Chicago Fed President Charles Evans repeated that he feels a 50 basis points rate cut is needed to lift inflation. According to him, inflation at 2.25% or higher, would be appropriate for this point in the business cycle. He added that after a decade below target, inflation needs to move above 2% if Fed is to credibly say its target is symmetric, as cited by Reuters. Regarding the labor market, he mentioned wage growth might indicated that it is not at the true “scarcity limit.”
The US Dollar held near daily highs following his comments, consolidating important gains. The DXY was up 0.46%, near 97.40, at the highest since Wednesday.
- Gold prices headed for a test of a key technical confluence level.
- Bears can look to the 38.2% Fibo retracement further south around 1375.
Gold prices have been whipsawed on Tuesday following yet further signs of a robust U.S. economy in the data of late. W have seen better than expected Consumer Price Index, Producer Price Index and now Retail Sales. We also have the Fed's Beige Book this week and an upside surprise in those descriptions of the economy will be an additional boost for the bulls.
US June retail sales look very strong with the “core” retail sales control group rising 0.7% month-on-month (consensus 0.3%) with upward revisions to the history. This data also suggested the market is too aggressive in terms of pricing for interest rate cuts. As a result, gold is sinking and the dollar is climbing.
The price of gold found a brief respite from the supply when Powell's speech hit the wires which included much of the same mantra as we have heard from a dovish set of Federal Reserve speakers, but even then, the price was rejected by the bears which have now gone into overdrive considering the improved geopolitical backdrop of late and Chinese data which surprised to the upside.
As expected, China Gross Domestic Produce rose by 6.2% over the year to June 2019. A step-down from 6.4%yr in March 2019 and December 2018, the result puts the economy on track to achieve full-year growth at the bottom end of authorities’ 6.0–6.5% 2019 target range. However, the upside surprises came from China’s Industrial Production and Real Retail Sales growth that has continued to recover. IP grew surprisingly strongly in June – increasing by 6.3% YoY, compared with just 5.0% in May while Retail Sales was increasing by 7.5% YoY (compared with 6.4% in May) coupled with Consumer t levels that are historically high.
Then, just today, according to The Washington Times, at a Cabinet meeting at the White House, Pompeo said the Iranians have told the U.S. that they are ready to negotiate on their missile program. This follows the fears that the nations supreme Leader had highlighted that the country is further reducing its commitments to the nuclear deal and Khamenei's threat to retaliate against the UK for the seizure of an Iranian oil tanker. Indeed, all in all, things are looking a little brighter for risk assets and gold is suffering to hold on to $1,400 the figure.
Technically, if 1400 gives way, with the confluence of the 23.6% Fibo of the latest swing lows and highs, we are looking down the barrel at 1373/76 area which meets the 19th June spike correction lows and the 38.2% Fibo of the same swing ranges.
In an interview with the Newcastle Journal, Bank of England (BOE) Monetary Policy Committee (MPC) member and Deputy Governor Cunliffe said that he had not picked up a strong sense that people are seeing big drops in demand and added that he didn't see the economy contracting.
The GBP/USD pair, which lost more than 100 pips on Tuesdayi failed to stage a recovery on these remarks and remains on track to post its lowest daily close since April 2017 near the 1.24 mark.
- Headlines surrounding US-Iran conflict weigh on crude oil.
- WTI erases more than 3% on the day, trades below $58.
- US Dollar Index climbs higher toward mid-97s on Tuesday.
The USD/CAD pair gained traction in the last hour and posted strong gains as the falling crude oil prices weighed on the commodity-sensitive loonie. As of writing, the pair was trading at 1.3080, adding 0.25% on a daily basis.
According to several news outlets, U.S. President Donald Trump on Tuesday said that progress has been made with Iran and added that he was not looking for a regime change, reviving hopes of the conflict in the Middle East coming to an end. Pressured by this development, the barrel of West Texas Intermediate suffered heavy losses and was last seen trading at $57.30, losing 3.35% on a daily basis.
On the other hand, supported by today's data from the United States, which showed that retail sales in June increased by more than expected, the US Dollar Index extended its recovery and is now looking to close the day near mid-97s with a daily gain of 0.5%.
