China continues to remain in the spotlight and has driven a “risk-on” sentiment throughout this morning’s Asian Session. China seems to be pivoting its COVID-19 policy after vigorous demonstrations over the previous weeks. According to Chinese media, the demonstrations were the largest seen since the Tiananmen Square Demonstrations in 1989.
The main change which had been introduced was the removal of recent testing in order to enter public transport, offices, and malls. In addition to this, government officials have advised citizens they are only required to do tests if they have symptoms. The news in general has created a “risk-on” appetite. As a result the US Dollar again declined to a new monthly low and the price of crude oil attempted to reach $82 per barrel.
The price of Crude Oil also came under the influence of the OPEC meeting which took place yesterday and also an EU agreement on price caps. A relief for citizens is that OPEC had not decided to decrease the level of oil production again, as they did in October. OPEC advised they will keep to their previous target of lowering production by 2%.
The EU has also agreed on a $60 per barrel price cap on Russian Oil. However, experts have advised that the EU has placed a cap that will most likely not trigger a reaction from Russia, and the EU will be able to continue energy flows as normal. As this has had very little effect on the supply, the price of Crude Oil has corrected back to $80.30 per barrel. However, if Russia does react by not supplying Europe, the price is likely to experience high volatility and may be supported.
The price of global stocks came under pressure from a surge of panic sellers after the US employment figures for November were better than expected. The reaction was triggered by fear the Fed would hike by 75 basis points again, however, this is not likely unless next week’s CPI figure is also higher than expected. After a 1.5% decline, the price of global stocks corrected back to previous price levels.
EUR/USD
The price of the EUR/USD within the Asian session increased to almost a 6-month high. However, at the start of the European Session, the price swung back in favor of the US Dollar and corrected back to the market open price. Currently, the price is trading within a retracement and continues to receive such indications. Further buy signals are likely to be obtained above 1.0584 and sell signals will come into play if the retracement maintains momentum.
The price has significantly been influenced by Friday’s employment figures which show that the US economy remains resilient to the Fed’s interest rates hikes so far. The NFP figure remained above 260,000 instead of declining to 200,000 and the unemployment rate remained at 3.7% which is also positive. Lastly, the Average Hourly Earnings increased to 0.6% which is the highest since February 2022. The Hourly Earnings specifically supported the US Dollar as it is known to drive economic activity.
The Euro this morning is seeing a mixed performance depending on the currency pair. The Euro is performing specifically better against the Pound, but uncertainty remains due to the latest EU price cap and if Russia will continue to supply. The European authorities set their price ceiling for Russian oil at $60 per barrel, which will not include insurance costs and other surcharges, so the actual cost of purchases may be slightly higher.
European Inflation is likely to surge and economic activity to significantly decline if Russia refuses to supply. This is something that investors will potentially be monitoring closely. Throughout the day investors will also be monitoring the PMI release this afternoon.
Summary:
- The US Dollar started the day with a decline but attempted a correction.
- Economists confirm that the Fed’s policy, after Friday’s NFP figure, will largely depend on the next inflation figures. Most economists still expect a 50 basis point hike.
- Crude oil is supported by China’s pivot on its COVID-19 and potentially by price caps on Russian Oil.
- The EU waits for Russia’s official reaction to their agreed price cap. Nations with weaker economies and large shipping industries watch cautiously hoping for no backlash from Russia.