As it came time for earnings reports from major companies, most investors and analysts wondered whether the recent rally we’ve experienced could continue.
Stocks rose last week after aluminum giant Alcoa Inc. (AA:NYSE) kicked off earnings reports for the quarter with a surprising profit after three straight quarters of losses. Alcoa saw its shares increase 1.1% to $14.35 per share. Companies from Intel to Goldman Sachs Group Inc. are scheduled to report earnings this week.
But attention is also focused on commodity prices, including crude oil. The Associated Press reports that a jump in oil prices is helping to lift global stock markets. Stocks also got a boost from a better-than-expected profit report from Dutch company Royal Philips Electronics, which sent Britain's leading stock indicator to its highest level in a year.
Chevron is expected to add to investor optimism when it reports its earnings this quarter. The Kansas City Star reports that Chevron Corp. (CVX:NYSE) expects its third-quarter company earnings to be significantly higher than the second quarter on higher crude oil prices. Chevron previously reported it earned $1.75 billion.
As expectations mount for economic recovery, the IEA revised its predictions for crude oil demand. The Oil and Gas Journal reports that the IEA revised its numbers upward by 200,000 barrels per day for its global crude oil demand forecast for 2009 and by 350,000 barrels per day for 2010.
According to the Kipp Report, the International Monetary Fund (IMF) issued a report stating that Middle-East Gulf states have handled the financial downturn well. The report suggest that with higher crude oil prices and the anticipated re-emergence of global demand, oil revenues are expected to increase, allowing crude oil exporters to rebuild their international reserve positions by over 100 billion dollars in 2010.
Crude oil prices continue to increase as the MSCI World Index advanced to a near one-year high. However, the U.S. dollar continued to decline. The dollar’s drop also sent gold and silver prices higher.
Editor Justice Litle of Macro Trader and contributor to Taipan Daily says readers should consider that while $USD sentiment has hit more bearish levels than ever, talk and sentiment surrounding crude oil has reached historically bullish levels. Justice adds, “The thing is oil is weaker than it should be. If a return to global economic growth and the imminent arrival of a new economic order are such foregone conclusions, why is oil stalling?”
Justice adds, “Now consider another question. Who has the most to lose if the price of oil falls sharply?”
He concludes:
There are many players that would be hurt in the event of a sharp crude oil price decline. Aggressive hedge fund managers who are loaded up on speculative energy names, for example, would see their portfolios get whacked.
But from a larger scale perspective, few would be hurt more by another crude oil price decline than the big Middle-Eastern oil exporters.
If the dollar were to rise sharply, then the price of oil would surely take a serious hit. A withdrawal of optimism in regard to the health of the global economy would also hammer oil prices. The big oil exporters are desperate to avoid this outcome. Which may be why they are plotting to try and keep it from happening...
You can learn more about Justice’s theory on the dollar and oil in upcoming issues of Macro Trader.
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