Oil Prices Set For Weekly Gain Amid Concerns Over Sanctions Curtailing Oil Supply

"The UK economy shrinks for second month in a row which will be a big disappointment for Rachel Reeves. But she should not be surprised after talking the economy down through the summer and hitting businesses with a big tax grab in her autumn Budget!" says Andrew Sentance, an economist who formerly sat on the Bank of England's MPC.

Above: There was a clear FX market reaction to the GDP release.

Source: Poundsterlinglive

(Dec 13): Chinese shares declined as authorities again left investors guessing on the specifics of a fiscal stimulus even as their key policy meeting vowed to boost consumption.

The CSI 300 onshore benchmark closed down 2.4%, its worst day in three weeks. Friday’s drop led to a weekly loss of 1%, snapping a two-week winning streak spurred by optimism about potent stimulus. A gauge of Hong Kong-listed Chinese stocks fell over 2%.

In global markets, commodities from iron ore to copper that depends heavily on Chinese demand also slumped. Meanwhile, benchmark yields on Chinese government bonds sank to a fresh record low after authorities vowed to ease monetary policy further.

The subdued appetite for risk assets shows investors are still awaiting detailed measures following repeated, broad pledges by top leaders in recent months to reinvigorate the economy. While some economists say that Beijing may be deliberately holding back policy details before tensions rise under the second Donald Trump presidency, the market’s reaction is a reminder of authorities’ challenges to restore investor confidence after several similar false dawns.

“More government borrowings, tolerance for a larger fiscal deficit and more monetary easing into next year have been the takeaways, but policy specifics remain lacking for now, which may still limit market gains,” according to Jun Rong Yeap, a market strategist at IG Asia Pte Ltd. “Chinese authorities have been stuck in a more reactionary policy mode, as the uncertainty of US tariff plans makes it difficult for policymakers to make any commitment just yet.”

Top officials led by President Xi Jinping pledged to raise China’s fiscal deficit target next year, following the annual Central Economic Work Conference that ended on Thursday. For only the second time in at least a decade, they made “lifting consumption vigorously” and stimulating overall domestic demand their top priority. Officials also vowed to strengthen the social safety net, with broad promises to bolster healthcare and pensions.

The December meeting traditionally offers only broad strokes of policy focus and direction without revealing much detail. Specifics such as the growth target or the budget will be unveiled in March during the annual legislative sessions.

Behind the latest sell-off was onshore investors’ decision to take profit after the recent rebound, given the likelihood of a three-month absence of fresh policy catalysts until the National People’s Congress’ annual meetings. Meanwhile, there won’t be further clarity about corporate earnings before the next reporting season starts in January.

Beijing is faced with rising challenges to impress investors after several episodes of policy disappointment. A rally that began in late September following a central bank-led stimulus blitz didn’t take long to lose steam due to a lack of follow-up measures. The CSI 300 remains more than 7% down from an October peak after gaining over 30% in less than a month.

In March, “one should not be surprised to see the fiscal deficit raised to 4% and above”, Hao Hong, the chief economist of Grow Investment Group, told Bloomberg TV. “There will be specific guidance on special-purpose Treasury bond issuance and also ultra-long Treasury bond issuance. So all in all, the budget deficit in the broader sense will be over 10%.”

Source: Theedgemarkets

Crude oil prices were set for their first weekly gain since late November on news that the U.S. was considering additional sanctions against Russia and Iran. The potential of such a move disrupting the supply balance lent upward momentum to prices.

The latest report of fresh China stimulus measures meanwhile continued to support the benchmarks despite the lack of details about what the measures would entail specifically.

At the time of writing, Brent crude was trading at $73.67 per barrel, with West Texas Intermediate at $70.34 per barrel, after Reuters quoted Treasury Secretary Janet Yellen as saying the oil market looked well supplied and with weak demand, which could be an opportune time for Washington to try to reduce Russia’s oil revenues once again.

“Now what's unusual about this moment is that the oil market seems to be well supplied,” Yellen said earlier in the week. “Prices are relatively low. Global demand is down, and there really has been an increase in supply.”

“So the global oil market is softer, and that creates, possibly, an opportunity to take some further action,” she said, without elaborating on the details of that further action.

Separately, traders anticipate a Trump presidency to step up the sanction pressure on Iran, which would inevitably mean sanctions on the country’s oil industry as the biggest and most obvious target for such action.

Meanwhile, the International Energy Agency has once again predicted that the oil market will be in a surplus next year, thanks to production growth in non-OPEC countries, including Guyana, Argentina, Brazil, Canada, and the United States. These, the IEA said this week, will add some 1.5 million bpd to global supply, and the 2.2-million bpd that OPEC+ is withholding will apparently not be enough to swing the market into a deficit. Interestingly, the agency revised up its demand growth projection, from 990,000 bpd to 1.1 million bpd next year.

Source: OILPRICE

GBP/USD holds losses for the third successive day, trading around 1.2660 during the Asian hours on Friday. The pair depreciates as the potential tariff threats from Trump’s administration have boosted the US Dollar (USD) across the board and created a headwind for the risk-sensitive British Pound (GBP).

Additionally, the release of the hotter-than-expected US Producer Price Index (PPI) report on Thursday provided support for the US Dollar and undermined the GBP/USD pair. The US PPI jumped 0.4% MoM in November, the largest gain since June, after an upwardly revised 0.3% increase in October. This reading was better than the 0.2% expected.

Traders await the US Federal Reserve (Fed) interest rate decision scheduled next week. Financial markets are now fully pricing in a 25 basis point rate cut on December 18, according to the CME FedWatch Tool.

Traders are expected to focus on the United Kingdom's (UK) monthly Gross Domestic Product (GDP) and October's factory data, set to be released on Friday. These figures will provide insights into the nation's economic health.

The downside risks of the Pound Sterling seem limited due to increased expectations that the Bank of England (BoE) will adopt a slower pace of policy easing compared to other central banks in Europe and North America.

Economic Indicator：Gross Domestic Product (MoM)

The Gross Domestic Product (GDP), released by the Office for National Statistics on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in the UK during a given period. The GDP is considered as the main measure of UK economic activity. The MoM reading compares economic activity in the reference month to the previous month. Generally, a rise in this indicator is bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Source: FXSTREET

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Source:ING

Source:OMFIF editors