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Bear Market Rally Back On?

Strong US Retail Sales and Michigan Consumer Sentiment on Friday saw Wall Street rally impressively

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

It says something about the level of confusion in the markets right now (American markets anyway), that having wrung their hands all last about inflation, 100 basis point rate hikes by the Fed, and an impending recession, that strong US Retail Sales and Michigan Consumer Sentiment on Friday saw Wall Street rally impressively. If that data had come out on Tuesday or Wednesday last week, we would probably have had a meltdown. And yet here we are, Wall Street’s S&P 500, Nasdaq and Dow Jones booking roughly 2.0% gains on Friday.

Last Fridays Wall Street price action was enough to spark risk sentiment rallies on forex markets, led by the usual suspects, the Euro, and the Australian Dollar, although not much love permeated into the Asian currency space. Oil held steady, but gold found no solace and remains near $1700.00. We also saw a modest rally in commodity prices. Bitcoin has wound its way back to $21,000.00 this morning in the crypto space, although it has been grinding higher all last week. Even US yields fell slightly on Friday after that US data; go figure?

My bear market rally theory postulated on Wednesday, got a beating on Thursday, and now looks quite clever again this morning after another day where Wall Street forgot to take their medication. I’ll stick my neck out again and say that with a relatively thin US data calendar this week, the FOMO gnomes of Wall Street may enjoy a week in the sun. This morning missive is heading into its last two full weeks of life before I head off to pastures new, and one thing I won’t miss, is trying to find something intelligent to explain Wall Street’s short-term price actions.

I suspect that Europe and its travails will be front and centre this week, with a smattering of China covid zero and property market nerves thrown in for good measure. The European Central Bank meets on Thursday to decide whether to hike its policy rates for the first time in 11 years, by a mighty 0.25%… That would take the Refinancing Rate to an inflation-fighting 0.25%, and the Deposit Rate to -0.25%, which I am sure will leave the Eurozone CPI quaking in its boots. We should also get some insight into its antifragmentation tool, intended to keep Eurozone sovereign spreads “on message,” but is really their there to support Italy’s debt, because they clearly can’t do it themselves if one glanced at the weekend news. Europe is a classic example of the perils of easy monetary policy and QE; it’s easy to take it out of the box, but as you get the financial system addicted to a zero per cent cost of capital, it’s hard to put it back. Europe isn’t alone here of course, and at least they can say “look at Japan.” High fives mes Ami’s.

The reason we can discount a 0.50% hike from the ECB when that is the minimum clearly needed, is something far more important for Europe. Thursday the 21st is gas-mageddon day for the Nord Stream 1 gas pipeline from Russia to Germany. Scheduled annual maintenance is due to finish that day, and the gas is supposed to start flowing again. I’ll give it another day because it’s Russia. But if flows don’t resume on Friday, that bear market rally by the Euro and European equities could well evaporate like the pipeline flows.

About energy, it is pleasing to see that sense is prevailing somewhere, and that Japan is restarting several mothballed nuclear power stations in preparation for the winter. Nations everywhere should be looking at this solution right now. Especially as North America looks as far away as ever from getting its act together on gas and oil, pipelines to move it, and refineries to make it into energy and fertiliser etc for the world. Japan’s moves are likely to bear more fruit than US President Biden’s visit to Saudi Arabia for a fist pump with MBS this weekend. Mr Biden emerged confident that Saudi Arabia and the UAE would pump more oil; Saudi Arabia emerged and said that’s up to OPEC+. Oil prices are sharply unchanged today in Asia, which tells you who the market believes.

China officials from the PBOC promised more support for the economy over the weekend. And it appears that behind the scenes, the wheels are turning to engineer a funding vehicle for beleaguered property developers to continue and complete the construction of residential projects. The alleged Chinese mortgage payment strike by homebuyers seems to have been the catalyst to spur faster action. Conversely, covid-19 cases appear to be creeping higher around the Mainland, with Macau’s full lockdown extended by four days. The threat of covid-zero Part Deux in Shanghai and other large urban centres will temper bullish spirits among China equity investors. Robust loan demand, and decent economic data last week, should mean that Wednesday’s one and five-year Loan Prime Rates remain unchanged.

Thursday also sees the Bank of Japan’s latest policy decision. With USD/JPY finding a cap ahead of 140.00 for now, some pressure will ease on the BOJ, which will also be watching the country’s supply/demand energy balance and the spiralling Covid-19 caseload with concern. With the FOMC meeting not until the end of the month as well, there is little incentive for the BOJ to spring a shock and markets to change any monetary settings.

