Today, the markets paint a clearer picture with less uncertainty within the economy. Investors have now had confirmation regarding the US employment sector and the state of inflation. While US employment remains resilient, inflation remains high with no signs of being under significant pressure from the monetary policy.
The US Dollar Index managed to breakout to a new monthly high over the past week but then significantly declined. Only the Japanese Yen seems to be struggling to gain ground against the US Dollar. The DXY is currently hovering at 112.90, 0.37% lower than the daily open price. Over the past week, the price had found a strong resistance level above 113.50 and support below 112.50.
One of the main developing stories continues to be related to UK’s “selloff” crisis, which is more specifically related to UK GILTS. The British Pound and the FTSE 100 have started the day on the front foot, but the UK GILTS market will be without the Bank of England’s support for the first time since the purchasing program has ended.
The GBP/USD is 0.50% higher, and the FTSE 100 rose 0.12%, but the government is hoping for stability in the bond market. The new UK Chancellor is due to speak later today, and investors are hoping for more “U-turns” on the “disaster” economic package.
Crude Oil - Technical View
The price of crude oil declined significantly on Friday in response to COVID-19-related comments by the Chinese Premier, Mr. Xi. This morning, the volatility levels remain low, but the price is steadily increasing. The price of crude oil has increased by almost 1% this morning and is now above $85.
Currently, technical indicators are not providing a clear signal, mainly due to a lack of volatility. Crossovers indicate bullish price movement, whereas the 55-day Moving Average and Parabolic SAR signal potential downward movement.
Crude oil prices are being driven mainly by the weekend speeches made by Chinese officials related to China’s stance on COVID-19. In addition, the price is likely influenced by a predicted response from the US directed at OPEC’s decision to cut oil production.
Last week, there was a rare protest by citizens against Mr. Xi and his Zero COVID policy. However, the Premier has advised no plans to end this policy. China sees a rise in infections again, which is very few by western standards, but these figures have previously triggered city lockdowns. Being the world’s largest crude oil purchaser, such measures can significantly impact demand. The Chinese economy also continues to underperform, according to local experts.
The price of crude oil is also likely driven by the expected change in monetary policy. The US is expected to keep to its 75-basis point rate hike, which will take the policy into the “restrictive zone.” The European Central Bank and the Bank of England are also expected to increase interest rates. As interest rates continue to increase and inflation remains high, the risk of a recession becomes more and more severe.
Economists, including Citibank, have advised the US will fall into a recession with a higher unemployment rate next year. The UK and Eurozone are likely to experience a recession earlier. The depth of the recession can potentially pressure the price of oil if demand continues to dwindle. This is also one of the reasons that OPEC decided to cut oil production targets earlier this month.
S&P 500 - Technical View
Investors have also turned their attention to the stock market and the last earning season for 2022. So far this morning, the S&P 500 has increased by 0.67% but remains lower than the previous bullish wave from Friday.
Technical indicators signal that the price is within a retracement and may soon decline again. However, caution is advised, so traders ought to monitor the price and indicators for a change in the price scenario.
Throughout the day, Bank of America (NYSE:BAC) is due to announce its earnings for the past quarter. The Earnings Per Share (EPS) is predicted to increase slightly from $0.73 to $0.79, but some economists have advised this may be difficult to achieve.
Investors are also anticipating the quarterly reports from Johnson & Johnson (NYSE:JNJ) and Netflix (NASDAQ:NFLX) - both of which are scheduled for tomorrow. Both companies are expected to show a decline in EPS.
Much like crude oil, the stock market is likely to continue being pressured by the risk of recession over the next two quarters and the higher interest rates put in place by Central Banks.