Crude oil slips to 2-week lows, bulls still hold

Oil breaches $50 a barrel, copper prints an eight-year high, ISM manufacturing reading comes in over 60

Jan 6 • Market Commentaries • 834 Views • Comments Off on Oil breaches $50 a barrel, copper prints an eight-year high, ISM manufacturing reading comes in over 60

WTI crude oil futures breached $50 per barrel for the first time since February 2020 and rose by 4.68% during Tuesday’s trading sessions. Major oil producers agreed to maintain existing oil output levels into February and March. Saudi Arabia agreed to a production cut, while Russia and Kazakhstan have raised.

Copper, often regarded as the health thermometer for the global economy, has hit an eight-year high of $3.65, rising by 2.18% during Tuesday’s sessions. Copper is one of the most widely used commodities in industry, if demand is high, the indication is bullish for manufacturing and industrial production. Gold continued its recent bullish momentum, trading at $1,951 per ounce, 0.48% up.

US equity market sentiment was moderately bullish after the latest US figures for manufacturing beat analysts’ forecasts of 56.6. The ISM reading came in at 60.7 in December 2020 from 57.5 in November. The metric was the 7th month in a series of rising manufacturing activity, and it was also the most robust growth rate since August of 2018.

At 18:00 UK time, the SPX 500 index traded 0.52% up, while the NASDAQ traded up 0.53%, although the three leading indices for US stock markets are down approximately 1% in 2021. The dollar index (DXY) was down -0.45% and slipped below the critical 90.00 level; a level-handle constantly challenged during 2020. 

The UK FTSE 100 index closed 0.84% up after the UK chancellor of the exchequer Rishi Sunak, announced an extra £4.6b support for failing businesses to survive the latest COVID-19 lockdown until mid-February. Other European indices closed lower after news that vaccine roll out was slow. The rise in cases, hospital patients and tougher lockdowns also dampened investor sentiment.

US dollar sells off during Tuesday’s sessions

The leading major currency pairs traded in tight ranges in the day’s sessions. USD/JPY traded in a bearish daily range, below the S1 level, down -0.46% on the day, and down -1.47% monthly. USD/CHF traded down -0.38% and at 0.877 the price of the major-currency pair is at a level last seen in January 2015. The Swiss franc is the haven currency of many investors, USD languishing at this multi-year low indicates the rejection of USD as the globe’s supposed reserve currency.

 AUD/USD and NZD/USD rose sharply during the day’s sessions, not only due to USD bearishness but because AUD and NZD are classed as commodity currencies. With oil, gold and copper all rising the Antipodean region’s currencies were due to experience a correlated rise.

Sterling experienced mixed fortunes versus most of its main peers on Tuesday, January 5. GBP/USD traded up 0.39% at 1.362, GBP/AUD was down -0.83. Versus CHF, EUR and JPY sterling traded mostly flat, in tight ranges, while oscillating close to the daily pivot points. The euro traded in a familiar pattern to sterling, rising versus USD but either down versus the Antipodean currencies, or flat versus its other main peers.

Economic calendar events of note on Wednesday, January 6

A series of European IHS Markit services PMIs for December gets published during the London session, potentially impacting the euro’s value across the board. The forecasts indicate a considerable improvement compared to November. However, the prediction is that Germany, France and Italy’s readings will remain below the 50 level, which separates contraction from expansion.

The combined Eurozone reading is forecast to come in at 47.3, representing a considerable improvement from the 41.7 level recorded for November. The UK’s economic growth is heavily reliant on the service industry, the Markit PMI for the UK in December could also show a rise; from 47.6 to 49.9.

PMIs are leading not lagging fundamental indicators, but during the pandemic, their value is questionable. While they can reveal the change in purchasing managers’ sentiment on a month-on-month basis, buying patterns get immediately broken if lockdowns occur. The US dollar’s value and US equity indices levels might come under pressure during Wednesday’s New York session, once the latest factory orders readings and ADP employment details are published. Factory orders for November are forecast to show a fall from 1.0% to 0.6%. The prediction is for the ADP employment number to fall from 307K to 170K, with some analysts suggesting the figure could come in as low as 70K.

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