Commenting on the data, “Headline sales rose a more modest 0.4% (consensus 0.2%), but even this is a firm figure that suggests the market is too aggressive in terms of pricing for interest rate cuts,” James Knightley, chief international economist at ING, said.
On Wednesday, markets will be paying close attention to the inflation data from Canada, which is expected to show the core Consumer Price Index in June rising to 2.6% from 2.1% in May.
Technical levels to watch for
- Germany's Von Der Leyen confirmed as European Union Commission President.
- Powell: Fed to act as appropriate amid increased uncertainties.
- US Dollar holds to gains across the board, DXY up 0.45%.
The EUR/USD pair dropped to 1.1202 hitting the lowest level since last Wednesday. It was holding near the lows, under pressure, amid a stronger US Dollar. The greenback appreciated earlier today after the US Retail Sales data. It held to gains following Federal Reserve Chairman Powell comments.
Powell expects growth to remain solid and the labor market strong. He also warned the central bank is ready to act as appropriate amid increased uncertainties. Robert Kaplan, Dallas Fed President, later added he believes Fed funds rate will stabilize after one cut.
Earlier today the greenback received a boost after data showed, retail sales in the US expanded 0.4% in June, surpassing expectations. Previously, the ZEW Survey showed German Economic Sentiment deteriorated further.
“US retail sales data favored U.S. bond yields. Both the 2Y and 10Y U.S. increased about 4 bps. Meanwhile, in Europe, search for yield continued benefiting peripherals and risk premiums declined. Italy’s risk premium narrowed, and the risk premium stands at 186 basis points U.S. retail sales data helped the index tracking the dollar, the DXY was up 0.4%. Deterioration in confidence among German investors also contributed to the decline of the euro with the dollar”, wrote BBVA analysts.
From a technical perspective, EUR/USD remains under pressure. It is hovering slightly above 1.1200 that is the key short term support. A break lower could open the doors to a bearish acceleration, targeting 1.1180, the next strong support. To the upside, resistance levels might be seen at 1.1235 and 1.1245. A recovery above 1.1250 would remove the current negative bias.
- Bears keep the pressure on after Fed’s Powell speech.
- Support is seen at 1.2390 and 1.2340 according to the Technical Confluences Indicator.
GBP/USD daily chart
GBP/USD is challenging the 1.2400 figure after the speech of Fed’s Chair Powell. There was no significant reaction in the currency market as Powell essentially didn’t bring anything new to the table.
GBP/USD 4-hour chart
Cable remains under strong selling pressure near 27-month lows. The next bear targets can be near the 1.2390 and 1.2340 levels, according to the Technical Confluences Indicator.
GBP/USD 30-minute chart
The 50 SMA is crossing below the 100 SMA which can be seen as bearish. Immediate resistances can be seen at 1.2440 and 1.2480, according to the Technical Confluences Indicator.
Additional key levels
- WTI prices have dropped on sigs of easing tensions between U.S. and Iran.
- Pompeo said the Iranians have told the U.S. that they are ready to negotiate.
Oil prices have dropped like a stone in a flash on today's reports that U.S. Secretary of State Mike Pompeo said Iran is ready to enter negotiations over its missile program. This comes at the same time that the greenback is inching higher on the session following a bid overnight from a touch below the 97 handle, in the case of the DXY (US Retail Sales boost).
According to The Washington Times, at a Cabinet meeting at the White House, Pompeo said the Iranians have told the U.S. that they are ready to negotiate on their missile program. This follows the fears that the nations supreme Leader had highlighted that the country is further reducing its commitments to the nuclear deal and Khamenei's threat to retaliate against the UK for the seizure of an Iranian oil tanker was keeping prices elevated above $60bbls which have since dropped to a low of $57.14 today from the highs of 60.02.
