Oil Rises Amidst Middle East Tensions

Stocks extended the late-week rebound to hit a fresh record on Friday, boosted by strong earnings growth. All four major US indices—the Dow Jones, S&P 500, NASDAQ and Russell 2000—finished higher ahead of the weekend. Helping buoy investor optimism: the logistics for vaccine distribution in the US improved, after President Joseph Biden announced his administration had purchased an additional 200 million COVID-19 inoculations.

The MSCI World Equity Index climbed 0.4% on Friday, to a record for the global equity index, advancing for the tenth straight day in a row, gaining 5.9%, in its longest winning streak in years. Risk-on sentiment will likely continue lifting markets into the coming week, even as US inflation and jobs data showed growth had stalled.

Ongoing jobless claims continue to remain substantially higher than pre-pandemic levels which only served to reinforce the case and increase bets for additional stimulus along with the possibility of rising inflation. With no new obstacles in the week ahead on the economic calendar, stock bulls should find little resistance to their slow but dogged charge upward to new ground.

Here are the key market moving factors for the week:

The US

• The US Dollar (via the DXY Index) posted its second weekly loss of the year, and in the process fell back to the descending trendline from the March and November 2020 highs – the pandemic downtrend. Perhaps more importantly, the DXY Index’s rebound in recent weeks has done little to revert the major technical damage sustained in recent months, remaining below the rising trendline from the April 2011 and February 2018 lows.
• Without any bonafide bullish catalysts on the horizon, and two of the components representing 69.5% of the DXY Index, the British Pound and the Euro, appearing poised for further gains, the US Dollar may once again be on its backfoot.
• US inflation figures released last Wednesday were certainly a surprise. They showed both the headline rate and the core rate at just 1.4% year/year, rather than the 1.5% forecast by economists, and the core rate at zero month/month.
• That surprise was followed swiftly by a distinctly dovish speech at the Economic Club of New York by Jerome Powell, who chairs the US Federal Reserve. He repeated that the Fed would not consider raising interest rates even if inflation exceeds 2% on a temporary basis. Moreover, the central bank would need to see “substantial progress” on its employment and inflation goals before any tapering of its $120 billion per month asset purchase program. 

EUROPE

• It was a relatively bullish end to the week for the European majors on Friday. The CAC40 and the EuroStoxx600 rose by 0.60% and by 0.64% respectively, while the DAX30 gained just 0.06%.
• A lack of economic data from the Eurozone left the majors in the hands of U.S stats, corporate earnings, and sentiment towards the economic outlook.

The UK

• New post-Brexit trade restrictions have pushed up the cost of parts and raw materials for two thirds of small British manufacturers surveyed last month, and a majority reported some level of disruption.
• The survey of nearly 300 firms, conducted by consultants South West Manufacturing Advisory Service (SWMAS), adds to an existing picture of disruption from new customs checks that came into force on Jan. 1 for goods trade with the European Union.
• “Price hikes in the supply chain have been immediate, and we are hearing tales of lead times being extended on raw materials,” said Nick Golding, managing director of SWMAS.
• Some 65% of manufacturers reported higher costs, and 54% said they had greater difficulties exporting goods to the EU.

JAPAN

• apan’s economy expanded more than expected in the fourth quarter, extending the recovery from its worst postwar recession thanks to a rebound in overseas demand that boosted exports and capital spending.
• But the recovery slowed from the third quarter’s brisk pace and new state of emergency curbs cloud the outlook, underscoring the challenge policymakers face in preventing the spread of COVID-19 without choking off a fragile recovery, especially in the battered consumer sector.
• “Conditions are such that Japan will not be able to avoid negative growth in the first quarter,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.

AUSTRALIA

• Martin Foley, Health minister of Australia’s no.2 most populous state – Victoria, said Monday that Pfizer’s coronavirus vaccine is likely to arrive in the country at the end of the week.

CHINA

• Exchanges in China and Hong Kong are offline for the Lunar New Year, with Wall Street closed on Monday for the Presidents’ Day holiday. Expect lower-than-usual liquidity conditions, which raises the risk of volatility around breaking headlines. Speaking of which, the economic calendar docket is still relatively light ahead.
• Chinese investment, in physical infrastructure especially, has been a key driver of global growth alongside its GDP contribution. Its decrease over the past few years is bad news for a global economy struggling to recover from Covid-19

Market Overview:

Gold

• Gold (XAU/USD) is looking to find its feet after falling as low as $1811 last week. Broad-based US dollar weakness on doubts over the pace of the US economic recovery continues to offer support to the XAU bulls.
• Although ramping up of covid vaccinations globally keeps the market mood underpinned, limiting gold’s advance. Markets look forward to the US stimulus updates amid holiday-thinned light trading for fresh impetus on the yellow metal. Meanwhile, the performance of the platinum group metals (PGM) could be also closely followed.

Oil

• Oil prices rose to their highest in more than a year on Monday, after a Saudi-led coalition fighting in Yemen said it intercepted an explosive-laden drone fired by the Iran-aligned Houthi group, raising fears of fresh Middle East tensions.
• Hopes for more U.S. stimulus and an easing of coronavirus lockdowns helped support the rally, after prices gained around 5% last week.
• Brent crude was up 66 cents, or 1.1%, at $63.09 a barrel at 0004 GMT, after climbing to a session high of $63.44, the highest since Jan. 22, 2020.
• S. West Texas Intermediate (WTI) crude futures gained 86 cents, or 1.5%, to $60.33 a barrel. It touched the highest since Jan. 8 last year of $60.77 earlier in the session.

Below are the major market moving events for the week: 

All times listed are EST

Monday

Markets Closed for Presidents’ Day Holiday in the US

Holidays in Canada, Brazil and Hong Kong as well.

China’s markets closed through Wednesday for the Spring Festival holiday

19:30: Australia – RBA Meeting Minutes

Tuesday

5:00: Germany – ZEW Economic Sentiment: anticipated to slip to 59.5 from 61.8.

8:30: US – Empire State Manufacturing Index: predicted to jump to 6.15 from 3.50. 

Wednesday

2:00: UK – CPI: seen to edge down to 0.5% from 0.6% YoY.

3:00: Eurozone – ECB Monetary Policy Statement

8:30: US – Core Retail Sales: to rise to 1.0% rom -1.4% MoM.

8:30: US – PPI: expected to edge higher to 0.4% from 0.3%.

8:30: US – Retail Sales: likely jumped to 1.0% from -0.7%.

8:30: Canada – Core CPI: expected to rise to 0.0% from -0.4%.

14:00; US – FOMC Meeting Minutes

19:30: Australia – Employment Change: predicted to have plunged to 40.0K in January, from 50.0K.

Thursday

7:30: Eurozone – ECB Publishes Account of Monetary Policy Meeting

8:30: US – Building Permits: seen to decline to 1.680M from 1.704M.

8:30: US – Initial Jobless Claims: likely to have slid to 775K from 793K.

8:30: US – Philadelphia Fed Manufacturing Index: to drop to 20.0 from 26.5.

11:00: US – Crude Oil Inventories: previous read was 6.65M bbl.

19:30: Australia – Retail Sales: expected to remain flat at -4.2%. 

Friday

2:00: UK – Retail Sales: predicted to drop to -1.6% from 0.3%.

3:30: Germany – Manufacturing PMI: seen to have slipped to 56.5 from 57.1.

4:30: UK – Services PMI: likely to rise to 46.0 from 45.4.

8:30: Canada – Core Retail Sales: to drop to 0.3% from 2.1%.

10:00: US – Existing Home Sales: seen to recede to 6.60M from 6.76M.

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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