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Oil surges as traders assess China conditions

 

Tuesday, May 17, 2022

The news shaping the markets today

Russia agreed to evacuate wounded Ukrainian soldiers from the bunkers below the besieged Azovstal steel works in Mariupol. The RUB/USD forex pair remained mostly flat on the news.


Thailand’s economy expanded by 2.2% year-over-year in the first quarter, following 1.9% growth in the previous quarter. The latest reading also exceeded market expectations of 2.1% growth, sending the THB/USD pair higher in forex trading this morning.


Singapore’s NODX (non-oil domestic exports) surged 6.4% year-over-year in April, following a 7.7% increase a month ago. Despite this being the softest pace in NODX since April 2021, the SGD/USD forex pair rose after the news.


Sri Lanka’s trade deficit narrowed to $762 million in March, from $832 million in the year-earlier period. Despite this being the smallest trade gap since December 2021, the LKR/USD pair declined sharply in forex trading this morning.


Colombia’s economic output surged 8.5% year-over-year in the first quarter, following 10.8% growth in the earlier period. However, the recent reading came in above market estimates of 7.7% growth, lending support to the COP/USD forex pair.

 

What’s happening: Crude oil gained on Monday, with prices for the US benchmark gaining more than 3%.

What happened: Oil prices moved higher on signs that the covid-19 pandemic was receding in China’s hardest-hit regions.

However, markets remained concerned following the release of some weak economic reports from China.

Why it matters: Oil futures had gained more than 4% on Friday to close the week higher amid a surge in gasoline prices, which settled at a record high. Gasoline futures extended their gains on Monday.

“The continuous inventory withdrawal over the past few weeks has pushed U.S. gasoline stocks to levels significantly below the five-year average at this point in the season and reflects acute supply tightness,” ING analyst Warren Patterson said in a note to clients.

Shanghai in China allowed limited-capacity reopening of supermarkets, malls and restaurants on Monday. Shanghai is looking to allow the resumption of normal life from June 1, a city official said.

Oil prices also received support from the EU officials expressing their optimism around reaching an agreement on the phased embargo of oil from Russia. However, oil remained under slight pressure due to the release of economic reports from China.

China’s retail sales contracted by 11.1% year-over-year in April, after a 3.5% decline in the previous month. This was much higher than market expectations of a 5.4% decline. Industrial production in the country also fell 2.9% from a year ago in April, following 5% growth in March, and missing consensus estimates of 1% growth.

WTI crude for June delivery gained $3.71, or 3.4%, to close at $114.20 per barrel on the NYMEX on Monday. July Brent crude climbed $2.69 to settle at $114.24 per barrel on ICE Futures Europe.

In other energy trading, June natural gas gained 30 cents to reach $7.96 per million British thermal units, while June gasoline climbed 6 cents to $4.02 a gallon, after settling at a record on Friday.

 What to watch: Traders await the release of API’s (American Petroleum Institute) data on crude oil stockpiles today. US inventories of crude oil had increased by 1.618 million barrels in the week ending May 6, following a 3.479 million barrels decline in the prior week.

Markets will continue assess infection trends in China, which could determine the direction of oil prices this week.

The markets today

European stocks will be in focus today ahead of a couple of major economic reports from the common bloc

 

Context: European stocks closed mixed on Monday, with markets struggling to find some direction.

Details: Markets started the week on a cautious note after significant volatility in the previous week. European markets had recovered on Friday, with investors monitoring the inflation outlook.

Investors were also assessing actions from several policymakers around the world, which is expected to determine the market’s direction in the near term.

The European Commission lowered its 2022 growth forecast for the common bloc to 2.7%, from its earlier projection of 4.0% released in February. The EC also increased its inflation forecast to 6.1% for the year, well above the ECB’s target rate of 2%.

Markets also remained concerned after the eurozone reported a €16.4 billion trade gap for March, versus a €22.5 billion surplus a year ago.

Asia-Pacific markets settled mixed on Monday, following the release of disappointing economic reports from China amid strict covid-19 restrictions in the country. Investors also monitored geopolitical developments, with Finland looking to join NATO.

The pan-European Stoxx 600 rose 0.04% to close at 433.67 on Monday, after declining around 0.8% earlier in the session. Stocks of basic resources were among the top performers, while technology stocks fell more than 1% in the session.

London’s FTSE 100 gained 0.63% to close at 7,464.80, while DAX 40 and CAC 40 lost 0.45% and 0.23%, respectively.

 What to watch: Investors await the release of economic reports on employment change and GDP growth from Europe today. The number of employed persons in the Eurozone, which rose by 0.5% during the final three months of 2021, is expected to rise again by 0.5% in the first quarter. The Euro Area economy is expected to expand by 0.2% in the first three months of the year.

 Other Markets: US indices closed mostly lower on Monday, with the S&P 500 and Nasdaq 100 down by 0.39% and 1.16%, respectively, and the Dow Jones index up by 0.08%.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 1.0433 and 1.0445 Positive
USD/JPY – 129.14 and 129.30 Positive
WTI Crude Oil  – 111.78 and 112.95 Positive
Natural Gas – 8.056 and 8.109 Negative
CAC 40 – 4007.32 and 4034.19 Positive

Market snapshot

What else to watch today

France’s unemployment rate, UK’s claimant count change, employment change, and labour productivity, India’s wholesale price inflation rate, Italy’s balance of trade and inflation rate, Spain’s balance of trade, Canada’s foreign investment in securities, US retail sales, Redbook index, industrial production, manufacturing production, capacity utilization, business inventories, NAHB housing market index, and Fed Chair Powell speech, as well as South Africa’s SACCI business confidence index.

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