Crude oil reaches its top
Oil prices are at a 30-month high, despite boosted US production and inventories and a drop in the US rig count. The harsh winter is playing a short-term role, but some analysts are suggesting that 2018 prices will surge past our forecast of US$ 60-65 per barrel of West Texas Intermediate.
We’re not convinced – yet, but their reasons are: 1) growing confidence in demand growth in developed and emerging markets; 2) booming consumption in China (the world’s largest oil consumer), which reported modest gains in 2017 new passenger-car sales but big jumps in used car buying; and 3) speculation that US shale production might not be able to maintain currently high rates. We still short on crude, but are watching these factors carefully.
3 hikes and we’re out?
Will or won’t the US Federal Reserve hike interest three times in 2018? Although this has been talked up for months now, we don’t expect a rate increase from the next meeting of the Fed’s Open Market Committee, scheduled for 31 January. Indeed, as long as inflation does not clearly pick up, the Fed will be reluctant to tighten money.
But, if it does, three hikes in 2018 will disrupt markets. A serious sell-off would become likely.
For now, investors trust the Fed. The front-end of the yield curve will continue to increase, and the US equities frenzy will keep going. The US dollar has strengthened since last Friday and should continue to do so in the short-term. The Fed’s tightening hand has also been weakened by the latest employment figures. Both the non-farm payrolls and the ADP report for December have been revised downward, which will make the central bank even more cautious.
