The storm clouds over Iran are getting darker

Daily Analysis - 04/01/2018

WTI above $62. Price not seen since July 2015

iran-and-oil


Those among the commentariat who thought, perhaps naively or in some form of utopian vision that things in Persia would work out peacefully or calmly or intelligently or rationally don’t look so prescient today. The lit fuse is puhing the crude price to levels not seen for the better part of three years. The effect has entered the currency markets already with the USDCAD falling smartly.

Oil First and Rising


Crude price was surely the first stage of the consequences of the uprising in Iran. Well, no. That is not true. The brave citizens of Persia are holding first line of consequences in the display of discontent sweeping the nation of 80 million people. Let us not forget that this is a humanitarian affair. Yes, it has significant market repercussions and we will trade those repercussions to be sure. But don’t lose sight of the fact that driving these developments is a human versus human contest where guns are the implements of the struggle. This is a struggle for the future and character of Iran. As Henry Kissinger famously asked, Is Iran a nation or a cause?” It appears that the demonstrators want a nation. The discontent with the Ayatollahs has reached a point not seen since 2009 when the rigged Ahmadinejad election was the catalyst and before that in 1979 when the Ayatollah Khomeini overthrew the Shah. Despite Rouhani’s statements of tolerance for the rights of the demonstrator, he doesn’t call the shots. Khamenei does and he sees Iran as a revolutionary theocratic cause. It’s the revolutionary bit that gives the autocrats away. No revolution is permanent. When you look at Mexico, Cuba, Iran the only thing permanent in these endless revolutions it’s the grasp of power of the leaders. Not surprisingly corruption, mismanagement and frustration ensue with this type of leadership. The first area outside of domestic Iranian politics affected is crude price. Iran is the sixth largest producer on earth pumping just shy of 4 million barrels a day. Note, supply from Iran has not reduced by one barrel. None of the demonstrations are occurring in the oil centers of Iran. Still… the effect is taking hold and we need to trade this. Oil UP!

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Foreign Exchange second, and currencies are moving


One of the first currencies to be affected by Iran is the Canadian Loony. This is so because a sizable percentage of the Canadian economy is energy based. Coupled with the fact that the Loony (the affectionate name for the Canadian dollar because the one dollar coin has an image of a Loon, a large majestic bird, on it) is a major world trading currency. Remember that the energy market and all capital markets for this matter are driven by human emotion. Forget the pseudo-scientific Greek letter mumbo jumbo of economics and forget the financial graphs and charts emulating natural scientific reality. It just ain’t so. “The markets” are traders and their emotions (and wallets). Period. Their reactions to and anticipation of events taking place in the world around them drive them to react in semi predictable ways. This is our mission in trading the capital markets: To understand those reactions and run alongside them, picking up the proverbial nickels from before the oncoming steam roller. It’s the “before” the steam roller that we need to be sharply focused on. Miscalculate, or be late, or early and we get crushed by “the market”. We can’t move the markets, or outrun it or outsmart them. All we can do is go with the flow they are displaying. The Canadian dollar is strengthening and we should be taking USDCAD down.

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Fritz Hoffmann-LaRoche AG


Listed on the site as Roche, this giant Swiss pharmaceutical and diagnostic producer, is the third largest manufacturer of ethical drugs on earth. Starting out when the eponymous Mr. LaRoche manufacturing the first ingestible vitamin C pill in the late 19th century, the firm today specializes in cancer treatments. The stock is experiencing a strong rally due to the announced purchase of Ignyta, an American drug firm which produces Entrectinib, a tumor inhibitor, for $27 per share or $1.72b in an all cash acquisition. This represents a 74% premium above the closing price of the shares on December 31, 2017. According to those who understand these matters, this acquisition is a significant bolstering to the line of pharmaceuticals being developed by Roche to beat cancer. The world is always fascinated by efforts to eradicate this scourge and this is no exception. Roche Holdings UP today

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The French Connection (to Iran)


The French stock market index the CAC (Cotation Assistée en Continu) is an index of the 40 largest stock on the Euronext Paris (formerly the Paris Bourse) exchange. It is going up. We think that this is because of the Iran situation, but we freely admit that this is speculation. It is generally understood that despite the lifting of the nuclear enrichment sanctions by the previous US administration and its allies and the thought therefore of an opening up of the Iranian economy as a result of the lifting of those sanctions, little tangible benefit has accrued to the economy or the citizenry, nor to the companies that had been willing to return to the French economy. Remember that the regime is a crony capital type model where insiders and associates of the ruling clique get most of the benefits of economic activity while the person in the street realizes little. Nonetheless, we know that there is a distinct relationship between the French business elite and the Iranian economy. No, Teheran is not a great place to do business, and the current unrest may discourage many from considering same, but the French have a very long history there and will likely be among the very earliest beneficiaries of positive investment or realignment that could result from what is taking place in Iran today. Have a look at the chart and decide if the CAC is indeed appealing. We think it is. Buy the CAC up.

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