The policy decision from Bank Indonesia, also on Thursday, is far more interesting. With Singapore and the Philippines announcing unscheduled rate hikes last week, and South Korea, Malaysia, and Taiwan hiking rates at recent meetings, it is going to get harder for BI to stand against the wind. With the FOMC expected to hike by at least 0.75% at the end of the month, and Asian currencies wilting under US Dollar strength, the uber-dove BI is likely to hike by at least 0.25%. BI is clearly capping USD/IDR at 15,000.00 now, and despite a surging current account surplus as palm oil exports resume, currency pressures are going to force BI’s hand. The question is, is 0.25% enough? I have my doubts.

Like North America and Europe, Asia’s data calendar is fairly thin once you strip out the discussion points above. With the FOMC in a pre-meeting news blackout, markets will be left to the tender mercies of headlines and geopolitical developments. One benefit is that, excluding any shocks and a lack of Fed speaker rate-hike bombs, and annoying data that has to be ignored when it doesn’t tell the story the FOMO gnomes want to hear, it could give the aforementioned bear market rally, room to breathe.

Asian equities track Wall Street higher.

Wall Street staged an impressive rally after better than expected retail sales and consumer sentiment data from the US on Friday, as markets focused on a still-robust US consumer while ignoring its ominous warnings for the trajectory of Fed monetary policy. With a dearth of tier-1 data this week, and the FOMC in a pre-meeting media blackout, the equity rally could potentially extend throughout the week. Looking at the S&P 500 chart today, the technical picture certainly suggests that. The S&P 500 could rally back to 4,050.00, its March downtrend line, and still, be in a bear market. To start saying the worst was over for equity markets would require a sustained break of that level and preferably, the 100-day moving average (DMA) at 4,140.00.

Friday, saw the S&P 500 rally by 1.92%, the Nasdaq rally by 1.79%, with the Dow Jones the session’s outperformer, leaping higher by 2.15%. US futures are performing well in Asia today. S&P 500 futures are up 0.40%, while Nasdaq futures have jumped 0.95% higher, with Dow futures gaining 0.20%. Banking heavyweights, Bank of America and Goldman Sachs are releasing earnings today, although I believe it would take nightmare results and outlooks from both to give markets pause for thought.

Asian markets are content to track Wall Street this morning, helped along by hopes of more aggressive stimulus measures in China to resolve its property market wobbles. Japan’s Nikkei 225 is 0.55% higher, with South Korea’s tech-centric Kospi leaping 1.75% higher. In China, The Shanghai Composite has leapt 1.50% higher, with the CSI 300 rallying by 1.20%, and Hong Kong’s Hang Seng gaining an impressive 2.55%.

Across regional markets, better Singapore NODX data has lifted the Straits Times 0.65% higher, with Taipei adding 0.60%, while Kuala Lumpur is lagging at unchanged. Jakarta added 0.20%, Bangkok 0.25%, and Manila eased by 0.25% as the Peso remains under pressure. Australian markets are also higher after the Wall Street rally, the All Ordinaries rising by 0.90%, and the ASX 200 gaining 0.85%.

European markets also enjoyed a very positive session on Friday. But with the ECB looming on Thursday and the scheduled resumption of Russian gas deliveries, European equities may struggle to replicate Friday’s gains this week.

Wall Street rally pushes US Dollar lower.

The US Dollar fell heavily on Friday, versus the developed market space, as Wall Street’s impressive rally spilt over into a broader sentiment rally in other asset classes. That saw the dollar index make a long-overdue correction lower. The dollar index fell 0.60% to 107.98 on Friday, easing another 0.17% lower to 107.80 in Asia as US Dollar weakness continued. Resistance is at 109,30, the overnight highs, and then 110.00. Support is at 107.50 and then the 1.0585 breakout point, followed by 1.0500. ​ The relative strength index indicator (RSI) has moved out of the overbought territory, but the technicals suggest the US Dollar correction could continue through the week.

EUR/USD rallied by 0.67% to 1.0088 on Friday, rising another 0.17% to 1.0115 in Asia. ​ The technical picture suggests a correction back towards 1.0200 is possible, but only a sustained break above 1.0360 would suggest a longer-term low is in place. EUR/USD has support at 1.0000 and 0.9900/25. The single currency faces serious event risk in the latter half of the week, firstly from the ECB policy decision, and secondly, from Russian natural gas flows which are due to resume after pipeline maintenance.

GBP/USD followed the Euro overnight, finishing 0.37% higher at 1.1870, rising 0.23% to 1.1895 in Asia. It has support at 1.1800 and 1.1760, with resistance at 1.1965, followed by 1.2060 and 1.2200. A rise above 1.2060 suggests a larger rally to the 1.2400 regions, but it would take a sustained break of 1.2400 to call for a longer-term low by sterling.

