Wednesday, May 9, 2018

Markets crawl higher as oil prices surge after US quits Iran deal

Dow rose 22, advancers modestly ahead of decliners & NAZ gained 11.  The MLP index gained 3+ to 261 as oil prices rose & the REIT index lost 2 to the 334s.  Junk bond funds slid lower & yields on Treasuries climbed higher, with the yield on the 10 year Treasury at 3%.  Oil shot up to 71 on the Iran news (more below) & gold added 2 to 1316.

AMJ (Alerian MLP Index tracking fund)


Crude Oil                      70.84

Gold 100 oz. Jun 181,307.50

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Stocks opened higher, with the Dow taking a run at a 5 session winning streak.  For the markets, the big news is Pres Trump's announcement that the US would pull out of the Iran nuclear deal.  The Dow edged slightly higher on the day.  According to Trump, the deal allowed Iran to continue developing nuclear weapons & he called the country the “leading state sponsor of terror.”  The move raised the risk of conflict in the Middle East, upsetting European allies & casting uncertainty over global oil supplies.  Oil futures are rallying on the news.  In terms of economic data, the focus was on the first US inflation-related report of the week in the Producer Price Index.  The yearly rate of core PPI slowed to 2.5% from 2.9%.

Stocks higher, Dow takes run at 5 session winning streak

Oil prices rose more than 3%, hitting 3½-year highs, after Pres Trump abandoned a nuclear deal with Iran & announced the "highest level" of sanctions against the OPEC member.  Ignoring pleas by allies, Trump pulled out of an intl agreement with Iran that was agreed in late 2015, raising the risk of conflict in the Middle East & casting uncertainty over global oil supplies at a time when the crude market is already tight.  Brent crude oil touched its highest since Nov 2014 at $70.96, near highs also last seen in late 2014.  In China, the biggest single buyer of Iranian oil, Shanghai crude futures hit their strongest in $ terms since they were launched in late May.  Iran re-emerged as a major oil exporter in 2016 after intl sanctions against it were lifted in return for curbs on its nuclear program, with its Apr exports standing above 2.6M barrels per day (bpd).  That made Iran the 3rd-biggest exporter of crude within OPEC, behind Saudi Arabia & Iraq.  Walking away from the deal means that the US will likely re-impose sanctions against Iran after 180 days, unless some other agreement is reached before then.  Analysts' estimates of the possible reduction in Iranian crude supplies as a result of any new US sanctions range from as little as 200K bpd to as much as 1M bpd, with most impact from 2019 as sanctions take time to impose.  Several refiners in Asia said they were seeking alternatives to Iranian supplies.  All key crude oil futures contracts saw traded volumes jump as investors took new positions & refiners hedged to protect themselves from higher feedstock prices.  Moving to ease market concerns, Saudi Arabia said it would work with other producers to lessen the impact of any shortage in oil supplies.  The country has been leading efforts since 2017 to withhold production to prop up prices.

Oil jumps to highest since 2014 after U.S. quits Iran deal

Pres said that 3 Americans detained by North Korea have been released and are on their way home with Secretary of State Mike Pompeo.  "I am pleased to inform you that Secretary of State Mike Pompeo is in the air and on his way back from North Korea with the 3 wonderful gentlemen that everyone is looking so forward to meeting. They seem to be in good health," Trump wrote in a post on Twitter.  Trump said he will greet Pompeo & the Americans when they land at Andrews Air Force Base outside DC at 2AM tomorrow.  "Very exciting!" he wrote on Twitter.  The fate of Korean-Americans Kim Hak-song, Tony Kim & Kim Dong-chul had been among a number of delicate issues in the run-up to the first-ever meeting of US 7North Korean leaders.  Trump sent Pompeo to Pyongyang to accompany the men home following US calls for Kim to free them as a gesture of goodwill & sincerity before the US-North Korea meeting, which is expected to take place in late May or early Jun.

Trump: Pompeo returning from North Korea with 3 US detainees

The stock market continues to mark time although there is plenty going on in the intl scene.  The oil story is far from over.  US sanctions will take several months to implement & euro allies along with China will probably continue to trade with Iran.  The news from North  Korea is excellent & holds the promise of successful negotiations next month.  Meanwhile US economic news is good, although uncertainties on the intl cloud are a dark cloud stocks have to deal with.  As has been said for so long, stocks can not get far away from 24K even though US economic news is strong.

Dow Jones Industrials

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