Big News Out Of China

Crude oil is down almost $5 per barrel today after China announced it would increase the prices for gasoline & diesel by 17% and 18% respectively.  By reducing subsidies, it would put more pressure on individuals in China and hopefully curb some of the demand, thus bringing down the price of oil.  In addition, they are raising prices of jet fuel as well.  The rise will be effective July 1st. 

This took the market by surprise with the Olympics right around the corner.  Also, this came just days before the world’s biggest oil produces and consumers meet in Saudi Arabia to develop plans to combat fast rising oil prices.  Energy companies are falling today and DUG is up about 3.5%.  I’m still long this.  In addition, gold is up over $9 on the active month.

Equities seem to like this news.  If the global economy can keep growing without commodity prices going up 10% every week, we may be in good shape going forward.  But I disagree with the market that the Fed is going to raise rates anytime soon.  We have an election this year and rarely do they raise rates in an election year.  I think the Fed has scared the market enough.  Ten year treasuries are now at 4.2%, which is high on a relative basis. 

On another note, Citigroup came out today an announced they will have “more substantial writedowns” in future quarters.  But, the stock is only down 2%.  We’ll see if the bad news from these stocks starts to get ignored by Wall Street.  Citigroup also announced they are purchasing a Brazilian brokerage firm.  Even during all this mess, these big strong companies still improve themselves in other ways.  That’s why I’d still buy Citigroup and put it on the shelf for a couple of years along with Goldman Sachs.

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KARL’S TWITTER (www.twitter.com/karleggerss)

  • Steady decline in the ADV/DEC all day on the #NYSE. 2 hours ago
  • Earlier this month, the odds of a December Fed hike were at 20%. Today, 63.8%. 1 day ago
  • Rate hike odds for rest of year according to Fed Funds futures: 11/1/2017: 2.8% 12/13/2017: 63.8% 1 day ago
  • Big beat by Philly Fed manufacturing index. 1 day ago
  • Initial jobless claims: 259k vs. 300k est. 1 day ago
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