Oil

European Open: Indices mixed, oil and energy lower, RBA hold rates

With no surprises by the RBA and mixed data from Asia, traders looked to weaker oil prices for a lead.
It was a mixed picture for equities across Asia today, with shares in Japan and China trading mostly lower, the ASX 200 essentially flat yet major indices for South Korea , Singapore and Taiwan were higher.

Only consumer staples and therefore the financial sectors closed higher for the ASX 200, with energy, materials and industrials each falling over 1%. Energy stocks were lower as oversupply concerns weighed on oil prices and sent WTI back to $60 before Thursday’s OPEC meeting. Yet volatility was contained overall. Gold resources (GOR.AX) was the weakest stock within the index, falling -7.5% in line with gold prices which touched fresh lows and fell to 1,706.

The Nikkei 225 was struggling following weak CAPEX (capital expenditure) data, which revealed that Japanese companies had cut spending on large equipment for a 3rd consecutive quarter as manufacturer’s continued to chop costs.

Forex: Dollar slightly bid, EUR/USD quietly breaks support
The USD is slightly firmer with the US dollar index (DXY) rising +0.2% to a 3-week high. EUR/USD quietly broke beneath the 1.2023 low in Asian trade but, with the 100-day eMA and 1.2000 handle in close proximity, we are on one’s guard for a false break and corrective bounce higher. USD/CHF closed above its 200-day eMA yesterday and costs have remained during a tight range near yesterday’s highs. subsequent major resistance is around 0.9200, which is around 45 pips away.

GBP/USD printed a 2-week intraday low but prices have since recovered back above 1.3888 support. Failure for bears to overcome this level could end in a minor, technically driven rebound. GBP/AUD nudged its was to a 2-day low following RBA’s meeting and traded back below its 100-day eMA. Last week’s rally appears to possess topped out after finding resistance at its 200-day eMA on Friday.

USD and CHF are currently the strongest major whilst GBP and CAD are the weakest. Although it’s been a quiet session overall with all pairs remaining well within their 10-day ATR’s (average true ranges).

Asian PMI’s still rally
South Korean manufacturing PMI expanded at its fastest rate in 11 years in February, reaching 55.3 and up from 53.2 in January. With new orders and output hitting 11 year high it paints a really rosy picture for global demand and, ultimately, global growth in H2 2021. New export orders also rose for a fifth consecutive month, with respondents highlighting domestic demand and from South Asia.

RBA keep policy unchanged in dovish meeting
The Federal Reserve Bank of Australia predictably held rates at 0.1%, where they expect to carry them until inflation rises comfortably within their 2-3% firing range . The RBA think the economy still operates with considerable spare capacity and “significant gains” for employment are required to satisfy their goals. Moreover, wage growth also will got to be “materially higher”. and that they don’t expect to ascertain this until 2024. Dovish it’s then!

It appears that Monday’s doubled-the-usual bond purchase may are a single-off event, as against a change in momentum as their statement made regard to bond purchases being “brought forward in the week to help with the graceful function of the market”. But they’re going to still answer “market conditions” (translates as ‘higher bond yields’) if and when need be.

The Australian dollar gave little response, although that would be expected since there was no element of surprise at today’s meeting. The ASX 200 spiked 70-points but now trades back near its opening price around 6,785.

USD/CAD focused for Canada’s GDP
With GDP data for Canada released later within the US session and therefore the recent rebound of the US dollar, we are seeking bullish opportunities on USD/CAD.

Recent price action on the weekly charts have made us question whether USD/CAD has already printed a big low. February’s candle produced a Rikshaw Man Doji and last week’s candle produced a “buying tail” (lower wick) after bears did not hold prices beneath the January 2021 and April 2018 low.

Switching to the hourly chart shows that a bullish engulfing candle formed at the 50-hour eMA and costs have now broken above its high to suggest a swing low is in situ . The low has also respected a 38.2% Fibonacci retracement level. Given the strength of the rebound from the 1.2465 low, we suspect recent price action to be corrective and bulls will attempt to target the highs around 1.2746/63.

German retail sales are expected to fall -0.3% in January, although there could also be potential for a downside surprise given lockdowns.

Canada’s GDP is predicted to 7.5% in Q4, a far cry from Q3’s 40.5% rebound but admirable none the less. A downside surprise should help lift USD/CAD in line with our bullish bias, whereas a stronger print could cap upside potential.

OPEC+ meeting preview: Will more production stall crude’s impressive rally?

