Hear the Commodities Roar!
If you don't think that deficits matter take a look at the dollar. The dollar takes another drubbing and it is clear that the politicians in Washington still don't get it. BP says they get it, on the anniversary of the deep Water Horizon. Money once again is plowing into commodities as the concerns of a widening rate differential between the US and Europe is driving traders back into the carry trade. Now add to that, strong earnings from Intel and IBM and it would seem to suggest that demand from the emerging markets for technology show that places like China are not slowing down but accelerating.
Risks that ground troops could be heading to Libya means a possible escalation in that conflict. Post violence in Nigeria in the aftermath of the Nigerian election as well as the announcement that Saudi troops will remain in Bahrain to ward off what is called an Iranian threat, is keeping the risk premium high and the market wants us to conserve supply as it is predicting a high probability of another disruption. We also have more violence in Syria and Egypt. I thought Egypt was settled. Silly me.
At the same time high gas prices and terrible weather is conspiring to cut into US gasoline demand. The MasterCard Spending Pulse reported that gasoline demand rose 3.3 percent from last week to 9.3 million barrels per day, but is still down 1.6 percent from a year ago. Demand was strong in the south where it was hot and weak in the Midwest where tornados and cold, horrible spring weather kept drivers off the road. Why battle the elements to pay $4 a gallon for gas?
China's raising of the reserve requirement looks like it will have little impact on inflation. Now we are hearing some comments out of China saying that they are importing inflation with their currency manipulation. (Using my line). China is starting to realize that if they are going to get inflation under control they are going to have to allow their currency to float. Today’s Wall Street Journal reports that, "China is accelerating efforts to push its currency deeper into world markets, racing ahead with a series of moves toward a new financial ecosystem with the yuan at its center.
“A senior Hong Kong monetary official told The Wall Street Journal on Tuesday that China's central bank is ‘actively considering’ new rules that would make it easier to bring yuan funds raised offshore back onto the Chinese mainland. Changing those rules would remove a choke point threatening the fast-growing market for the Chinese currency that is developing in Hong Kong and elsewhere outside mainland China's borders. Currently, Chinese officials have to approve bringing any sizeable amount of currency – foreign and domestic – into the country. That system is aimed at closely managing the exchange rate and preventing speculation in the yuan." A must Read!
I'm Mister White Christmas, I'm Mister Snow, I'm Mister Icicle, I'm Mister Ten Below, I'm Mister Green Christmas, I'm Mister Sun, I'm Mister Heat Blister, I'm Mister 101. The battle between Mr. Heat Miser and the Mr. Snow Miser is heating up natural gas. You have hot temperatures in Texas and down South, and cold temperatures in the Midwest and the North East, a double demand whammy for the natural gas demand. Add to that a strong stock market and I'm too much.
The anniversary of the Deep Water Horizon disaster is a sad day because of the loss of life and the knowledge that this accident should have been avoided. Every American has been hurt by this disaster. The Wall Street Journal reported that oil and natural-gas output from the U.S. Gulf of Mexico has plunged in the wake of last year's oil spill and has stymied development of the nation's most prolific source of hydrocarbons.
The Journal says, "When the Obama administration imposed a blanket moratorium on offshore drilling, much attention was paid to its impact on the local economy and individual companies. At the time, oil prices were around $85 a barrel and gasoline in the U.S. cost an average of $2.858 a gallon. Crude-oil and natural-gas production is expected to decline this year, according to estimates from the Department of Energy and private analysts. Offshore oil output, most of which comes from the Gulf, will average 1.55 million barrels a day this year, a 13% drop from 2010 estimates, according to U.S. Energy Information Administration figures. In 2011, the 10-month suspension in drilling activities and a slower permitting process will have resulted in the loss or, at least, the delay, of 375,000 barrels of oil a day, said energy consultancy Wood Mackenzie. That is roughly equivalent to one-third of the Libyan production that remains shut down because of political turmoil."
The White House as reported by AFP reports that, "U .S. President Barack Obama on Wednesday vowed to do ‘whatever is necessary’ to restore the Gulf Coast, on the anniversary of last year's massive BP PLC (BP) oil spill. ‘The events that unfolded on April 20, 2010 and the oil spill that followed underscores the critical link between the environment and economic health of the Gulf,’ he said in a statement. ‘My administration is committed to doing whatever is necessary to protect and restore the Gulf Coast.’ One year ago an explosion on the BP-leased Deepwater Horizon oil rig killed eleven workers and destroyed the platform, eventually causing nearly five million barrels of oil to gush into the Gulf of Mexico."