How New Year’s Trading Is Shaping Up In The First Week

When it comes to crude oil, oversupply, overproduction and immense in-the-ground reserves are trumping the chaos in diplomatic relations between two key players in the Middle East.

Yes, there are jitters concerning the rift between Saudi Arabia and Iran, but Iran has more or less apologized and vows to bring “protestors” to account for their violent outbursts against the Saudi physical presence in Tehran.

At daily settlement, crude was down over 2.00%. West Texas Intermediate began to recover in the afternoon session but then was subject to fresh lows, down not quite 2.40%.

Brent North Sea prices softened about the same amount.

Remarkably, the drop in oil has not had an enormously negative effect on New York indexes, although the big three are struggling to stay even or go into the green. But, it does seem as if the bleeding prevalent in yesterday’s trading has been stanched.

Asian equities experienced continuing declines, but damage in Shanghai, (the market hardest hit yesterday), was contained. Hong Kong did the worst, down 0.60%. Again, though, momentum seems to be favoring the upside unless more bad news is uncovered in China.

Gold seems to be the chief beneficiary of the instability in the Middle East, serving as a solid haven play, although trading today in the yellow precious metal was distinctly more subdued than it was yesterday.

Much of the luster lost was because of a strong U.S. dollar. The same framework applied today to platinum and silver. Silver rose strongly despite the greenback’s muscularity. At mid afternoon, silver is up over 1.00%.

Palladium again is on the run, off about 0.40% at 4 o’clock in New York.

The dollar is up against the euro about 0.80%, a sharp gain given the volatility in other markets.

One reason the dollar remains so healthy – and we will be able to confirm or adjust this opinion tomorrow – is that the minutes from December’s FOMC meeting will reflect a consensus that the U.S. economy is sturdy, inflation will kick in soon and another rate uptick is probably in the near-term offing.

We would look for three or four rate increases this year. We would not look for five as some experts are predicting. We think that a mid-2016 mild slowdown will spook the Fed (and the rest of us).

As we said yesterday, we are also looking with interested eye on ADP’s private jobs report tomorrow and the non-farm payroll data that will be released on Friday by the Department of Labor.

Wishing you as always, good trading,

Gary Wagner