Saturday, September 30

Dollar rockets as crude oil prices fell 2023

oil prices fell

Intro – Oil prices fell

On Tuesday, the value of the dollar rose as oil prices fell, while U.S. stocks did not follow the trend of global equity markets. This week is expected to provide insight into when and how U.S. interest rates may reach their peak. – Oil prices fell…oil prices chart

Why is oil price falling today

The MSCI All-World index decreased by 0.2%, with losses in U.S. stocks contributing to the decline. The Dow Jones Industrial Average remained largely unchanged, while the S&P 500 fell by 0.4% and the Nasdaq Composite declined by 0.76%. U.S. stock losses were led by a 12.2% drop in Tesla’s stock after the company did not meet Wall Street estimates for quarterly deliveries. 

Apple also saw a 3.7% decrease, reaching its lowest point since June 2021, following a downgrade due to production cuts in China.

Dollar had a negative impact on oil prices

The U.S. dollar strengthened in anticipation of the release of the Federal Reserve’s meeting minutes on Wednesday, with expectations that the minutes will indicate that more policy tightening is on the horizon. The increase in the value of the dollar had a negative impact on oil prices fell, which were also affected by concerns about slowing global economic growth, particularly after data showed that China’s factory activity contracted in December.

Worst performing currency

The euro was the worst performing currency against the dollar, decreasing significantly for the first time since September, following German regional inflation data that showed consumer price pressures significantly eased in December, largely due to government efforts to control natural gas costs for households and businesses. 

Data on U.S. payrolls this week is expected to show a tight labor market, while EU consumer prices may indicate some slowdown in inflation as energy prices decrease.

Analysts at NatWest Markets

Analysts at NatWest Markets predict that interest rates will reach 5% in the United States, 2.25% in the EU, and 4.5% in Britain and will remain at those levels for the entire year. However, markets are pricing in rate cuts for the end of 2023, with fed fund futures indicating a range of 4.25% to 4.5% by December. 

Concern about the unknown impact

Berenberg Senior Economist Kallum Pickering expressed concern about the unknown impact of the monetary tightening that has occurred in advanced countries, as it can take up to 18 months for the full effect to be seen. Central banks have expressed worry about rising wages, even as consumers struggle with increasing living costs and companies struggle to maintain profitability by raising their own prices. 

Pickering also warned that the labor market tends to lag the broader economy, meaning there is a risk that central banks may be raising interest rates more than the economy can handle, potentially causing excess cyclicality and triggering an inflationary boom followed by a disinflationary recession.

European stocks

On Tuesday, European stocks saw an increase due to growth in defensive sectors such as healthcare and food and beverage. Drug companies Novo Nordisk, AstraZeneca, and Roche, along with Nestle, were among the biggest contributors to the STOXX 600 index’s 1.2% increase. 

The yen eased by 0.3% against the dollar to 130.895, after the dollar reached a six-month low of 129.52 yen earlier in the day. Oil prices fell were impacted by the strong dollar and concerns about demand in China, the world’s second largest economy. 

China’s factory activity

Several surveys have shown that China’s factory activity contracted at the fastest pace in nearly three years as COVID-19 spread through production lines. Analysts at Capital Economics warned that “China is entering the most dangerous weeks of the pandemic.” 

As a result, Brent crude fell by 4.2% to settle at $82.10 per barrel.

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