Indeed, easing tensions between Washington and Tehran will certainly help out the case for lower prices in world oil prices but in the case of the West Texas Intermediate crude,
expectations that U.S. government data due Wednesday will show a decline in weekly domestic crude stockpiles on the back of storm-related disruptions to output is likely to buffer the downside momentum. Nevertheless, WTI crude for August is poised for the lowest finish on the New York Mercantile Exchange in about a week - it has dropped $1.76, or 3%, to $57.82 a barrel. However, Hurricane Barry was not as destructive as feared, so the stockpile data may only be a temporary relief for the bulls. The U.S. oil inventories data are due out from the Energy Information Administration on Wednesday and only an unexpectedly sharp decline in crude inventories will likely make a marked impact on prices.
The price broke the 20-day moving average as well as the confluence of the 50 and 200 moving averages of the same period down at 57.90. A break there opens the weekly lows at 56.77, then the 52 handle and then the 14th Jan 50.41 lows. Further lower, the 26th November lows are located at 49.44 as a target.
Federal Reserve Chairman Jerome Powell is delivering a speech on "Aspects of Monetary Policy in the Post-Crisis Era" at the "French G7 Presidency 2019 - Bretton Woods: 75 Years Later, Thinking About the Next 75" event in Paris, France.
Key notes from the speech:
- In our baseline outlook, we expect growth in the United States to remain solid, labor markets to stay strong, and inflation to move back up and run near 2 percent.
- Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth.
- US growth appears to have moderated.
- Uncertainties are viewed around trade and global growth.
- In addition, issues such as the U.S. federal debt ceiling and Brexit remain unresolved.
- Fed saw core PCE running at 1.7% y/y in June.
- Baseline Fed outlook is for US growth to remain solid but uncertainties have increased.
- FOMC participants have also raised concerns about a more prolonged shortfall in inflation below our 2 percent target.
- Long-run factors contributing to lower interest rates, growth and inflation likely to persist.
- Manufacturing sector has been weak since the start of the year.
- Market-based measures of inflation compensation have shifted down, and some survey-based expectations measures are near the bottom of their historical ranges.
- Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance of policy.
- We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
- Growth in US consumer spending appears to have bounced back but business investment growth has slowed notably.
- We will also assess these developments in the context of the broader structural changes monetary policymakers have been facing since the Great Recession.
- I will focus on three tonight: the changed macroeconomic backdrop, the expanded toolkit, and the heightened focus on communication and transparency.
About Jerome H. Powell
Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to serve as the next Chairman of the Federal Reserve. Powell assumed office as Chair on February 5, 2018.
It is much of the same here and there is little reaction so far as a rate cut is priced in. The market may be all but convinced that the Fed is set to cut rates at the July 31 FOMC meeting. We have heard from numerous Fed' speakers in recent sessions advocating for a rate cut. Analysts at Rabobank argue that there is plenty of uncertainty about what path will be followed by policymakers beyond then. "This week’s releases of US data will be closely watched with risky assets potentially sticking with the view that bad news is good news if it means a more aggressive policy reaction from the FOMC. The Fed’s Beige Book is also due for release this week."
Fx stood still, but gold prices rallied on the speech. $1,408 was the low to a high of $1,413, albeit marking a long pin bar and shadow on the candle as the price gets rejected back towards a 30-min bar close at $1,410.
- AUD/USD is losing steam below the 0.7060 resistance.
- The level to beat for bears is 0.7014 followed by 0.6980 and 0.6950.
AUD/USD daily chart
The Aussie is in a bear trend below its 200-day simple moving averages (DSMAs). It is currently challenging Monday’s lows and the 100 SMA. Fed’s Chair Powell will be delivering a speech at 17:00 GMT. The event can lead to high volatilty in USD-related currency pairs.
AUD/USD 4-hour chart
AUD/USD found resistance below 0.7060 and the previous peak made in early July. On a break below 0.7014, bears can overtake the market and drive its towards 0.6980 and 0.6950, according to the Technical Confluences Indicator.
AUD/USD 30-minute chart
AUD/USD is trading below the 50 and 100 SMAs suggesting a consolidation down in the near term. Resistances are seen near 0.7035 and 0.7060 , according to the Technical Confluences Indicator.
