Can We See An Improvement In Supplies In The Black Sea Region? | Crude Oil Is Growing

The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

Summary:  A surprisingly strong survey of US job openings yesterday suggests that the US labor market remains extremely tight, potentially continuing to feed inflationary pressures. Today sees the latest FOMC meeting, at which the Fed will have to grapple with guidance and whether to flag the much-anticipated possible downshift from 75 basis point hikes at the December meeting. Given the recent easing of financial conditions and strong risk sentiment, the Fed may try to lean against the market and hawkishly keep all options on the table. Industrial metals run higher on speculation China is preparing to ease Covid rules.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

The fear of recession has eased quite a bit in October and as a result equities have rallied from their lows in October. S&P 500 futures are trading around the 3,868 level this morning as the US 10-year yield has moved higher above 4% again. The big event is tonight’s FOMC rate decision which will prove to be a delicate balancing act for the Fed keeping financial conditions tight enough but smooth the transition to this higher level of interest rates without breaking the market. If the market interprets a dovish tilt tonight the 4,000 level is quickly the main focus point in the S&P 500 futures.

Euro STOXX 50 (EU50.I)

STOXX 50 futures touched the 200-day moving average yesterday before retreating, but this morning the index futures are continuing higher trading around the 3,661 level, which is just below the 200-day moving average. The 3,800 level in STOXX 50 futures could be the next big level to watch if momentum continues. European equities are enjoying tailwinds from easing energy and electricity markets and better than expected GDP reports in Q3 showing that the European economy can absorb the input cost shocks for now.

FX: USD rallies on very strong JOLTS survey, eyes FOMC

The greenback rebounded yesterday on the very strong September JOLTS jobs openings survey, which jumped sharply from the large August dip (see more below), helping US treasury yields back higher. See the FOMC meeting preview under What are we watching next? below. Today and in the wake of the important US jobs data tomorrow, the pivotal areas for EURUSD are perhaps 0.9850 and parity on the daily/weekly close, for GBPUSD, the 1.1400-1.1500 area is the zone of contention, and in AUDUSD, 0.6350-0.6530. USDJPY will be sensitive to any sharp move in US treasury yields, leaning toward 150.00 if yields jump in the wake of tomorrow’s US jobs report or challenging 145.00 if the Fed fails to surprise hawkish today and the jobs data is weak.


Gold reached $1657 before running into sellers as bond yields rose following stronger US economic data. The dollar and yields developments continue to haunt the metal, especially ahead of today’s critical Fed meeting. Silver, initially enjoying a trifecta of support from rising gold and copper as well as the weaker dollar, traded up to once again challenge resistance at $20/oz before running out of steam.

Crude oil (CLZ2 & LCOZ2)

Crude oil trades higher for a second day with WTI challenging a recent high at $90 and Brent moving closer to $97.25 resistance. Oil prices initially received a boost from China reopening speculation, the weaker dollar and OPEC+ production cuts before extending gains after the API reported a bumper 6.5-million-barrel drop in crude inventories. Apart from today’s official inventory report from the EIA, crude oil traders will turn their attention to today’s FOMC meeting given the potential impact the rate decision and comments may have on the dollar and the general level of risk sentiment.

US treasuries (TLT, IEF)

The key US 10-year treasury yields pulled back above the important 4.00% level after the strong September jobs openings survey out of the US yesterday, but far more important are today’s FOMC meeting and further incoming data, discussed below. The recent price action makes it clear that the 3.90% area is important resistance for bond yields and at the shorter end of the curve, the 5.00% level will be an important focus, given that the market has been unwilling to take Fed expectations more than a couple of basis points beyond that level as it continues to see the Fed cutting rates by the end of next year.

What is going on?

Metals run higher on China speculation

Copper and nickel led a surge in base metals on speculation - which was later denied - that Beijing is preparing to ease Covid rules. However, metals held gains after China’s outgoing premier Li Keqiang said China will strive for a "better" economic outcome and promote stable, healthy and sustainable development, saying China’s economy is showing signs of stabilizing, as well as “rebounding momentum" thanks to stimulus. Developments showing the potential support for industrial metals when restrictions are being lifted, and it brought the focus back on supply issues in Copper, with inventories running low on exchanges and major producers struggling to meet their production targets. The BCOM Metal index jumped 3.4% with steel and iron ore prices also receiving a bid. HG copper’s further advance will be challenged by multiple resistance levels between $3.55 and $3.78.

European earnings

This morning we have got strong results from Novo Nordisk, Maersk, and GSK, while the wind turbine maker Vestas misses big on revenue and EBIT. Vestas is also adjusting its FY EBIT to –5% from previously –5% to 0%. Novo Nordisk reports Q3 revenue of DKK 45.6bn vs est. DKK 44.4bn and EBIT of DKK 20.2bn vs est. DKK 19.2bn in addition to increase its sales forecast due to strong demand for its obesity drug Wegony. Maersk is still enjoying strong earnings beating estimates on EBIT in Q3, but the container shipping company is lowering its forecast for container volume and in general the market is expecting a slowdown in 2023.

US job openings and ISM manufacturing complicate Fed’s message

US job openings saw an unexpected rebound in September amid low unemployment, suggesting more wage gains could be in store. JOLTS job openings came in higher at 10.7 million in September from a revised 10.3 million in August. This likely thrashes expectations of any material downshift from the Fed after today’s widely expected 75bps increase. Meanwhile, October's ISM manufacturing index also remained in expansion at 50.2, albeit falling from last month’s 50.9. However, disinflationary trends were emphasised as the index of prices paid fell to an over 2-year low. Still, sticky shelter and services inflation remains materially high suggest still-higher interest rates remain on the horizon. Terminal rate pricing for Fed funds futures has picked up again to 5% levels, and it would be hard for the Fed to push it any higher at this point, but what it can clearly hint at today is pushing out of the rate cut expectations for next year. Read our full FOMC preview here for further insights.

