By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA
Equity markets are a little lower on Wednesday as investors continue to watch events unfold in the US for a sense of what impact they’ll have on sentiment.
The impact of the midterms will probably be short-lived, if impactful at all, as far as markets are concerned. Of course, the political implications may be significant if Democrats can manage to retain control of the House and Senate but at this stage, only one of those looks plausible which means deadlock in Washington.
The bigger takeaway from the election may well be what support there is for Trump-backed candidates and what that does for his own re-election hopes in two years. But that’s unlikely to sway the markets now, not with so much else to focus on.
Investors are more focused on the inflation data on Thursday and whether that will pave the way for a slower pace of tightening in December and early next year. There’s unease about the central bank’s views on the terminal rate but those could abate if we see a favourable inflation number tomorrow.
Oil eases amid a surge in inventories
Oil prices are a little lower again on Wednesday after falling around 3% a day earlier. This came following a strong move in recent weeks in which crude prices rallied around 20% on the back of the OPEC+ output cut and the prospect of less restrictive Covid measures in China, which have not been confirmed.
The API inventory data came late in the day on Tuesday after the bulk of the losses had already occurred. If the large inventory build is confirmed by EIA today, it will be interesting to see if it generates a bigger reaction in the markets, with Brent now trading back in the middle of the $90-100 range.
Gold surges ahead of CPI
A surge in gold on Tuesday saw the yellow metal smash through $1,680 and then $1,700 resistance and settle above here, as risk appetite improved and the dollar retreated. While it’s hard to attribute the rally to any particular event, the technical loss of both of those resistance levels won’t have done it any harm.
The question now is whether it can hold onto those gains once the latest inflation report drops. It may well be that gold’s revival, and the dollar’s retreat, are driven by an expectation that the CPI data will be favourable but we’ve seen what the dangers of that are before. Especially when it comes to inflation data. The next test to the upside for gold falls around $1,730, while prior resistance of $1,700 and $1,680 could now become support.
Turmoil at FTX sees cryptos plunge
For a long time, bitcoin has aligned itself with broader risk appetite in the markets but it goes without saying that Tuesday was not one of those days. Cryptocurrencies have been pummeled at the start of the week with bitcoin down almost 20% in two days at one stage amid concerns over FTX and the implications for the FTT token.
Alameda’s balance sheet is a major factor in those fears which has seen that pain spread to Solana, with contagion fears dragging on the crypto space as a whole. Bitcoin fell to a near-two-year low at one stage and is down almost 3% again today. Nervy days ahead for cryptos as Binance looks to come to the rescue.
Oil Prices Stable Amid OPEC+ Anticipation and Global Economic Concerns
Oil prices remained relatively unchanged on Thursday as investors awaited the outcome of an eagerly anticipated OPEC+ meeting, which could potentially result in deeper supply cuts in 2024.
Brent crude oil increased by 70 cents to $83.80 a barrel, while U.S. West Texas Intermediate crude inched up by 55 cents to settle at $78.41 a barrel.
The OPEC+ group, comprising the Organization of Petroleum Exporting Countries and allies like Russia, is scheduled to conduct virtual meetings on Thursday to discuss additional production cuts, potentially ranging from 1 million to 2 million barrels per day in early 2024.
Implementing these additional cuts may lead to an immediate surge in prices, but their long-term impact is viewed skeptically by industry experts.
Tamas Varga, an oil broker at PVM, expressed doubt about compliance and suggested that the global oil balance might be less tight than OPEC estimates.
Factors such as the latest U.S. commercial inventory data, revealing an unexpected increase of 1.6 million barrels, and persistently high interest rates in major economies could dampen oil demand.
Despite the surprise build in U.S. crude oil stocks reported by the Energy Information Administration on Wednesday, oil prices remained resilient, with investors focused on the OPEC+ meeting.
Adding to concerns about the demand side, China’s economic challenges persist, highlighted by recent factory data indicating contraction for the second consecutive month in November.
This economic backdrop adds a layer of uncertainty to the oil market, as China is a significant player in global oil consumption.
Investors are closely monitoring the OPEC+ decisions, and the outcome is expected to influence short-term oil prices, although underlying economic challenges continue to cast shadows on the broader outlook for the industry.
Oil Prices Hold Steady Ahead of Crucial OPEC+ Meeting Amidst Fed Rate Hike Signals
Oil prices maintained their significant gains as traders anticipate the outcome of a crucial OPEC+ meeting on supply while considering signals from the Federal Reserve regarding interest rate policies.
Global benchmark Brent hovered below $82 a barrel, having surged over 2% on Tuesday, while West Texas Intermediate traded under $77.
The OPEC+ meeting, scheduled for Thursday to set policies for 2024, is currently grappling with a dispute over output quotas for some African members.
The recent rise in crude prices is underpinned by a weakening dollar, with a Bloomberg gauge of the US currency reaching its lowest level since August.
Federal Reserve policymakers, including Governor Christopher Waller, have hinted at an impending pause in the series of rate hikes, contributing to the bullish sentiment in oil markets.
A softer dollar enhances the appeal of commodities for international buyers.
Yeap Jun Rong, a market strategist for IG Asia Pte in Singapore, commented on the interplay of factors, stating, “The US dollar was dragged lower on a build-up in dovish expectations, which was very much cheered on by oil prices.”
However, concerns persist about OPEC+’s ability to address the challenges in the oil market effectively.
Despite the recent gains, oil is on track for a consecutive monthly decline due to increased supply from non-OPEC countries, intensifying pressure on the cartel and its allies to consider more significant output cuts.
The International Energy Agency’s earlier assessment indicated a potential return to a global crude surplus in the coming year.
In the US, the American Petroleum Institute reported a 817,000-barrel decline in nationwide inventories last week, potentially marking the first drop in six weeks, pending confirmation from government data.
This development may add support to oil prices and impact the ongoing dynamics in the energy market.
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