Oil continues higher as the Fed tries to soothe markets
The Fed was more hawkish than anticipated at its June meeting, but officials want to make sure that market participants are not expecting the world’s most important central bank to hike rates prematurely
Hussein Sayed, chief market strategist at Exinity.
It seems even the most powerful central bankers can sometimes make small errors of judgement in communication and emphasis.
While the surprise hawkish shift by the US Federal Reserve at its most recent meeting sent shock waves through markets with stocks spiraling lower and the dollar surging, more recent comments by US central bankers have rowed back on concerns about interest rates rising faster than investors were expecting.
The Fed was more hawkish than anticipated at its June meeting, but officials want to make sure that market participants are not expecting the world’s most important central bank to hike rates prematurely. In fact, chairman Jerome Powell also reiterated after the meeting that price increases triggered by the reopening of the economy will eventually fade. This means the Fed will not act preemptively, but wait for the actual evidence of “imbalances” in the data.
Summer markets can be volatile as reduced liquidity with traders on vacation sees more unpredictable price action. However, by smoothing over the recent waves in financial markets, Powell and colleagues may help market sentiment through the next few months.
Certainly, stocks have turned higher once again, while market measures of inflation expectations have also done a round trip and are back near the levels before the “less cautious” FOMC meeting.
One asset untouched by both central bankers and the recent market upset has been oil, which has been rallying strongly beyond $70-a-barrel with some oil traders and hedge fund managers predicting that a return to the $100-a-barrel era may not be far away.
While the demand side is picking up all the time as global economies and air travel are reviving, the supply situation is concerning some analysts over the longer-term due to a lack of spending on new supply. They say the world is simply not yet ready to make the leap to clean energy and complete electrification.
Growing Chinese demand saw oil hit $100 in 2008 and it then averaged around this level for the following six years
The last time oil traded in three figures was back in 2014, having started the century at $10 a barrel. Growing Chinese demand saw the commodity hit $100 in 2008 and it then averaged around this level for the following six years. In the near term, the issue is primarily over the spare production available which is being held back from the market.
The upcoming OPEC+ meeting will have a big say in which direction we travel as discussions over a further easing in output cuts from August are on the table. It would appear that expectations are for the group to increase output given where the market is trading now, but the question is by much? Anything less than the current deal of increasing supply by a maximum of 500 million barrels per month should be viewed as supportive. That said, any concerns about overtightening of the market could mean an adjustment to this level.
Hussein Sayed, chief market strategist at Exinity.
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Oil continues higher as the Fed tries to soothe markets
The Fed was more hawkish than anticipated at its June meeting, but officials want to make sure that market participants are not expecting the world’s most important central bank to hike rates prematurely
Hussein Sayed, chief market strategist at Exinity.
It seems even the most powerful central bankers can sometimes make small errors of judgement in communication and emphasis.
While the surprise hawkish shift by the US Federal Reserve at its most recent meeting sent shock waves through markets with stocks spiraling lower and the dollar surging, more recent comments by US central bankers have rowed back on concerns about interest rates rising faster than investors were expecting.
The Fed was more hawkish than anticipated at its June meeting, but officials want to make sure that market participants are not expecting the world’s most important central bank to hike rates prematurely. In fact, chairman Jerome Powell also reiterated after the meeting that price increases triggered by the reopening of the economy will eventually fade. This means the Fed will not act preemptively, but wait for the actual evidence of “imbalances” in the data.
Summer markets can be volatile as reduced liquidity with traders on vacation sees more unpredictable price action. However, by smoothing over the recent waves in financial markets, Powell and colleagues may help market sentiment through the next few months.
Certainly, stocks have turned higher once again, while market measures of inflation expectations have also done a round trip and are back near the levels before the “less cautious” FOMC meeting.
One asset untouched by both central bankers and the recent market upset has been oil, which has been rallying strongly beyond $70-a-barrel with some oil traders and hedge fund managers predicting that a return to the $100-a-barrel era may not be far away.
While the demand side is picking up all the time as global economies and air travel are reviving, the supply situation is concerning some analysts over the longer-term due to a lack of spending on new supply. They say the world is simply not yet ready to make the leap to clean energy and complete electrification.
The last time oil traded in three figures was back in 2014, having started the century at $10 a barrel. Growing Chinese demand saw the commodity hit $100 in 2008 and it then averaged around this level for the following six years. In the near term, the issue is primarily over the spare production available which is being held back from the market.
The upcoming OPEC+ meeting will have a big say in which direction we travel as discussions over a further easing in output cuts from August are on the table. It would appear that expectations are for the group to increase output given where the market is trading now, but the question is by much? Anything less than the current deal of increasing supply by a maximum of 500 million barrels per month should be viewed as supportive. That said, any concerns about overtightening of the market could mean an adjustment to this level.
Hussein Sayed, chief market strategist at Exinity.
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