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Crude burns brighter amid China’s reopening

 

Wednesday, January 11, 2023

The news shaping the markets today

The US confirmed training Ukrainian forces on the Patriot air defence system at a base in the state of Oklahoma. The news sent the US dollar index slightly higher this morning.


Australia’s retail sales grew by 1.4% to A$35.92 billion in November, following a 0.4% increase in the prior month. The reading also topped market expectations of 0.6% growth, which lent support to the AUD/USD forex pair.


South Korea’s unemployment rate rose to 3.3% in December, from 2.9% in the previous month. The country’s jobless rate climbed to the highest rate since January 2022, sending the KRW/USD pair lower in forex trading this morning.


Japan’s foreign exchange reserves rose to $1.228 trillion in December, from $1.226 trillion in the prior month. However, the JPY/USD forex pair remained under pressure.


US wholesale inventories grew by 1% from a month ago to $933.1 billion in November, in-line with the preliminary reading. The news sent the Nasdaq 100 index higher by around 100 points on Tuesday.

 

What’s happening: Oil prices recorded gains on Tuesday with hopes of rising demand from the world’s largest crude importer.

What happened: Traders continued monitoring China’s reopening plans, which provided support to oil prices.

However, markets remained concerned about the Federal Reserve’s future plans for interest rate hikes.

Why it matters: Oil prices continued to find support on prospects of growing energy demand from China, with the country easing its strict covid-19 restrictions.

China’s zero-covid policy had been exerting pressure on oil prices. Optimism around easing restrictions was subdued so far, with China reporting a surge in covid-19 cases.

Analysts projected a rebound in oil prices with increased travel activity around the Lunar New Year holiday. Reopening of China’s borders to foreign travellers is also expected to provide a boost to energy demand.

Traders also assessed the Fed’s monetary policy and moves by other leading central banks, as aggressive rate hikes to combat inflation could weigh on crude prices.

On the supply side, the OPEC (Organization of the Petroleum Exporting Countries) and its allies agreed to stick to their previous plan to reduce oil output by 2 million barrels per day through the end of 2023.

The American Petroleum Institute said US crude stockpiles increased by 14.865 million barrels in the week ended January 6, compared to a rise of 3.298 million barrels in the prior week.

WTI crude for February delivery gained 49 cents, or 0.7%, to settle at $75.12 per barrel on the NYMEX on Tuesday, after recording gains over the previous three sessions. March Brent crude gained 45 cents to close at $80.10 per barrel on ICE Futures Europe.

In other energy trading, wholesale gasoline for February delivery added 4 cents to $2.33 a gallon, while February heating oil gained 10 cents to $3.24 a gallon. February natural gas fell 27 cents to $3.64 per million British thermal units.

What to watch: Traders await the release of the EIA’s (Energy Information Administration) data on weekly petroleum supplies today. Analysts expect crude supply to contract by 2.243 million barrels in the week ended January 6, versus an increase of 1.694 million barrels in the prior week. US gasoline stockpiles are seen rising by 1.2 million barrels in the week, while distillate stocks are projected to decline by 0.472 million barrels.

The markets today

The US dollar will be in focus after moving higher on Tuesday

Context: The US dollar index rose on Tuesday, after hitting a seven-month low in the previous session.

Details: China’s plans to reopen its borders boosted investor risk sentiment and the demand for riskier assets and currencies.

The safe-haven US dollar hovered around its lowest level in seven months on Tuesday, as traders positioned themselves for inflation data, scheduled for release on Thursday.

The greenback has also been under pressure on prospects of the Federal Reserve slowing down its rate hikes. Data released last week showed growth in wages had decelerated during December, while another report showed a contraction in the country’s services activity.

The US economy added 223,000 jobs in December, the fewest job adds since December 2020, while average hourly earnings grew 0.3% to $32.82 in the month, compared to 0.4% growth in November. The ISM services PMI fell to 49.6 in December, representing the first contraction since May 2020.

The US dollar index, which measures the greenback’s performance versus a basket of major rivals, gained around 0.24% to 103.24 on Tuesday, after shedding 0.7% and hitting a seven-month low of 102.93 in the prior session.

The EUR/USD pair traded almost flat at 1.0735 on Tuesday, just below its seven-month high of 1.07605 recorded on Monday. The GBP/USD forex pair declined, however, by around 0.3% to 1.2150 on Tuesday, easing below Monday’s three-week high level.

Wall Street closed higher on Tuesday, with the Dow Jones index adding around 186 points to 33,704.10, while the S&P 500 gained 0.7%.

What are expectations: Traders await data on inflation rate from the US on Thursday, with analysts projecting a 0.1% decline in the Consumer Price Index for December, following a 0.1% increase in November.

Other Markets: European trading indices closed lower on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.39%, 0.12%, 0.55% and 0.59%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD – 1.0724 and 1.0735 Positive
AUD/USD – 0.6883 and 0.6900 Negative
Gold – 1879.19 and 1881.24 Positive
Platinum – 1085.96 and 1088.96 Positive
FTSE 100 – 7688.74 and 7698.27 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0734, -0.01%) Dow ($33,865, 0.05%) Brent ($79.52, -0.7%)
GBP/USD (1.2152, 0.02%) S&P500 ($3,942, 0.02%) WTI ($74.53, -0.8%)
USD/JPY (132.49, 0.19%) Nasdaq ($11,276, -0.06%) Gold ($1,881, 0.3%)

What else to watch today

Turkey’s current account, Italy’s retail sales, Brazil’s retail sales, Mexico’s industrial production, US MBA mortgage applications, as well as Spain’s industrial production.


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