Oil Overcomes $66, Hits New Yearly High

The taperless tantrum could continue across financial markets now that it seems clear Fed Chair Jerome Powell won’t react until he sees disorderly market conditions or if financial conditions tighten further.

Positive economic, such as this past employment report, might continue to fuel optimism about the economic outlook and that could raise expectations that the Fed will raise rates sooner.

How much stronger will the outlook get once US President Joseph Biden’s COVID relief bill passes?

Will the ECB increase its purchases under its PEPP program and focus their purchases over the near term?

Momentum from the OPEC+ shocker over output could cause oil prices to overheat

Here are the key market moving factors for the week:

The US

• Financial markets will have their hands full trying to balance the impact on another massive relief bill, an improving labor market, and a bond market selloff that appears to have no signs of slowing down. The dollar has been running wild following the move in Treasuries and most signs are suggesting that move could continue.
• Democrats managed to finalize the terms of President Biden’s COVID relief bill, even while some states were reopening. Pressure was on for Democrats to quickly pass this relief bill, which they did on Saturday night, and to quickly move onto infrastructure spending. Texas will completely reopen on Wednesday and lift the mask mandate, which means more states will be right behind them. Virus variants remain a short-term risk, but so far it is not slowing down the reopening theme for many states.
• Following the arrangement of a mid-week trough around 90.63, the second half of the week observed a breach of the 91.60 Feb 5 high and a subsequent test of particularly interesting resistance at 92.38/91.96 (made up of a 61.8% Fib level at 92.38, a 127.2% Fib projection at 92.36, a fixed resistance level at 92.26, a 100% Fib extension at 91.96 and a 50.0% retracement residing at the same level).

EUROPE

• EU debt markets tightened again the past week but the noise from officials seemed to indicate they weren’t comfortable with government bond yields rising. With Fed Chair Powell seemingly taking an opposite view, risks are rising that EUR/USD could fall this week. It was testing support on Friday at 1.1960 and targets 1.1800 initially, possibly 1.1600.
• On that note, the latest ECB rate decision on Thursday assumes greater importance. If the bond tantrum continues, ECB officials may send a strong signal that the ECB will increase the pace of bond buying if necessary, to cap rate increases. Negative Euro.

The UK

• The UK budget was generally well received with the inevitable future tax rises expected to fall on the business sector. In the near term the government will keep the fiscal stimulus taps fully open until September. UK GDP and Industrial Production on Friday could surprise and be less worse than expected which will be supportive of equities and the pound.

JAPAN

• Heavy data week with Coincident Index, Current Account and GDP. The effects of high oil prices may show up in the data this week and will be a negative at the margins for equities. Japan has extended its Covid-19 state of emergency, another negative.
• The Nikkei 225 has broken 4-month support at 29,300 as equities globally retreat. With Japan investors amongst the most heavily invested and exuberant, the Nikkei is in danger of a material fall in the coming week if bond rates elsewhere continue moving higher. Even if they don’t, the technical picture remains very negative. The Nikkei can fall to 27,000 in quick time this coming week.
• The Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya said that the purpose of the March review is to ensure that the central bank can act effectively and timely to economic changes while speaking in a scheduled appearance on Monday.

AUSTRALIA

• Reserve Bank of Australia Governor Lowe speaks on Thursday with the data calendar of both countries second-tier. His remarks will be closely followed given developments and markets will be searching for any hint of more aggressive bond market intervention, or an acceptance of inflationary pressures. The speech gives Australian equities a strong binary outcome.

CHINA

• The National People’s Congress has reinstated a GDP growth target of 6.0+% and ramped up spending in technology R&D to increase self-reliance. On the margins this has supported China stocks as markets suffer from the bond tantrum globally. More importantly, they have signaled an interest in joining ASEAN’s RCEP which was positive for Asian equities including China. Markets in the coming week though will be vulnerable to EM bond market developments, and rising oil prices threaten to crimp growth slightly.

Market Overview:

Gold

• Gold (XAU/USD) is consolidating its recovery above $1700, having hit nine-month lows at $1687 on Friday. US Senate passed the $1.9 trillion stimulus bill on Saturday, which helped power the recovery in gold. However, the surge in the US Treasury yields amid reflation trade, check the recovery in the yellow metal.
• Despite the US stimulus progress, markets remain unnerved amid fears of overheating, as reflected by the ongoing rise in the yields. Therefore, the haven demand for the US dollar persists, likely limiting gold’s upside attempts. The greenback also benefits from a stellar NFP report. The focus will continue to remain on the Treasury yields amid a quiet start to the week, calendar-wise.

Oil

• The aftermath of the OPEC+ surprise decision not to raise output next month could support much higher crude prices. The oil market is poised for a strong tightening of the market as OPEC+ supply will lag demand over the next few months. The Saudi prince doesn’t seem to be worried about US shale and that means oversupply concerns for this year are gone.
• Saudi Arabia’s decision to restrain production and maintain the 1 million b/d voluntary production cut has become a ‘whatever it takes’ moment. Brent went from overbought to it’s time to buy more. Brent forecasts will be seeing massive upgrades over the next week. The US is reopening the economy a lot faster due to COVID vaccine success and that will trigger a strong pickup in fuel demand over the next couple of months.

Below are the major market moving events for the week:

All times listed are EST

Monday

18:50: Japan – GDP: expected to remain steady at 3.0% QoQ.

Tuesday

7:00: US – EIA Short-Term Energy Outlook

Wednesday

8:30: US – Core CPI: seen to edge up to 0.2% from 0.1% MoM.

10:00: Canada – BoC Interest Rate Decision: forecast to remain unchanged at 0.25%.

10:30: US – Crude Oil Inventories: previous print showed stockpiles at 21.563 million bbl.

Thursday

7:45: Eurozone – ECB Interest Rate Decision: anticipated to remain flat at 0%.

8:30: US – Initial Jobless Claims: forecast to edge down to 725K from 745K.

8:30: Eurozone – ECB Press Conference

10:00: US – JOLTs Job Openings: likely to decline to 6.500M from 6.644M.

 Friday

2:00: UK – GDP: seen to fall to -4.9% from 1.2% in the previous quarter.

2:00: UK – Manufacturing Production: seen to dip to -0.7% from 0.3%.

8:30: US – PPI: will probably drop to 0.4% from 1.3% MoM.

8:30: Canada – Employment Change: expected to surge to 52.5K from -212.8K.

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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