Government shutdown hype
By Peter Rosenstreich
Fears that the US federal government might shut down are overstated. While the situation remains fluid, this too shall pass. Stocks should recover as quarterly results roll in to drive valuations higher and potentially boost cryptocurrencies.
American shares have pulled back slightly over shutdown fears. Worries of deeper chaos and division in the government amplified a sell-off in treasuries, hurting a fledgling USD rally.
Oil hits a plateau?
By Arnaud Masset
Crude prices tumbled in the Asian session, after OPEC revised its non-OPEC 2018 supply forecast upwards. WTI fell 1.4% to $62.85 a barrel before stabilising above $63. Brent slid to $68.30 before consolidating a few cents higher. Against a backdrop of higher production and faltering demand, price outlook remains cloudy. Black gold enjoyed a nice ride since last summer, but this might be flattening out.
In its monthly market report, OPEC expects non-OPEC supply growth of reach 1.15 million barrels per day – up 160 thousand from previous estimates. Most growth is expected in the US and Canada. On Thursday, the US Energy Information Administration reported that US inventories contracted by 6.9 million barrels from the previous week, whereas market participants were expecting a smaller decrease of 3.1 million barrels. US stockpiles have been shrinking continuously since April 2017, falling to 413 million barrels from 536 million. Still, this did not boost oil prices yesterday, as speculators are already long. Net long non-commercial positions topped 25% of open interest.
Canada hikes rates despite NAFTA uncertainties
By Vincent-Frédéric Mivelaz
Bank of Canada’s Governing Council confirmed a 25 basis-point increase of its overnight interest rate to 1.25%. This follows strong economic data, ahead of the sixth of seven negotiation rounds of the North American Free Trade Agreement.
Economic data are enviable: a jobless rate of 5.70% (lowest since September 2007) and yearly price growth in November of 2.10%. As Canada approaches full employment, there are still worries about NAFTA. With the next negotiation starting on 23 January, investors are worried and so brought the loonie down 0.8%. Their fear is of US President Trump’s aggressive protectionism.
We remain confident that Trump killing NAFTA is unlikely. The stakes are too high: tariffs could escalate and make American prices less attractive for their neighbours Mexico and Canada, who buy 34% of US exports. Even Trump told the Wall Street Journal last week he would be “a little bit flexible” on the matter.