Oil prices fell about 5% as demand expectations diminished, as the upcoming economic data in China, specifically the Consumer Price Index and Producer Price Index numbers, promise more volatility in oil prices. In a sharp turnaround, oil prices fell by nearly 5% as demand expectations dwindled, exacerbated by a significant rise in US crude inventories revealed by weekly data from the American Petroleum Institute. This rise implies a significant slowdown in demand for oil. All eyes are now on China’s upcoming economic data, specifically the CPI and Producer Price Index numbers, which are scheduled to be revealed on Thursday, promising more volatility in oil prices. In contrast, gold prices found stability above the $1,960 level, as investors closely monitored the emerging tensions in the Middle East. at the same time,
Yesterday was very interesting in terms of the Fed’s talk and the market’s reaction to the Fed’s talk. A few Fed spokespeople, including Neel Kashkari and Michael Bowman, sent a dovish message to the market that the Fed’s fight against inflation has not yet been won and that monetary policy tightening may continue. To no avail, the market’s reaction to recent comments from Fed spokesmen was a tough, tough “whatever.” The US 10-year bond yield fell below its 50-DMA
The two-year bond yield settled below the 5% mark, and the gap between the two is widening again as a dovish Fed outlook swept the market following the weak US jobs data released last week in the US and the Fed’s decision to pause for another month.
Crude oil is below 200DMA
Fed Chairman Powell is scheduled to speak this week and will certainly say the same thing his dear colleagues have said: that the Fed’s fight against inflation is far from over and that they will be watching economic data to decide what the next step is – which could be another pause, or a rate hike. Interest – But investors made up their minds and traded confidently in the hope that the Fed was done raising interest rates.
A barrel of crude oil fell nearly 5% yesterday after the $80 per barrel support succumbed to the increasing weight of increasingly aggressive bears. The price fell below the 200-DMA, near $78 per barrel, in a quick move, and is consolidating below that level this morning. Trend and momentum indicators remain comfortably negative, but the Relative Strength Index warns that crude oil is about to enter the oversold zone of the market, and that it will soon be time for a correction.
Buyers are expected to come in at the $75/77 range, and a correction to the $80/82 range is possible, with limited upside potential above this level. The risk of a sudden jump due to supportive geopolitical news is still alive, but if the Gaza war breaks out, Iranian warnings that the war could escalate and spill into the region, and OPEC and Russia’s reminders that they will keep production levels at tight levels, will not happen. To prevent a sell-off this month, the rhetoric of slowing demand will continue to outweigh supply concerns and keep the market in bearish waters. US crude is still in a downtrend below $85 per barrel. It is preferable to use non-cyclic value names. US stocks could continue to outperform their European and Chinese counterparts
The Fed will gently raise interest rates
Portuguese markets were affected yesterday by the resignation of the country’s Prime Minister following an investigation into possible corruption crimes related to lithium and hydrogen projects. Portugal’s PSI 20 index fell by more than 2.50% due to political tensions and uncertainty. But the scandal did not have a significant impact on the rest of the European indices
which changed little yesterday. The Stoxx 600 remained quoted at 445, an old support-turned-resistance level. The outlook remains negative due to a slowdown in European activity, and EUR/USD fell below the 1.07 level as the US dollar continued its gains for a second day.
Now, I also believe that if we don’t see inflation numbers pick up, the Fed will gently raise interest rates. But excess market optimism and lower yields will prompt the Fed to strengthen its stance to ensure that financial conditions do not improve too quickly. A 50 basis point drop in the US 10-year bond yield and a strong rebound in stock markets is not a good thing for taming inflation. Therefore, I expect the bond rally to start slowing closer to the 4.50% level in the 10-year yield and I expect the 2-year yield to return above the 5% mark.
In stocks, the S&P 500 is above its 50-day moving average for a third day, and the interest rate-sensitive Nasdaq 100 broke above the top of a downtrend channel over the summer. At current levels, the S&P 500’s dividend yield is about 4%, and the Nasdaq’s is about 3.70%. This means that the Fed must go ahead with interest rate cuts and sovereign yields must fall significantly for those yields to look attractive by comparison. That’s why the stock rally doesn’t seem to be on solid ground
Nasdaq and Bitcoin against the US dollar
Nasdaq The US stock market saw a rally, with both the S&P 500 and Nasdaq posting their longest winning streak in two years. The decline in US Treasury yields, coupled with positive expectations for US-China relations, has boosted risk-on sentiment in global financial markets. Investors have reallocated their portfolios towards the higher-risk US stock market. The Nasdaq is trading higher while currently testing the resistance level. However, the MACD has shown increasing downward momentum, while the RSI is at 74, indicating that the indicator may enter the overbought zone.
BTC/USD Bitcoin prices have maintained a strong sideways movement over the past week, showing resilience above the $34,000 mark, indicating a major support level. Reports indicate that Bitcoin whales are accumulating more cryptocurrencies, while a sharp increase in open interest indicates the possibility of increased volatility in Bitcoin prices soon. Additionally, the recent decline in dollar strength could contribute to BTC’s ability to maintain higher levels. Market participants are closely monitoring these factors, anticipating potential shifts in Bitcoin prices amid evolving market dynamics. BTC price action has been sideways in a narrow range and provides a neutral signal for future price action. The RSI gradually moved lower from the overbought zone while the MACD remained steady above the zero line, giving a neutral signal as well.