Oil industry, figures and politics

Under data of the latest Beige Book no district in the US has a steady economy growth

After remarkable events have passed and necessary data have been received in the beginning of the month, the time comes for the market research and political expectations. Statistics data has made traders nervous but has not brought any new market ideas. Battles for oil market have shifted to concealed arrangements, China has changed interest rates, Canada has sold gold, US have been analyzing and watching over.

After U.S NF payroll report and GDP data were released, traders set stops in all key levels on the basis of the released data. Yellen’s predictions about the difficulties of the US labor market came true as report shows that:

  1. Total payroll employment increased, but mining industry lost 16000 jobs – unpleasant signal for possible structure problems.
  2. Hourly earnings for all employees on private payrolls declined slightly – it means that either qualification or employee’s earnings expectations decreased. While hourly earnings grew by 0.5% last year, 0.1% decline for reported month appears to be significant.
  3. Average workweek for all employees declined – a tendency of part time employment returns, which Federal Reserve considers as a negative indicator of labor market.
  4. The key positive indicators encompass employment increasing and unemployment rate that facing growth of employed labor force diverts attention from negative details.

Under data of the latest Beige Book no district in the US has a steady economy growth. Uncertain wording disguises an obvious decline. A strong US dollar has been affecting adversely all the economic processes, especially the export, while the import has been leading to inflation increase. In such circumstances FRS is unlikely to increase the interest rates in March.

Additional information is as follows:

  1. OPEC countries did not confirm setting the date of the meeting of cartel representatives and representatives of the oil countries, which do not hold membership – OPEC members would prefer to have a meeting in April rather than in March in Doha, Qatar’s capital. Price $50 for barrel which is loyal for participants of these negotiations remains unchanged for the purpose of making calculations for the next 6 months.
  2. Effect of freezing of volumes of oil extraction can be seen: OPEC cut oil production by 280 thousand b/d, Russia – by 0.2%, and the oil production in the US slipped to the level of November 2014. Even such giants as Exxon Mobil, state that they will not increase oil production till 2020 and continue to cut investments in exploration of new deposits and technologies. Nevertheless, many shaly companies shall repay debts in March, that makes huge bankruptcies unavoidable.
  3. Since April 2016 Saudi Arabia has been planning to increase price on raw materials (Arab Light) for Asian consumers by $0.25, whereby cut the discount rate for Oman - Dubai region from $1 to $0.75, that would enable Saudi Aramco stabilize the oil demand in the largest regional market.
  4. Moody's has already made foreseeable steps: China’s credit rating was lowered to negative from stable, while long-term AaZ remained unchanged, Moody’s warned of possible negative changes that can occur in future.
  5. The People’s Bank of China lowers reserve rates by 50 basis points, setting 17% for lenders. The impact of this decrease may be evaluated by the amount of Chinese investments in assets abroad. British asset management company Knight Frank estimated that the Chinese companies invested more than $1.03 billion to assets, securities and bonds overseas, attempting to diversify investment risks and mitigate consequences of national currency policy. Particularly, investments in British assets increased by 120 % and now Chinese investors are the largest purchasers of the British property.
  6. As of March 3 golden reserve of Canada amounted to 77 ounce worth $130 thousand, making reserves almost empty. However, it did not lead to budget collapse as sell-off of the gold reserves was a part of long-standing Canadian government policy. Traditional approach to the issue has changed: the government diversifies reserves portfolio by selling physical commodities in order to invest instead in assets that are more easily traded, especially in US dollars. Under IMF data in 2015 central banks bought 590 tons of gold which is more than 14% from world demand, 50% of which belongs to Russia (more than 200 tons) and China, while the largest reserves are hold by the US (8133.5 tons). Probably, Canada considers its policy as additional means of diversification. However, the complex diversification is the most efficient, and therefore Canada steps away from historical illusions towards future prospects affected by financial techniques rather than gold.

There is no expectation of any significant data from the US next week but the market traders will fear the decrease of Canadian interest rate, high NZD/USD volatility and possible ECB’s release of the decision on monetary policy that can affect the dynamics of the basic assets. The European regulator is more likely to undertake new measures for mitigating the monetary policy. Weak German data regarding industry as well as reviewed report on the pace of growth of the European economy in the last quarter of 2015 may lead the euro fall without any correction.

USD/JPY: Kuroda’s speech on Monday did not lead to any significant dynamic changes. Main resistances 114.52/114.32/114.00, supports 113.45/113.24/112.70. Due to the interest of market makers there can be fall from 114.0 to 113.20 and lower. Overall upward perspectives are more foreseeable.

EUR/USD: range 1.1120 – 1.1050 is likely to protect market maker’s mark - 1.1111. Nervous volatility on NFP made stops of small and middle-sized players unsuccessful, and therefore in range 1.1110 - 1.0800 levels must be formed again. Resistances 1.1150/1.1100/1.1070/1.0990/1.0945, supports 1.0920/1.0875/1.0855/1.0800. Movements in one or the other direction are unlikely to happen before ECB meeting is held.

作者: Navsher Bartash,
ForexChief Currency strategist