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Oil Buoys Stocks and Commodities, Dollar Little Changed

Posted by Joseph Trevisani on Apr 12, 2016 7:41:06 PM

Oil surged about $42 a barrel propelling stock and equity prices higher but leaving the dollar only slightly improved against its major trading partners. 

West Texas Intermediate, the American crude standard closed at $42.17 in New York, up 4.48 percent on the day. It was oil’s strongest finish since last November 30th.  

Traders are banking on a report that Russian and Saudi Arabia had reached an agreement on a production freeze and that the OPEC meeting in Doha on April 17th will deliver output restrictions among the major producers.

 Forecasts for lower U.S. shale production and a falling rig count have helped raise oil prices from their February low of $26.21 a barrel. 

Commodity prices rallied with oil. The Bloomberg Commodity Index jumped 2.12 percent to 80.8911, its highest close since March 22nd. Copper climbed 2.70 percent to $214.70.

Gold was flat, losing $2.25, less than a percent to $1255.63, on the general retreat from the safety trade. It had gained $17.53, 1.4 percent on Monday.

All three major U.S equity exchanges were positive. The Dow gained 0.94 percent 164.84 points, closing at 17,721.15. The S&P 500 added 0.97 percent, 19.73 points to 2016.72 and the Nasdaq climbed 38.69 points 0.80 percent to 4872.09. 

Treasury prices dropped, pushing yields higher. The 2-year return gained 4 basis points to 0.7384 percent, and the 10-year added 5 points to 1.7761 percent. 

Tuesday’s market gains came despite another warning from the International Monetary Fund that political and economic risks are rising particularly from the threat of a British exit from the European Union. The Washington based organization cut its forecast for global growth for the fourth time in year.  

The IMF reduced its global GDP prediction for 2016 to 3.2 percent from 3.4 percent.  Japan had its projected growth rate halved to 0.5 percent. Even the U.S. with the best economy among developed nations, saw its estimate shaved to 2.4 percent from 2.6 percent.

However, the U.S. estimate is blatently optimistic. In all likelihood the IMF will soon have to cut the U.S. forecast again.

American GDP is tracking at 0.1 percent in the first quarter according to the Atlanta Fed’s GDPNow estimate. That rate means the economy would have to grow almost 50 percent faster in the remaining three quarters to reach the IMF projection than at any time since the recession. 

The dollar rose about 0.5 percent versus the yen finishing at 108.54 and a negligible 20 points versus the euro closing at 1.1385. In the last nine session the dollar has moved in a very restricted 1.1310 to 1.1465 range against the European currency.

 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

 

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