Market Reaction Mixed after U.S. Announces Sanctions Against Russia

On Thursday, investors had the opportunity to react to the announcement of sanctions by the U.S. against Russian individuals and organizations it believes were responsible for the alleged hacking of several U.S. websites designed to allow Russia to interfere in the 2016 presidential election. The results in the markets were mixed because the sanctions were not financial or trade-related, but rather diplomatic.

In U.S. economic news, weekly unemployment claims came in lower than expected at 265K versus an estimate of 277K. The Goods Trade Balance increased unexpectedly to -65.3 billion. Traders were looking for a read of -61.5 billion. Preliminary Wholesale Inventories were up 0.9% versus a 0.1% forecast.

Crude Oil

Crude oil was trading mostly lower on Thursday after the U.S. Energy Information Administration announced a surprise increase in U.S. inventories. The news reversed an intraday uptrend that had pushed prices to their highest levels on some charts to their highest levels since July 2015.

Volume and volatility are low because of the New Year holiday, but we could see a pick-up in activity on Friday because of the expiration of the February heating oil and gasoline futures contracts on Friday.

According to the EIA, crude stocks rose by 614,000 barrels in the week-ending December 23. The government report imports fell as refineries cut output. Before the report was released, traders had priced in a drawdown of about 2.1 million barrels.

Inventories at the futures hub in Cushing, Oklahoma rose for the fourth out of fifth week by 172,000 barrels.

Gasoline stocks surprised traders with a 1.6 million barrel draw down versus a 1.3 million-barrel gain that was forecast. Distillate also came out lower than expected. Traders were looking for a 1.8 million barrel increase and were presented with a 1.9 million barrel draw down instead.

Gold

A combination of short-covering and light speculative buying helped drive gold prices to their highest levels in more than two weeks as investors took advantage of relatively cheap prices, thin trading conditions and a decline in U.S. Treasury Bond yields. The lower yields helped drive the U.S. Dollar lower, making the dollar-denominated gold contract a more attractive investment.

Forex

The U.S. Dollar fell against a basket of currencies on Thursday, led by a steep rise in the Japanese Yen and the Euro as investors sought protection in lower-yielding assets. The AUD/USD and NZD/USD also posted solid gains in what can best be described as end-of-the-year position-squaring and profit-taking. The GBP/USD also recovered slightly after a sell-off earlier in the week related to concerns over Brexit.

U.S. Equities

The three major U.S. stock indices continued their price slide on Thursday as the Dow Jones Industrial Average futures contract pulled away from the elusive 20,000 level. The lack of buyers on the investment side of the equation was behind most of the weakness. Selling pressure wasn’t shorting per se, but rather long liquidation, profit-taking and tax selling before the end of the year.