When OPEC agreed to cut oil production 4% back on November 30th they exempt Libya from cutting due to its internal conflict which has disrupted oil production in the region since 2011. At the time of the deal Libya was producing roughly 575,000 barrels a day however that amount has increased to 708,000 barrels a day today. The Libyan National Oil Co. estimates it could reach 900,000 barrels a day this year which would cancel out the entire production cut contributed by Russia.
Last Friday we got a solid US jobs report which hit all the points required for a more hawkish Fed in the short-term. The December jobs report showed strong wage inflation with average hourly earnings growing 2.9% year-over-year, a 7 year high. Also the wide measure of unemployment which includes discouraged workers fell to 9.2% the lowest level since March 2008.
A combination of strong Chinese service sector data and low liquidity offshore sent the yuan surging as much as 2.6% over the last two days, the biggest two-day gain on record.
Heading into the new year Wall Street Strategists are estimating the S&P500 will finish at 2356 in 2017. This is about a 5% gain for the year and it’s the least optimistic strategists have been since 2005. Also the difference between the lowest and highest estimates is only 9% which is the smallest gap on record going back to 1999.
The reflation trade last year saw cyclical sectors rally and bond-proxies selloff with the trade really taking off after Trump won the US election. Now that the post-election honeymoon period is coming to an end the focus has turned to economic data to confirm market moves. The latest manufacturing data today helps perpetuate the reflation trade:
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