Futures Fall Despite Solid EPS, Retail Sales Miss, Brexit Deal Remains Elusive

Futures Fall As Worries Creep  Back Into Focus

The U.S. equity market is indicated lower in early Wednesday trading despite signs 3rd quarter earnings are better than expected. The Dow Jones Industrial Average and S&P 500 are both indicated lower by 0.20% while the NASDAQ Composite is down about -0.30%. The move is driven by growing concern China will not follow through on its pledge to buy more U.S. agricultural products. If this is the case it is likely additional tariffs will be enforced later this year. China has pledged as part of the Phase I trade deal to buy up to $50 billion in U.S. products.

In earnings news, financial stocks Bank of America and Bank Of New York Mellon both reported better than expected EPS. Both companies reported strength in consumer segments that helped drive share prices higher. Shares of BAC are up more than 2.5% while BNY-Mellon is up about 1.5%. In economic news, Retail Sales were weaker than expected. September retail sales fell -0.3% versus an expected gain of 0.3%. The mitigating factor is an upward revision to the past month of 0.2%. Later in the session traders will have an eye out for the NAHB Index and the FOMC’s Beige Book.

Europe Mixed, Brexit Deal Is Still Elusive

European markets are flat and mixed at midday as traders fret over trade and the Brexit. On the trade front, China’s demands the U.S. remove the threat of more tariffs before signing the Phase I deal has thrown a wrench into the works. At this stage it is becoming less and less likely Phase I will come to fruition. In Brexit news, negotiations stalled on Wednesday despite a narrowing of differences. The Irish PM confirms the back-stop is yet to be resolved but there is hope. The two sides will begin a two-day summit tomorrow that will, hopefully, result in a deal.

The German DAX is in the lead at midday with a gain of 0.22% while the FTSE and CAC are both edging lower. In stock news, shares of UK tech giant Micro Focus is up 4.3% on its results as is seafood producer Mowi. At the other end of the rankings, IMCD and DBA Aviation are both down more than -4.0%.

Asia Mostly Higher On Brexit Hopes

Asian markets are mostly higher at the end of Wednesday’s session. The Nikkie and ASX are both up more than 1.0% while the Hang Seng and Kospi are up closer to 0.70%. The moves are driven by hope for a Brexit deal, however elusive it may seem right now. In Hong Kong, leader Carrie Lam is under intensifying pressure as she rejects HK’s bid for autonomy. The Shanghai composite is the only index to move lower, it posted a loss of -0.41%.

Crude Steadies, But Remains Under Pressure

Crude oil is showing little movement on Wednesday. In the European session, WTI is trading at $53.14, up $0.20, or 0.38%. Brent crude is trading at $58.91, down $0.06, or 0.10%.

Is a U.S-China Trade Deal at Hand?

Investors are keeping a close eye on trade talks between the U.S. and China. There has been some optimism that a limited deal (“Phase 1”) can be hammered out, which would be the first of up to three “mini agreements”. This would enable to sides to remove tariffs, while at the same time, postpone the most intractable issues for another time. If the sides can reach any kind of a deal, growth will improve and the demand for crude will increase. However, investor confidence slipped earlier in the week, as the Chinese media reported that China would demand further talks before agreeing to a Phase 1 agreement. The U.S. has sounded optimistic about reaching a deal, and has canceled tariffs which were set to take effect this week. A new 15% on $160 billion in Chinese goods is scheduled to take effect on December 15, but would likely be rescinded if the sides can reach an agreement before then. Traders should be prepared for further volatility from crude, depending on the progress of the current round of trade talks.

Crude Inventories – Another Surplus?

Another important factor for crude movement is the Energy Information Administration (EIA) crude inventory report. The weekly report has been posted four successive surpluses, pointing to an oversupply of U.S. crude. Another large surplus is expected on Thursday, with a forecast of 3.0 million barrels. This streak of surpluses is putting upward pressure on crude prices, and another surplus could push crude higher on Thursday.

WTI/USD 4-hour Chart

Oil Price Fundamental Daily Forecast – Underpinned by Upbeat Brexit News, but Gains Capped by Trade War Concerns

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading nearly flat to slightly better on Wednesday, underpinned by optimism over Brexit and new signs that OPEC and its allies are willing to make further supply cuts, but pressured by renewed concerns over U.S.-China trade relations and potentially bearish weekly inventories reports.

At 11:54 GMT, December WTI crude oil is trading $53.04, up $0.16 or +0.30% and December Brent crude oil is at $58.71, down $0.03 or -0.05%.

Traders Hoping for Favorable Brexit Deal

Traders are optimistic that the European Union and the United Kingdom will strike a deal that avoids a “hard” or no-deal Brexit. This should boost economic growth and consequently oil growth and prices.

Early Tuesday optimistic comments on Brexit from European negotiator Michel Barnier were backed up by reports that a draft legal text over the divorce was being drawn up.

“Our team(s) are working hard, and work has just started now today, this work has been intense over the weekend and yesterday, because even if the agreement will be difficult, more and more difficult, to be frank, it is still possible this week,” Barnier told reporters in Luxembourg on Tuesday morning.

He added that “any agreement must work for everyone,” saying it is “high time to turn good intentions into a legal text.”

By mid-afternoon (Tuesday), one report suggested that a draft deal was in the works according to two separate sources familiar with negotiations.

Further Supply Curbs Possible

OPEC Secretary-General Mohammad Barkindo said OPEC “will do whatever (is) in its power” along with its allied producers to sustain oil market stability beyond 2020.

Daily Forecast

The markets are at a stalemate on Wednesday because of fading hopes of a trade deal between the United States and China after the latter threatened countermeasures against the U.S. for showing support for the Hong Kong protesters.

Traders are also looking for further developments over Brexit. A deal to allow the U.K. without hard ramifications should underpin prices.

Late in the session, the price action will be driven by the weekly inventories report from the American Petroleum Institute at 20:30 GMT. It is expected to show U.S. crude stocks probably grew for the fifth straight week, according to a Reuters survey.

The report has been delayed one day because of Monday’s U.S. bank holiday. The Energy Information Administration will report on Thursday.

Where Next for Oil After Its Double Reversal?

