The most important developments of last week were 1) indications that world oil producers were poised to extend production cuts (or even expand them if it becomes necessary to reduce global oil stocks to five year average levels) and 2) percolating fears of bird flu in Asia.
As 2016 begins, the commodity bears are getting close to a “perfect storm” from all directions.
The 2015 market wrap-up suggests that broad-based deflationary sentiment has resulted from a “perfect storm” during the second half of the year.
Risk sentiment received a shot in the arm last week after the latest FOMC meeting tamped down concerns over global growth and used more decisive language in favor of a December interest rate hike.
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With the Fed taking a pass on hiking rates in September, a reduction in their 2016 and 2017 growth forecasts, and only minimal dissension within their ranks against a steady policy stance, it appears that they are not confident enough in the pace of US growth to make a move at this time.
An important junction lies ahead as fears about China have returned to the marketplace despite two days of Chinese holidays finishing out the week.
We won’t suggest that the recent lows in many commodities are solid, but value-hunt buying of copper assets by Carl Icahn, a $4.00 single-day rise in crude oil prices, and a 1,000-point, 2-day bounce in the Dow suggest that sentiment was overdone on a number of fronts.
We have to predict a major agricultural and financial juncture just ahead.
The US economy has bulldogged its way to growth in February, despite adverse weather, ongoing energy sector layoffs, adverse foreign exchange rate action and periodic talk of rising US interest rates.