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On August 5th, Nick Timiraos, a vocal advocate for the Federal Reserve, wrote that Treasury Secretary Bessants policy response function has become less dovish. His comments this year suggested the Fed should maintain its current interest rates. Earlier this year, Bessant cited models suggesting the Feds interest rate could be more than 25 to 100 basis points above the neutral rate. Today (August 4th), he raised two points. First, he defended Warshs decision last week not to elaborate on any policy response function: "I think every meeting should be open, and market participants should make their own judgments… I think Warsh wanted to preserve options to achieve the best outcome." Second, he did propose a policy response function that could be considered dovish, arguing that recent shocks should be ignored: "What will be the impact of rising short-term interest rates? Well see." He raised this question but then responded by noting that underlying inflation was "very modest… very stable." "Core inflation, after removing the energy-dependent volatility component, has been very stable. I think this will continue."Iranian Foreign Ministry spokesman: The flight routes under negotiation are aimed at ensuring the sovereign rights and national security considerations of both Iran and Oman.Iranian Foreign Ministry spokesman: The focus of the negotiations is to determine safe passageways in and out of the Strait of Hormuz.Iranian Foreign Ministry spokesperson: The final results of the negotiations will be released after being compiled and summarized.The China Earthquake Networks Center automatically determined that an earthquake of approximately magnitude 3.6 occurred near Gao County, Yibin City, Sichuan Province (28.55 degrees north latitude, 104.68 degrees east longitude) at 23:58 on August 4. The final result is subject to the official rapid report.

WTI falls further below $77.00 as China's Covid crisis stalls the rebound

Alina Haynes

Jan 04, 2023 15:01

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West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) have experienced a straight decline after testing the previous week's high at $81, accompanied by minimal buying demand. As investors fret over China's sluggish economic recovery, the oil price has plummeted to a level close to $77.00 and is likely to continue falling.

 

The market anticipates a sluggish recovery in China's economic operations following a surge of Covid-19 cases caused by the administration's rapid reopening efforts. The Covid situation is becoming increasingly precarious as medical authorities lose control over the management of sick patients.

 

According to historical evidence, the reopening of an economy results in pent-up demand for commodities, which accelerates inflationary pressures dramatically. Analysts at Danske Bank opine, "A Chinese rebound will have a favorable influence on the global economy, but its effect on commodity prices would be inflationary."

 

In the meantime, the oil price was not supported by Caixin Manufacturing PMI data that exceeded expectations. IHS Markit provided economic statistics of 49.0, which is greater than the consensus estimate of 48.8 but less than the previous release of 49.4.

 

The US Dollar Index (DXY) is able to hold above the crucial support level of 104.00. The oil price is likely to remain on edge until the Federal Open Market Committee (FOMC) minutes are released. Despite the fact that the bulk of inflation indicators indicate lower demand and indications that inflation has peaked, the labor market is exceptionally tight and the inflation rate is still much above the objective of 2%. The FOMC minutes will provide the forecast for monetary policy in CY2023.

 

More policy tightening by the Federal Reserve (Fed) could raise the possibility of recession, which is susceptible to oil demand and could have a big impact on oil prices.


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