In yesterday’s Alert, we wrote the following:

Crude oil moved higher last week, especially on Thursday and Friday. This rally was in tune with the clear buy signals from the CCI and Stochastic indicators. While crude oil pulled back in today’s pre-market upswing, it’s unlikely that the rally is completely over at this time. Why? Because of two factors: one that we covered previously, and one that we didn’t cover so far.

The thing that we already discussed is the upside target based on the 38.2% Fibonacci retracement. It was not reached yet. Consequently, the price most likely has further to run.

The thing that we didn’t mention previously is the fact that crude oil just invalidated the breakdown below the rising dashed support line that’s based on the December 2018 and the August 2019 lows. Invalidations of breakdowns are bullish on their own. That’s yet another reason to expect the profits on the current crude oil long position to increase further.

The above generally remains up-to-date. The price of crude oil declined today and then rose back up and at the moment, our long positions are about $1.50 in the black. The question is whether we run for the hills because of this week’s decline, or do we wait for the price target to be reached.

The latter still appears to be the better idea. Applying the Fibonacci retracements to the October rally shows that today’s low formed almost exactly at the 61.8% Fibonacci retracement level. That’s the classic way for any asset to correct its preceding move and then to resume the trend. The short-term trend remains up, which means that the odds are that our target area will be reached.

One concerning matter is the situation in the USD Index. In the very recent past – the last several days – the USD Index and crude oil moved in the opposite ways. Thursday’s and Friday’s upswing in crude oil corresponded to declining USD. And the USD Index seems to be bottoming.

Then again, the relationship may be very short-lived and crude oil might be able to rally despite USD’s rally for a few days, anyway. After all, the USD Index is up at the moment of writing these words, and crude oil is almost done correcting its initial downswing.

Consequently, in our view, the current long position is justified from the risk-reward point of view.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Oil Trading Alerts to also benefit from the trading action we describe – the moment it happens. Check more of our free articles on our website – just drop by and have a look. We encourage you to sign up for our daily newsletter, too – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up for the free newsletter today!

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Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and Care


All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Global Equity Markets Roar

Third-quarter results for UnitedHealth group were better than expected and led it to raise profit guidance for the year, with similarly upbeat reports also from Johnson and Johnson and JPMorgan. European equities were mostly up, too. Gold struggle in the face of surging US bond yields and the general risk-on fervour 

Brexit

The Pound galloped higher overnight, leaving the currency around 4% stronger over the past week. RTE News’ Tom Connelly, who broke the original Brexit ‘deal’ story, writes that the EU and UK sides are the closest they have been and that there is some optimism now. He has Irish sources typically, so this is another positive sign.

European stocks rallied to levels not seen in more than a year as speculation that a Brexit deal is imminent prompted traders to scoop up shares across the board.
Of course, any ‘breakthrough’ between the EU and the UK must still face the British house parliament.

But traders remain favourably positioned for the ‘white smoke’ moment hoping for domestic ratification on Brexit.
Framing out the “feel good” risk-on vibe, the US-China trade discussions seem to be making some progress, and the prospect of a genuine truce has risen.
Asia open

While Asian cash market looks set to gain however entering the morning session, traders have hit the pause button possibly awaiting the outline of a Brexit agreement to judge the likelihood of parliamentary approval, which suggest there still much wood to be chopped before pen gets put to paper.

As well, investors are looking for more clarity around the various phases of the US-China trade talks. Individually, Chinas firm commitment to buy $50 billion in US farm goods, details around December tariff detente, possible first-level tariff rollbacks and any signs progress on lifting the US export ban on Huawei, yup lots of wood to chop there also.

Oil market

Crude fell for a second day amid a weakening global growth outlook and as US oil producers defensively hedge against copious crude supplies in the world’s largest economy.

Oil markets continued to struggle overnight under the weight of a dreary macro scrim as back to back miserable China data prints (bad trade data and factory gate inflation) were compounded by a Germany’s sickly ZEW survey which pressured prices.

However, a lower base is being tentatively held in check after OPEC Secretary-General Mohammad Barkindo reiterated his “whatever it takes” to sustain oil market stability mantra.

While corporate earnings reports and phase one of the US-China trade talks is buttressing general risk sentiment, without an implicit rollback of existing tariffs, a tariff detente will have minimal effects on shifting the global growth dial to a more pleasant setting and therefore limited impact on oil prices. In other words, a detente means things may not necessarily get worse, but it doesn’t suggest that global economic conditions will improve any time soon.

But the fact that the losses are very sticky at these downcast levels it could be another worrying sign for oil bulls.

Gold market

The robust US corporate earnings reports coupled with positive developments on the Brexit front has triggered a market rotation out of bonds into equities resulting in US 10-year bond yields significantly rising which is weighing on the opportunity cost of holding gold.

Roaring US equity markets and an upsurge in US bond yields are possibly two of the worst flatmates for gold; as a result, gold toppled nearly $20 top to bottom overnight.

Also, The NY Fed manufacturing survey lifted a better-than-expected 2pts in October, giving the hawks on the FOMC “something to talk about” and perhaps hawkishly influencing their October policy decision process.

Currency markets

Japanese Yen

The “Risk on” environment has propelled the USDJPY higher within reach of the psychological 109 level as the S&P 500 had a peak above the equally cerebral 3000 markers.

Australian Dollar

The market is still debating the RBA’s monetary policy gymnastics. But given the RBA Board is expressing some doubts about the efficacy of dropping rates further operating in what for the RBA is uncharted territory, it could mean slowing the pace of rate cuts but doesn’t necessarily alter their dovish bias. Despite a frothy global “risk-on” environment, the Aussie dollar is trading 20 pips off yesterday’s session tops.

The Yuan

The Yuan may remain stable within the current 7.05-7.10 level while the phase one trade deal gets chiselled out.

Back to back weaker economic data out of China (Trade and factory inflation gate) provided a stark reminder if not a reality check that a weaker Yuan from a pure fundamental landscape may still be in the cards. As such the USDCNH has traded with a better bid overnight.

But given there remains a strong possibility of a Phase 1 deal getting inked, at minimum USDRMB topside should remain capped and we could see the CNH outperform in the weeks ahead assuming phase 2 and 3 of the propose US-China trade deal comes to fruition.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Crude Oil Price Forecast – Crude Oil Markets Bounce Back

WTI Crude Oil

The WTI Crude Oil market initially fell during Tuesday but found enough support near the $52.50 level to turn around and form a supportive looking candle. Ultimately, what I find interesting about this is that we have seen quite a bit of buying pressure at $52.50 over the last week or so anyway, and of course the uptrend line underneath will have its influence as well. All things being equal, the $51 level kicks off significant support down to the $50 level, and therefore it makes sense that value hunters have come back into the market.

