Nov 6
VOT Research Report
Analytics and Recommendations
Markets usually overshoot and overcorrect when going up. A 2% reduction in petroleum prices in response to China’s COVID lockdowns could be unexpected given Beijing’s relative overzealousness in combating the pandemic while the rest of the world has moved on. Similarly, oil saw a 5 percent rise on Friday, seemingly fueled by speculation that China is loosening its so-called COVID-Zero policy.
Chinese lockdowns is as accurate as any lengthy McKinsey perspective on the subject, despite its apparent flippancy, every time I hear rumors that Beijing will reverse its COVID policy. You’ll hear today that China is reopening, but you’ll hear next week that they are re-closing. “He was right about people who take the Chinese government too seriously, and I still laugh about it today.
The news that the Group of Seven countries, including Australia, had finally agreed to set a fixed price for Russian oil leads me to believe that the oil rally on Friday was in response to this news. For proponents of the plan, finding a floating rate was nearly impossible, so this had been a compromise.
The G7 plan, which merely aims to limit Moscow’s capacity to fund the Ukraine war without throttling global crude supplies, has been weaponized by Vladimir Putin, who has weaponized Russian energy in every form except by name. He has threatened to withhold oil from nations that participate in the plan.
One of the main factors that had kept oil from falling below $80 a barrel even during the summer selloff in crude was worries about the Kremlin retaliating against the G7 plan.
Oil’s upside on Friday was also attributed to expectations that the Fed could still resort to a rate pivot, despite numerous disagreements on this point.
In October, the number of jobs in the United States exceeded expectations once more. However, the hedge funds that typically send the dollar rallying chose to hammer the greenback this time, giving oil and the rest of the commodities complex a win.
A number of Fed policymakers were discussing Friday smaller rate hikes than the aggressive regime that Chairman Jerome Powell had advocated just two days prior at his crucial news conference following the monthly rate decision, lending credence to the notion of a Fed pivot.
On Wednesday, Powell stated to reporters that he believed the time had come for the central bank to slow down rather than halt its rate hikes, which could occur as early as its meetings in December or February.
However, the “need to bring our policy stance down to a level that’s sufficiently restrictive to bring inflation down to the 2% objective over the medium term” was just as important, he said.
The Federal Reserve has increased interest rates six times since March in an effort to control inflation. From March to June, four jumbo increases of 75 basis points brought rates to a peak of 400 basis points, up from just 25 in March.
What exactly is meant by “restrictive” in this context? Friday, a 50-basis-point increase could act as a deterrent, as opposed to the 75 basis points to which policymakers are accustomed.
It’s no longer front-loading on rate hikes from now on. There is ample room to tighten monetary policy, even with smaller rate increases. The Fed’s inflation target is just 2% per year. However, the Consumer Price Index, or CPI, has been growing four times faster, reaching 8.2% in the year to September from a peak of 9.1% in the year to June, which was 40 years ago.
The Chicago Fed chief made it clear that he was in favor of the November hike of 75 basis points. However, you can do 50 bps repeatedly if inflation reports are not favorable and the Fed still wants to hike quickly. Risks may become more evenly distributed if the Fed reduces rate increases by 25 basis points as it approaches the peak policy rate.
It appeared that two additional Fed policymakers shared the same viewpoint.
Susan Collins, president of the Boston Fed, stated on Friday that “it makes a lot of sense for the Fed to switch to smaller rate increases.
The Richmond Fed’s Tom Barkin stated that the central bank’s various decision-makers had already completed a slowdown. He continued, “I can credibly say that the Fed has its foot on the brake.
Investors, economists, and business leaders have been warning for some time that the Fed’s aggressive rate hikes could cause the world’s largest economy to enter a recession just two and a half years after the coronavirus pandemic started in the middle of 2020.
The United States economy did indeed falter during the first two quarters of the year, experiencing consecutive negative increases in GDP of 1.6 percent and 0.6 percent, which technically placed the nation in a recession. However, GDP in the third quarter remained steady at 2.6%, posing the question of whether a soft landing or another economic slowdown was possible. Data overwhelmingly pointing to a slowdown in inflation is what will really bring about Fed consensus on a rate pivot.
