As with most Wednesday mornings, oil watchers flick quickly to the data provided overnight by the American Petroleum Institute as a precursor to what may be revealed later by government data. In keeping with the current and adding to the overriding emotion of confusion that oil, and most markets in fact feel at present, they offer little clarity. Crude inventories drew 4.2mb against a call of -0.5mb, Gasoline built 3.9mb against a +0.2 call, Distillate built 0.3mb against -0.3 call. The much awaited Cushing number has a build of 0.7mb with the collator TankWatch expecting a build of 0.2mb. If such an insignificant build was published into a more rally friendly market such as last week the continued idea of ‘bottoming’ at the all-important Oklahoma hub would be a massive encouragement to bulls but markets have wandered into a crisis of confidence and a nugatory reaction is completely understandable. 

Fresh from avoiding a government shutdown that allowed for markets to breathe a sigh of relief, US lawmakers seem unwilling to give up the limelight and voted for the first time in history to oust Kevin McCarthy as the Speaker of the House of Representatives. While ordinarily, the third-in-line to the US White House big seat being given marching orders would have little effect, but with the new stop-gap government funding only valid until November 17 and much legislation to absorb, the divisive squabbles on Capitol Hill have spilled again into markets and bourses are nervously lower. None so more than the US stock futures markets where the Dow Jones Industrial Index is below the 33,000 number for only the second time this year.

This bout of political uneasiness comes on top of some disturbing employment data from the US. ‘Disturbing’ alludes to good news equal bad news, for a stronger job-space will keep the fear of a US FED tightening at the forefront of investors’ minds. The US Job Openings and Labour Turnover Survey (JOLTS) showed an increase in openings of nearly 700k positions. With ADP employment and non-farm payrolls also due this week, any more indications of continued demand for workers will keep the idea of ‘higher for longer’ interest rates rolling along. US 10-year yields rally again and with them a subsequent and sympathetic shift lower on all the world’s major bourses which are unattended by the influence of China, which is arguably a good thing as current economic news flows from the Asian trading giant might just exacerbate. Markets will look to the many service and composite PMIs today, for it has been individual behaviour that has saved economies, not industrial and any globally aligned shift in these personal patterns could be market movers.
 

There’s No Getting Away from the Greenback

All markets went through a torrid time when the idea of a returning post zero-COVID China would unleash a swathe of demand across industry was replaced by the reality that China would take so much longer to return to an expected manufacturing Valhalla or if indeed at all. This process was not a short one. After the civil unrest in China during November 2022, the road to normalcy (whatever that entails) seemed to quickly open, culminating in President Xi declaring victory over COVID in February 2023. The ensuing proliferation of the virus, the overwhelming of the health system, the blow to confidence; all manifested in months and months of awful industrial data such as manufacturing PMIs and China economic news switching from a reliable market goody to reliable baddie. This short tour of recent history serves only to highlight those expectant orderly returns to usual practice are sometimes fraught with wishful thinking. 

The US dollar has gained much ground in the last near-on 3 months, propped by the US economy’s outperformance against rival trading zones such as Europe and China. However, and where the above introduction is relevant, is how the world’s markets have been ever expectant in a turn of fortune as and when inflation markers turn to the downside. ‘Soft landing’ is screamed across the wires if ever inflation shows any sign of decreasing, no matter how small. Just as the world thought it was a given that China would roar back into business, similar voices can be heard expecting inflation will suddenly track all the way back to a 2% target which most of the world’s central bankers seem to share. These governors of the world’s money are so feted and treated with guru-like reverence that one might be forgiven in thinking that they can do no wrong. Now, there is little wrongdoing, but the real question is, what can they actually do? The brand new and shiny Reserve Bank of Australia Governor Michele Bullock got off to a flying standstill yesterday as she announced a hold to interest rates at 4.1%. With a stuttering economy and a pervading US yield curve that haunts all roads to the hallowed 2% target, there can be no doubt that Bullock’s prudency is justified.

Monday was a bad day for the ever-hopefuls. The FED-speak that populated the airwaves was jaw-juttingly conservative. US Federal Reserve’s Michelle Bowman did not hold punches, ‘despite considerable progress inflation continues to be too high [it might be] appropriate to raise rates further’ and New York Fed’s John Williams said, ‘restrictive practices would be needed for some time’ (Reuters). It would seem that policymakers believe that the fight against inflation is nowhere near won, leading to a logical conclusion that rate cuts are some way off. Money is becoming more expensive, debt is too, as is financing investment which is why the usual depositories of stock markets and bonds are faring so poorly and why the US dollar remains the beneficiary. One might envisage a change in fortune if other advanced economies ratchet up their own interest rates but for now the dollar is King. The US dollar index is at year-to-date highs and judging by the actions and comments of the central banks and their pilgrimage to tame inflation, the world’s marker currency is bedding in a rally that will continue to haunt all markets including oil, even when, as is now, there is a compelling fundamental backdrop.

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