Oil Forecast Video 16.10.19

Brent

Brent markets also fell rather hard during the Tuesday session initially but has found support just as the WTI market has. Ultimately, this is a market that is probably getting a bit of a boost due to the fact that there are still tensions with the Iranians, and of course there’s also the possibility that the Brexit gets done and that could drive up demand in theory as well. Either way, there is significant support underneath, and that’s probably the most important thing to pay attention to. The 50 day EMA is close to the $60.75 level and breaking above there could open up the door to the $62.50 level, possibly even the $64 level after that. To the downside, I see the $56 level as the beginning of a massive amount of support that extends down to the $55 level. Ultimately, I believe that we are rallying from here to form a larger range.

Please let us know what you think in the comments below

Futures Rise, Earnings Season Off To Shaky Start, Trade Concerns Dampen Investor Appetite

The U.S. Futures Are Rising In Early Trading

The U.S. indices are indicated higher in early trading as earnings season kicks off. Today’s news includes reports from more than a half-dozen important names and the results are mixed. The big banks are the main focus as JP Morgan, Goldman Sachs, Wells Fargo, and Citigroup all report. JP Morgan posted a nice beat on the top and bottom lines driven by strength in consumer lending. Citigroup, Goldman Sachs and Wells Fargo are all trading lower after reporting weaker than expected numbers.

In other news, United Health and Johnson & Johnson both beat expectations. Johnson & Johnson also reports strength in the consumer units while United Health upped its full-year guidance. Both stocks are moving higher by roughly 2.0%.

The Down Jones Industrial Average, S&P 500, and NASDAQ Composite are all up about 0.25% in early trading. The sentiment is buoyed by trade hopes but also tempered by caution. While China and the U.S. have signaled a Phase 1 deal is at hand there is still no deal in place. Until such time traders are cautioned to be prepared for negative headlines. On the economic front, the Empire State Manufacturing Survey rose modestly to 4 from last months 2.0 as production and employment edge higher.

European Markets Are Mixed, Hope For A Smooth Brexit Persist

European markets are mixed at midday on Tuesday after remarks from the EU’s Brexit team renewed hope. Michel Barnier said that despite the increasing difficulty it is still possible to reach a deal this week. The DAX and CAC are both up about 0.35% to 0.40% while the FTSE is down roughly -0.25%. Retail is in the lead with a gain of 0.90%.

In economic news, unemployment ticked higher in the UK. The 3rd quarter figure came in at 3.9%, a tenth higher than the previous. In stock news, shares of Hays are up 5.5% after it reported flat results. The good news is weakness in the UK was offset by strength in offshore markets. Share of Wirecard, however, are not so buoyant. The Financial Times did an expose on the company’s accounting practices and shares are down -17% because of it.

Asia Mixed, Trade Hopes Clash With Trade Fears

Asian markets are wildly mixed after Tuesday’s session. The Japanese Nikkei led the market with a gain of 1.9% after being closed Monday for holiday. Chinese indices are broadly lower following the release of inflation data. CPI rose 3% on a 69% increase in pork prices while PPI fell. The Shanghai Composite is down -0.56% on the news, the Hang Seng a more tepid -0.07%. Elsewhere in the region, the ASX and Kospi are both up mildly.

Crude Steady as Investors Eye U.S-China Trade Talks

Crude oil is showing limited movement on Tuesday. In the European session, WTI is trading at $53.37, down $0.14, or 0.26%. Brent crude is trading at $59.18, down $0.04, or 0.02%. U.S. crude oil posted a late-week rally, climbing over 5%. However, the rally fizzled out, as crude reversed directions on Monday and dropped below the $53 level earlier on Tuesday.

Trade Deal Optimism on Hold

The ongoing trade war between China and the U.S. has taken a toll on both economies and contributed to weaker global growth. Recent figures show that the Chinese economy has been hit hard, which may force the Chinese to show some flexibility in the current round of talks between the sides. In September, Chinese exports to the U.S. declined by 22%, on an annualized basis. The Chinese manufacturing sector is sputtering, as the Chinese Manufacturing PMI has pointed to contraction for the past four months.

The markets were brimming with optimism last week, as the U.S. and China renewed trade talks after a long break. Previous rounds of negotiations have ended without success, but these talks are taking a different approach, with a focus on achieving a limited deal, which is being labeled “Phase 1”. The aim is to reach a partial agreement and leave thorny issues such as intellectual property theft for another day. However, China is saying that additional talks will be needed before a limited agreement is reached. In the meantime, the Trump administration suspended higher tariffs which were set to take effect this week. Still, tariffs that are scheduled to take effect in December remain in place. The level of progress in these talks can have a significant effect on crude prices, since a trade agreement between the two largest economies in the world would re-energize the world economy and increase demand for crude from China and other major economies.

WTI/USD 4-hour Chart

Oil Price Fundamental Daily Forecast – Choppy Trade Expected as US-China Hammer Out Details of Trade Deal

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday, after clawing back most of its early session losses. The catalyst behind the second day of weakness is worry over U.S.-China trade relations that is raising concerns over the weakening global economy and declining demand growth.

At 11:55 GMT, December WTI crude oil is at $53.29, down $0.36 or -0.68% and December Brent crude oil is at $59.04, down $0.31 or -0.56%.

Weak data from China is also pressuring prices. Earlier on Tuesday, the National Bureau of Statistics (NBS) reported that China’s factory gate prices declined at the fastest pace in more than three years in September. That follows customs data on Monday that showed Chinese imports had contracted for a fifth straight month.

On Friday, the announcement of a partial trade deal between the United States and China helped boost prices, but these gains were erased on Monday when China said it wanted to continue discussions before agreeing to the first phase of the deal. This news rekindled concerns over demand ground.

However, the market did get a slight boost on Tuesday after OPEC Secretary-General Mohammad Barkindo said OPEC and its allies “will do whatever (is) in its power” to sustain oil market stability beyond 2020.