USD/JPY fell on Friday by 0.38% at 138.50, easing another 0.15% to 138.30 in Asia. Thursday’s high around 139.40 is initial resistance, followed by 140.00. Support is at 137.40 and 136.00. Given the sentiment in the market this week, a fall in US yields this week could finally translate to a meaningful downside correction by USD/JPY, which is a crowded trade.

AUD/USD and NZD/USD rallied on Friday as investor sentiment ended the week on a high note. NZD/USD leapt higher on higher-than-expected inflation data today, but those early gains have since been eroded. AUD/USD and NZD/USD are both 0.25% higher at 0.6810 and 0.6175. Both currencies are showing falling wedge formations. A sustained break above 0.6850 or 0.6200 signals more gains ahead this week by the antipodeans.

Asian currencies had another noisy session on Friday, but as the dust settled, were mostly unchanged versus the US Dollar. The price action merely reversed their intraday losses from earlier in the session. The positive news headlines from China over the weekend on stimulus to support the property sector has allowed Asian currencies to book modest gains in Asia. However, despite a slew of recent policy tightenings in the region, fears of a widening interest rate differential with the US continue to cap gains by Asian currencies. That suggests markets will continue to call Asian central bank’s bluffs, the first being Indonesia on Thursday. Notably, the Philippine Peso and Indian Rupee continue to remain under pressure, USD/PHP rising 0.15% today to 29.913, with USD/INR rising 0.10% to 79.770. Across the rest of the region USD/Asia has fallen modestly by between 0.10% and 0.20%.

Oil prices edge higher.

Both Brent crude and WTI rose modestly on Friday as they continued to unwind the mid-week slump. In Asia, hopes of more China stimulus, and a lack of concrete production promises from President Biden’s Middle East visit have seen Brent crude prices climb in Asian trading.

Brent crude finished Friday’s session 1.25% higher at $100.80, having tested $102.50 intraday. In Asia, it has added another 1.25% to 101.80 a barrel. WTI rose by 1.17% to $97.60 on Friday, edging 0.3% to $97.90 a barrel in Asia today.

Brent crude has resistance at $102.50, and then 104.00 a barrel, followed by a now distant $106.00 a barrel. It has support at $98.30 and then 97.00, the 200-DMA. WTI has support at $94.30, the 200 DMA, and then $90.60 a barrel. Resistance is at $99.00, followed by 101.00 a barrel.

Supply risks remain evident in international markets, and futures curves remain in backwardation. Despite the ructions in the speculative futures markets, the real-world dynamic remains as supportive of oil prices as ever. If Russian doesn’t switch gas exports back on to Europe at the end of the week, Brent crude could once again, find itself back near $110.00 a barrel.

Gold’s remains unimpressive.

Gold was notable on Friday; it felt no positive spillover impact from the risk sentiment rally that swept other asset classes. Gold finished Friday’s session 0.15% lower at $1707.50 an ounce. In Asia, continued US Dollar weakness has allowed it to show some belated gains, rising 0.50% to $1715.70 an ounce in yet another quiet Asian session.

Overall, gold’s price action continues to be uninspiring with recoveries limited in scope, while the falls, when they do occur, are much larger and faster in scope. Gold’s fate this week rests on the hopes that the investor sentiment rally seen elsewhere, inspires more US Dollar weakness this week.

Gold has initial support at $1700.00, followed by the more important $1675.00 an ounce zone. A sustained failure of $1675.00 will signal a much deeper move, targeting the $1450.00 to $1500.00 an ounce regions in the weeks ahead. Gold has resistance nearby at $1720.00, then $1745.00, now a triple top. That is followed by $1780.00, $1800.00, its June downward trendline.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Crude Oil

Nigeria’s Crude Oil Production Falls for Second Consecutive Month, OPEC Reports

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Crude Oil

Nigeria’s crude oil production declined for the second consecutive month in March, according to the latest report from the Organization of Petroleum Exporting Countries (OPEC).

Data obtained from OPEC’s Monthly Oil Market Report for April 2024 reveals that Nigeria’s crude oil production depreciated from 1.322 million barrels per day (mbpd) in February to 1.231 mbpd in March.

This decline underscores the challenges faced by Africa’s largest oil-producing nation in maintaining consistent output levels.

Despite efforts to stabilize production, Nigeria has struggled to curb the impact of oil theft and pipeline vandalism, which continue to plague the industry.

The theft and sabotage of oil infrastructure have resulted in significant disruptions, contributing to the decline in crude oil production observed in recent months.

The Nigerian National Petroleum Company Limited (NNPCL) recently disclosed alarming statistics regarding oil theft incidents in the country.

