Crude oil bears are scattering after China is signaling they will start to open their markets and take steps to guard foreign intellectual property. The speech by the Chinese President seems to suggest that President Donald Trump’s tactics of playing hardball is having the desired effect. China, of course, had its currency pegged to the dollar until 2014 and has charged many countries unfair tariffs and realized that they were trying to defend undependable trade practices.
China’s President Xi Jinping promised to cut China's auto tariffs and improve intellectual property protection, opening the door to negations with the United States in what will be viewed as a big win for the Trump Administration. While we don’t want to fly the "mission accomplished" flag just yet, perhaps President Trump was right, trade wars are easy to win.
The markets are still worried about the Mueller Investigation that seems to be heating up. Stocks that were rocking tanked late in the day after the FBI raided the offices of President Donald Trump’s personal attorney Michael Cohen. Some believe that it was about seizing records on the $130,000 payment made to Stormy Daniels. Others think the FBI used that as an excuse to find any evidence in the Russian collusion story that looks like it is falling apart. President Trump said that it’s a “disgrace” that the FBI “broke into” his lawyer’s office. He called Mueller’s investigation “an attack on our country.”
In the meantime, the U.S. economy is doing the best it has in years. President Trump’s approval ratings are on the rise and his policies on trade and his war on ISIS continues to make the average American’s economic prospects better than they have been in years. Some are worried about the CBO Budget deficit at $804 billion this year, $1 trillion a year starting in 2020. President Trump is going back to Congress and looking for ways to cut more spending. Yet, my bet is that, like the Reagan tax cuts, they will eventually pay for themselves.
We also must look to more growth from the United States being able to do more business with China on a more level playing field. My bet is that when the United States places a bet on American Companies and American workers, it is a bet they are going to win.
Oil also has more Geopolitical risk. The AFP reports that U.S. President Donald Trump has promised a "forceful" response to the alleged chemical attack in Syria as Western leaders consider what action to take. "We have a lot of options militarily," he told reporters. He added that a response would be decided "shortly." Trump said the United States was getting some "good clarity" on who was responsible for the incident in Duma on Saturday. Medical sources say dozens were killed in the alleged attack, but exact numbers are impossible to verify.
Russia backs Assad and he is already seeing his stock market get pummeled by sanctions. Russia can’t afford to let the price of oil fall or it would be a disaster for the Russian economy. The Increased tensions are also supporting gold as traders go back to the yellow metal as a haven. Measures of 60-day historical volatility for gold and palladium futures climbed to the highest in about a year. Volatility in silver also increased, according to Bloomberg.
So, oil should be poised to resume its trend and we should put $70 a barrel back in play during the next 30 days. We look for more upward price pressure for RBOB and Diesel so make sure you are hedged. Grains will move on USDA crop report. Cold weather is playing havoc with crops and delaying planting.