Hot Topic Reporting season
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Milestone for oil prices as Wall St ends a choppy day

Also, Trump offers incentives for North Korean cooperation and Republicans break ranks.

Nathan Smith
Fri, 18 May 2018

Wall Street dipped lower following a bitsy trading day as oil prices hit another milestone and preparations for a Kim/Trump meeting continue.

Global oil prices continued to rise as the European light sweet crude oil benchmark, Brent, topped $US80 per barrel for the first time since November 2014.

Brent crude settled up 2 cents at $US79.30 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures settled unchanged at $US71.49 a barrel after earlier climbing above $US72 a barrel.

Oil prices have so far risen 18% in 2018. To put this in perspective, 12 months ago Brent traded at about $US51 per barrel, while 24 months ago it traded at $US49. It should be noted that the five-year average is higher now than it was in 2014 because it includes 2015-17 inventory levels.

Michael Hewson, chief market analyst at CMC Markets, told the Wall Street Journal he “wouldn’t rule out” $US90 Brent this year.

“The only reason that will stop it from going higher is demand destruction, ultimately people will use it less and consumption will go down,” he says.

Energy prices are only slightly affecting shares. The S&P 500 Index fell after US President Donald Trump raised doubts about the outcome of trade talks with China, while Cisco Systems’ weak earnings took down technology shares.

Data on manufacturing and employment that showed economic strength lifted Treasury yields to 3.11%.

The Dow Jones Industrial Average fell 54.95 points, or 0.22%, to 24,713.98, the S&P 500 lost 2.34 points, or 0.09%, to 2,720.12 and the Nasdaq Composite dropped 15.82 points, or 0.21%, to 7,382.47.

Incentives for North Korea
Mr Trump says that North Korea will benefit defensively and economically from a deal to denuclearise but that the United States will succeed regardless and will not end military exercises.

He is maintaining a strong stance ahead of the summit with North Korean leader Kim Jong Un, while also signalling a willingness to make a mutually beneficial deal if the summit proceeds.

“The president is ready if the meeting takes place. If it doesn't, we'll continue the maximum pressure campaign that's been ongoing,” says White House press secretary Sarah Huckabee Sanders.

US national security adviser John Bolton says the odds are still in favour of going ahead with the June summit, claiming in an interview that “we are trying to be both optimistic and realistic at the same time [and] we are going to do everything we can to come to a successful meeting, but we are not going to back away from the objective of that meeting, which is complete, verifiable and irreversible denuclearisation of North Korea.”

Meanwhile, the Indian minister of state for external affairs travelled to North Korea on May 15, marking the first ministerial visit in almost two decades.

Alignment on collusion?
The US Republican-led Senate Intelligence Committee broke with the House panel’s position to support the conclusion that Russia helped Mr Trump’s 2016 presidential campaign.

Their finding backs the assessment by US intelligence and the committee is expected to release a more detailed evaluation in the coming weeks which also addresses the issue of possible collusion between the Trump campaign and Moscow.

However, Mr Trump’s personal lawyer Rudy Giuliani says FBI special counsel Robert Mueller has made assurances he would not indict the president if he found wrongdoing in his investigation of links with Russia.

The position holds to the Justice Department’s view on the possibility of prosecuting a sitting president. Mr Mueller’s office has not yet provided clarity about Mr Giuliani’s comments.

Iran response
European firms have started holding back investment and abandoning commitments in Iran, responding to Washington’s decision last week not to waive sanctions on Tehran.

French oil giant Total SA says it has halted work on an Iranian natural-gas project and warns it may have to withdraw altogether from its plan to invest $US1 billion in the field.

French President Emmanuel Macron says Europe will try to protect its companies doing business with Iran from US sanctions but indicated business giants like Total would make independent choices.

The US and EU can’t agree on how to handle the role of Belgium-based Swift network concerning Iran and it is unclear whether the EU will co-operate with any US requests for the severing of connections to Iranian banks, according to the Financial Times.

The US Treasury Department announced it has sanctioned two individuals and five entities, including ones in Central and West Africa, with ties to Hezbollah.

It also issued sanctions on the governor of Iran's central bank, Valiollah Seif, and labelled him a specially designated global terrorist under Executive Order 13224. The sanctions are for allegedly financing Lebanese militant group Hezbollah on the behalf of the Islamic Revolutionary Guard Corps' (IRGC) Quds Force, which is responsible for all the group's activities outside Iran.

For now, US sanctions on Mr Seif do not extend to Iran's central bank. But, starting August 7, the US will sanction individuals and companies who sell or purchase US dollar banknotes coming from Iran's central bank.

Nathan Smith
Fri, 18 May 2018
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Milestone for oil prices as Wall St ends a choppy day