Institute for Supply Management’s forecast shows capital spending surging by 10.1 percent in 2018, dramatically higher than the 2.7 percent expected in the last forecast in December. Service providers are also expecting higher spending than previously thought and employment expectations are up. The U.S. tax cuts in late 2017 added a bit of momentum although most companies surveyed said the strong economy and business climate in general are behind the bullish forecast.

NAFTA renegotiations resume. The talks between the U.S., Canada and Mexico resume this week amid expectations that a deal needs to be wrapped up in the next few weeks. Still, the hardline from the U.S. is not making Canada and Mexico budge. The Trump administration is under pressure to speed things up so that any deal can be ratified by the Congress this year. Waiting until 2019 poses risks because of the expected Republican losses in the midterm elections in November.

Commodities

Gold demand hits 10-year low. Gold demand fell to its lowest first quarter level since 2008, according to a report from the World Gold Council. A decline in the demand for gold bars combined with losses from ETFs backed by gold were major reasons for the dip, MarketWatch reports. Total gold investment declined 7 percent, year-on-year.

FMC profits point to strong lithium market. FMC Corp. (NYSE: FMC) saw its stock spike more than 8 percent in two days last week after reporting impressive first-quarter results. Revenue was up more than 100 percent, year-on-year. FMC said it is “on track” to launch an IPO for its lithium unit in October. Also, FMC’s CFO said he is “pretty sure” lithium prices will continue to rise this year and through 2019.

Tesla promises to cut cobalt use. Cobalt has been a highly prized commodity for the battery business, but Tesla (NASDAQ: TSLA) has already cut the cobalt content in the batteries it uses in the Model 3, offsetting it with higher volumes of nickel. “We think we can get cobalt to almost nothing,” Elon Musk said on a conference call with analysts last week. The comment is startling, but was understandably overshadowed by the news of Tesla’s ongoing production problems, financial squeeze and Musk’s combative tone with analysts.

Energy

ConocoPhillips seeks control of Venezuelan oil assets. ConocoPhillips (NYSE: COP) won an international arbitration ruling against Venezuela in late April, which entitled it to $2 billion in compensation related to the 2007 nationalization of oil projects in the country. Conoco is now moving to try to take over PDVSA’s assets in the Caribbean. PDVSA has crucial oil, refining and storage assets on the islands of Curacao, Bonaire and St. Eustatius. The attempted seizure throws even more doubt onto PDVSA’s operations.

Guidance from shale companies suggest oil price rally won’t be killed. Oil prices are at their highest level since late 2014, which raises the prospect of higher rates of drilling from U.S. shale. But so far, the recent announcements from a series of shale companies points to higher production levels, but no massive increase in spending. That means shale production could continue to rise, as expected, but output may not surge to such extraordinary heights that the oil price rally comes to a halt.

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OPEC concerned about spare capacity. Saudi oil minister Khalid al-Falih, who has downplayed short-term supply concerns in recent weeks, recently voiced worries about spare capacity. "We are concerned about tight spare capacity nowadays," Falih told reporters in Tokyo. "We are watching investment levels very closely to make sure that we have a pipeline of project flows sufficient to meet the incremental demand that is very healthy," he added.

Cryptocurrencies

Goldman Sachs to open Bitcoin trading operation. Major banks and incumbent financial institutions have dismissed the cryptocurrencies, but in a sign of the industry’s maturation, Goldman Sachs (NYSE: GS) announced plans to open a Bitcoin trading operation, a first on Wall Street. The move will likely bolster the legitimacy of cryptocurrencies. Goldman will start by trading in Bitcoin-related assets rather than Bitcoin itself. Meanwhile, Bill Gates is not a believer, saying he “would short [Bitcoin] if there was an easy way to do it.”

Bitcoin just shy of $10,000. Bitcoin came very close the $10,000 mark for the first time since March, but pared back the gains over the weekend. The cryptocurrency is facing resistance at that price level, but some traders see the recent price movements as a slow-and-steady rally that could continue. “The consolidation we're seeing now is actually quite healthy,” Mati Greenspan, senior market analyst for social trading platform eToro, told Forbes. “In the meantime, we're holding well above the support at $9,000.”

South Korean financial regulator sees benefits to cryptocurrencies. South Korea’s head of Financial Supervisory Service (FSS) said there are “some positive aspects” to cryptocurrencies, and that regulators wanted to establish solid rules that would allow for the market to grow in a healthy way while still offering security for the financial system. CoinGeek wrote that the direction is “good news for the country’s cryptocurrency enthusiasts and investors.”

By Josh Owens for Safehaven.com

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