Oil Markets Enjoy Respite Following a Dip Triggered by Builds in Crude

  • Market Overview

Brent crude futures paired losses to hover around the $83 per barrel mark on Thursday, following a decline in the previous session as a weaker greenback prompted risk appetite, while the decision by OPEC+ to cut output eased oversupply jitters. Still, data from the US Energy Information Administration (EIA) showed that crude inventories rose more than what markets had expected last week, fuelling concerns about weakening demand in the world's top consumer. Prices are also increasing against a backdrop of a ban on Russian refined products by the EU effective 5 February 2023. “Market participants now await EU states to define a price cap for G7 nations to implement on export services of Russian diesel and other distillates to be implemented next week,” Trading Economics added. In other commodities, bullion remained steady at around $1 950 an ounce on Thursday, its highest level in nearly 10 months as investors assessed the latest monetary policy decisions from key central banks. Platinum rose 0.70% to $1 010.92, and palladium edged up 0.30% to $1 674.03.

Both the Bank of England (BoE) and the European Central Bank (ECB) announced a 50 bps rate hike on Thursday in line with expectations and reiterated that more, but smaller rate hikes would follow. Hopes that these moves signalled the beginning of an end to the current tightening cycle boosted European equity markets, with the benchmark STOXX 600 up by 1.40%, the highest in over nine months, also supported by gains across technology and auto stocks. The German DAX rose more than 2% to a 1-year record high.

Wall Street rallied on Thursday as investors reassessed the outlook for monetary policy following a 25 bps upward adjustment of the fed funds rate target range on Wednesday. “Fed Chair Jerome Powell said the central bank had made progress in the fight against inflation despite warning that ongoing increases in the target range were appropriate to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%,” Trading Economics added. On the earnings front, Meta (NASDAQ: META ) jumped over 23%, while other technology giants including Apple Inc (NASDAQ: AAPL ) (3.70%), Amazon (NASDAQ: AMZN ) (7.40%) and Alphabet (NASDAQ: GOOGL ) (7.30%) drove the S&P 500 and the Nasdaq to their highest levels in five months.

Notwithstanding the upbeat global sentiment prompted by the Fed’s decision to trim the size of its rate hike amid signs of easing inflation, Chinese stocks struggled for direction on Thursday after data showed that manufacturing production remained contractionary in January 2023. The Hang Seng gave up earlier gains amid an escalation in the tech spat between Beijing and Washington.

The local bourse remained muted on Thursday, while the rand held steady around R17 to the dollar at the close of business as the ECB and BoE warned of more hikes to come. All eyes are now on the latest US jobs report to be released this afternoon which will provide a clearer picture of the labour market’s overall health. “Any signs of cooling could suggest that further rate hikes are off the table’” Trading Economics noted. At 21h30, the local currency had weakened 0.14% to R17.05/$, while it had strengthened 0.57% to R18.60/€ and 0.66% to R20.90/£.
PSG Wealth Daily Investment Update, 3 February 2023

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