Additional key levels
Industrial production was flat during June. According to analysts at Wells Fargo, a drop in utilities output outweighed gains in mining and manufacturing. They see that despite the second consecutive monthly gain, manufacturing output remains fairly weak.
“Overall industrial production was essentially unchanged in June. However, the underlying details paint a slightly better picture, as solid gains in manufacturing and mining were not enough to offset a decline in utilities.
“Mining rose 0.2%, bolstered by oil and gas extraction. A steadily declining rig count will limit potential future gains. Utilities gave back all of May’s weather-induced bump and dropped 3.6%.
“Slowing global growth, trade uncertainty and a stronger dollar will likely continue to weigh heavily on the factory sector.”
- Mexican peso among worst performers, after the government revealed its new plan for Pemex.
- Greenback gains across the board supported by US data.
The USD/MXN pair broke a 1-day range to the upside and is trading now at the highest level in two days with a strong bullish momentum. After spending 24 hours between 18.95 and 18.99, it jumped to 19.09. As of writing trades near the highs, looking at the 19.10 resistance area.
The move to the upside was driven mostly by a weaker Mexican peso; also amid a stronger US Dollar. June Retail Sales data for the US showed higher than expected gains and triggered a move to the upside in US yields and boosted the greenback, particularly against majors.
MXN: No love from the new plan
The Mexican peso tumbled across the board following the released of Pemex’s business plan. According to the project, Mexico will reduce the tax burden of the state oil company by around $7billion over the next two years and inject capital to build a new refinery and raise output.
Pemex credit rating was downgraded several times over the last quarter, and more are expected. So far, the plain failed to impress investors. Among the concerns is the plan to build a new refinery that could cost $8 billion. Last week, former Finance Minister Urzua resigned, among other things, opposing the new refinery. Later today, more details will be presented.
In an interview with The Wall Street Journal, Dallas Fed President Robert Kaplan, who told Fox Business back in late June that it was too soon to change the stance on the monetary policy and argued that he needed to see more material deterioration before backing a rate cut, said that he could be convinced to cut rates "based on signals coming from bond markets."
"A potential rate cut should be limited, and it should be restrained," Kaplan said according to The WSJ's Nick Timiraos.
Despite Kaplan's dovish shift, however, the US Dollar Index cling to its daily gains near 97.30.
- The 10-year US Treasury bond yield gains nearly 2% on Tuesday.
- US Dollar Index extends the rebound in the NA session.
- US Pres. Trump says they have a long way to conclude trade talks with China.
The USD/JPY pair gained traction in the second half of the day and rose to a fresh session high of 108.36. However, with U.S. President Donald Trump's latest remarks on the U.S.-China trade conflict weighed on the market sentiment and caused the pair to lose its momentum. As of writing, the pair was up 0.3% on the day at 108.20.
Earlier today, the data published by the U.S. Census Bureau showed that retail sales in June increased by 0.4% to beat the market expectation of 0.1% to help the greenback outperform its major rivals. Moreover, following Monday's technical drop, the 10-year US Treasury bond yield gained traction and was last up nearly 2% on the day to provide an additional boost to the positively-correlated pair.
On the other hand, commenting on the U.S.-China trade conflict, President Trump said they still had a long way to go before concluding the negotiations and added that they could start imposing tariffs on additional $325 billion worth of Chinese goods. Major equity indexes in the U.S. turned south on these remarks and allowed safe-havens to show resilience vs the greenback.
Later in the session, investors will be paying close attention to FOMC Chairman Powell's remarks. Chicago Fed President Charles Evans is scheduled to deliver a speech before the end of the day as well.
Technical levels to watch for
U.S. President Donald Trump recently crossed the wires saying that they had a long way to go with China on trade and said that they could impose tariffs on another $325 billion worth of Chinese imports if they wanted to. "China is supposed to be buying U.S. Farm products, we’ll see if they do," Trump stated.
Major equity indexes in the U.S. seem to be reacting negatively to these remarks. As of writing, the S&P 500 and the Nasdaq Composite were down 0.2% and 0.3% on a daily basis while the Dow Jones Industrial Average was erasing 0.12% on the day.
- Greenback sharply higher against European currencies.
