U.S. Stocks Set for Strong Start to 2018 on Higher Oil Prices and Weak Dollar

By Joyce Yu

While investors are wondering if the market momentum from 2017 can continue into the New Year, Wall Street was poised for an upbeat session on the first trading day of 2018, driven by strong commodity prices and a weak dollar.

European markets are down in early trading with small losses. Most Asian markets, on the other hand, ended the day with gains. The main Chinese indexes had a particularly good day with gains of 1% to 2% after the country released a strong set of manufacturing data.

Crude oil futures are approaching their highest levels since mid-2015 following the recent political unrest in Iran. Oil prices have surpassed $60.50 per barrel in early trading. At least 21 people are dead amidst the biggest challenge to the Tehran regime since mass demonstrations in 2009, according to the Bloomberg.

“Crude oil prices have rallied to fresh two-and-a-half year highs as political tensions in OPEC member Iran have boosted prices overnight,” analysts at Accendo Markets shared with the CNN.

Global equity markets concluded 2017 with their best performance since 2009, powered by a combination of strong economic growth, solid corporate earnings, and low interest rates. The Dow Jones industrial average rose by 25%, the S&P 500 surged by 19% and the tech-heavy Nasdaq index soared 28%.

“The first week of trading usually suggests the overall trend of the markets which we expect to be positive,” Peter Cardillo, chief market economist at First Standard Financial in New York, wrote in a note.

“While we don’t expect the Iranian unrest to reach a full blown political situation just yet, the protest will add to an already positive uptrend in oil and gold prices,” he said.

Investors will also be watching the greenback which is expected to remain weak in 2018. The U.S. dollar index — which tracks the value of the greenback versus a collection of other major global currencies — is down by more than 3% in the last two months.

“The recent decline of US consumer confidence may act as an excuse for dollar weakness as it indicates the US may be saving more and helping to fund the tax reform-driven increase in investment spending, and helping to keep US bond yields low.”

The Fed raised rates in December for the fourth time since the 2008 financial crisis. Minutes from the meeting will be issued on Wednesday.

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