Markets: Oil builds on OPEC big gains

This article was last updated on April 16, 2022

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Market Insights

Oil builds on OPEC big gains as markets digest manufacturing reports

December begins with crude oil still in rally mode building on Wednesday’s explosive gains as traders respond favourably OPEC’s agreement to cut production. A meeting with non-OPEC producers is planned for next week to nail down that side as well. Progress toward managing supply after a two year war over market share that depressed prices is being seen as a positive for the oil market regardless of the actual details. WTI is trading up 0.8% near the $50.00 level just below the top of the trading range that has been in place for the last six months. The big question for oil prices now is what level would be enough to bring shut-in US shale production back on stream.  This year traders have been capping the price just above $50.00, but some agencies have suggested lately that the tipping point could be closer to $60.00.

Stock markets around the world are trading mixed through the release of manufacturing PMI reports, the first reading on how economies have performed this month. The FTSE is down 1.0% on a soft reading out of the UK while the Dax is down 0.8%. Reports out of China and Japan were a bit better than expected helping the Nikkei to gain 1.1% and the Hang Seng to rise 0.4%. US index futures are trading down slightly as traders await US PMI figures later this morning and US nonfarm payrolls tomorrow. Traders will be looking for confirmation of yesterday’s positive ADP payrolls and Chicago PMI reports and more signs of a post-election surge.

In currency trading today USD has slipped back slightly and is still showing signs of topping. Traders may look to upcoming data less for signs of whether the Fed will raise in December which looks like a lock and more about how many rate hikes could follow in 2017. Incoming Treasury secretary had nice things to say about Janet Yellen further indicating she is likely to finish out her term which ends in January 2018. GBP and EUR have capitalized on USD’s rally. CAD is also strengthening although so far gains appear light relative to the positive oil price and Canadian GDP tailwinds that have emerged this week. Canadian banks could be active again today with CIBC turning in strong earnings and a dividend increase while TD Bank met expectations.

Market Briefs

• USD/JPY -0.2%, EUR/USD +0.35%, GBP/USD +0.25%
• DXY -0.3%, DAX -0.5%, Brent +1.0%, Iron +5.1%, Gold -0.5%
• Oil extends Wed rally: Brent hits  52.73 high before relaxing
• UK Nov N/Wide hse px +4.4% y/y vs 4.6% prev, 4.6% exp
• CH Oct Retail Sales -0.5% y/y vs -2.3% prev
• IT Nov Mfg PMI 52.2 vs 50.9 prev, 51.8 exp
• DE Nov Mfg PMI 54.3 vs 54.4 prev, 54.4 exp
• EZ Nov Mfg PMI 53.7 vs 53.7 prev, 53.7 exp
• UK Nov Mfg PMI 53.4 vs rvsd 54.2 prev, 54.5 exp
• Riksbank DepGov Skingsley – Will intervene in SEK if necessary
• Japan Nov mfg PMI – final 51.3, flash 51.1, Oct final 51.4
• China Nov Caixin mfg PMI 50.9, 50.8 eyed, Oct 51.2, output-input up
• China Nov official mfg PMI 51.7, best in two years, 51.0 eyed, Oct 51.2
• BoI – Italy’s top three banks systemically important, need buffer – Rtrs

Looking Ahead – Economic Data (GMT)
• 12:30  Challenger Job Cuts Nov prev 30,740
• 13:30  Initial Claims Nov 26 wk mkt 253k, prev 251k
• 13:30  Cont Claims Nov 19 wk mkt 2.040 mln, prev 2.043 mln
• 14:45  Markit PMI final Nov flash 53.9
• 15:00  ISM Mfg PMI Nov mkt 52.2, prev 51.9
• 15:00  Constr Spending Oct mkt +0.5% m/m, prev -0.4%
• n/a    Light Vehicle Sales Nov mkt 17.70 mln , prev 18.02 mln
• n/a    Domestic Car Sales Nov mkt 5.10 mln, prev  5.12 mln
• n/a    Domestic Light Truck Sales mkt 8.90 mln,  prev 9.18 mln
• n/a    Chain Store Sales

