Oil is expected to experience violent swings this week as OPEC+ members gather on December 4 to discuss production cutbacks and the European Union’s Russian oil price restriction goes into effect. Moscow has stated that it would not accept the price ceiling.
Global risk appetite was boosted by a less hawkish statement by US Federal Reserve chairman Jerome Powell and a relaxation of some COVID regulations in China.
The dollar began the week on a strong note, supported by safe-haven purchasing, as China’s escalating Covid outbreak and a series of public protests in a rare display of defiance fanned fears of a government crackdown and concerns about uneven economic recovery.
However, the administration reacted fast, with a large police presence, social media control, and some minor concessions. Investors’ fears were also eased by the actions taken to shore up the faltering property sector, which threatens the Chinese financial system.
The dollar, on the other hand, fell sharply after Powell stated that “the time for moderating the pace of rate increases may come as soon as the December meeting.” Despite the fact that central bankers warned that the fight against inflation was far from over, markets focused on his confirmation of slower rate hikes.
In addition, largely weaker US economic data indicated that the Fed’s aggressive rate hike path had limited consumer and business spending.
The only exception was a better-than-expected labour report, with US payrolls increasing by 263,000 in November despite the unemployment rate remaining unchanged at 3.7 percent, which helped the dollar recover above 105 levels.
Comex gold hit a four-month high of $1,818 per troy ounce, while silver broke above the $23 barrier for the first time since May, as lower-than-expected Core PCE statistics boosted prospects of fewer rate rises and sent the dollar to a four-month low below 104.5. This helped gold and silver finish the month with significant gains. However, investment demand fell somewhat, with small withdrawals from SPDR gold and iShares silver trust ETF holdings.
The risky nature of oil
WTI and Brent crude both rose dramatically from 11-month lows on expectations that OPEC+ may cut output at their December 4 meeting.
China’s campaign for senior immunisation was considered as a critical step toward reopening and boosted optimism for a better demand outlook.
Base metals rose 3-8 percent last week as COVID regulations were eased and stimulus assistance for the devastated real estate industry was provided by the China Securities Regulatory Commission, which lifted several multi-year restrictions on stock sales by developers.
The upcoming week
The markets will be eagerly watching the Final Services PMI results this week to gain a sense of overall company activity in major economies. Furthermore, China’s inflation numbers and the US Producer Pricing Index (PPI) will give insight on price pressures, all of which are likely to decelerate or remain steady.
Oil markets, on the other hand, are in for some wild swings as OPEC+ members gather later on December 4 to debate output cutbacks and the European Union’s Russian oil price ceiling.
According to Reuters, the European Union has informally agreed to restrict the price of Russian crude at $60 per barrel. This must be accepted by all EU countries, otherwise the embargo on Russian marine imports would take effect on December 5. The oil cap has been rejected by Russia.
Russia has just emerged as India’s largest oil exporter, and any price changes will be keenly monitored.
Overall, the dollar may experience some rebound as a result of the stronger labour data, but this is unlikely to result in a big policy shift, so gains in the American currency may be limited.
While commodities are likely to trade in a range as markets examine further incoming data, investors anticipate China’s authorities to provide more clarity on its virus and economic policies following a Politburo meeting scheduled for later this week.
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