After OPEC + talks collapse, U.S. crude hits 6-year high, producer shares rise

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Key points to remember:

  • U.S. crude prices hit a 6-year high above $ 76 a barrel
  • Gold also rises as the US dollar weakens and amid news of central bank buying resumption
  • World Gold Council says central bank gold purchases in May were 43% above monthly average for current fiscal year

Now that the fireworks have been fired and the flags are rolled up, it’s time to get back to business and the markets.

As we enter this week after Independence Day, it looks like crude oil and energy stocks could be an important feature in today’s trading. The U.S. benchmark index hit a six-year high above $ 76 a barrel after OPEC and its oil-producing allies failed to agree on production increases as l he world economy is recovering.

If the rise in oil prices continues, it could raise gasoline prices during the summer driving season here at home, putting further upward pressure on inflation and weighing on corporate margins and budgets. Household. That wouldn’t be good for consumer discretionary stocks like retailers, and of course, rising oil prices won’t be welcomed by fuel-consuming companies like airlines, manufacturers, and parcel delivery services. .

But higher oil prices are good for oil producers, and energy stocks including ConocoPhillips (COP), Occidental Petroleum (OXY) and APA Corp. (APA) were seeing decent gains even as futures contracts indicated major indices could open almost unchanged. .

In other commodities news, gold prices climbed back above $ 1,800 as the weaker dollar helped the precious metal. News from the World Gold Council that central bank gold purchases in May were 43% above their monthly average since the start of the year also helped gold return to the $ 1,800 level.

Although the week is short, now that the holidays are behind us, investors may start taking their summer positions this week. Without much guidance from the economic data, they can now see the right time to position themselves on how they see the global economy unfolding and what they think corporate profits might do over the weeks. to come up.

As we move towards a more realistic trading environment, compared to the pre-holiday market, you may want to keep your eye on the Cboe Volatility Index (VIX). It’s a bit high this morning but still less than 16 years old.

Job numbers before vacation

Last week ended on a positive note with a better-than-expected employment situation report that showed 850,000 new jobs in June, a solid sign of continued economic growth as the United States reopen.

But with unemployment at a high 5.9% and initial weekly unemployment figures still worrisome, it looks like investors and traders expect the Fed to maintain its ultra-accommodative stance for some time, with asset purchases and a low key interest rate.

This kind of throwback to the Goldilocks scenario of yesteryear. Back then, we were talking about strong economic growth and low inflation. We are now talking about a solid economic recovery, inflation that the Fed expects to be transient, and a central bank that is very useful for stocks.

With expectations of an accommodating Fed, yields on 10-year Treasuries and 30-year Treasuries plunged on Friday. This put some pressure on the financials sector, although the lower inflation expectations reflected in these returns helped boost mega-cap growth stocks. Information technology stocks led the gain, followed by consumer discretionary and communications services names.

The coming week

This week is rather light economically. The biggest event of the week will likely take place tomorrow with the Fed debriefing on its last meeting.

Last time around, the Fed took a look when it raised the possibility of becoming more hawkish. The minutes could give us a behind-the-scenes look at what Fed officials discussed.

In the news of the results, it may be interesting to tune in when Levi Strauss (LEVI), a reopening coin, opens its books on Thursday after the close. The denim jeans maker is far from distressed these days. Shares have risen more than 26% so far this year on Friday when they closed at $ 27.46, well above the pre-pandemic high of 2020.

Last time around, the company raised its reported net income outlook for H1 2021 to 24% to 25% growth from H1 2020. So investors may have high expectations for this week as the company retail is picking up with the global economy. .

It might be interesting to see how the company continues to run its e-commerce business, as retailers who are more successful with direct-to-consumer sales may have a better chance as brick and mortar declines, a trend that seems likely to continue well into the post-pandemic “new normal”.

Gold is losing its shine despite inflation: Amid all the inflation talk as the prices of commodities like lumber, iron ore, oil and copper rise, there is at least one commodity that has been noticeably absent from the market. rally: gold. Old school investors might find this surprising because gold has historically been viewed as a hedge against inflation with the idea that it will hold its value better than other assets over time. But after starting the year above $ 1,900 an ounce, the precious metal is now trading around $ 1,800. In the grand scheme of things, this isn’t a huge drop for gold prices, which can be quite volatile. But with the context of inflation, it’s a bit of a puzzle. “Maybe gold is struggling because the market views inflation as transient,” Peak Capital Management said in a note. “Likewise, investors could favor other assets like bitcoin or high demand commodities (metals, oil) to hedge inflation.”

Optimistic factory orders: With Friday’s economic news dominated by the stronger-than-expected jobs report, you could be forgiven for missing the factory orders report. While this is generally a lower priority case in terms of commercial importance, last week’s report showed another sign of improving the economy. Orders for manufactured goods in May rose 1.7%, in line with expectations of the Briefing.com consensus. This is a sharp turnaround from the previous month’s drop of an upwardly revised 0.1% rate. The main takeaway from the report is that orders for manufactured goods rebounded quickly after a slight drop in April which was the first drop in 12 months, implying that April’s drop was a normal slowdown after a streak of heat and that the manufacturing business is still running at a good recovery clip, ”Briefing.com said.

Higher times for cannabis: While cannabis stocks are still doing fairly well overall this year, they were much higher towards the start of 2021. At that time, it seemed investors believed there was more momentum for the. federal legalization than they think at the moment. Still, the New Cannabis Ventures Global Cannabis Stock Index is up nearly 30% year-to-date, and the cannabis news and information provider said in a note that market drivers remain. robust. These include expanded access to capital, new state-owned enterprises, accelerated mergers and acquisitions, a larger pool of investors, market share gains for state legal markets versus the illicit market, more States legalizing through the legislative process, progress at the federal level, an improvement in the Canadian market and increasing concentration beyond North America.

TD Ameritrade® commentary for educational purposes only. SIPC member.


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