Looking Ahead – Events, Other Releases (GMT)
• 13:00  FRB Dallas’s Kaplan moderated Q&A session; San Antonio, TX
• 13:30  FRB Cleveland’s Mester at financial mkts conf; Washington, DC
• 14:45  FedTrade ops 30-yr Fannie Mae/Freddie Mac max $2.500 bln

Currency Summaries

EUR/USD  
• EUR/USD in grip option expiries EUR 4.8bln 1.0600, EUR 1bln 1.0630-50
• Quiet day widely expected anyway given NFPs tomorrow
• Tier one US data to come @ 15GMT ISM f/c 52.2 from 51.9
• Construction spending f/c 0.5 Oct after dismal -0.4% Sept
• Recent good US data largely ignored. NFP may spark big reaction
• Lots of potential fuel: http://reut.rs/2fUcUyB  

USD/JPY  
• USD/JPY took a swipe @115.00, but only managed to get to 114.83
• Decent sized barriers allegedly @115.00, large offers ahead
• Big stops are said to be clustered above 115.00
• Overall expectation is for eventual gains through 115.00
• Japanese importers and investors below, low has been 113.83
• 5yr UST/JGB spread has widened, corresponding with rise in USD/JPY
• 30/60-day log correlation between UST/JGB & USD/JPY +0.58/+0.56

CHF
• EUR/CHF comes of its 1.0816 high and consolidates losses at 1.0770
• Month-end fizz calms as we move into December
• Cross plays 1.0768-1.0785 but looks reluctant to fall further
• USD/CHF also backing away from Wed 1.0205 trend high
• Plays 1.0131-1.0174 and stalled by 10DMA at 1.0135
• Swiss Nov Mfg PMI improves to 56.4 and Oct R.Sales pick up to -0.5%
• Chart: 1)  http://reut.rs/2fUAYSb  2) http://reut.rs/2fUlopx

GBP/USD
• GBP/USD quick to recoup small losses that followed UK PMI data
• November manufacturing PMI 53.4 from 52.2 and vs 54.5 f/c
• GBP/JPY tops just short key 200-DMA: http://reut.rs/2gNCm6H
• GBP/AUD over 100-DMA-Weak OZ data adds fuel: http://tmsnrt.rs/2gBuJB1
• EUR/GBP maintains downward trend evident since GBP flash crash
• Italy referendum risk currently weighs but traders now widely short

USD/CAD
• Huge gains for oil after OPEC deal but CAD gains tempered by firmer USD
• 1.3357 low but recovered to 1.3462 by EOD Wed’s. 1.3379-1.3439 today
• 76.4% fib of the 9-14 Nov 1.3265-1.3589 rally next support at 1.3341
• 55dma underpins at 1.3311. Resistance 21DMA 1.3450 then Wed’s high
• Vols ease post OPEC as broader ranges hold. 1wk gets BoC now

AUD/USD     
• 0.7497-0.7374 Wed’s – Good US data driving USD up
• Weak capex largely ignored. 930mln .7400-10 expiry contains today
• 0.7378-0.7420 range thus far, decent bids touted by Wed’s low
• 24 Nov low 0.7364 before 21 Nov low 0.7311 then 24June  at 0.7305
• Ongoing resistance/sellers in upper 0.74’s

NZD/USD
• 0.7170-0.7071 Wed’s, tight  0.7074-0.7105 today
• Hourly cloud resistance for now. 21dma above there at 0.7137
• Yesterday’s and Tues’s lows support 0.7170/67, then 200dma 0.7045

OPTIONS
• Short dated vols mega bid, especially EUR pairs in to Italy referendum
• 1wk also gets ECB, 2wk FOMC.  1mth rolls over new year to cap
• 1wk EUR/USD up 8.0 since Friday to 18.0 or 210 pips break even
• USD/JPY gamma bid as spot moves. Setback fears prop JPY call bias
• AUD vol demand limited while 0.7300 holds. Cable vols sidelined