Equities ended moderately higher on earning optimism and a rebound in crude.
As all know, a production cap was not achieved and crude initially traded almost 7% lower only to close almost unchanged. Why the rebound?
There are several thoughts. First any production cap would have been symbolic given that OPEC et.al is already pumping at peak capacity. Iran is lacking western funds to modernize their fields. The Kurd’s primary oil field is about to default on $550 million owed to the west, a field that needs at least $77 million to maintain production at current levels.
And then there is Kuwait. Kuwaiti oil workers went on strike. Production is off 60% for two consecutive days to around 1.1 million barrels a day, down from 2.8 million three days earlier. This 1.7 million shortfall is more than the 1.3 million daily surplus.
The question at hand is how long will the strike last. It is my understanding strikes are generally forbidden in Kuwait and the last time there were any labor disruptions was perhaps 1996. The workers are protesting a cut in pay and benefits as well as a reduction in total subsides and government handouts.
Will this strike be something of significance or just a forgotten footnote? I don’t know but it is generally regarded Kuwait does not have the social issues that Saudi Arabia et.al. are experiencing. It is a considerably smaller country than the kingdom and has a similar sovereign wealth fund as its cartel leader neighbor.
Commenting about earnings, approximately 100 S & P 500 companies post results this week. Profits thus released have exceeded dumbed down expectations. The next four days could be pivotal.
Last night the foreign markets were up. London was up 0.31%, Paris up 1.07% and Frankfurt up 2.38%. China was 0.30%, Japan up 3.68%and Hang Sang up 1.30%.
The Dow should open moderately higher as consensus believes earning disappointments have been discounted, profit estimates should only improve perhaps the result of a rebounding Chinese and US economy, and a rebound in oil. I think the rise in the futures is significant given a large miss in a massively over owned momentum growth issue that is down about 8%.
The 10-year is off 2/32 to yield 1.78%.