Weekly Report Monday 31 July 2017 – Friday 04 August 2017
WTI oil ended week in red, despite extending last week’s strong rally and probed above psychological $50 per barrel resistance on Mon/Tue, but gains proved to be short-lived.
Oil prices fell 2.8% percent on Tuesday, with rising US fuel inventories pulling U.S. crude price back below $50 threshold, while ongoing high OPEC supplies weighed on international prices.
The report from American Petroleum Institute's said that U.S. crude stocks rose by 1.8 million barrels in the week ending July 28, which dented hopes that recent continuous inventory draws were a sign of a tightening in US oil market.
Additional pressure on oil prices came from reports this week showing production from the Organization of the Petroleum Exporting Countries is at a 2017 high of 33 million barrels per day, despite OPEC's pledge to reduce oil output along with other non-OPEC producers, including Russia.
Oil prices remained under pressure on Wednesday, after data from the U.S. Energy Information Administration showed domestic crude supplies fell less than expected last week.
The EIA’ weekly report showed crude oil inventories fell by 1.5 million barrels in the week ended July 28. This came well below expected decline in crude inventories by 3.0 million barrels.
The US Oil price stayed congested since Wednesday, trading within the range and capped under $50 barrier, with technical studies seeing scope of further easing if situation with global oil production shows signs of further increase and weekly crude inventories start to build again.
Concerns in the markets are rising over growing OPEC production ahead of a highly anticipated cartel’s meeting on Aug 7-8, as the group seeks to reaffirm its committee to increase compliance with the deal to curb production.
Spot Gold ended Friday’s trading in red, deflated by stronger dollar on solid US jobs numbers, with weekly close in red after three straight bullish weeks, suggesting that deeper correction is becoming more likely. The yellow metal’s recent rally from $1204 low showed strong signals of stalling at $1270 zone, as trading in the first four days of the week ended in Doji candles that signalled strong indecision. Strong US jobs data are seen supportive for Fed’s rate decision in its September’s meeting and gold, sensitive on US interest rate change may come under stronger pressure on firmer signals from the Fed.
Copper price held near two-year high at 2.9190, posted on Monday, maintaining positive sentiment on expectations of stronger demand from top consumer China and a weak dollar, but gains were limited by profit-taking. Copper price stayed within narrow range for the most of the week, which was signalled by multiple daily Doji candles and weekly action ending in Doji, suggest last week’s strong rally might be running out of steam. Fresh strength of the US dollar may also contribute to metal’s further easing , as multiple upside rejections, accompanied by profit-taking may pressure the price. On the other side, fundamentals remain quite strong and supportive for further advance.
Another eventful week is behind us, with two major central banks delivering their rate decisions and key event of the week, US jobs report, keeping markets at a high speed despite that we are in the middle of summer holiday season.
The US dollar remained under pressure against most of its major counterparts during the week and regained traction on Friday, inflated by solid US jobs report which boosted expectations of Fed’s stronger action in its big meeting in September.
The Euro ended week positively but fell significantly on Friday, after posting fresh multi-month high against the dollar at 1.1865, earlier this week. Euro’s broader bulls showed initial signal of fatigue, following repeated failure to clear dented 1.1900 barrier and got pressured from stronger dollar on US jobs data that may delay final push towards its target at 1.2000.
British pound was hit strongly and registered significant losses during the last two days, losing more than 2% in just two days.
Sterling accelerated lower after BoE Rate decision on Thursday. Bank of England kept interest rates unchanged at 0.25%, as expected and policy makers voted 6-2 to keep rates unchanged.
BoE also left Asset Purchase Facility unchanged at 435 billion pounds on 8-0 vote.
In the post-policy meeting comments, BoE said that some tightening of monetary policy would be required to achieve sustainable return of inflation to target, with monetary policy to be tightened by ‘somewhat greater extent’ than market expects if economy meets forecasts.
BoE lowered its inflation forecast, expecting inflation at 2.58% in one year, down from 2.64% forecast in May and forecasts inflation in two years time at 2.19%, down from May’s forecast at 2.2%.
BoE expects inflation to peak at 3.0% in October 2017.
Traders were mainly disappointed by central bank’s vote for rate hike, as hopes were going towards 53 configuration which would have boosted hawks to push for faster rate hike, but final 6-2 vote showed no surprise from BoE this time.
Sterling received another hit on Friday and extended weakness to 1.3030 zone, near which it closed for the week, on extended fall from week’s high at 1.3268, posted on Thursday. It seems that pound may enter stronger correction against its US counterpart, after two-day fall and ending week in red weakened its near-term structure.
US jobs data on Friday surprised to the upside in July, despite some signals of slowing down due weak numbers of indicators from jobs sector released earlier this week.
US Non-Farm payrolls jumped to 209K in July, beating forecast at 181K but still below previous month’s release which was revised upwards to 231K from 222K.
Another very significant indicator, average hourly earnings came along with expectation at 0.3% in July and above 0.2% in June m/m, while annualized figure came at 2.5% in July, above forecast at 2.4. US unemployment decreased according to forecast to 4.3% in July, from 4.4% in June.
The US dollar rallied across the board after solid US jobs data release and remained well supported until the end of Friday’s trading.
Today’s release was very important for the Fed, as the central bank is expected to signal start of winding down its massive portfolio at its big meeting in September.
The US central bank is expected to continue to closely monitor the process of increase in wages, as slow pace in increasing salaries and low inflation continue to weigh on Fed’s plans for hike interest rates once more in 2017. The Fed needs to translate today’s numbers into inflation in order to get clearer picture about the strength of jobs sector and degree of its support for Fed’s plans to start tightening the monetary policy.
Other important releases during this week
China’s factory activity unexpectedly expanded at the fastest pace in four months in July as export orders flooded in, report showed on Tuesday.
China’s Caixin Manufacturing Purchasing Managers' Index rose to 51.1, well ahead of June's 50.4 and holding well above 50 threshold.
The findings were more upbeat than official data on Monday, which suggested a slight loss of momentum. But taken together they pointed to continued resilience in the world's second-largest economy and the possibility that its industrial recovery may last a bit longer than expected.
In the US, manufacturing activity undershot expectations and capped gains in the greenback after US Manufacturing PMI came at 56.3 in July, falling below expectation at 56.5 and June’s 57.2 reading
The US personal consumption expenditures price index, rose 0.1% in June. In the 12 months through June, while core PCE price index increased 1.5% after advancing by the same margin in May.
Fresh on the heels of the inflation data, was a report indicating a slowdown in consumer spending as personal income failed to increase for the first time in seven months, pointing to a moderate pace of consumption growth in the third quarter.
US non-farm private employment rose by 178,000 last month, just below forecasts for an increase of 185,000, ADP report showed on Wednesday. The economy created 191,000 jobs in the private sector in June, upwardly revised from a previously reported increase of 158,000.
The ADP figures this time gave correct indication for more significant US NFP report.
Australia's central bank released its interest rate decision on Tuesday and showed more confident that economic growth will accelerate over the next two years but expects little improvement in unemployment or wage growth, which implies that official interest rates would be on hold for some time.
The Australian dollar remained in red for the most of the week and was additionally pressured by RBA’s policy release, as well as on monetary policy statement released on Friday, where the Reserve Bank of Australia forecasted the A$1.7 trillion economy will grow above potential at around 3% over the next couple of years.
Supporting the central bank’s upbeat view, release of Australian retail sales showed retailers enjoyed sales growth of 1.5% in Q2, which marks the best quarterly performance in four years.