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Global Markets Update: Oil Prices Plunge, Yen Strengthens, and NFP Expectations Rise

INVESTINGGlobal Markets Update: Oil Prices Plunge, Yen Strengthens, and NFP Expectations Rise

Oil prices fell to their lowest level since late June, with a loss of 4 percent. WTI dropped below the $70 level and Brent slid under the $75 threshold. One of the reasons was an increase in US gasoline inventories, suggesting weaker demand. However, declines appeared earlier before the release of inventory data. The ADP report was worse than expected but only momentarily weakened the USD. The yields of Japanese government bonds are rising dynamically and the yen is strengthening this morning, as the market is betting more on possible interest rate hikes in the Land of the Rising Sun. The Monetary Policy Council (MPC) kept interest rates unchanged (reference rate 5.75 percent).

The oil market is currently more focused on demand than on supply. Concerns about China’s economic health continue to dominate. For sure, the decision by Moody’s, which downgraded China’s rating outlook from a solid A1 to negative, put some pressure. Oil failed to gain despite a sharp rise in oil inventories (5.4 million barrels). However, the market focused on a severe decline in gasoline inventories. This implies that demand for gasoline over the long Thanksgiving weekend was weak. It was 2.5 percent lower than the 10-year average for last week. Despite cuts in supply by OPEC+ (November 30), the price has already dropped by over 11 percent.

The ADP report disappointed but did not permanently weaken the dollar. The EUR/USD rate dropped yesterday to 1.0760. Employment change in the private sector amounted to 103,000, fueling speculation that tomorrow’s NFP will also show lower numbers. However, remember that these data are not strongly correlated with official government labor market data. The forecast suggests employment will rise to 180,000 from the previous 150,000. The unemployment rate is expected to stay at 3.9 percent. The market still heavily prices in rate cuts by the Fed in the first half of 2024. May and June downward movements currently have about a 70 percent probability of happening. For now, the declines of the top currency pair are greatly rooted in the market’s assumption that the ECB will be the first to start a cycle of monetary easing ahead of the Fed.

Japanese government bond yields have risen sharply today (by 8.5 basis points to 0.73 percent). At one point, market valuation (swap) showed a 45 percent chance of the BoJ ending negative interest rates this month. Deputy Governor Ryozo Himino’s comments were cited as a key factor driving the bond and currency market moves. Just two days ago, this risk was 3.5 percent. Meanwhile, Ueda’s morning comments in parliament have increased pressure on bond yields and the yen to rise. The Japanese currency has strengthened against the USD by 0.4 percent. Currently, we are observing a strong drop in USD/JPY to below 145.00. The BoJ meeting is planned for December 18-19.

The Monetary Policy Council (MPC) has kept the rates unchanged (reference rate at 5.75 percent). The zloty was insensitive to this decision, which was widely expected. The PLN weakened against the dollar, with the USD/PLN rate rising above 4.02. The EUR/PLN even reached 4.34 but ended the day at 4.33. A moderate weakening of the zloty against the euro has continued this morning.

Łukasz Zembik, Oanda TMS Brokers

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