Rising tensions in the Middle East are also providing some support on concerns over a possible support disruption after President Trump imposed sanctions on Turkey and demanded the NATO ally stop a military incursion in northeast Syria that is rapidly reshaping the battlefield of the world’s deadliest ongoing war.

According to CNBC, the move highlights increasing instability in the Middle East amid months of attacks on tankers and oil sites in and around the oil-exporting Gulf region.

Daily Forecast

It seems U.S.-China trade relations will be the main focus for traders for several weeks or until the two economic powerhouses sign the “Phase One” trade agreement. So expect a volatile two-sided trade.

Short-term investors will be watching U.S. inventories. Prices could get a boost this week as investors are expecting a drawdown in crude inventories in the United States.

This week’s American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) inventories reports are expected to show a slight draw down.

A Fragile State Of Trade War Neutrality

Beyond chiselling out those details, doubts continue to swirl whether China and the U.S. can reach a full trade agreement to end the trade spat. Investors were reluctant to jump on the rally bus while enthusiasm about the potential for a significant U.S.-China trade breakthrough waned.

But this possibly goes well beyond a tariff detente as trade friction has also spread to technology and financial sectors in the past few months. Suggesting, the U.S. administrations attitude towards China does not appear to have improved significantly.

Given the recent economic war escalations, it might suggest we remain in a fragile state of “phase one” trade war neutrality unsure if it may last or even what sweeteners and apparatus have been constructed to ensure both parties compliance.

While bullish momentum has faded somewhat, risk steadied overnight when Treasury Secretary Mnuchin said U.S. and China reached “fundamental agreement” on several trade issues last week and a tweet from the Global Times’ editor-in-chief sketched a more cheerful outlook.

Oil markets

Oil dropped the most in two weeks amid concern that the recent U.S.-China trade talks won’t lead to a deal reinforcing the fact that the outcome of the agreement is probably the most significant near-term factor for oil sentiment.

Indeed, a definite conclusion of trade talks, even a phase one deal, could do a great deal to alleviate those gnawing emotional concerns about global demand as traders continue to wear demand sensitivities on their sleeve.
But oil prices stabilised after calming trade talk comments from Treasury Secretary Mnuchin.

While oil traders are all too knowing that chasing headline risk is fraught with peril. But demand erosion from the trade war is such an overwhelming pervasive bearish skew; it might be impossible for traders to ignore the ebb and flows from headline risk.

Currency market

The Japanese Yen

Risk markets fell under pressure after headlines reported China wants more talks before it signs up to the tentative trade deal announced by the U.S. on Friday.

USDJPY slipped to 108.05 from 108.20 but remained bid on the dip after risk market steadied

The British Pound

The Pound looked a little perky slicing through 1.2600 in the late New York afternoon possibly due to the absence of any negative headline suggesting that the talks are not breaking down.

The Chinese Yuan

The Yuan may remain stable while the phase one trade deal gets chiselled out within the current 7.05-7.10 level While the Yuan rallied convincingly in Asia yesterday down to 7.05 USDCNH level , the weaker China trade data provided a stark reminder if not a reality check that a weaker Yuan from a pure fundamental landscape may still be in the cards.

But given the extremely high probability of a Phase 1 deal getting inked, a subsequent Yuan currency accord and China’s ongoing commitment to stabilising the Yuan, 6.90 USDCNH now appears to be a reasonable target for USDCNH at the end of 2019 assuming phase 2 and 3 remain on target.

Of course, this view differs wildly by 30 “big figures” from some banks analyst who are pegging year-end USDCNH at 7.20 expecting no significant developments from the phased-in trade talks.

ADXY

Yesterdays USDAsia selling flows were reversed overnight after a run of not so friendly trade talk headlines. But with markets zeroing in on ADXY 103.70 resistance which has thwarted several rallies in 2019, the reversal may also have been compounded by some profit-taking.

While positive momentum is building and the rally in local currencies may extend further particularly on the basket of THB/SGD/IDR/MYR/KRW, traders may be waiting for this fundamental level (103.7 ADXY) to breach on a closing basis to confirm the next bullish leg higher.


Bloomberg

Gold markets

Gold is trading firmer this morning but off overnight highs. Headline risk will continue to dominate, but at the end of the day, what matters most for gold is lower interest rates. And through all this tangled web of headline and phased in confusion, there is one essential narrative that seems to be getting lost.

There is a difference between detente and a deal. A detente means things don’t get worse, but it doesn’t implicitly suggest that global economic conditions get better at once. So, with the latest run of weaker financial data implying that central banks may keep interest rates lower for longer, gold could remain supported short term.

And despite hopes building on a trade truce and a Brexit breakthrough, defensive positioning remains high. And predictably so as if trade talks are struggling at this soft-pedalled level, discussions may not get more comfortable when the complicated intellectual property and technology transfer issues get tabled.

But over the near term, gold could face significant fundamental headwinds in the form of higher US yields and improved equity market risk sentiment especially as we move through to phase 2 and 3 of the US-China trade deal. And if a comprehensive trade deal is inked in November, then the extremely extended long gold positions might be prone to a significant correction lower.

FX Traders who are caught offside may look for opportunities to pare back currency risk aversion trades, as such gold investors need to respect the underlying movement on the Yuan and Yen. USDCNH 7.0 and USDJPY 109.00 are a hugely critical “risk-on” sentiment level

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Brexit and Economic Data Keep the GBP and the EUR in Focus

Earlier in the Day:

It was a relatively busy day on the economic calendar through the Asian session this morning.

China’s September inflation figures provided direction ahead of finalized August industrial production figures out of Japan due out later this morning

In the early part of the day, the RBA also released its meeting minutes from last Tuesday’s meeting.

On the geopolitical front, sentiment towards the latest on the U.S – China trade talks and Brexit also influenced early on.

For the Aussie Dollar

Following last week’s rate cut, the RBA meeting minutes had limited influence on the Aussie Dollar. Salient points from the October Minutes included:

  • Risks to the global growth outlook remained tilted to the downside.
  • Businesses scaled back investment plans as a result of the technology and trade disputes between the U.S and China.
  • Further monetary policy easing was delivered to support employment and income growth and greater confidence that inflation would be consistent with the medium-term target.
  • Members noted that the unemployment and inflation outcomes were likely to fall short of forecasts in the near-term.
  • Subdued wage growth also suggested that spare capacity remained in the economy.
  • In spite of strong employment growth, however, the spare capacity remained, with employment growth expected to slow.
  • While lower interest rates could affect confidence, it would also support household cash flows and spending.
  • It was also noted that members were prepared to ease monetary policy further if needed.

