Oil Prices Higher Amid Strong Demand

  • Market Overview

Oil prices settled higher on Thursday, boosted by short-term supply disruptions and strong demand despite an increase in US crude inventories. Brent crude futures were up by 1.29%, trading at $88.85 a barrel at 19h30 last night, while the global benchmark reached its highest level in over eight years in the previous session. There’s been an increase in geopolitical risk factors that has propped up oil prices over the past month, as White House officials reported last week that Russia was gearing up to launch an attack on Ukraine if diplomacy talks reached a deadlock.

Despite robust commodity prices and a solid showing by miners, a decline in defensive and technology counters weighed on European markets on Thursday on the back of uncertainties around inflation and rate hikes. A Reuters survey showed that the US Federal Reserve is more likely to tighten monetary policy much faster to rein in persistently high inflation. Consequently, technology counters which are deemed most sensitive to inflation fluctuations are set to record their third successive week of declines.

Wall Street staged a recovery on Thursday as Treasury yields stabilised and investors went on a bargain hunt after the Nasdaq fell into a correction in the previous session. Data from the US Bureau of Labour Statistics also showed that the number of US citizens logging new claims for unemployment benefits suddenly rose to 286 thousand in the week ending 15 January 2022, probably as infections led by the Omicron variant interrupted business activity.

Shares in Hong Kong surged to a six-month high after China’s central bank trimmed its key borrowing rate. The 1-year loan prime rate (LPR) was trimmed by 10 basis points (bps) to 3.70%, while the 5-year LPR was reduced by 5 bps to 4.60%. “With the property downturn seen persisting into 2022 and fast-spreading Omicron variant dampening consumer activity, many analysts in China expect more easing measures will be necessary, despite other major economies appearing set to tighten their monetary policies, “ Reuters reported. The rate cuts also had a positive influence on Japan’s Nikkei which rebounded from a five-month low seen in the previous session.

In the local market, the JSE remained subdued as market participants continued to digest a robust US corporate earnings season and the repercussions of accelerated monetary policy tightening. In spite of the muted session, the JSE All Share flirted with record highs of above 76 000 points, supported by miners.

PSG Wealth Daily Investment Update, 21 January 2022

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