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[HFM]

Date: 7th December 2023.

Oil Hits Lowest Levels Since June 2023, Moody Downward China.

Crude Oil – Oil Declines for a Seventh Consecutive Week

The price of Crude Oil has declined to its lowest level since June 2023, marking an almost six-month low. The price of Oil has now declined for a seventh consecutive week. Economists note the decline is also improving the prospects of the stock market. Stocks are taking advantage of the lower oil prices which may trigger lower inflation and a softer monetary policy. This week alone the price has declined by 6.5%, but what is driving the bearish trend?

The main two reasons the market is witnessing a lack of demand in the oil market is China’s latest poor economic data and the latest OPEC meeting. China’s manufacturing and services PMI read significantly lower than expectations and this week Japan also announced weaker data. China is the largest importer of Oil while Japan is the fourth largest. Therefore, poor economic data in these regions are likely to trigger downward pressure for Crude Oil.

To make matters worse for the Oil market, Moody, the credit rating industry, lowered the economic outlook for China from “stable” to “negative”. Since the downgrade, economists have advised the Chinese economy is not likely to witness a recession, but more likely stagnation. OPEC, on the other hand, were unable to come to an agreement on the production levels. Again, this had a negative effect on Crude Oil prices. Lastly, yesterday’s report from the American Petroleum Institute showed inventories rose by 9.594M barrels instead of a decline of 2.267M barrels. The inventories show higher than expected supply.

In terms of technical analysis, the price of Oil is trading within a downward trend and is currently hovering within a retracement. The retracement is currently measuring 1% in line with previous pullbacks and is currently showing no major upward momentum. Therefore, most indicators continue to signal a downward trend. If the price breaks below $69.69 and $69.59, sell signals will again potentially become active.

USA100 – Only 20% of Stocks Held onto Gains!

The USA100 fell by 0.57% during yesterday’s session and was the weakest of the top 3 most popular US indices. When looking at the NASADAQ’s top ten most influential stocks, only 1 stock stayed in the “green”, this was Tesla which only slightly rose by 0.27%. Out of the top 20 most influential stocks, only 20% retained their value. The stock which saw the largest decline was NVIDIA which dropped 2.28%.

However, fundamental factors continue to point towards a positive outlook for the US tech sector. This morning the US Dollar Index is declining, 52% of market participants believe the Fed will cut rates in March 2024 and most of the components witnessed positive earnings data. The only slight concern for investors is bond yields which have risen over the past 24 hours. However, bond yields continue to remain significantly lower than in the previous months, which is positive for the stock market.

Technical analysts have pointed out that the index is not within a short-term downward trend and each time the USA100 declines, buyers re-enter the following day to take advantage of the lower price. Investors will again be monitoring if the index rebounds today. The stronger performer in the pre-market hours is Alphabet which has risen 0.82%. Alphabet stocks make up almost 6% of the overall index. Investors are currently balancing the negative effect of a weaker Chinese economy and the positive effect of a rate cut as early as March 2024. If the price increases above $15,873, the USA100 will again experience buy signals. Buy signals can be seen from the regression channel and crossovers.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Michalis Efthymiou
Market Analyst
HFMarkets

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

[HFM]

Date: 8th December 2023.

Central Banks’ Divergent Paths: ECB Signals Caution, BoE Stays the Course

As the European Central Bank (ECB) and the Bank of England (BoE) gear up for their upcoming meetings, market participants eagerly await signals that will shape the economic landscape in 2024. While both banks are expected to maintain interest rates, their perspectives on future policy directions diverge.

This article explores the nuanced positions of the ECB and BoE, shedding light on their contrasting views on inflation, rate hikes, and the path forward.

ECB’s Shifting Stance:

The ECB meeting is poised to capture attention not for an anticipated rate adjustment but for the nuanced signals regarding the outlook for 2024. In the aftermath of November’s meeting, where a tightening bias persisted, recent developments, notably the unexpected drop in inflation, have prompted a shift in tone.

Market Trends

Isabel Schnabel’s Reuters Interview:

Executive Board member Isabel Schnabel’s recent Reuters interview marked a departure from previous sentiments. While she emphasized the need for caution, Schnabel hinted that the ECB is prepared to confirm that interest rates have peaked. Contrary to market optimism anticipating rate cuts as early as March, Schnabel underscored the central bank’s patience, emphasizing the necessity of further progress in underlying inflation.

Monetary Policy Transmission Confidence:

Despite concerns about a potential credit crunch, Schnabel expressed confidence in the effectiveness of monetary policy transmission. While acknowledging signs of labor market softening, she dismissed fears of a severe and prolonged recession, aligning with the ECB’s cautious stance. The central bank seems poised to confirm the unlikelihood of further rate hikes but remains hesitant to entertain the idea of rate cuts in the near term.

Financial Markets Performance:

ECB’s Path to Rate Cuts:
The timing of potential rate cuts in 2024 remains a pivotal question. Market expectations for an easing bias in March, paving the way for a second-quarter cut, appear optimistic. ECB President Lagarde, expected to be more vague on the topic, may find it challenging to temper easing expectations.

PEPP Reinvestment Discussion:
The discussion around the future of the Pandemic Emergency Purchase Program (PEPP) reinvestments adds complexity. While some suggest an early end to re-investments as a prerequisite for rate cuts, details may not emerge until early 2024. Lagarde’s confirmation of a gradual reduction could set the stage for rate cuts in the second quarter.

EURUSD has been under pressure since the lower than anticipated inflation report last week and is currently struggling to hold the 1.08 mark. The Fed may be leading the way on rate cuts next year, but markets expect that the ECB won’t be far behind. The US economy may be better equipped to deal with the marked tightening of financing conditions that is increasingly hitting the real economy.

BoE’s Steady Outlook:
In contrast, the BoE’s upcoming announcement may lack the excitement of policy shifts. With no updated forecasts and data aligning with November’s assumptions, the focus turns to the hawks within the bank. Despite concerns voiced by some, including BoE’s Greene, about the risks of doing too little, Governor Bailey maintains a steadfast position against early rate cuts.

Bailey’s Commitment to Inflation Target:
Bailey’s emphasis on completing the journey to the 2% inflation target and the potential sluggishness of that process reinforces the BoE’s commitment to a “higher for longer” approach. Deputy Governor Ramsden underscores the need for sustained restrictive policy to combat inflation effectively, signaling a likelihood of the BoE remaining on hold through the first half of 2024.

As the ECB signals caution and the BoE maintains a steady course, the central banks’ divergent paths reveal nuanced approaches to economic challenges.

Investors will closely monitor the upcoming meetings for insights into future policies, with the timing of potential rate cuts and the fate of PEPP reinvestments hanging in the balance. The evolving economic landscape will undoubtedly shape the trajectory of monetary policies in the months to come.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Andria Pichidi
Market Analyst
HFMarkets

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.