Lack of insurance halted UN Black Sea shipments, but progress being made

The UN halted grain shipments from Ukraine's Black Sea ports on Wednesday, after Russia warned ships weren't safe using the route and demanded guarantees from Ukraine. However, reports suggested early on Wednesday that an agreement had been reached and ships will start to sail again from Thursday, as pressure on Russia continues to build. We continue to watch crop and fertilizer prices, as a meaningful reversal could come through if we see improving shipments across the Black Sea region.

AMD earnings supported by servers despite weak PC sales

Advanced Micro Devices rose in the after-hour trading as it reported better than estimated Q3 earnings, although issuing guidance that missed analysts’ expectations. EPS came in $0.67 vs estimated $0.65, revenue $5.57B vs estimated $5.62B. Guidance suggested AMD is expecting strong growth in its server chip business in the coming quarters. Q3 results were in-line with a warning issued by AMD on October 6 which helped to reset expectations, as weak PC sales continued to underpin.

Airbnb drops on disappointing guidance

Airbnb reported its highest revenue and most profitable quarter but a muted Q4 outlook as consumer preferences are shifting back to cities which tend to have lower rates based on smaller sized spaces. Q3 revenue rose 29% to $2.88B, estimated $2.84B. Net profit rose 45.6% to $1.21B. But the company said it expected bookings to moderate after a bumper third quarter.

Sony surges on profit beat

Weak yen propped up revenues for Sony and also nudged up the fiscal year profit outlook, pushing shares higher in early trading. Q2 sales came in at 2.75tr yen, est. 2.67 tr yen while operating income was 344bn yen vs. 280.66bn yen expected. Operating profit beat was broad-based, except in games.

Australian home-lending falls more than expected in September

House lending in Australia fell 8.2% YoY in September (far more than the market expected) while building construction lending fell 36.6% YoY, with the weaker data sets coming out just a day after the RBA remained dovish - raising Australia’s official cash rate by 25bps (0.25%) to 2.85%. Yesterday the RBA acknowledged tighter financial conditions and the ‘full effect’ of increased interest rates are yet to be felt in ‘mortgage payments’, but the rate hikes since May, combined with higher inflation have already put pressure on household budgets.

What are we watching next?

FOMC meeting – Fed may want to keep a low profile, but can’t afford to be seen dovish

The September JOLTS jobs openings data point yesterday was the latest to suggest that the Fed will have a hard time pre-committing to any slowdown in the pace of its policy tightening after the 75-basis-point hike that is priced in for today’s meeting. The December 14 FOMC meeting odds have not shifted much over the last couple of weeks, as investors still favour a downshift to a 50-basis-point move then and another 50 basis points of tightening early next year over the space of a couple of meetings. To surprise hawkish today, the Fed may have to make it very clear that it is willing to continue tightening beyond current expectations and beyond its September forecasts to boost the greenback via rate guidance, but is probably also reluctant to pre-commit to anything. Pointing to high reactivity to further incoming data may be one way to achieve this. That will then mean extreme volatility on the next bits of Incoming data ahead of the December meeting, starting with the ISM Services tomorrow and then the October jobs report this Friday and two more CPI releases before December 14.

Earnings to watch

Today’s US earnings focus is Estee Lauder, Booking, Fortinet, and Albemarle. Analysts expect revenue to decline by 11% y/y at Estee Lauder but improving operating margin. The cosmetic business is facing headwinds from labour costs and transportation. Booking is expected to deliver strong earnings growth given the better-than-expected result from Airbnb yesterday. Analysts expect 26% y/y revenue growth and EPS growth of 35% y/y. Fortinet is one of the market leaders in the fast-growing cyber security industry and with the ongoing war in Ukraine we expect demand for cyber security solutions to be high; analysts expect Fortinet to grow revenue by 30% y/y in Q3. Albemarle is riding the demand for lithium as electric vehicle sales is seeing explosive growth. Albemarle is expected to deliver 168% y/y growth in revenue and EPS growth of 545% y/y.

  • Today: Suncor Energy, Nutrien, Novo Nordisk, Maersk, Vestas Wind Systems, GSK, Qualcomm, CVS Health, Estee Lauder, Booking, Fortinet, Ferrari, Albemarle
  • Thursday: Verbund, Barrick Gold, Orsted, Novozymes, BNP Paribas, BMW, Enel, ING Groep, DBS Group, ConocoPhillips, Amgen, PayPal, Starbucks, Regeneron Pharmaceuticals, EOG Resources, Moderna, MercadoLibre, Block, Cloudflare, Coinbase
  • Friday: Enbridge, Societe Generale, Intesa Sanpaolo, SoftBank, Amadeus IT Group, Duke Energy,

Economic calendar highlights for today (times GMT)

  • 0815-0900 – Eurozone Final Oct. Manufacturing PMI
  • 0855 – Germany Oct. Unemployment Change/Rate
  • 1215 – US Oct. ADP Employment Change
  • 1430 – EIA's Weekly Crude and Fuel Stock Report
  • 1800 – US FOMC Meeting
  • 1830 – US Fed Chair Powell Press Conference
  • 2000 – New Zealand RBNZ Governor Orr before Parliamentary Committee
  • 0145 – China Oct. Caixin Services PMI 

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The Gold Rally Is Continuing To Stall, This Could Be A Good Year For Crude Oil

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