Manufacturing woes and OPEC rumors – the latest news driving oil and stocks

December 3, 2019
“The person who doesn’t know where his next dollar is coming from usually doesn’t know where his last dollar went”
― Unknown

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Manufacturing Numbers Cause the Dow to Plummet

Manufacturing may have crashed in developed countries...but they still count for a lot on Wall Street. The disappointing U.S. manufacturing numbers, which are signaling a fourth straight quarter of contraction, caused a 268-pt drop for the Dow. With a recession looming and an unclear resolution to the U.S.-China trade war, stocks may not have their usual Santa Claus rally.

What happened with manufacturing? While the bulk of economic activity in the U.S. is not manufacturing, it is still a signal of health, and with the fourth straight month of contractions, things aren’t looking too good. And it doesn’t look like there’s going to be a turnaround in the near future.

Could the rally still happen? Some analysts think so. A big boost – for every index and many stocks, not just the Dow – would be the finalization of a U.S.-China trade deal and an end to the trade war. According to sources, phase 1 is already underway.

Would this lead to an overall recession? Amazingly, despite historically-reliable signals like the inverted yield curve for treasuries, the economy keeps avoiding a recession. But that doesn’t mean that everything is rosy – because of tariffs, manufacturing is definitely in a recession. 

Wut We Think: Even with massive drops like this, stocks have seen some of their best performance in decades. And if the economy can avoid recession, that performance has a good chance of sticking around a while longer. Add in tariff removals with a successful trade deal, and the month going into 2020 may set the market up for some spectacular payoffs.


OPEC Rumors Drive Higher Oil Prices

It may not be the 1970s anymore... but the Organization of the Petroleum Exporting Countries or OPEC, can still affect the oil price with just a few rumors. After a sharp fall of about 4.49% in the price of Brent crude after U.S. oil inventories posted gains, the price jumped back up by about a dollar as rumors swirl around OPEC production cuts.

Why would OPEC cut production? One reason is the upcoming IPO of the Saudi oil company, Saudi Aramco, and the Saudis have been pushing hard to boost oil prices in advance of the IPO.

Does this mean that oil will rally back up? That may be the case, but the current jump may be a ‘false’ rally, especially when looking at demand forecasts. On the other hand, a  finalized U.S.-China trade deal would mean greater manufacturing and oil demand in the short and medium-term, which would definitely raise prices.

But that may not matter if OPEC keeps production down: Aramco has a lot to gain if it goes into its IPO with a high oil price, and that means that the OPEC countries will be pressured to stick to the current production-dampening pact. And if OPEC members are persuaded to stick to output goals and not overproduce, then the price may rise anyway.

Wut We Think: The stage is set for either record oil prices or a crash come to 2020 But in the short-term, prices are most likely to fluctuate within a few dollars of the current level as different factions in OPEC battle it out for influence. Eventually, the Saudi’s will probably get their way, but until then, expect some volatility in oil.


 Trading Spotlight: Initial Public Offerings

An Initial Public Offering is usually the most significant day any company will have. For private companies, often tech – it’s usually a day of cash-grabs and celebrations, as companies successfully turn their value into cold-hard cash. For investors, it’s a chance to get in at the ground floor of something truly exciting – though it could also prove disappointing, as several of this year's IPOs have turned out to be.

Initial Public Offering: An initial public offering, often abbreviated as IPO, is a process where a previously private company offers shares to the public. An IPO often occurs when a company needs to inject additional cash flow to keep on pace to reach a valuation of $1 billion – also known as unicorn status. IPOs allow private investors to sell their shares as a premium and can act as prestige-boosters for companies, increasing transparency and reducing barriers to secondary financing.

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