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Thursday, July 06, 2023

Today’s headlines

What’s happening: Crude oil prices moved sharply higher on Wednesday ahead of demand data from the 4th of July weekend in the US.

What happened: Saudi Arabia and Russia announced supply cuts on Monday, lending support to oil prices.

Traders also assessed comments from Saudi Arabia’s energy minister at an OPEC+ (Organization of the Petroleum Exporting Countries and its allies) seminar.

Why it matters: On Monday, Saudi Arabia, the world’s biggest crude exporter, announced plans to extend its voluntary output reduction of 1 million bpd (barrels per day) to August. Russia and Algeria have decided to reduce their output for August and export levels by 500,000 bpd and 20,000 bpd, respectively.

At the OPEC’s international seminar, Saudi energy minister Prince Abdulaziz bin Salman said the group will do “whatever necessary” to provide support to the oil market.

The 4th of July weekend represents a peak travel season for the US, and markets are keenly awaiting the data on oil inventories, which could significantly impact oil prices ahead.

Morgan Stanley lowered its oil price projections citing a market surplus during the first half of next year. Recent economic reports have signalled a decline in global factory activity, pointing towards slow demand in Europe and China.

WTI crude oil futures gained $2, or 2.9%, to settle at $71.79 per barrel on Wednesday, while Brent crude futures added 40 cents to $76.65 per barrel, after climbing $1.60 per barrel during Tuesday’s session.

In other energy trading, wholesale gasoline for August delivery added 6 cents to reach $2.52 a gallon, while August heating oil gained 11 cents to $2.49 a gallon. August natural gas bucked the trend and declined by 5 cents to $2.66 per 1,000 cubic feet.

What to watch: Investors await the EIA’s (Energy Information Administration) data on US crude oil stockpiles. US inventories, which had contracted by 9.603 million barrels in the week ending June 23, are expected to decline by another 0.983 million barrels in the 4th of July week.

Analysts expect US gasoline inventories to contract by 1.417 million barrels, while distillate stockpiles are projected to rise by 0.296 million barrels in the latest week. Data on natural gas stockpiles will also be released today. Both reports are delayed by a day due to the Independence Day holiday in the US on Tuesday.

The markets today

The Canadian dollar will be in focus today ahead of some major economic reports

Context: The CAD/USD forex pair weakened on Wednesday, while the yield on benchmark government debt moved higher.

Details: The Canadian dollar came under pressure on Wednesday amid prospects of a greater interest rate hike by the US Fed than the Bank of Canada.

Canada is widely expected to raise interest rates by 25 bps, while speculations are for the Federal Reserve to hike rates by 50 bps this year. The US Fed has already increased its base lending rate to a higher level of 5.25%, versus Canada’s central bank rate of 4.75%.

The easing of Canada’s headline inflation rate also lowered speculations of rate hikes by the BoC. Inflation in the country eased to 3.4% in May, from 4.4% in April.

Strength in the US dollar also exerted pressure on the loonie on Wednesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained over 0.3% to 103.37 on Wednesday.

Higher prices of crude oil, one of Canada’s major exports, failed to lend support to the loonie.

The CAD/USD forex pair fell more than 0.4% to 1.3283 on Wednesday. Canada’s government 10-year bond yields climbed to around 3.353%, while the yield on similar US government debt rose to 3.8684%.

The S&P/TSX Composite index declined by 0.50% to close at 20,103.89 on Wednesday, after recording gains in the prior session.

What are expectations: Traders await the release of economic data on Canada’s balance of trade and Ivey Purchasing Managers Index. Canada had recorded a trade surplus of C$1.94 billion in April, which is expected to decline to C$1.5 billion in May. Analysts project growth in exports to C$65.3 billion in May, from C$64.9 billion in April, while imports are projected to increase to C$63.8 in May, from C$62.9 billion a month ago.

Canada’s Ivey Purchasing Managers Index is expected to decline further to 52.3 in June, from 53.5 in May.

Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.38%, 0.20% and 0.03%, respectively.

The news shaping the markets

Ukraine’s President Volodymyr Zelenskyy signed a bill to impose sanctions on 18 legal entities registered in Russia, Luxembourg and Cyprus. The news sent the safe-haven US dollar index slightly higher this morning.


Australia’s trade surplus widened to A$11.79 billion in May, from A$10.45 billion in the previous month, lending support to the AUD/USD forex pair.


Sri Lanka’s central bank cut its benchmark standing deposit facility rate by 200bps at its latest meeting, which sent the LKR/USD pair lower in forex trading this morning.


Colombia’s producer prices fell 3.65% year-over-year in June, versus a 1.43% decline in the prior month. This being the sharpest decline in producer prices in three years lent support to the COP/USD forex pair.


US factory orders grew by 0.3% in May, short of market estimates for 0.8%, which sent the Dow Jones index lower by more than 100 points on Wednesday.

What else to watch today

Germany’s factory orders and construction PMI, Eurozone’s construction PMI and retail sales, France’s construction PMI, Italy’s construction PMI, UK’s construction PMI, US MBA mortgage applications, Challenger job cuts, ADP Employment change, balance of trade, initial jobless claims, continuing jobless claims, services PMI, composite PMI, job openings and total vehicle sales, Russia’s total vehicle sales, Turkey’s gross foreign exchange reserves, Mexico’s monetary policy meeting minutes, as well as Argentina’s industrial production.


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