Ahead of Thursday’s meeting, cracks are emerging in OPEC+’s united façade once more – what is going to that mean for the worth of crude?
Markets are starting the week off on a bullish note on the rear folks stimulus package hopes, with equities rising across the world , bond yields reversing Friday’s surge, and oil prices supported near their 14-month highs.

Crude oil are going to be particularly interesting for traders in the week before Thursday’s highly-anticipated OPEC+ meeting. After all, the cartel’s failure to succeed in an agreement was one among the first factors that drove oil prices into negative territory last April (I still have trouble believing this happened, nearly a year later!). then catastrophic development, coordination between Saudi Arabia and Russia increased, culminating during a nearly 9.7M b/d move production to stay prices supported.

Ahead of Thursday’s meeting, cracks are emerging in OPEC+’s united façade once more . Saudi Arabia reportedly wants to stay the present production cuts in situ until a minimum of April, while Russia and its allies are pushing for releasing another 1.5M b/d of supply onto the market. With oil prices testing 14-month highs and demand likely to extend as vaccine distribution accelerates across the developed world, there’s a compelling case for producers to release a minimum of some additional supply to satisfy incremental demand.

One other dynamic at play is that the unprecedented winter storm hitting the US state of Texas. Forced closures of drilling rigs have slashed about 4M b/d from US production and refining capacity over the last fortnight , though warmer weather is predicted to bring most of that production back online in the week . Nonetheless, this temporary disruption has contributed to surging oil prices and allowed other global producers (including OPEC+ countries) to draw down excess inventories. At the margin, last month’s shocking weather within the southern US could tilt OPEC toward increasing production later in the week .

WTI petroleum technical analysis

As we noted earlier, oil prices on each side of the Atlantic have surged in recent months on supply restrictions and optimism about the prospects for demand to select up throughout the year. Heading into in the week , West Texas Intermediate (WTI) crude is holding steady near a 14-month high near the highest of its 4-month bullish channel.

While the US oil blend remains during a healthy uptrend, there are some technical signs that a pullback could also be overdue, especially if OPEC+ opts to extend production by quite expected. Specifically, the contract’s 14-day RSI indicator is showing a bearish divergence, signaling declining buying pressure despite a marginal new high in price, as WTI approached previous resistance within the $63.00 area:

If this short-term bearish scenario plays out, WTI could pull back to check previously-reliable support at its 21-day EMA near $59.50, with an opportunity below there potentially exposing rock bottom of the established bullish channel near $58.00.

On the opposite hand, OPEC+ countries might be swayed by Saudi Arabia’s influence and hold off on production increases for an additional month. While not the foremost likely scenario in our view, it’s certainly within the range of outcomes and would likely cause a rush of shopping for pressure in WTI. If that plays out, it could drive WTI oil to a fresh 14-month high above $63.50 and open the door for a continuation up to the 2019 high near 2016.

Put simply, Thursday’s OPEC+ meeting could be the event that sets the trend for oil prices for weeks to return .

Vaccine optimism, a calmer bond market, stimulus & Zoom in focus

US regulators approve JNJ vaccine boosting hopes of a quicker reopening. The bond market stabilises leaving US stimulus & Zoom earnings after the closing bell focused .
US futures

Dow futures +1% at 31235

S&P futures +1% at 3848

Nasdaq futures +1.2% at 13070

In Europe

FTSE +1.3% at 6568

Dax +0.9% at 13918

Euro Stoxx +1.3% at 3683

Stocks cheers the covid stimulus bill progress

US stock markets are pointing to a stronger start amid a calmer mood within the bond market and leaving the main target firmly on the US covid stimulus bill which was voted on within the House of Representatives over the week and now makes its thanks to the Senate where it’s expected to be voted on next week.

Calmer bond market

After the bond market rout roiled financial markets last week, the image is notably calmer in the week . the ten year US treasury yield continued to ease back from its spike higher to 1.6% last week to current levels of 1.43%.

However, speeches by Federal Reserve System policymakers John Williams and Lael Brainard could well push the main target back on inflation expectations and therefore the bond market.

Manufacturing PMIs focused

The latest round of producing PMIs have revealed broadly upbeat readings; China being the notable outlier. China’s Caixin PMI dropped to its lowest level in 9 months, although the market has shrugged off the figures given the likely distortion from the Lunar New Year .

Final PMI’s were upwardly revised across Europe with the Eurozone PMI recording its highest level since 2018 as demand surged.