As a result, prices shouldn’t be affected significantly by the CPI update for October, which is scheduled for Thursday. The Fed’s pivot is just as plausible as China’s reopenings if this is the case.
Oil: Market Settlements and Activity Futures of West Texas Intermediate (WTI), which is traded in New York, and Brent, which is traded in London, closed up 5% on Friday as oil bulls found their rhythm after being stymied for days by news of COVID lockdowns in China, which is the top oil importer.
In response to the Federal Reserve’s renewed promise to keep raising interest rates to reduce inflation, which is at four-decade highs, both crude benchmarks had also fallen on Thursday. The Dollar Index, which compares the US dollar to the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, reached a three-week high of 113.035 on Thursday as a result of the Fed’s stance at the time.
However, despite the fact that the United States of America added 261,000 jobs in October’s nonfarm payrolls report—almost 35% more than the 195,000 predicted by economists—the Dollar Index fell to below 111 at one point on Friday.
The nonfarm payrolls report was mostly hot, [with] a strong headline number, upward revisions, and further wage growth,” but the “dollar is getting crushed here.
Oil’s strength could be relentless if the dollar continues to slide here.
After officially concluding the session at 92.61, WTI made a final trade of $92.60 on Friday, up $4.44, or 5%, from Thursday. After the U.S. crude benchmark crossed $90 this week for the first time since Oct. 11, the session high was $92.81, which was the highest level in nine weeks. WTI rose 5.4 percent for the week.
After officially settling at $97.67, Brent last traded at $98.75, up $3, or 3%, per barrel. The session high for the global crude benchmark was $98.74.It gained about 2% per week. The G7 plan to limit the selling price of Russian oil in order to limit Moscow’s ability to fund its invasion of Ukraine without throttling global supplies further fueled Friday’s oil rally. In the past, Russian President Vladimir Putin has threatened to stop dealing with countries that are a part of the G7 plan or to stop all crude exports in response to the plan.
Oil: WTI View: WTI’s action remains well supported by the 100-Day SMA of $88.60, with a scaling towards the 200 Day SMA of $97.70 next on bulls’ agenda.
The 50-week exponential moving average of $93.77 would serve as the immediate upside target and resistance for WTI.
Gold: Market Settlements and Activity It sounded like one of those common allegations of manipulation against gold, but this time the accusers were gold bears rather than bulls.
After the monthly U.S. jobs report once more exceeded expectations, a situation that would normally benefit the dollar rather than gold, the hedge funds that typically hammer the yellow metal at any given opportunity instead gave it surprising love on Friday, resulting in gold’s best percentage gain in two and a half years.
The benchmark December contract for U.S. gold futures closed Friday’s trade up $45.70 at $1,676.60 per ounce on New York’s Comex, representing a gain of 2.8%.,information showed it was the greatest rate win for gold in a day from 2nd April 2020, when the benchmark contract then rose 2.9%.
December gold had its best weekly performance in four weeks, rising 1.9%.
Some traders track the bullion spot price more closely than the futures price, which settled at $1,681.38 on Friday. Spot gold hit a five-week low of $1,616.69 just on Thursday.
Gold prices will probably fall a little here before rising again.
Some pull back towards $1,673 and $1,660 cannot be ruled out as gold becomes overbought on intraday 4 hour timeframes. Buyers will use a correction to re-accumulate if prices fall below $1,645, while others may use it to cover short positions.
Gold bulls’ breach of $1,681 is likely to result in a prolonged rally between $1,720 and $1,785, though the yellow metal will still experience some sideways movements.
The most important thing is that the short- and medium-term outlook will change to bullish if gold manages to finish the month above $1,735Some bullish reaction is anticipated for at least two to three months after seven months of relentless beating.
However, Gold, in many analyst’s opinion that the rebound would not last.