The Aussie Dollar moved from $0.67694 to $0.067703 upon release of the minutes that preceded China’s inflation figures.

From China

The annual rate of inflation picked up from 2.8% to 3.0%, coming in ahead of a forecast of 2.9%. Month-on-month, consumer prices rose by 0.9%, coming in ahead of a forecasted and August 0.7%.

Wholesale fell further in September, however, with wholesale prices falling by -1.2% compared with September 2018. While in line with forecasts, the pace of deflation picked up from August’s 0.8%.

The Aussie Dollar moved from $0.67865 to $0.67849 upon release of the figures. At the time of writing, the Aussie Dollar was flat at $0.6775.

Elsewhere

At the time of writing, The Japanese Yen was up by 0.09% to ¥108.30 against the U.S Dollar, while the Kiwi Dollar was up by 0.11% to $0.6306.

The Day Ahead:

For the EUR

It’s a relatively busy day ahead on the economic calendar. Germany and the Eurozone’s ZEW economic condition figures are due out later this morning.

French finalized September inflation figures and Germany’s ZEW current conditions figures will likely have a muted impact on the EUR.

Outside of the numbers, we can expect direction to also come from Brexit as the Brexit clock ticks away.

At the time of writing, the EUR was up by 0.04% to $1.1031.

For the Pound

It’s a busy day ahead on the data front. August earnings and unemployment figures are due out along with September’s claimant count numbers.

We can expect the Pound to show greatest sensitivity to the wage growth and claimant count figures. Any unexpected rise in the unemployment rate, coupled with larger than anticipated increase in claimant counts would weigh heavily, however.

While we expect the stats to influence, Brexit will continue to be the key driver. A further pullback from Friday’s recent high should be expected should little progress be made on a deal.

At the time of writing, the Pound was up by 0.06% to $1.2616.

Across the Pond

It’s a relatively quiet day ahead on the economic calendar. October’s NY Empire State Manufacturing Index figures are due out later today.

With tariffs still in place, any further deterioration in manufacturing sector conditions would be negative.

Chatter from the Oval Office would require monitoring, however. There’s also Brexit to factor in, with any negative news considered Dollar positive.

The Dollar Spot Index was down by 0.04% to 98.417 at the time of writing.

For the Loonie

It’s a quiet day on the economic calendar. There are no material stats out of Canada to provide the Loonie with direction.

The lack of stats will leave the Loonie in the hands of crude oil prices later in the day.

The Loonie was up by 0.02% at C$1.3232, against the U.S Dollar, at the time of writing.

US Stock Market Overview – Stocks Slip on Concern over Interpretation of Phase One Agrement

 

Stock prices flip-flopped back and forth between positive and negative territory on Monday as investors absorbed the phase one of the US-Chinese trade agreement. The difference between the initial coverage between the US and China was stark. The Chinese coverage of a trade agreement was not nearly as upbeat. What is important to garner is that nothing was signed which means that it’s still up for interpretation. China agreed to buy more agriculture products from the US, but this was not a concession.

The US will not go forward with the increase in tariffs on around $250 billion of Chinese goods from 25% to 30%, which is largely symbolic. For this deal to really feel like its ready to be signed the Chinese are going to need more and want an agreement that the December tariff hikes will be taken off the table. Trade-in China came in weaker than expected.

Most sectors in the S&P 500 index were lower led down by Materials, while financials were the best performing sector. Apple shares hit a fresh all time high as the company is poised to continue to lift the broader markets. Chinese import and export data were softer than expected which will likely further weigh on global growth.

Trump and Xi Meeting

Trump and Xi are scheduled to meet on the sidelines of the APEC meeting next month, in the middle of November. The mid-December tariff on about $160 billion of Chinese goods, is what is now a key decision for both sides. The Chinese also have a concern that President Trump will pull the plug on an agreement even if he verbally agrees to one. They have accused the US of flip-flopping which is what the US accused China of doing. Those who surround President Xi believe that President Trump could embarrass President Xi, at the APEC meeting, if he changes his mind.

Chinese Trade Data Disappoints

China’s trade data disappointed with imports and exports coming in weaker than expected. The trade surplus widened to $39.65 billion in September from $34.78 billion. Exports were off 3.2% year-over-year after the 1.0% decline in August and forecasts for a 2.8% decline. Pork imports are 44% higher from a year ago, and beef imports are 54% higher, but overall imports contracted 8.5% in September following a 5.6% decline in August. China reported auto sales fell 6.6% year-over-year in September, the 15th decline in the past 16 months.

Crude Oil Price Forecast – Crude Oil Markets Pull Back

WTI Crude Oil

The WTI Crude Oil market pulled back from the psychologically significant $55 level, to reach down and fill a slight gap from the Friday open, but then reached below the $53 level. That is a significant amount of support just waiting to be had underneath there, so it’s not a huge surprise that we have bounced a bit from there. Ultimately, this is a market that continues to be very volatile, but at this point we are close enough to structural support that I do believe that the buyers are going to step back in and trying to take control.

Crude Oil Video 15.10.19

Brent

Brent markets also have pulled back a bit from the 50 day EMA, an area that of course will always attract a lot of attention from a technical standpoint. Ultimately, we have filled a bit of a gap from the Friday open, and now have bounced a bit at the $59 level. At this point, the 50 day EMA will of course cause quite a bit of attention, so as long as that’s going to be the case, and a lot of longer-term traders pay attention to it, it makes sense that it will be difficult to break above. This of course is a very negative looking candle stick at first glance, but the fact that the gap is trying to hold tells me that there are plenty of buyers underneath and that we will eventually push to the upside. This doesn’t mean that it starts a major uptrend, rather that we are simply trying to find balance between the $55 level on the bottom and the $70 level on the top.

Please let us know what you think in the comments below

Crude Oil Price Update – Trying to Establish Counter-Trend Support Above $52.94

U.S. West Texas Intermediate crude oil futures are trading sharply lower on renewed concerns over a weakening global economy and lower demand growth. Despite the announcement of a potentially bullish partial trade deal on Friday, called “phase one”, prices are falling because the deal is not likely to change the bearish demand picture.