According to reports, the NNPCL recorded 155 oil theft incidents within a single week, these incidents included illegal pipeline connections, refinery operations, vessel infractions, and oil spills, among others.

The persistent menace of oil theft poses a considerable threat to Nigeria’s economy and its position as a key player in the global oil market.

The illicit activities not only lead to revenue losses for the government but also disrupt the operations of oil companies and undermine investor confidence in the sector.

In response to the escalating problem, the Nigerian government has intensified efforts to combat oil theft and vandalism.

However, addressing these challenges requires a multi-faceted approach, including enhanced security measures, regulatory reforms, and community engagement initiatives.

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Crude Oil

Oil Prices Edge Higher Amidst Fear of Middle East Conflict

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Crude Oil

Amidst growing apprehensions of a potential conflict in the Middle East, oil prices have inched higher as investors anticipate a strike from Iran.

The specter of a showdown between Iran or its proxies and Israel has sent tremors across the oil market as traders brace for possible supply disruptions in the region.

Brent crude oil climbed above the $90 price level following a 1.1% gain on Wednesday while West Texas Intermediate (WTI) hovered near $86.

The anticipation of a strike, believed to be imminent by the United States and its allies, has cast a shadow over market sentiment. Such an escalation would follow Iran’s recent threat to retaliate against Israel for an attack on a diplomatic compound in Syria.

The trajectory of oil prices this year has been heavily influenced by geopolitical tensions and supply dynamics. Geopolitical unrest, coupled with ongoing OPEC+ supply cuts, has propelled oil prices nearly 18% higher since the beginning of the year.

However, this upward momentum is tempered by concerns such as swelling US crude stockpiles, now at their highest since July, and the impact of a hot US inflation print on Federal Reserve rate-cut expectations.

Despite the bullish sentiment prevailing among many of the world’s top traders and Wall Street banks, with some envisioning a return to $100 for the global benchmark, caution lingers.

Macquarie Group has cautioned that Brent could enter a bear market in the second half of the year if geopolitical events fail to materialize into actual supply disruptions.

“The current geopolitical environment continues to provide support to oil prices,” remarked Warren Patterson, head of commodities strategy for ING Groep NV in Singapore. However, he added, “further upside is limited without a fresh catalyst or further escalation in the Middle East.”

The rhetoric from Iran’s Supreme Leader, Ayatollah Ali Khamenei, reaffirming a vow to retaliate against Israel, has only heightened tensions in the region.

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Commodities

Geopolitical Uncertainty Drives Gold Prices Higher Despite Fed Rate Cut Concerns

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As tensions simmer in the Middle East and concerns loom over Federal Reserve policy, gold continues its upward trajectory, defying expectations and reinforcing its status as the ultimate safe-haven asset.

The latest surge in gold prices comes amidst escalating geopolitical tensions in the Middle East.

Reports suggest that the United States and its allies are bracing for potential missile or drone strikes by Iran or its proxies on military and government targets in Israel. Such a significant escalation in the six-month-old conflict has sent shockwaves through financial markets, prompting investors to seek refuge in gold.

Despite initial setbacks earlier in the week, gold resumed its blistering rally, buoyed by the specter of geopolitical uncertainty.

On Wednesday, the precious metal witnessed its most significant decline in almost a month following a hotter-than-expected US inflation readout.

This unexpected data led traders to recalibrate their expectations for Federal Reserve interest rate cuts this year, causing the yield on 10-year Treasuries to surge above 4.5%.

However, gold’s resilience in the face of shifting market dynamics remains remarkable. Even as concerns mount over the Fed’s rate-cutting trajectory, the allure of gold as a safe-haven asset persists.

Prices hover just shy of a record high reached earlier in the week, propelled by robust buying from central banks.

Market analysts interviewed by Bloomberg anticipate further gains in gold prices, citing continued geopolitical tensions and strong momentum in the market.

The precious metal’s near-20% rally since mid-February underscores its enduring appeal as a hedge against uncertainty and inflationary pressures.

At 9:54 a.m. in Singapore, spot gold rose 0.3% to $2,341.58 an ounce, signaling continued investor confidence in the metal’s resilience.

The Bloomberg Dollar Spot Index, meanwhile, remained relatively unchanged near its highest level since November.

Silver, often considered a bellwether for precious metals, held steady after reaching a three-year high, while platinum and palladium also registered gains.

As the world navigates through a complex web of geopolitical tensions and economic uncertainties, gold remains a beacon of stability in an increasingly volatile landscape.

Its ability to weather market fluctuations and maintain its allure as a safe-haven asset reaffirms its timeless appeal to investors seeking refuge amidst uncertainty.

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