Last week, international markets were in flux as OPEC+ pushed ahead with plans to increase production, the U.S. non-farm payrolls report for May stabilized and retail holdout stocks were active. This week, Fed officials entered the “silent period”, the Bank of Canada and the European Central Bank will announce the June interest rate resolution. Data, the U.S. CPI into focus, three reports and two major events will affect the direction of oil prices.
①Biden’s infrastructure bill meets deadline for negotiations
Last Friday, local time, U.S. President Joe Biden rejected the Republican Party’s proposed infrastructure plan, the two sides have serious differences, as negotiations continue to pull, the possibility of bipartisan agreement on infrastructure plans is gradually reduced.
Biden plans to engage with senators from both parties this week on a more substantive proposal. On Monday he will meet again with Republican lead negotiator Capito.
Overall, Biden’s base-building plan still faces a lot of resistance, and with Biden’s previous repeated concessions, it is expected that further upward push on oil prices will have limited power. And with the peak of U.S. subsidies will pass, once the exposure of a larger-scale weakness in the U.S. market will provide momentum for further downward movement of oil prices.
Biden will also kick off his first overseas trip this week, as he heads to Europe for the Group of Seven (G7) Leaders Summit and NATO Leaders Summit. After that, Biden will attend the U.S.-European summit on June 15 and will also meet with Russian President Vladimir Putin in Geneva, Switzerland, on June 16.
② U.S. CPI in May may explode again
In terms of data, the U.S. May CPI released on June 10 is the focus of this week’s focus on the persistence of inflationary pressures and their impact on the Fed’s policy expectations. The U.S. CPI rose 4.2% year-on-year in April, the highest level since September 2008, once triggering market volatility.
As a leading indicator of CPI, the PPI grew 6.2% in April, and the commodity index rose 18.4%. Combined with the impact of the base effect, institutions forecast that CPI will continue to run high last month, with year-on-year growth of 4.6%, core CPI growth of 3.4%, the growth rate has accelerated, the chain growth rate of 0.4%, a slight drop from April.
And Nordic United Bank (Nordea) that the inflation data may scare the market. The bank predicts that U.S. core CPI may reach 4% in May, far exceeding expectations of 3.4%; headline inflation may exceed 6% in May or June. However, Nordea said the market still generally believes that ultra-high inflation is temporary.
In addition, this week’s U.S. trade account in April, weekly jobless claims and June University of Michigan consumer confidence index and other data also worthy of investors’ attention.
The international gold price last week, lost the $1,900 mark, Friday in the U.S. labor market performance is not as good as expected, the market for the Fed to tighten monetary policy concerns have declined, the dollar short term plunge, gold pulled up sharply to 1890 above, the highest touch 1896, from the intra-day low of more than $ 40. Data is expected to continue to be key in influencing gold prices this week.
If this week’s inflation data is in line with or higher than expected, it may make the “inflation is temporary” argument pale in comparison, thus stimulating the market to bet that the Fed will soon start discussing debt reduction, when the dollar index or short spike, negative gold prices. However, if the data is weaker than expected, or make the Fed more bottom line to maintain loose policy, and lead to the dollar to bear a huge blow, more gold prices.
③ European Central Bank will announce an interest rate resolution
Thursday (June 10), the European Central Bank will announce the interest rate resolution, the European Central Bank President Lagarde will be followed by a press conference.
Many institutions believe that the ECB will keep the three major interest rates unchanged and will likely choose to continue its bond purchase program (PEPP) in the coming quarter to prevent further expansion of yield spreads on sovereign debt within the eurozone.
From the officials’ statements up to now, the ECB will probably also stay put and will still state its support for easing. Bank of France President Villeroy said last week that the ECB is not in a hurry to adjust the PEPP, and any talk of reducing monetary policy support in the third quarter is pure speculation, and the ECB will continue to maintain an accommodative monetary policy.
However, Eurozone CPI has increased by 2% year-on-year in May, which is not only the highest since November 2018, but even higher than the ECB’s inflation target of “below but close to 2%”. The outlook for inflation in Europe has raised concerns in the markets, and there is growing curiosity as to whether the ECB will learn from the Fed and “deflate” the economy until it overheats.
If the ECB policy due to inflationary pressures to signal a turn, a further rise in borrowing costs on the prospects for economic recovery could be hugely damaging, the doves within the ECB’s governing council need to prove that now is not the time to start signaling a change in stance.
Traders will also have to keep an eye on ECB officials’ forecasts for inflation. The market expects inflation forecasts to be revised upwards, which should support the euro.
In addition, on Wednesday (June 9), the Bank of Canada will also hold a rate meeting.
④The oil market will welcome three important reports, focus on the key point of $72.19 for Brewery
The crude oil market will see three important reports: EIA will release its monthly short-term energy outlook report, OPEC will release its monthly crude oil market report and IEA will release its monthly crude oil market report. The three major crude oil reports are expected to provide more clues to the recovery in global crude oil demand.
WTI crude futures are heading for a one-year high as the market is watching OPEC+ supply changes and a recovery in crude market demand, with bulls looking for higher demand and inflation to support higher oil prices.
Analysts say traders are now keeping a close eye on Brent crude at $72.19 per barrel and may be ready to inject money into the market again after a breakout, which is the Fibonacci retracement of the downtrend that started in 2012. For some traders, this is the single most important point in the oil market at the moment. With demand rebounding in the West and market expectations optimistic for this summer, a break of the next Fibonacci resistance level is expected to attract money back to the oil market.
Position data shows market sentiment remains upbeat. CFTC data shows that speculative net long positions in WTI crude oil futures increased by 21,101 to 396,527 in the week ended June 1. ICE data shows that speculative net long positions in Brent crude oil futures increased by 8,830 to 267,282 last week. However, the net long position so far remains at a new low since December last year.
⑤ Iran Nuclear Talks Continue This Week
The Iran nuclear deal negotiations were suspended again last Thursday (June 3) and will resume this Thursday (June 10). Given that the Iranian presidential election will be held on June 18, this week’s negotiations are considered by the market as the last window for the deal to be reached in the short term.
For oil prices, once the agreement is reached, Iranian crude oil exports are expected to increase rapidly by about 2 million barrels per day, and the expected increase in Iranian crude oil supply is expected to put pressure on oil prices in the event that OPEC+ announces that it is expected to maintain its original plan to increase production in July.
However, some investment banks believe that the threat from Iran is not enough to be feared.
Goldman Sachs believes that Iran’s increased production is not the key variable affecting international oil prices, rather, the Iranian nuclear deal will be reached to eliminate market uncertainties, oil prices will return to the upward channel.
Rystad Energy oil market analyst Dickson (Louise Dickson) said that although the global economic recovery is uneven, it seems that there is no hiccup that can reverse the momentum generated by strong summer demand.