At 14:13 GMT, December WTI crude oil futures are trading $53.32, down $1.46 or -2.67%.

“Phase one” may have delayed the October 15 tariffs on China, but it did not reduce or eliminate the current tariffs. Furthermore, there are no guarantees that new tariffs won’t kick in on December 15.

Basically, investors dumped crude oil after they became more cautious that progress was being made towards a comprehensive U.S.-China trade deal. Furthermore, analysts said the partial deal between the two economic powerhouses appeared to lack substance with limited progress on structural issues such as technology transfers.

WTI Crude Oil
Daily December WTI Crude Oil

Daily Technical Analysis

The main trend is down according to the daily swing chart. The market is in no position to change the main trend to up, but there is room for a normal 50% to 61.8% retracement. A trade through $50.89 will signal a resumption of the downtrend.

The minor trend is up. This is giving momentum a slight upside bias. A trade through $54.99 will signal the return of buyers. A trade though $51.40 will change the minor trend to down and shift momentum to the downside.

The short-term range is $59.11 to $50.89. Its retracement zone at $55.00 to $55.97 is resistance.

The minor range is $50.89 to $54.99. Its 50% level or pivot at $52.94 is potential support.

Daily Technical Forecast

Based on the early price action and the current price at $53.32, the direction of the December WTI crude oil market the rest of the session on Monday is likely to be determined by trader reaction to the pivot at $52.94.

Bullish Scenario

A sustained move over $52.94 will indicate the presence of counter-trend buyers. The first upside target angle comes in at $54.39, followed by $54.99 and $55.00.

Bearish Scenario

If $52.94 fails as support then look for the selling to possibly extend into a pair of angles at $52.74 to $52.64.

Taking out $52.64 could trigger an acceleration to the downside with targets coming in at $51.77 and $51.40. The latter is the last potential support before the $50.89 main bottom.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Strengthens Over 2967.00, Weakens Under 2960.50

December E-mini S&P 500 Index futures are trading lower shortly after the cash market opening. There was no follow-through to the upside following Friday’s strong surge as investors expressed caution over phase one of the trade deal between the United States and China, announced by President Trump. Furthermore, Bloomberg News is reporting that China wants to extend the trade talks before signing an agreement.

At 13:48 GMT, December E-mini S&P 500 Index futures are at 2966.25, down 4.50 or -0.14%.

E-mini S&P 500 Index
Daily December E-mini S&P 500 Index

Daily Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Friday when buyers took out the previous main top at 2959.50.

Trading back below 2959.50 will be a sign of weakness, but the main trend changes to down on a move through 2881.75.

The main range is 3025.75 to 2855.00. Its retracement zone at 2960.50 to 2940.25 is support. This zone is also controlling the near-term direction of the index.

The major support is the retracement zone at 2901.25 to 2872.00.

Daily Technical Forecast

Based on the early price action, the direction of the index the rest of the session on Monday is likely to be determined by trader reaction to the uptrending Gann angle at 2967.00.

Bullish Scenario

A sustained move over 2967.00 will indicate the presence of buyers. This could lead to a retest of the downtrending Gann angle at 2983.75.

Overtaking 2983.75 could lead to a test of last week’s high at 2994.00. Taking out this level is likely to lead to a test of the downtrending Gann angle at 3004.75. This is the last potential resistance angle before the 3025.75 and 3032.25 main tops.

Bearish Scenario

A sustained move under 2967.00 will signal the presence of sellers. This could lead to a quick break into the Fibonacci level at 2960.50. This is a potential trigger point for an acceleration into the support cluster at 2941.75 to 2940.25.

The 50% level at 2940.25 is a potential trigger point for an acceleration into the next uptrending Gann angle at 2911.00.

Futures Fall As Uncertainty Grips The Market, Brexit Deal Elusive, China Trade Data Falls

The U.S. Futures Are Down In Early Trading

The U.S. futures are down in early trading despite positive developments on trade. The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 are all down about -0.55% in early trading. Tech is in the lead. The trade deal, announced on Friday, is an interim stop-gap measure intended to produce a three-phase solution. The first phase includes China increasing its purchases of agricultural products, a pledge the country has made several times in the past. In exchange, the U.S. will postpone or delay tariffs scheduled to take effect later this week.

While both sides have hailed the deal as good there is still no actual document and details are sketchy. China’s Vice Premier Liu He says he will be back to Washington this month to hammer out those details before President Xi will sign any deal. China is expected to purchase up to $50 billion in U.S. agriculture products with those purchases ramping up over the next few weeks. The timeline to end the trade war is now 15 months. Secretary of the Treasury Mnuchin says the October tariffs will go into effect in December if China reneges on its agreements.

In business news, this week begins the peak of 3rd quarter earnings. We are expecting reports from the big banks this week, they are expected to post EPS declines. In economic news, we are expecting several key reads from the Federal Reserve. Also on tap, Retail Sales, the Beige Book, Housing Starts, and the Index of Leading Indicators.

European Indices Are Down With A Case Of Uncertainty

EU indices are down at midday due to a growing case of uncertainty. The trade-deal that is not yet a deal remains a key point of uncertainty as does the Brexit. Brexit negotiators were unable to reach a deal over the weekend raising doubts a solution to the Irish-Backstop can be found. The Queen is expected to deliver her speech to open Parliament today. In it, she will outline the governments plans for Brexit.

The French CAC is leading decliners in early trading with a loss of -0.75% while the DAX and FTSE are both trailing with losses close to -0.50%. In stock news, shares of biopharma company Chr. Hansen rebound 3.8% after last week’s massive selloff.

Asian Markets Rebound Despite Trade Uncertainty

Asian markets are broadly higher after Monday’s session as trade hope fuels optimism. The Shanghai Composite and Korean Kospi both advanced more than 1.1% while the Hong Kong Hang Seng and Australian ASX gained 0.80% and 0.50%. Japan was closed for a holiday. In South Korea chipmakers Samsung and SK Hynix led the advance.

Oil Floats Above 60 USD

According to heads of several major global oil and gas companies, the oil is expected to cost around 50 USD per barrel in October 2020. This opinion was voiced at the Oil & Money conference that took place last week. The key risks for the oil are US-China trade wars, an increase in oil extraction and production in the USA, and a slowdown in the global economic growth rate.