- Data and higher US yields support stronger US Dollar as attention turns to Powell’s speech.
The USD/CHF pair broke above 0.9855 and jumped to 0.9887, hitting the highest level since Friday and extended the rebound from the 2-week low it reached yesterday at 0.9816.
The key driver behind US Dollar’s strength was US data. Retail sales in June rose by 0.4%, above market expectations 0.1%. Industrial Production came in flat for June, below a modest increase of market consensus, having no negative impact on the US dollar. Attention nows turns to Chairman Powell’s speech.
From a technical perspective, today’s rally follows a Doji candle formation yesterday, when after bottoming at 0.9815 the lowest level in two weeks, the pair rebounded, ending the day marginally positive and far from the lows. Now USD/CHF trades back above the 20-day moving average, improving the outlook for the greenback.
A key support could be seen around 0.9840: a daily close clearly below would clear the way to more losses, exposing 0.9815 (July 14 low) and 0.9785, the next support. On the upside, the next strong barrier is the 0.9910 area.
- USD/JPY is finding some footing above the 108.00 handle.
- Potential targets to the uspdie can be seen at 108.56 and 108.85.
USD/JPY daily chart
USD/JPY is trying to stabilize above 108.00 but below the main daily simple moving average (DSMA). Fed's Powell will be talking at 17.00 GMT. This can lead to high volatilty in USD-related currency pairs.
USD/JPY 4-hour chart
The market is attempting to trade above the 108.26 resistance and the 50 SMA. If the bulls keep the momentum going they could reach 108.56 and 108.85, according to the Technical Confluences Indicator.
USD/JPY 30-minute chart
USD/JPY is trading above its main SMAs suggesting bullish momentum in the near term. Immediate support can be seen at 108.05, 107.83 and 107.49, according to the Technical Confluences Indicator.
Additional key levels
Data released today showed that retails sales rose 0.4% in June. Analysts at Wells Fargo point out Control group sales rose an even stronger 0.7%, suggesting real personal consumption rose solidly during the second quarter.
“Retail sales rose 0.4% in June, while sales ex-autos rose 0.4%. Both were revised down for the prior month 0.1 percentage point. Control group sales, which are a good proxy for personal consumption expenditures within the GDP report, rose 0.7%, the strongest gain since March. This suggests substantial upside to our forecast of 3.4% annualized growth in Q2 PCE, as well as our headline GDP forecast of 1.8%.”
“The strength in consumer spending is a relief following last year’s year-end stock market turbulence, which cut into consumer confidence and triggered an apparent 2.0% plunge in December retail sales.”
“Headline sales rose 0.4% all three months of the second quarter, and core retail sales rose 0.5%, 0.6% and 0.7% in April, May and June, respectively. The second quarter’s stability is encouraging, as smaller tax refunds were expected to hold down spending. While tax refunds did decline, solid job and income growth appear to have more than made up any shortfall.
“The only downside to June’s better retail sales data is they raise questions about whether the Fed will follow change its intentions to cut the federal funds rate later this month. We doubt it. The Fed’s decision to cut rates is based more on where they see the economy headed than where it has been.”
- AUD/USD consolidates Monday's gains in tight range.
- RBA doesn't hint at another rate cut in the short-term.
- US Dollar Index inches higher on the back of upbeat sales data.
The AUD/USD pair ignored the Reserve Bank of Australia's (RBA) meeting minutes during the Asian trading hours and extended its consolidation phase above the 0.70 handle before coming under a modest pressure and staging a technical recovery in the second half of the day. As of writing, the pair was trading at 0.7027, losing 0.17% on a daily basis.
In the minutes of its July meeting, the RBA reiterated that they were ready to cut rates again if needed and that the board would continue to monitor the labour market closely. Commenting on the RBA's publication, “We find no indication in the July RBA Minutes that the Bank is considering cutting rates again in the near term," TD Securities analysts said.
Later in the day, the data published by the U.S. Census Bureau revealed that retail sales in June expanded by 0.4% to beat the market expectation of 0.1%. Although the US Dollar Index extended its daily rebound and rose above the 97.30 mark on the back of the data, it failed to preserve its momentum as the Fed's monthly publication showed that industrial production stagnated in June.
