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INVESTINGWall Street Ends Mixed, Crude Oil Rises on Falling U.S. Inventories Ahead of Inflation Data

Wednesday’s session on Wall Street yielded mixed results for stock indexes. While the Dow Jones Industrial Average gained 0.4%, the Nasdaq Composite lost 0.2%, and the S&P 500 closed around its opening level. U.S. bond yields rose on the longer end of the curve, and the dollar was moderately stronger. Investors are awaiting the next batch of U.S. inflation data (next Wednesday). The earnings season for American companies is entering its final phase. So far, the technology sector has largely performed well despite high expectations. Crude oil prices gained following a decrease in U.S. stockpiles.

The U.S. macroeconomic calendar remains relatively sparse. Apart from mortgage applications (which have little market interest), we received the weekly change in fuel inventories. This report ultimately led to WTI crude oil ending the day up by just over 0.5%. Before noon, the commodity was down more than 1.5%. Today, the American variety is priced nearly 0.9% higher. These increases are largely a result of falling U.S. inventories along with rising refinery intake (up by 307,000 barrels per day). Additionally, increases in oil prices can also be attributed to rising Chinese imports. These two factors have supported higher demand expectations from the two largest consumers of this commodity.

U.S. crude oil inventories dropped last week by 1.4 million barrels to 459.5 million. This was more than analysts’ expectations, which had anticipated a decrease of 1.1 million. The market ignored the rise in gasoline and distilled fuel inventories. This can be explained by refineries preparing for the upcoming holiday season.

As for China, customs data showed that oil deliveries to the country in April stood at 44.72 million metric tons, equivalent to about 10.88 million barrels per day. Compared to April 2023, this represents an increase of over 5.4%.

Earlier declines in crude oil prices, which have been observed for several weeks, were due to heightened hopes for a ceasefire in the conflict between Israel and Hamas in the Gaza Strip.

The price of Brent crude has fallen more than 11% from its peak on April 12 to yesterday’s low. A rising trend line connecting lows from December 2023 and February 2024 was broken, signaling a negative trend. Prices remain in a corrective downturn from the growth impulse that has lasted several months. It is crucial whether the price can permanently return above the trend line and above the horizontal resistance located around $84.

Today, we are awaiting decisions from the Bank of England and the National Bank of Poland regarding interest rates. At the beginning of the year, the market viewed the May decision by the BoE as a starting point for a cycle of cuts. However, this now seems very unlikely as inflation in the UK remains too high. Attention may be focused on the voting outcome. Dave Ramsden, who has sounded quite “dovish” several weeks ago, could change his stance. Previously, 8 members were in favor of maintaining rates, and only one supported a cut. If the result shifts towards a 7-2 vote, then the pound might lose value. The market will also interpret the new forecasts from the bank, though they may not change significantly, as the BoE revised them in February. At this moment, the market expects that any easing of monetary policy will not occur until at least August this year.

The National Bank of Poland will likely also maintain the cost of money at the same level of 5.75%. Recently, President Adam Glapiński has been sending “hawkish” signals to the market, citing arguments for accelerating inflation in the second half of 2024 (wage pressure, the return of VAT on food, higher energy prices). The recent CPI indicator stood at 2.4% year-over-year in April, which likely means that the inflationary trough has been reached (2% in March). Core inflation still remains above the central bank’s target at 4.6% year-over-year. The acceleration in the price growth dynamic is, among others, due to the mentioned return of a higher VAT rate on food (from 0% to 5%). Yesterday, the Polish zloty appreciated against both the euro and the dollar. The EUR/PLN exchange rate once again fell below 4.30 and the USD/PLN under 4.00. This morning, we are observing a moderate counter movement.

Łukasz Zembik, Oanda TMS Brokers

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