In other words, the same as right now, meaning that these risks can be considered long-term. This, in its turn, means that they are significantly underestimated and can pull oil prices down at any moment.

The report from Baker Hughes published last Friday showed that the number of rigs in the USA rose for the first time in eight weeks. The total number added 1 unit and is now equal to 856. This being said, the number of oil rigs added 2 units, while gas rigs lost 1.

On Monday morning, October 14th, Brent is trading at 60.22 USD and this price still includes the events that happened the week before – oil prices jumped after reports of Iranian tanker explosion not far from the Red Sea coast of Saudi Arabia.

In the H4 chart, we can see some signs of “Head & Shoulders” reversal pattern. After breaking the top of the first wave at 60.05, Brent is consolidating around 60.35. This structure may be considered as an upside continuation pattern; the entire ascending structure may be considered as the third wave to the upside.

After reaching the target, the instrument may start a new correction towards 60.40 and then resume trading inside the uptrend with the first target at 64.10. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving above 0. As long as the Oscillator is staying above 0, the uptrend will dominate.

As we can see in the H1 chart, Brent is moving inside a narrow consolidation range around 60.35. Possibly, today the pair may expand the range towards 61.25 and then return to 60.35. After that, the instrument may grow to break 61.25 and then continue trading upwards to reach 62.66.

From the technical point of view, this scenario is confirmed by Stochastic Oscillator: its signal line is about to reverse while moving inside the “oversold area”. Practically, the Oscillator tells that the price is trading near the downside border of the consolidation range. The indicator is expected to grow towards 50. Breakout of this level will boost the uptrend.

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex


Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Oil Price Fundamental Daily Forecast – Traders Not Too Impressed by Partial Trade Deal

U.S. West Texas Intermediate and international crude oil futures are trading sharply lower early Monday as traders question the materiality of the partial trade deal agreed upon by the United States and China on Friday. While President Trump is touting the phase one trade as “very substantial”, analysts are saying it appears to be more of a “temporary truce” than a real deal.

At 08:01 GMT, December WTI crude oil is trading $54.10, down $0.68 or -1.24% and December Brent crude oil is a $59.72, down $0.79 or -1.31%.

Concerns over the partial trade deal were actually revealed late Friday when traders showed little reaction to the announcement. Furthermore, the markets were primarily supported by the news that an Iranian oil tanker had been attacked by two rockets off Saudi Arabia’s coast in the Red Sea.

Prices were also being supported by comments from Saudi Arabia on Thursday, which indicated OPEC and its allies would discuss reducing production further in the wake of lower demand growth due to the global economic slowdown.

Today’s early weakness may have been slowed by a report that showed China’s demand for oil remains strong, however, with its September imports reflecting a 10.8% rise from a year earlier as refiners ramped up output amid stable profit margins and solid fuel demand.

Daily Forecast

Today’s early weakness suggests the trade deal may have already been priced into the market and without any fresh developments, traders are reluctant to drive prices beyond Friday’s high.

Furthermore, some traders feel the partial deal didn’t go far enough to reduce or eliminate the tariffs that are currently slowing global economic growth and consequently demand growth.

“We think the ‘substantial’ first-stage deal made by Trump with China looks more like a truce than a genuine deal,” said Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors.

Mizuho Bank’s Head of Economics and Strategy Vishnu Varathan told CNBC on Monday:  In terms of the real thorny issues, none of that is thrashed out.”

“So the ‘substantial’ is for the low hanging fruits- it’s a bit lower than the low hanging fruits actually. And we haven’t seen anything of real material yet,” he added.

Little Reaction to Rocket Attack on Tanker

The markets are also showing little reaction to the rocket attacks on the Iranian tanker on Friday. First of all, there was little oil spilled. Secondly, no one anticipates an escalation of tensions in the Middle East due to military action by the U.S. Many believe a war wouldn’t solve anything.

Geopolitics are not likely to lead to a sustainable rally unless there is an actual supply disruption.

Return of Trade War Neutrality

Global equities rallied again, and treasuries sold-off Friday, aided mainly by an agreement on US-China trade the US president has described as a “very substantial phase-one deal”. The S&P500 closed +1.1%, with European equities stronger as well. US 10-year treasury yields lifted 6bps to 1.73%. Oil was up 2.2% amid reports of a possible missile attack on an Iranian oil tanker off the Saudi coast. Gold fell 1.2 %.

  • The ‘deal’ represents the most material breakthrough since the trade war started, but it neither rolls back existing tariffs nor reverses the damaging spillover of tensions into technology areas.
  • The RMB may strengthen further, especially if the fixings are lowered this week.

However, US equity market sold off into the close; traders view the deal in a tentative light as a tariff detent falls well short of bridging the critical trust gap which is an implicit removal of a significant chunk of existing tariff while the lack of specificity and even the fact this baby stepped agreement could take weeks to iron out, quickly cooled trader optimism.

But their remains this gnawing fear that phase one could end up being little more than the same old lather rinse and repeat trade detente followed by trade escalation, so indeed the next 48-72 trading hours are critical given memories of how quickly the post-G-20 trade calm evaporated.

This morning President Trump tweeted My deal with China is that they will IMMEDIATELY start buying very large quantities of our Agricultural Product, not wait until the agreement is signed over the next 3 or 4 weeks. THEY HAVE ALREADY STARTED! Likewise, financial services and other deal aspects start preparing. I agreed not to increase Tariffs from 25% to 30% on October 15th. They will remain at 25%. The relationship with China is very good. We will finish out the large Phase One part of the deal, then head directly into Phase Two. The Phase One Deal can be finalised & signed soon! –

However, the market is treading gingery at the open awaiting more specificity on the trade talks, as local currency traders sit patiently for the release of today’s USDCNY reference rate ( Yuan fixings) and whether it will be much lower than the 7.07 level it has been stabilised at over the past month or so

Relief and disappointment

It could be a day of mixed emotions as investors express a combination of relief and disappointment Relief because the next round of tariffs for October and December will be delayed indefinitely as a good-will gesture in exchange for further talks with China who have committed to buy more US farm goods. But disappointment by the baby stepped nature of the negotiations, as both sides kicked the can on the essential issues that have not been resolved. As such. the phased-in deal process, albeit more harmonious will be staged in through late 2019 early 2020, however, the most immediate tariff escalation concerns have been removed

Oil markets

Oil prices spiked higher Friday amid renewed concern about global oil supply after the explosion of an Iranian oil tanker in the Red Sea, and optimism over an amicable end to the trade talks.

