On Tuesday, China spooked the markets by announcing that it would raise its lending and deposit interest rates. The stated goal of the move was to reduce inflation and curb economic growth that some saw as overheating.
The measure seemed to succeed – temporarily – as it sent investors running into the U.S. dollar, undercutting the prices of commodities and risk assets around the globe. This all benefits China, which prefers to see the yuan depreciate relative to the dollar in order to maintain its exports, and wants to see the prices of raw materials decline.
The next day, however, it was business as usual, as the dollar resumed its slide and commodities like oil, gold and copper rose.
On the IntercontinentalExchange, benchmark West Texas Intermediate light, sweet crude oil futures rose 2.765 percent to trade at $82.44 per barrel. Brent crude oil futures jumped 2.874 percent to $83.50 per barrel.
While some of this gain might be coming from an analysis of the oil market's fundamentals and the prospect for continued growth across the emerging markets, a significant fraction of the price movement likely stems from commodities futures brokers and traders getting back into the risk trade.
There's also the complex feedback loop that exists between oil futures and the global economy: As the price of oil heats up, it makes every aspect of economic life more expensive, which tends to dampen growth.
Falling growth then puts pressure on the price of oil; and the prospect of quantitative easing throws a new and unpredictable effect into that equation.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.