Fed hikes short-term rates, citing expanding economic activity

Rate hike is third in 15 months, two more likely in 2017

Bloom Jason_sm_150dpi_RGBThe Federal Reserve raised interest rates today by 0.25% — the third such rate hike in the past 15 months. The Fed’s decision was largely priced into the financial markets, which assigned a 98% probability to the rate increase in the days leading up to today’s announcement.1 In keeping with its two previous rate hikes, the Fed explained today’s decision as an appropriate response to an economy expanding at a moderate pace and a labor market experiencing solid jobs gains.

Rate hike seems unlikely to derail US economic growth

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Expectations for a strong US dollar in 2017 may be losing currency

The degree of interest rate divergence between US, international markets could determine US dollar’s direction

Bloom Jason_sm_150dpi_RGBThe US dollar moved sharply higher against the world’s major currencies in 2014 and 2015 — creating a strong dollar environment in the truest sense of the term. US investors experienced the results of a stronger dollar in the form of tepid economic and profit growth, and muted inflation.

Despite persistent media headlines to the contrary, the currency backdrop has been more nuanced since early 2016. Indeed, the US dollar, as measured by the Bloomberg Dollar Index, traded in negative territory from mid-February through mid-November 2016, not reaching positive territory until after the November US elections.1

Limited upside for US dollar in 2017?

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2016: A rebound year for commodities

Following last year’s rate hike, commodity performance has been consistent with historical trends

Bloom Jason_sm_150dpi_RGBEarlier this year, in a blog titled, “Commodities: When it’s darkest before the dawn,” I suggested that the bottom may be near for commodity prices and highlighted what my team and I believed was an emerging opportunity to catch a cyclical turn that was developing in the broad commodity markets.

At the time, we expected low commodity prices, which had been exacerbated by a Saudi-led crude oil price war, to rebound during the year. We based that opinion in part on commodity price activity over the past 40 years. In response, we heard a lot of statements to the effect of, “That’s all well and good, but everything is different now.”

But throughout the course of 2016, a quote from the celebrated British journalist Malcolm Muggeridge often came to mind: “All news is old news happening to new people.”

Commodities on a roll in 2016

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Pedal to the metals: There’s more to commodities than just crude oil futures

Three reasons to consider commodities in today’s market

Bloom Jason_sm_150dpi_RGBLast month, I outlined proposed crude oil production cuts tentatively agreed to by the members of the Organization of Petroleum Exporting Countries (OPEC). Since then, Iraq, Libya and Nigeria have requested an exemption, which has led some hedge funds to short crude in the belief that an OPEC agreement is doomed to fail.

But the market is neglecting to consider that none of these three countries is in a position to meaningfully increase crude oil exports in the near term. In fact, these three players have much to lose from lower crude oil prices. As such, I believe a formal agreement to limit production is more likely than not. Whether or not OPEC takes coordinated action, economic forces continue to rebalance the physical market – likely pushing crude oil prices slowly higher as demand trends outstrip supply over the coming months and years.

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On second thought: Saudis under pressure to reverse course and cut crude oil production

Potential deal with OPEC could buoy crude oil futures and provide investor opportunities

Bloom Jason_sm_150dpi_RGBThe Organization of Petroleum Exporting Countries (OPEC) has been in existence for nearly 60 years. OPEC is the textbook definition of a cartel, but cooperation between member nations has been inconsistent. OPEC’s production targets have generally served as a gentlemen’s agreement, with member nations often prone to producing more than their allotted quota of crude oil.

Two years ago, Saudi Arabia formally abandoned production targets and began pumping massive quantities of crude, which was seen as an attempt to regain market share lost to rapidly growing North American shale producers. Since then, lower crude oil prices have forced shale producers to cut over one million barrels of daily US crude oil production.

But the shale industry responded with grit and ingenuity –

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