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WTI to 11-month low on fears of China slowdown

Crude oil prices dropped to an 11-month low on Monday, down more than 3.7% on an intraday basis. Risk sentiment appears to be under pressure on fears of a demand slowdown as covid cases persist while protests over China’s restrictions do not seem widely accepted.

WTI found some respite following reports that OPEC+ might consider another cut, closing the session mixed. Key indices did not follow the lead, ending the session down, which was a drag for major currencies and gold. Nevertheless, markets seem to recover early in the session.

Key factors for today:

• Oil falls on fears of Chinese demand waning as covid and protests take their toll


• OPEC+ reports of an imminent production cut start to resurface after WTI plunge


• ECB’s Lagarde appears hawkish in light of inflation concerns


• UK data intensify recession, evident in the pound’s performance


• Fed speakers continue the hawkish narrative, pointing at no hike pause

Oil slides to $74/bbl, but sees respite

Aside from covid cases rising in China and protests continuing to add to negative sentiment, the US authorised Chevron to resume crude oil exports from Venezuela. Analysts estimate that it would be a matter of months before exports could reach 100K bbl/day, with the impact on prices possibly seen in the medium term and not in the short term.

Crude prices reached a low of $74/bbl but firmed up after reports circulated that OPEC+ might consider another production cut at the December meeting. In early Tuesday, the commodity had already spiked up more than 4% at $80.00/bbl, which is now significant resistance.

Gold also down 0.80% despite falling risk appetite

Stock markets retreated after widespread protests over lockdowns in China intensified worries about supply chains and global economic growth. Key US indices closed around 1.5% lower, with gold also down some 0.80%.

The dollar didn’t benefit much from the move, with investors railing back into the metal as it has fully recuperated Monday’s losses already. $1764/oz is resistance, whereas $1740/oz support.

Hawkish ECB sends euro to $1.05

ECB’s president Christine Lagarde signalled that the ECB would continue aggressively tackling inflation, saying that rates were the primary policy to bring prices down. She also said the December meeting would discuss effectuating quantitative tightening.

EUR/USD soared to $1.05 on Monday but left a tail printed after closing the session 1.50% lower at $1.0340. It is trading up on Tuesday but has difficulty passing through $1.04.

UK retail sales drag cable below $1.20

November CBI Retailing index came in at -19 compared to +2 expected, and December expectations were revised down. UK retailers are expected to face a challenging holiday season crucial for profits, signalling increased demand destruction and intensifying the recession.

Cable did not put in a new peak but also lost more than 1% in a session closing below the $1.20 support. $1.21 is a ceiling for short-term traders, but the downside leg might extend before any more upside.

Fed insists more hikes are coming

Another day and another round of Fed speakers repeating that more hikes are coming. This time it was Bullard, Mester, Dudley and Williams whom all insisted that a pause in hikes wasn’t near.

Movers/shakers

• Taboola +44% after Yahoo! announced would take a quarter stake in the company as part of a 30-year commercial agreement


• Axsome +32% after reporting positive results from the Phase III trial of its candidate to delay the onset of Alzheimer’s disease. Currently, there are no medications approved for this indication


• Wynn Resorts +5% after receiving license renewal to operate casinos in Macau


• Biogen -4% after reports of the second death in a clinical trial of lecanemab; the patient suffered a stroke despite taking an anticoagulant


• Draft Kings -4% was downgraded by JPMorgan, citing valuation, and deteriorating conditions for the gaming industry due to the macro situation in the US

On the docket

• German inflation rate is expected to show deflation on a monthly basis


• Canadian GDP is still expected to grow by 0.1%


• CB consumer confidence forecast to improve


• API delivers weekly stocks situation ahead of EIA

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