May 24 New York

Pinestone Investments

DJIA added by 74.51 points to 21012.42 while SP500 rose by 5.97 points to 2404.39.  Nasdaq Composite Index gained by 24.31 points to 6163.02.  10 year Treasury yield was 2.27%.  WTI was $51.53 a barrel.  The rate of the yen to the U.S. dollar was 111.58.  The consensus of most market participants and economists is that the Federal reserve will raise its short term interest rates in June.  The Fed raised its rates in December 2016, followed by another one in March.  And June rate hike is most likely.  These rate hikes reflect the Fed’s confidence in the economy.  The U.S. economy has recovered well from the Great Recession.  Today the U.S. unemployment is 4.4% and the unemployment rate was 10% during the housing and financial crisis and the following recession.  An increasing number of market participants have started to think that the Fed will raise its interest rates in June and in September or December ,judging from good economic indicators and the necessity of further economic expansion though the ten year Treasury yield is relatively low.  Prices in crude oil remain stable above $50 a barrel recently.  WTI crude prices are rising after falling to $43.76 a barrel on May 5, which mitigates the risk of sharp decline in the near future, with net long positions among speculators having fallen 26% in the past four weeks (based on data through May16).  On May 15, Saudi Energy Minister and his Russian counterpart issued a joint statement supporting a nine-month extension of the oil output cuts until the end of March 2018 and agreeing to the need to set Jan-Jun output levels so that they will achieve the target of reducing worldwide oil inventories to their five year average level.  On May 19, An OPEC commitee was reported to start to make scenarios for various levels of output cuts.  In addition, the Saudi minister said, “We think we have everybody on board.  Everybody I’ve talked to indicated that nine months was a wise decision.”  Relating to WTI front-month futures, the rise on May 15 owed mainly to the joint Saudi-Russian statement and the one on May19 to the Saudi minister’s comments.  The stability of prices in global crude oil will depend on the result of the OPEC meeting on May 25.   The risk is that U.S. shale operators will expand output immediately after OPEC extends the cuts.  In the longer perspective, crude oil prices could be affected by net long positions remaining at historical highs.

Kazuhide Matsuishi

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