The oil prices could rebound during the Asian session supporting to risk appetite and also USDJPY to reach 119.05 after falling to 117.80 with WTI slide in the beginning hour of the week to $56.40 bbl.

The oil prices slide dampened the energy companies’ shares across the broad showing increasing worries about their future last week, while the manufacturing sector should provide lower prices in the future to its customers to reflect the oil prices slump and that sentiment directs the consumers to wait for lower prices and also causes lower earnings than what has been planned by the factories of this sector which is having currently lower paid prices can weigh down on its expansion.

The oil prices got down by a sever way since the end week of June amid stagnant economic activities in EU, lower expansion in China and contraction in Japan and even US which is having better economic performance having the biggest productions level in nearly 3 decades can reach 9.5m barrels a day later next year from currently nearly 8.5m are actually the highest since 1986, while its inventories of crude oil are still looking building up going closer to 400m barrels.

From another side, The OPEC members have exceeded the 30m barrels a day ceiling in the previous 6 months

Dow Jones lost last Friday 315.51 to end the session at 17280.83 which is the lowest reached level since reaching all times high at 17991.19 a week ago following the release of US non-farm payrolls of November which has shown adding 321k, while the forecast 232k, after gaining 243k in October but the future rate is referring to opening today in the green territory with WTI is still able to consolidate around $58.5bbl.

Because of the current dovish inflation outlook in US, UST 10YR yield has fallen to 2.10% from nearly 3% a year ago when the Fed has started tapering its QE which has ended by the end of last October, as the greenback could be boosted this year by better interest rate outlook comparing to the G7, while the energy prices were watching very dovish second half this year.

You can see the impact easily on the importing price index of November which slumped by 2.3% yearly showing the highest yearly scale of falling since July 2012.

And also Nov US PPI which has indicated that there can be further prices falling over the producing level by the end of last week by falling by 0.2% m/m, after rising by 0.2% in October and even with the core figure excluding the food and the energy prices came unchanged, after rising by 0.4% in October.

God willing, after the release of Nov US CPI which is expected to drop monthly by 0.1% following no change in October, The market will be waiting for the Fed next Wednesday to know more about its appreciation of the inflation downside risks against the upside forces which are underpinned by the rising of the economic activity in US which supported the labor market significantly recently.

While the markets will be waiting for the time of omitting the phrase of leaving the interest rate at the current low level for considerable period of time as a hint of a close by interest rate hiking.

But most expectations are still referring now to holding of the interest rate near zero, despite the US economic recovery as there are no inflation forces to make it in rush to hike the interest rate for the first time since 2006.

As PCE which is the Fed’s Favorite gauge of inflation is still decelerating rising by only 1.4% y/y in October and September, after increasing in July and in June by 1.6%, after soaring by 1.8% in May to indicate that there is no rising of the inflation pressure on the Fed which has yearly target at 2% has not been watched since March 2012.

 

 

Kind Regards


FX Market Strategist

Walid Salah El Din

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