US ISM manufacturing PMI is due at 15:00 UTC.

FDA approves Johnson & Johnson vaccine

Reopening optimism is adding to the upbeat mood after the US regulators approve the Johnson & Johnson round covid vaccine. this is often the third vaccine to receive approval stateside and has the potential to hurry up the reopening process dramatically boosting risk sentiment.

Zoom earnings

One of the most beneficiaries of the pandemic has undoubtedly been Zoom. It’s share price has soared across the year from an IPO price of $36 in late 2019 and valuation of $9 billion to its current price of $370 and a valuation of $120 billion.

Revenue has also surged with Q3 seeing a 367% jump in revenue to $777.2 million, well before the $694 million expected and significantly up from Q1 2020 revenues of just $328 million. The share price has been on the decline since late October’s all time high of $588 because the prospect of a successful vaccine rollout and economies reopening have raised fears that growth will slow. So guidance are going to be closely eyed. Expectations are for EPS $0.78c.

FX – EUR shrugs off accelerating German inflation

The US Dollar is extending 0.6% gains from the previous week. US Dollar Index DXY +0.15% holding above 91.00.

EUR/USD – trades depressed versus the stronger USD despite German inflation accelerating in February. German CPI February jumped 1.7% vs 1% Jan and 1.2% expected. The ECB weekly bond purchases are awaited.

Analyst Fiona Cincotta looks at EU/USD price action and levels to observe .

GBP/USD trades -0.20% at 1.3906

EUR/USD trades -0.25% at 1.2045

Oil resumes uptrend

Oil along side other risk assets is on the increase at the beginning of the week due to the upbeat market mood. Investors still cheer the continued economic recovery and therefore the prospect of a vaccine led reopening of the economy.

Iran’s rejection of the EU and US’s invitation for direct nuclear talks is additionally underpinning the worth . Iran refuses to restart talks without the US first halting sanctions.

Attention will address this week’s OPEC+ meeting with chatter surrounding a production hike increasing.

US crude trades +2% at $62.25

Brent trades +0.4% at $64.81

Two trades to watch FTSE, WTI crude oil

FTSE set to open higher on falling US treasury yields, US stimulus progress. WTI petroleum rises on economic recovery optimism, Iran news
FTSE jumps 1% on falling yields US stimulus progress

FTSE futures are pointing to a stronger start out of the blocks amid an upbeat mood within the market.

The FDA approval of the round Johnson & Johnson covid vaccine and therefore the House of Representatives passing the Biden administration’s $1.9 trillion stimulus package has overshadowed a drop by China’s factory output growth.

UK manufacturing PMI data for February is due later this morning. Expectations are for the ultimate revision to tick higher to 54.9 within the final reading up from 54.1.

Earnings in the week are due from big names like Taylor Wimpey, Persimmon, Fresnillo and Flutter Entertainment.

Where next for the FTSE?

The FTSE bounced off support of its ascending 3 month trendline of Friday and is extending the move higher before the ecu open.

Whilst it trades above its 100 sma on the daily chart remains below the 50 sma and therefore the RSI is additionally in bearish territory. Suggesting a mildly bearish bias. Although the bears would wish to interrupt through the trendline at 6460
Whilst the trendline holds, the bulls will look towards the 50 sma at 6600 with a move beyond here bringing 6700 last week’s high into focus. Past this level the bulls could gain momentum targeting 6810 the yearly high.

On the downside 6460 is offering strong support. this is often not only the trendline support but also a horizontal support which limited losses on several occasions across February.
WTI rises on economic recovery optimism & Iran news

US petroleum prices rose for a 5th straight month in February as investors still cheer the continued economic recovery and therefore the prospect of a vaccine led economic reopening.

On Friday the Baker Hughes total rig count rose by 4 after falling by 1 the previous week.

Attention will address this week’s OPEC+ meeting with chatter surrounding a production hike is increasing.

Iran rejects the EU’s invitation for nuclear deal talks.

Where next for WTI?

WTI trades within an ascending channel dating back to late January. It also trades above its 50 & 20 sma on the daily chart and therefore the RSI is supportive of further gains until it enters overbought territory.
The bulls would wish to push past the Doji candle formation at the 13-month high of $63.71 so as to focus on $65.90 the upper band of the ascending channel & high from 2019.

On the flip side immediate support are often seen at 6150 the lower band of the channel before $60.00 the key psychological level and $59.80 the 20 sma.