I guess we can talk about the cold but I think it's already talking for itself. Heating degree days are piling up in the energy complex but to get the full picture on this New Year surge of bullishness, you really have to look beyond your frost-bit nose. It is not so much the transitory issue that we are freezing that inspired the big move but a growing sense that interest rates will be frozen for a longer time than the market anticipated. You see, weather was a major factor that drove oil and heating fuels and orange juice yet other markets like gold and silver and copper soared as well. Ok, I know some people think gold can keep you warm at night but this rally was about more than just weather. This was about the changing attitudes of when the Fed will raise rates and the resumption of the dollar carry trade that helped drive last year Fed inspired commodity rally.
The dollar got whacked in the aftermath of weekend comments by Fed Chairman Ben Bernanke on his talk of an aggressive exit strategy. The markets seemed to not take his comment seriously or at least they had the perception that rates may stay lower longer than they thought. This perception grew stronger when Federal Reserve Board Governor Elizabeth Duke said she sees inflation remaining subdued. Fed Fund futures rallied, lowering expectations of an interest rate hike in June to a mere 58% chance, down from 78% chance at the close last week. This significant change and could have a significant impact on commodity prices.....Read the entire article.
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