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Except For Crude The Week Ends On A Whimper

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The oil gods must be crazy. West Texas Intermediate was down, then, up; down and finally up as the weekends, with prices rising 8.00% for the week. The vast majority of that rise came today.

The U.S. oil benchmark was up more than 6.00% on the session while Brent North Sea crude was up nearly the same amount. This lurch up was driven by news of stockpile drawdowns in Cushing, Oklahoma. But… the central U.S. storage tanks are still right at or just below capacity. “Meh,” should be the response rather than a wild bidding spree.

There is something else at work, obviously. That something is a scheduled meeting of OPEC nations on the 17th of April. Traders are pinning their hopes on Iran joining the production-freeze team that many suppliers hope includes non-OPEC countries like Russia as well.

But, if Iran joins, it will be the oil surprise of the last five years. And, if production stays stagnant and demand rises, the U.S. will jump in immediately and boost its production. Additionally the (older and non-controversial Keystone Pipeline is down, leaving 600,000 barrels per day offline until next Saturday. But those are temporal influences. It’s safer to say that oil is now range-bound, even if that range is broad and will probably give us lots of volatility.

That may be why U.S. equities, which started out promisingly today have lost their fuzzy glow as the session ends. Other than the good news in the energy sector, there was nothing to bring stocks up.

GDP numbers were soft, while other figures except for employment were very middle of the road. Although we think the Atlanta Fed’s rather dour numbers for GDP are somehow not catching the whole dynamic of the American economy, there is fear in the equities markets regardless of our viewpoint.

We might have expected a stronger showing in havens today, given the weakness in U.S. equities, but perhaps the appetite was subdued going into the weekend.

Gold seems poised to move back up, but it lagged against its sisters in the precious metals complex – for today.

The yield on the U.S. 10-year bond was up slightly but the movement tells us nothing about overall conditions, meaning the bond wasn’t serving as a haven.

The yen is the curious story of the week, moving up then falling back ever so mildly today even in the face of comments from the Bank of Japan.

Japanese Finance Minister Taro Aso said early Friday that rapid currency moves were "undesirable," and that the yen's moves were "one-sided" and that Japan would take steps as needed.

Sounds like the warning of intervention was delivered. The yen did hit a 17-month high this week and it should be of great concern to the Japanese and to all major world economies. We don’t want a sick Japan.

We feel as if the yen, though, has nowhere to go but up in the face of a stalled series of rate rises predicted by Fed watchers. And, given that the negative interest rates provided by the BoJ are having little or no effect on the strength of the yen, we foresee only a true intervention as their solution.

That means either dumping yen onto the market or issuing more bonds – many more bonds. The former seems feasible. The latter seems ridiculous given negative rates.

Either way, the volatility rippling through the world economy provides some qualified attractions for the haven investor. At least for a while.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer