Oil up 10% this week as OPEC+ cut oil production – Daily Market Brief, October 6, 2022

OPEC+ slashed output by 2 million barrels per day in a move that could keep oil prices elevated and slow the process of lowering inflation. After an initial selloff in risk assets, investors are now downplaying the risks, lifting the market mood and stocks higher.  

·         Oil rises 10% across the week

·         FTSE & GBP rise despite Fitch rating agency downgrade

·         Eurozone retail sales and ECB minutes to be released, EUR/USD rises over 0.99

Stocks on Wall Street ended in the red but significantly off the session lows, as investors reassessed the impact that the OPEC+ oil productions cut would have on the broader economy.

Oil

OPEC+ agreed to cut oil output by 2 million barrels per day, marking the largest output cut since the pandemic. This was larger than most had been expecting and sent the message that the oil cartel is determined to defend the price of oil. The move drew criticism from the White House, which said it would release 10 million barrels of SPDR reserves. The oil price rose following the announcement and has gained over 10% this week.

The move by OPEC+ puts upwards pressure on energy prices which could keep inflation above target for longer, dashing hopes that central banks could soon start easing back on aggressive interest rate hikes. While this initially sent stocks lower and lifted the USD, investors are now downplaying these effects, helping US futures higher.

Comments by San Francisco Federal Reserve President Mar Daly helped risk sentiment. While she reiterated the Federal Reserve’s commitment to fighting inflation with higher interest rates, she also reassured that the Fed would not simply charge ahead if the economy started to crack.

European open

The improved market mood is helping stocks in Europe to continue the relief rally from earlier in the week. While the DAX closed 1.2% lower yesterday, the index is set to rise 1.3% on the open. The FTSE closed 0.5% lower and is set to open 0.5% higher today, even after Fitch downwardly revises the UK outlook to negative. GBP/USD is also trading 0.4% higher.

EZ retail sales & ECB minutes

The main focus in the European session will be on eurozone retail sales, which are expected to fall -0.4% MoM as the cost of living crisis deepens. Higher energy bills and rising prices mean household budgets continue to be squeezed.

The minutes of the September ECB meeting are also due to be released. In this meeting, the central bank hiked interest rates by 75 basis points, taking the deposit rate to 0.75%, and said that more interest rate hikes would come over the next several meetings. ECB President Lagarde said 75 bps hikes were not the norm, but moves won’t necessarily get smaller as the central bank approaches the terminal rate. Investors will scrutinise the minutes for clues over the likelihood of another jumbo rate hike.

EUR/USD fell 1% yesterday on broad USD strength but clawed back those losses ahead of the European open and trades 0.4% higher above 0.99.

Jobless claims

The US economic calendar is relatively quiet, with investors likely positioning ahead of tomorrow’s non-farm payroll report. Today attention will be on jobless claims, which fell to a five-month low last week of 193k. Expectations are for a slight tick higher to 200k. Recently, strong data is bad news for the stock market as it raises the chances of the Fed sticking with its hawkish stance for longer.  

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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