Over the past few weeks, we have seen energy providers go to the wall as wholesale energy prices continue to moonshot exposing the firms with insufficient hedges to be unable to compete with the majors, especially with a consumer cap on prices being mandated. It seems anyone who also hedged their large oil position is now being pushed to the limits of their trade as energy prices continue to rise.
As a result of the JMMC meeting preceding the OPEC+ meeting today, oil futures began to rise as the cartel announced they would look to continue to ease monthly production cuts by 400,000 barrels per day by the end of 2021. At the close of the London session, crude oil futures prices rose by over 3%, as OPEC and its allies (OPEC+) chose to leave their agreement on monthly oil production increases of 400,000 barrels per day (BPD) intact for the month of November. Earlier in the day, it had been reported that output could increase by 800,000 BPD. As of the London close, Brent for December deliveries reached an all-time high of $81.53 per barrel, its highest level since late 2018. The price of West Texas Intermediate (WTI) for settlements in November jumped 2.76% to $77.25. This is the highest level for almost seven years. The measured move out of the recent range projects towards $90 per barrel.
U.S. factory orders showed an improvement in the month of August coming in at 1.2% above the expectations of 1.0% and above the upwardly revised previous months result.
With the White House and the Federal Reserve pushing for a debt ceiling increase, U.S. President Biden came out today to defend the nation's finances and the fact it has never defaulted. As he noted, the country must raise its debt ceiling in order to pay off its old debt. He emphasized that if the US debt limit is not raised, the US dollar's reserve status will be jeopardized. For a few days now, the US dollar has been under pressure after finding resistance at $94.50.
St. Louis Federal Reserve President James Bullard also said in a speech today that the U.S. inflation may not return to the 2% target. "We are going to have more inflation than we are used to for some time," the official stated, noting that the prices are higher than the country saw in a decade. The Fed Chair Powell has previously said that inflation may begin to subside in the first half of next year. Nasdaq futures declined around 500 points on Monday as Bullard warned that inflation may not drop to the 2% target, with Docusign, Moderna, and Okta as the worst performers. Additionally, uncertainty surrounding the federal debt ceiling seems to be continuing to affect the market as seen in the S&P 500 declined 1.60% at the same time.
Newswires reported today that trading houses faced big margin calls from brokers and exchanges because gas prices have increased. This caused stocks to sell-off. A margin call forces trading firms to liquidate the most valuable liquid assets, so the equities and derivatives on the account should be the first thing they sell.
To top it all off for the risk markets China and Taiwan appear to be pushing for some sort of conflict with many Chinese military aircraft entering Taiwanese airspace.
As the US dollar index prints another daily red candle, the GBPUSD continues to find a bid. The daily 20 ema currently acts as dynamic resistance for the pound around the 1.3600 level, firmly positioning it in a resistance zone. Today, British Chancellor of the Exchequer Rishi Sunak admitted that the United Kingdom's recovery from the COVID-19 pandemic comes at a cost. The country's debt has reached almost 100% of its GDP, he said.
In addition to highlighting the UK's economy is among the fastest-growing ones in the world in his speech, Sunak dismissed the earlier predictions of experts regarding the matter. "Now is the time to show them that our plan will deliver, and now is the time to at last, at long last, to finally turn to the future," he concluded.