As the conflict with North Korea progresses, alliances are built in the East, and crude oil prices bounce back after “energy week.” What effect will these stories have on the market? Get all the details in this edition of Steady Investor’s Week…
Crude Oil Bounces Back on the Heels of “Energy Week” – “Energy Week” featured events like the “Unleashing American Energy Event,” where President Trump made a strong push for promoting energy development (specifically in oil and gas). The U.S. Interior Department is rewriting an Obama-era drilling plan, with efforts aimed at opening drilling to the Arctic and Atlantic Oceans (off-limits under Obama’s plan). President Trump wants America to extract more oil and gas and to become the top exporter in the world, and the work is already underway as the U.S. State Department has already issued permits for three pipelines crossing the U.S.-Mexico border, amongst several other energy deals reached this week. No matter what your view on oil, gas, and renewable energy markets, a push for higher production and energy dominance is likely to rebalance the market back towards oil and natural gas consumption. Oil prices have responded positively to all the events and news, with crude enduring its longest rally in over five years. Crude now hovers around $45/barrel.
Debt Investors Looking to China? – China has been making nominal moves to open its capital markets and economy more, and its latest efforts focused on debt markets. Overseas investors can now purchase debt in the world’s third-largest debt market (behind the U.S. and Japan), via a bond-connect program administered between China and Hong Kong. Should investors rush to diversify debt portfolios in the wake of the news? Not necessarily. These types of debt instruments and diversification tactics are largely reserved for institutional investors, who have enough capital and liquidity access to manage the risk pool. The new bond-connect system is now up and running.
Geopolitical Threats Rise…Will It Affect Markets? – The North Korea conflict is nothing new – several administrations have failed to arrive at a peaceful resolution. But, escalation is creeping into never-before-seen territory, in that North Korea’s ballistic missile programs are more developed than ever and it continues on with launches meant to serve as threats. Equity indexes notably fell in the wake of the most recent launch, as investors fear escalation could result in a direct strike and perhaps war. The United States is getting more aggressive in calling for sanctions with all nations that have any dealing with North Korea, which is a tacit call-out on China. U.S. ambassador Nikki Haley said that North Korea’s actions are “quickly closing off the possibility of a diplomatic solution,” and she asserted that the U.S. is ready to use military force against Pyongyang. Defense stocks have been rising as these developments occur. The Eurasia Group still has odds of an all-out war with North Korea at lower than 10%, but the conflict is worth monitoring with greater vigilance.
Alliances Building in the East – as the United States seemingly pursues “America First” policies aimed at “leveling” trade relationships with other nations, many of those very nations are taking cues to get busy forming other alliances. The European Union and Japan are set to sign a free-trade agreement which would cover automobiles, agriculture, and other products while China and Russia continue to cozy up with leaders already having met three times this year to ink at least $10B in agreements. President Xi Jinping of China told Russian media that relations between the two countries were currently at their “best time in history” and the two nations were each other’s “most trustworthy strategic partners.” Meanwhile, perhaps the most-watched meeting of the year takes place between President Trump and President Vladimir Putin on the sidelines of the upcoming G-20 summit. Trump has repeatedly called for improved ties with Russia, but he will have to grapple with shaky encounters and diverging goals in Syria along with the ongoing investigation into Russian hacking in the 2016 U.S. presidential election.
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