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US Data Dump Ahead of Thanksgiving Holiday

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

European stocks have erased earlier gains to trade slightly in negative territory on Wednesday and US futures are pointing to a similar open ahead of tomorrow’s Thanksgiving bank holiday.

This could have been a relatively uneventful week as a result of tomorrow’s US bank holiday as traders fully embraced the time off with family, turning the celebrations into a long weekend or even a full week away from the desk. But instead, it’s been quite the opposite, as Powell’s renomination sent shockwaves through the markets and the few remaining lira bulls abandoned ship as the currency sank to new lows.

While we’re still seeing the effects of that and the ripples will continue to spread into year-end, especially around the December Fed meeting, we may start to see some calm return to most corners after today. But with a plethora of pre-Thanksgiving data out first, there’s still time for a few more shocks before then.

GDP, durable goods, jobless claims, PCE inflation, income, spending, inflation expectations, new home sales and consumer sentiment are among the releases coming from the US. And that’s before we get the FOMC minutes from earlier this month later in the session.

The pick of the bunch is surely the PCE data, given the trend we’ve seen in the inflation readings recently and pressure that’s mounting on the Fed to tighten monetary policy faster. The minutes will be interesting but a lot has happened in the last few weeks, to the extent that I wonder what we can actually learn of any significance.

Needless to say, we’ll have a much clearer image of the economy by the end of today which will feed into the now hawkish expectations ahead of next month’s meeting. The transitory argument alone just doesn’t resonate anymore so aside from the dot plot, the Fed’s language next month will set the tone for 2022.

Oil flat after SPR move

Oil is looking a little flat today after bouncing back well on Tuesday following the coordinated SPR announcement. Oil consuming countries fighting back makes for an interesting story and may score Biden some much-needed political points ahead of the midterms but as we’ve seen from the market reaction, it’s certainly no game-changer.

And I’m not convinced it was ever intended to be. The decision has ticked a few boxes and if they’ve played it well, won’t ruffle too many feathers within OPEC+ and trigger a response. They still hold all the power and could quite easily counter. Rather than engage in a price war though, I wonder if the group will allow them this small win and move forward as planned as prices remain elevated.

Gold finds its feet ahead of US data

Gold has been pummelled this week but it appears to finally be finding its feet a little ahead of today’s feast of US data. The yellow metal had benefitted greatly from a combination of higher inflation and central bank pushback but the readjustment in interest rate expectations in the markets has brought it back down to earth with a bang.

There could still be plenty of action ahead today given the quantity of data and the Fed minutes ahead of the US holiday when gold will find its feet once more. But how it performs into year-end will ultimately depend on whether the Fed falls in line with market expectations next month.

Bitcoin stable but further downside may come

Bitcoin has stabilised over the last couple of days after finding support around $55,500. The move below $58,000 was a blow and it could fall further still in the near term. It’s hard to imagine the correction being too severe though given the momentum we’re seeing in the space at the moment and the excitement it’s generating.

Crude Oil

Oil Prices Rise in Asian Trade as Supply Concerns Heighten Amid Russian Attacks

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Oil

Oil prices surged on Monday during the Asian trading session as concerns over global supply intensified amidst ongoing attacks on Russian energy infrastructure.

Brent crude oil, against which Nigerian oil is priced, climbed by 47 cents to $85.81 a barrel while the U.S. West Texas Intermediate (WTI) crude rose by 49 cents to $81.53 a barrel.

The market’s bullish sentiment was largely influenced by recent attacks on Russian refineries, which added $2-$3 per barrel of risk premium to crude last week.

These attacks persisted over the weekend, further heightening concerns about supply disruptions.

One of the strikes ignited a brief fire at the Slavyansk refinery in Kasnodar on Saturday. This refinery processes approximately 8.5 million metric tons of crude oil annually, equating to 170,000 barrels per day.

Consequently, a Reuters analysis revealed that these attacks have idled around 7% of Russian refining capacity in the first quarter of the year.

The impacted refining complexes play a crucial role in processing and exporting crude varieties to various markets, including China and India.

The escalating tensions in the Middle East also contributed to market unease. Israeli Prime Minister Benjamin Netanyahu confirmed plans to push into Gaza’s Rafah enclave, disregarding pressure from Israel’s allies.

This move raised concerns about regional stability, amplifying geopolitical risks in the oil market.

Investors are closely monitoring the outcome of the U.S. Federal Reserve’s two-day meeting scheduled to conclude on Wednesday.

The Fed’s decision regarding interest rates could provide further clarity on market direction, potentially impacting oil prices in the near term.

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Commodities

Commodity Trading Industry Hits $100 Billion Profit, Second-Best Year on Record

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The global commodities market has reported $100 billion in profits despite facing challenges and disruptions, making its second-best year ever. 

According to analysis from consultancy firm Oliver Wyman LLC, while earnings have dipped slightly from the record-breaking levels of 2022, this year’s profits easily surpass previous highlights, including those seen during the global financial crisis of 2008-2009.

Consultant Adam Perkins attributes this success to favorable margins driven by ongoing supply-demand dynamics, despite the volatility seen in various sectors.

While specific financial results for many players within the industry are yet to be made public, the report indicates that major independent trading houses are expected to show an average drop of over 30% from the record levels of 2022.

However, disruptions in supply chains and shortages of diesel and fuel oil have somewhat offset the decline in volatility related to Russian crude oil.

These profits have enabled commodity trading firms to bolster their positions as key providers of energy, metals, and food resources on a global scale.

With significant investments in oil refineries, storage facilities, power plants, and acquisitions of other trading companies, these firms are solidifying their roles in shaping global supply chains.

Moreover, the windfall profits have led to executives and partners within these firms becoming multi-millionaires, facilitating a generational shift in leadership as seasoned traders retire.

Despite the pressure to uphold legacies and navigate increased scrutiny, the influx of new leadership presents opportunities for innovation and growth within the commodity trading sector.

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Crude Oil

Oil Prices Surge as IEA Boosts Demand Forecasts and Trims Non-OPEC Supply Projections

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Crude Oil

Oil prices skyrocketed following the International Energy Agency’s (IEA) adjustments to its demand and supply forecasts.

The IEA’s latest report, released Thursday, sent shockwaves through financial markets as it unveiled a robust upward revision in global demand estimates while simultaneously trimming projections for non-OPEC oil supply.

With unparalleled confidence, the IEA bolstered first-quarter global demand growth forecasts, citing improved outlooks in the United States and heightened bunkering demand due to extended voyages circumventing geopolitical hotspots.

This unexpected surge in demand projections has injected a newfound sense of optimism into an industry grappling with uncertainties amid a shifting geopolitical landscape.

Moreover, the IEA’s decision to slash its projections for non-OPEC supply further fueled market exuberance.

Factoring in recent cuts from the OPEC+ coalition and reduced output from non-OPEC nations, the agency’s revised supply forecast sent a clear signal to investors: the tide is turning in favor of tightening supply dynamics.

This monumental shift in market sentiment was reflected in Brent crude futures, which surged by 0.86% to $84.75 a barrel, marking a significant milestone in the oil market’s recovery.

U.S. West Texas Intermediate (WTI) crude followed suit, climbing 1.04% to $80.55 a barrel, as traders reacted swiftly to the IEA’s bullish outlook.

As the energy landscape undergoes a paradigm shift, industry experts anticipate a sustained rally in oil prices, driven by robust demand growth and tightening supply dynamics.

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