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Markets Today – Earnings, NFP, ECB, Oil, Gold, Bitcoin



Gold - Investors King

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

It’s been another downbeat session in financial markets, with even US tech stocks losing recovery momentum ahead of the open as focus switches to the January jobs report.

While earnings season has overall been something to reflect positively on, there have been plenty of potholes along the way that has continued to stall any recovery in the stock market. What’s more, it’s coming at a time of considerable uncertainty about the outlook which is weighing heavily on sentiment.

Tech stocks bounced back strongly in after-hours trading on Thursday, after spending the day being pummelled again on the back of Facebook and Spotify results. That rebound is losing momentum and US indices now look like they could follow Europe and end the week on a negative note.

A free pass for the NFP, wage growth key

Of course, that could all change depending on how the jobs report is received. The headline NFP will probably get a free pass given the omicron effect which was so clearly apparent in the ADP number this week. The only caveat is that if we see a shockingly strong number, that could stoke fears of faster rate hikes as it would suggest a further tightening of the labour market.

The primary focus will probably be on wages and, perhaps, participation. Wage growth has been well above pre-pandemic levels for the last six months and will continue to contribute to the higher levels of inflation as long as that remains the case, which it is expected to today.

This ties in nicely with participation which has remained stubbornly low since the onset of the pandemic and is contributing to the tightness in the labour market and, as a result, higher wage demands. Further evidence of that strengthening today could feed into fears that more hikes will be warranted.

European stocks hit again after ECB

This is at a time when the ECB has finally abandoned team transitory and sent bond markets into a bit of a tailspin. We’re now seeing up to five 10 basis point rate hikes being priced in this year which would take the deposit rate out of negative territory for the first time since May 2014.

That’s delivering quite the hammer blow to European stock markets for a second day, while the euro is performing very well again. It was some u-turn from President Lagarde given her staunch opposition to a rate hike this year in December. No doubt the March meeting promises to mark a dramatic shift in direction for the central bank.

Oil heading for $100?

A winter storm in Texas appears to have been responsible for the latest spike in crude prices, as traders fret about the possibility of outages in the Permian Basin. In such a tight market, that’s more than enough to encourage traders to buy what was the mildest of dips following the OPEC+ meeting earlier this week.

With both Brent and WTI now comfortably above $90, it may just be a matter of time until we’re closing in on triple-figures. Another massive blow to households and businesses at a time of surging energy bills and rising interest rates. The squeeze looks set to continue.

Gold marching higher despite higher rate expectations

It was a volatile day for gold on Thursday, as both the ECB and BoE sent tightening shockwaves throughout the markets sending yields higher and the yellow metal temporary tumbling. The sell-off didn’t last though and it once again finds itself above $1,800 and, perhaps, even generating a little momentum.

The key test for any rally will come around $1,815-1,825 which is the 50/61.8 fib region for the pre-Fed highs to post-Fed lows. If gold can find a way through the key retracement zones even after so much more tightening has been priced in from a variety of major central banks, then the rally could have legs. The question is what it indicates. More safe haven plays? Or fear of even higher inflation and the need for more tightening being priced in? That won’t bode well for risk appetite, that’s for sure.

A floor appearing in bitcoin?

Bitcoin is holding up quite well given what a turbulent couple of days it’s been elsewhere. It came under some pressure on Wednesday but it’s since stabilized and recovered despite risk appetite taking a beating over the last 48 hours. Perhaps this is a sign that the crypto crowd is declaring enough is enough. The test remains $40,000 but recent trading certainly suggests there may be signs of a floor appearing.

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Crude Oil

Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China



Crude Oil

Oil prices showed signs of recovery on Thursday after a recent slump to a six-month low, with Brent crude oil appreciating by 1% to $75.06 a barrel while the U.S. West Texas Intermediate crude oil also rose by 1% to $70.05 a barrel.

However, investor concerns persist over sluggish demand in both the United States and China.

The market’s unease was triggered by data indicating that U.S. oil output remains close to record highs despite falling inventories.

U.S. gasoline stocks rose unexpectedly by 5.4 million barrels to 223.6 million barrels, adding to the apprehension.

China, the world’s largest oil importer, also contributed to market jitters as crude oil imports in November dropped by 9% from the previous year.

High inventory levels, weak economic indicators, and reduced orders from independent refiners were cited as factors weakening demand.

Moody’s recent warnings on credit downgrades for Hong Kong, Macau, Chinese state-owned firms, and banks further fueled concerns about China’s economic stability.

Oil prices have experienced a 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day for the first quarter of the next year.

In response to falling prices, OPEC+ member Algeria stated that it would consider extending or deepening oil supply cuts.

Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman met to discuss further oil price cooperation, potentially boosting market confidence in the effectiveness of output cuts.

Russia, part of OPEC+, pledged increased transparency regarding fuel refining and exports, addressing concerns about undisclosed fuel shipments.

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Crude Oil

Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts



OPEC - Investors King

Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.

Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.

Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.

Despite this effort to tighten supply, market sentiment remains unresponsive.

“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.

Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.

Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.

Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.

Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.

The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.

Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.

Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.

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Crude Oil

U.S. Crude Production Hits Another Record, Posing Challenges for OPEC




U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.

The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.

The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.

Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.

This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.

While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.

The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.

Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.

Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.

This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.

In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.

However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.

Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.

While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.

The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.

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