Commodity-related updates from our daily Market Quick Take are available here
Crude Oil (OILUKFEB22 & OILUSJAN22) is trading near a three-week high as the market continues to view Omicron’s current concerns as short-term concerns and growing speculation that China, the world’s largest buyer of crude oil, will begin to add fiscal stimulus in early 2022 to stabilize the economy. Both Brent and WTI are questioning their 21-day moving averages with a breakout above, potentially adding more technical momentum. Speculators meanwhile slashed purchases of Brent crude in the week to Dec. 9 for a ninth, and nine weeks of non-stop cuts saw the long net drop to a 13-month low. This behavior contrasts sharply with the overall market belief in higher prices until 2022. The focus is on the monthly oil market reports from OPEC today and from the IEA tomorrow.
Gold (XAUUSD) remains stuck below its 200-day moving average at $ 1,794, with the focus this week on Wednesday’s FOMC meeting and how they will react to rising inflation in the fastest pace since the 1980s. The market is currently anticipating three rate hikes next year, with the first expected around June. Countering the negative price impact of a potentially more aggressive US central bank, the rapid spread of the omicron virus is also receiving some attention given its potential negative impact on growth.
Industrial metals started the week on a more solid footing iron ore jumped 6% on heightened expectations that China will increase stimulus next year to support the economy. After the end of a three-day annual central economic work conference, the party signaled a clear shift in focus from growth to stability. They also promised to put in place front-loading policies to stop the recent fall.
Rise in gas prices in the EU ahead of the European Council meeting on 16 December. In addition to having to deal with Covid-19 and the Russian threat to its eastern borders, the council is also expected to decide whether investments in gas and nuclear power should be labeled climate-friendly. The design of the EU’s green investment classification system is closely watched by investors around the world and could potentially attract billions of euros in private funding to help with the green transition, especially given the need to reduce the use of coal, the biggest polluter.
In forex, speculative flows were oriented towards sales in dollars, mainly driven by short hedges in EUR, JPY and CAD. Just a week after hitting an 18-month high on omicron worries and focus on Fed tightening, the global dollar is long against ten IMM currency futures and the dollar index has been reduced by 16% to $ 23.3 billion.
As can be seen in the table below, the main focus has been on reducing exposure, which helps explain that the dollar’s length was reduced in a week when the greenback increased. The reduction of $ 4.6 billion is mainly due to a large reduction of an equivalent of $ 5.1 billion in gross short positions led by the JPY ($ 1.9 billion) and EUR. The other major changes were the MXN net short which hit a four-year high of 64,000 lots or the equivalent of $ 1.5 billion.