At 17 GMT, FOMC Chairman Powell and Chicago Fed President Charles Evans' speeches will be looked upon for fresh impetus.
Technical levels to watch for
- GBP/USD is under pressure at 27-month lows as the market is challenging 1.2400.
- Support is seen at 1.2390 and 1.2340 according to the Technical Confluences Indicator.
GBP/USD daily chart
GBP/USD is challenging 1.2400 figure as it is trading in a bear trend below its main daily simple moving averages (DSMAs). The market is under bearish pressure at 27-month lows. Investors will pay attention to the Fed's Chair Powell speech at 17.00 GMT.
GBP/USD 4-hour chart
As bears broke below 1.2485 support, the next targets can be located near the 1.2390 and 1.2340 levels, according to the Technical Confluences Indicator.
GBP/USD 30-minute chart
The market is under strong selling pressure as bears are challenging the 1.2400 level. Immediate resistances can be seen at 1.2440 and 1.2480, according to the Technical Confluences Indicator.
Additional key levels
- EUR/USD is hovering near the daily lows as bears challenge the 1.1215 level.
- The level to beat for bears is at 1.1215 followed by 1.1160 to the downside.
EUR/USD daily chart
EUR/USD is in a bear trend below the 1.1300 handle and its main daily simple moving average (DSMA). ECB’s Villeroy dovish comments are keeping the sentiment negative on EUR. On the other hand, US Retail Sales in June came better-than-expected strengthening the USD. Market participants are going to pay close attention the Fed’s chair Powell speech at 17.00 GMT.
EUR/USD 4-hour chart
EUR/USD is trading near 1.1215 support while below its main SMAs. The bears want to break below this level to potentialy reach 1.1160, according to the Technical Canfluences Indicator.
EUR/USD 30-minute chart
EUR/USD is trading at daily lows near 1.1215 support below the main SMAs, all-in-all suggesting a bearish bias. Immediate resistances are seen near 1.1250 and 1.1320.
Additional key levels
- Mixed earnings figures weigh on the market sentiment.
- Industrials and materials post modest gains in the early trade.
Major equity indexes in the United States, which struggled to find direction yesterday, started the day virtually unchanged as investors are assessing the latest second-quarter earnings figures. As of writing, the Dow Jones Industrial Average was up 0.3 points on the day while the S&P 500 and the Nasdaq Composite were down 1 and 3.4 points, respectively.
Earlier today, Wells Fargo reported a higher quarterly profit for the Q2 while JP Morgan Chase and Goldman Sachs painted a mixed picture with regards to their performance. In the early trade, the S&P 500 Financials Index up 0.25% on a daily basis.
Meanwhile, today's data from the U.S. showed that retail sales in June expanded more than expected on a monthly basis but the Consumer Staples and the Consumer Discretionary indexes largely ignored the data and were flat on the day. Among the winners, the Materials and the Industrials Indexes are both up 0.7% on the day.
- Persistent Brexit-related uncertainty continues to weigh on the British Pound.
- The USD gets a boost from upbeat retail sales data and added to the selling bias.
- Bears take some breather ahead of the 1.2400 mark and Powell’s scheduled speech.
The GBP/USD pair now seems to have entered a bearish consolidation phase and was seen oscillating near the lower end of its daily trading range, or multi-month lows.
The sentiment surrounding the British Pound remained fragile amid persistent Brexit uncertainties and failed to gain any respite from Tuesday upbeat UK wage growth data, with a goodish pickup in the US Dollar demand exerting some additional downward pressure.
The already stronger greenback got an additional boost following the release of stronger-than-expected US monthly retail sales figures for June, while possibilities of some trading stops being triggered below the key 1.2500 psychological mark further aggravated the bearish pressure.
However, highly oversold conditions on hourly charts helped limit find some support just ahead of the 1.2400 round figure mark and the Fed Chair Jerome Powell's scheduled speech, which will be looked upon for fresh clues over the central bank's monetary policy outlook and provide a fresh impetus.
