OIL: Crude Down In February As Trade/Sanctions Policies Cloud Outlook
Mar-02 23:55
Oil prices fell moderately on Friday to be down on the week and the month driven by expectations of increased supply and worries about global demand in a world of increased protectionism. They recovered from their intraday lows but were pressured by the stronger US dollar (BBDXY USD index +0.3%) driven by increased geopolitical uncertainty following the tense meeting between the US and Ukrainian presidents.
- WTI fell 0.6% to finish below $70/bbl but has started today slightly higher at $70.18. It made an intraday low of $69.14. The benchmark ended February down 2.8%. Initial support is at $68.36, 26 February low, while resistance is at $71.34, 50-day EMA.
- Brent was 0.7% lower at $73.08/bbl after falling to $72.32 and was down 2.5% last month. It remained above initial support at $71.50, 26 February low, but the outlook remains bearish with the bear trigger at $72.96 breached. Initial resistance is at $74.21, 50-day EMA.
- The EIA estimates that US tariffs and sanctions risk around 80% of oil imports. Last year, the US imported 4.76mbd from Canada, Venezuela and Mexico. 10% tariffs on energy from Canada and Mexico are scheduled from March 4 and Chevron’s licence to export from Venezuela has been rescinded.
- The prospect of higher tariffs and their negative impact on growth has driven hedge funds to reduce their net-long positions in WTI to their lowest since 2010. The short-only stances were their highest in over a year, according to CFTC data reported by Bloomberg.
- There had been growing market expectations that peace in Ukraine would ease sanctions on Russia allowing it to increase exports. While the argument between the White House and President Zelensky makes this less likely, the meeting between the latter and the EU may have moved the situation closer to a temporary truce.
- Talks are scheduled on Tuesday in Baghdad between Iraqi natural resources officials and oil producers in Kurdistan to discuss the resumption of flows from the region after a two-year dispute. If successful, it is unclear how Iraq will continue to meet its OPEC quota and not overproduce.
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FED: Powell To Deliver Semi-Annual Testimony In Mid-Feb
Jan-31 21:48
The House Financial Services Committee's website confirms that Fed Chair Powell will deliver his semi-annual Monetary Policy Report on Wednesday Feb 12 at 1000ET.
- The Semi-annual testimony will be closely eyed as Powell's first scheduled appearance since the January FOMC - and the House testimony on the 12th is the same day as the release of January CPI (and the week after nonfarm payrolls and benchmark revisions) so will be of particular interest.
US OUTLOOK/OPINION: Nonfarm Payrolls, Revisions Highlight Next Week In US Macro
Jan-31 21:39
Friday’s nonfarm payrolls for January highlights the US macro week. It's a highly anticipated report that could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- The preliminary estimate for the benchmark revision pointed to the level of payrolls being some 818k lower than currently reported for back in March 2024. There’s a broad expectation from what we can gather that the hit seen next week won’t be as large but it could still be significant. We also watch the seasonal revisions closely, as whilst they should have a zero-sum impact over the calendar year, we’ve noted some particularly favorable seasonal factors in recent months that have biased seasonally adjusted jobs growth higher.
- With these considerations in mind, the early days of the Bloomberg consensus points to nonfarm payrolls growth of 150k after a solid three-month average of 170k. Note that the unemployment rate from the separate household survey won’t be affected by these revisions, having already seen its own seasonal factor revisions last month. A population control will complicate month-on-month changes in the levels of employment and unemployment but shouldn’t be significant for the rate, which is seen unchanged at 4.1% having surprised lower with 4.09% in December. The recent high is technically 4.23% in November having first popped to 4.22% back in July.
- Two other special mentions for the week are: 1) rare remarks from FOMC Vice Chair Jefferson speaking on the economic outlook and monetary policy late on Tuesday with both text and Q&A, having last spoke on Oct 9. 2) ISM services on Wednesday after its priced paid series jumped 5.9pts to 64.4 in December for the highest since Feb 2023.
- Away from macro but still material, the coming week brings the US Treasury's quarterly refunding process - our preview is here.
MACRO ANALYSIS: MNI US Macro Weekly: Uncertainty Vindicates Fed’s Patience
Jan-31 21:37
In a largely positive week for economic activity data, including in core durable goods and MNI Chicago PMI, the Q4 GDP accounts stood out by showing a very strong end to 2024 for the consumer.
- As we go to press, though, President Trump has confirmed that tariffs would be imposed on Canada, Mexico, and China beginning this weekend – while also threatening further action against the likes of the European Union and across various import categories.
- The combination of solid growth and policy uncertainty, along with stubborn “supercore” PCE inflation for December, seemingly vindicated the Federal Reserve’s “hawkish hold” at its January meeting.
- A March rate cut is still a possibility but the bar for such an outcome has been set high.
- That gets us to the first key release between now and then: Friday’s nonfarm payrolls for January is the highlight of the US macro week, and could alter recent trends considering it will include annual benchmark revisions along with seasonal factors and an updated birth-death model.
- Other highlights in the upcoming week include ISM Services and the Treasury’s quarterly Refunding announcement (Wednesday), while FOMC Vice Chair Jefferson delivers commentary on the economic outlook and monetary policy Tuesday.
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