Progress around the next phases of the trade negotiations is probably the most significant near-term factor for oil sentiment as harmonious negotiation leading to a definite conclusion could go a long way to alleviating global demand concerns.

But for immediate concerns trader will likely continue to monitor post-trade talk headlines to gauge the balance of this newfound level of trade war neutrality before taking on more risk.

Gold markets

Gold has been outperforming against JPY and CHF despite the market going “risk-on” mode amid bullish equity market outcome from the US-China trade negotiations suggesting the downcast economic data out of Europe and US may imply a lower interest rate scenario extends longer. And especially in Europe were more banks look to pass on negative interest rates to deposit customers which could be a boon for gold demand.

Still, with much of the global interest rates scenario factored into the gold forward curve, gold investors are in search of that next major catalyst that could take gold over the $ 1550 top.

As such, focus this week will be on the plethora of Fed speak and critical US manufacturing and consumption data, which could provide more clues about this months Fed policy meetings.

Currency markets

G-10

US-China trade talks led to a risk-on bias & selling of Yen and CHF while large buyers of Asia EM FX, particularly CNH and KRW emerged. And EUR cross buying pushed EURUSD through 1.1000, triggering a short-covering rally.

After constructive US-China and Ireland-UK talks, safe-haven currencies have been under pressure. Risk-sensitive euro crosses have performed the best, supported by EURUSD breaking back above the psychological 1.10 handle.

Asia FX

While the outcome from the latest US-China talks may still be mildly positive for the RMB in the near-term, even with hedge funds and asset managers who were thought to have pilled into the so-called “Yuan accord” trade. Also, there could also be a short-term positive reaction by other Asian currencies that are sensitive to RMB movements the KRW, TWD, MYR and the SGD. However much of the near-term market response depends on the Pboc reference rate this week, precisely how far the fixings are pegged below USDCNY 7.07

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

Oil Price Fundamental Weekly Forecast – Possible Additional OPEC Production Cuts Best News Last Week

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled higher for the first time in three weeks as geopolitical events encouraged bearish traders to lighten up on the downside. Despite the higher close, the markets remained inside the previous week, suggesting investor uncertainty and indecision.

Furthermore, the price action appears to be representative of short-covering as opposed to aggressive counter-trend buying. This is understandable considering the fundamentals remain overwhelmingly bearish despite a slight shift in the narrative due to optimism over the partial trade deal between the United States and China, and heightened tensions in the Middle East.

Last week, December WTI crude oil settled at $54.78, up $2.04 or +3.87% and December Brent crude oil finished at $60.51, up $2.14 or +3.54%.

Muted Reaction to Limited US-China Trade Deal

Crude was unpinned at the end of the week after President Trump said China and the U.S. reached the first phase of a substantial trade deal that delays tariff hikes that were to kick in this week.

Late in the session on Friday, Trump told reporters at the Oval Office that phase one of the trade deal will be written over the next three weeks.

As part of this phase, China will purchase between $40 billion and $50 billion in U.S. agricultural products. Trump also said the deal includes agreements on foreign-exchange issues with China. In exchange, the U.S. agreed to hold off on tariff hikes that were set to take effect Tuesday.

Additionally, Treasury Secretary Steven Mnuchin said both sides struck an “almost complete agreement” on currency and financial services issues. Phase two of the deal will “start almost immediately” after the first one is signed, Trump said.

Iranian Tanker Hit by Two Missiles

While the U.S.-China partial agreement grabbed most of the attention on Friday, crude oil prices were mostly affected by the news that two rockets had struck an Iranian tanker traveling through the Red Sea, according to Iranian state media.

The event didn’t lead to a notable loss of oil, but it did increase tensions in the region along with heightened concerns over supply disruptions.

OPEC Cuts Oil Demand Growth Forecast

Earlier in the week, crude oil prices were pressured after OPEC trimmed its forecast for oil demand growth for the third month in a row, citing weaker-than-expected data in the Asia Pacific region as well as advanced economies in the Americas.

In its closely-watched monthly report, OPEC cut its forecast for global oil demand growth for the remainder of this year to 0.98 million barrels per day (b/d). That’s down from its September estimate.

OPEC, Allies Consider Deeper Cuts to Output

At the same time it was announcing its forecast for lower demand, OPEC said it was considering deeper oil output cuts ahead of their December meeting.

OPEC Secretary-General Mohammed Barkindo told reports that OPEC and its allies will make “appropriate, strong, positive decisions” to sustain oil prices when they meet December 5.

“All options are open,” he said.

This news triggered the biggest and best response by crude oil traders, driving prices up 1.3%. Traders probably realized they don’t have much control over demand since a U.S.-China trade deal is out of OPEC’s hands. However, if OPEC is willing to cut once to meet demand, then they’ll be more willing to cut again in the future if the trade war continues well into 2020.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported that U.S. crude supplies climbed for a fourth week in a row, by 2.9 million barrels for the week-ended October 4. Traders were looking for a 2.4 million barrel build.

The EIA data also showed supply declines of 1.2 million barrels for gasoline and 3.9 million barrels for distillates. Traders were looking for gasoline inventory to fall by 1.2 million barrels and distillates inventory to drop by 2.5 million barrels.

This week’s report fueled a mild sell-off that was easily offset by the news that OPEC was consider further production cuts.

Weekly Forecast

The announcement of the partial trade deal between the United States and China had very little influence on the market late in the session, which suggests traders aren’t too happy with the news.

The main concern is that the deal did not include erasing the current tariffs. In other words, it’s business as usual with low demand still in the picture. Furthermore, after the announcement, U.S. Trade Representative Robert Lighthizer said a decision had not been made over additional U.S. tariffs scheduled for December.

The most bullish event last week, in my opinion, was the announcement that OPEC would be considering further production cuts ahead of its December meeting. This is good news because the current production cuts are working to stabilize prices and reduce global inventory.

It’s the strongest weapon the cartel and its allies has to battle lower demand because they have no control over U.S.-China trade relations.