Markets Cool over Holiday Week

Daily Analysis - 25/12/2017

Lower than expected crude inventories in the US keep pushing prices up


Continued reductions in the inventory levels of crude oil held above ground in the US seems to be pushing the price for WTI up. The amount has been falling steadily and above the rate expected since mid-April of this year. This reduction is good in a general way as too much of any commodity artificially lowers price and discourages production. Economics calls a good price equilibrium. A price that is not too low, which would discourage low production and less than efficient use of the commodity and not too high a price that would discourage lower use, raise costs and slow down economic activity. OPEC, the world’s crude oil cartel has had a production cap for its member and associated non-member market riggers in place for about a year. It will not hold much longer as the current relatively high price will encourage cheating on the quotas by the cartel members.


Last week

This week and early next will be pretty calm as Christmas and the Gregorian New Year celebrations keep traders and investors out of the markets. Nonetheless, money, as they say, never sleeps and the holidays don’t completely eliminate the need to trade and transact in the capital markets. Last week saw some very robust growth and vigor in the US Housing market. Starting with building permits Up 2% more than expectation, house starts also above expectation, existing home sales, 4.87% above expectation and new home sales 12% above expectation paints a good picture of this important sector of US economics. The US economy is so massive, compared to the second largest trading zone, the EU ($19.3T and $18.0T respectively) that it is not possible to say that it is a construction dependent economy. It is so enormous that it is sufficiently diversified not to be dependent on any one sector for its income. But housing is important estimated to be around 20 percent of the economy. A consequential ratio. This strength in housing coupled with last week’s increase in US interest rates is holding the USD strong.


The week ahead

This week too, shall be slow for market traders. (BTW: this is a traditional time to catch up on reading. Traders polish off the books that they have started to read throughout the year. The Economist produces its annual summary and prognostic edition. Use the down time wisely.) Still markets march on. The only real activity we are anticipating this week is a US Consumer confidence report. Pending home sales and of course the Crude Oil inventory report. A note on confidence, also called sentiment reports: They are important to keep abreast of. While not tradable as economic events they are proves leading indicators of future economic activity. There are a couple of good reasons. First they are measured by surveying ordinary people as well as industrially well positioned people like purchasing managers and general managers. Secondly they have proven to be highly reliable over time. In particular the EU sentiment studies are known to be highly reliable and well undertaken. Forewarned is forearmed.



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