Technical levels to watch
- The barrel of WTI regains some shine after recent sell-off.
- The $60.00 mark caps the upside so far today.
- API weekly report on inventories next of note later today.
Prices of the American benchmark for the sweet light crude oil are edging higher on Tuesday, managing to regain some ground lost albeit still trading in sub-$60.00 levels.
WTI now looks to API
The barrel of the West Texas Intermediate appears to have recovered the smile on Tuesday following the sharp sell off at the beginning of the week. In fact, prices of WTI dropped markedly on Monday after production in the Gulf of Mexico has started to slowly return to normalcy following the recent storm, alleviating supply concerns.
In the meantime, the US-China trade dispute remains in limbo although the threat over the global demand for oil remains intact and is preventing a serious bull run in crude oil prices.
Later in the day, the American Petroleum Institute (API) will publish its weekly report on US crude oil inventories ahead of tomorrow’s official report by the DoE.
What to look for around WTI
Recent price action around WTI showed decent contention emerged around the $59.00 mark, which is at the same time reinforced by the 100-day SMA. However, traders failed to push the barrel of WTI further north of the key $61.00 mark during the end of last week and yesterday, as supply concerns have subsided somewhat.. Supporting prices, however, emerges the geopolitical factor, with Iran and the US in centre stage, the recent extension of the OPEC+ deal to curb output until the end of Q1 2020, tight US oil markets and the so-called ‘Saudi put’.
WTI significant levels
At the moment the barrel of WTI is gaining 1.04% at $59.90 and a surpass of $60.86 (monthly high Jul.15) would expose $62.44 (monthly high May 20) and then $66.46 (2019 high Apr.23). On the downside, immediate contention emerges at $57.64 (200-day SMA) seconded by $55.91 (low Jul.3) and finally $50.54 (monthly low Jun.5).
Elliot Clarke, analyst at Westpac, suggests that the China’s latest credit data has highlighted that further easing is necessary while private investment a significant concern.
“Over the past year, Chinese authorities have sought to accelerate the economy by increasing credit availability and lowering its cost. Consequent growth in credit has however been slow in coming.”
“In part this is due to the circumstances that China currently finds itself in, with corporate demand for credit restricted by persistent uncertainty over US trade relations as well as softer global growth.”
“In addition to these macro-demand factors however, anecdotes suggest the supply of credit is also still an issue for business.”
“Small and medium private firms won’t be able to access capital markets anytime soon, and more work needs to be done before the quality of lending by shadow banking agents can be relied upon. Hence improved access to credit for small and medium-sized enterprise will have to rely on the banks. Further targeted easing by authorities is therefore a necessity, as are broader liquidity measures to reduce the overall cost of credit.”
“The bright spot for the short-term however is that, with local-government issuance having accelerated in 2019, infrastructure activity will continue to build in the second half. This activity will provide enduring support for aggregate growth and incomes amid uncertainty, and hopefully elicit a response from public and private corporates in time.”
James Knightley, chief international economist at ING, notes that the US June retail sales look very strong with the “core” retail sales control group rising 0.7% month-on-month (consensus 0.3%) with upward revisions to the history.
“Headline sales rose a more modest 0.4% (consensus 0.2%), but even this is a firm figure that suggests the market is too aggressive in terms of pricing for interest rate cuts.”
“The headline rate was always going to be somewhat depressed given it is a nominal (value) figure and faced having to deal with a near 5% fall in the retail price of gasoline (3.6% on a seasonally adjusted basis, according to the CPI report).”
“Today’s retail sales report suggests that personal consumer spending rose robustly in 2Q, probably close to 4% annualised, which in turn will help to keep GDP growth above 2%. Despite this financial markets continue to price in four 25 basis point interest rate cuts from the Federal Reserve over the next 18 months.”
“We expect 25bp moves in both July and September as an insurance policy to try and mitigate any negative effects from lingering trade tensions. For us to put more cuts into our forecast, we would need to see a dramatic escalation in the US-China trade conflict that would lead to clear evidence of weaker hiring and investment. At this stage, there is little evidence of this happening.”
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