Despite a lack of movement of Russian forces from the border of Ukraine, I think this is the intermediate top in the oil prices. If however, the markets get spooked by an escalation in war rhetoric again, the oil prices will flip to the upside. I am also thinking the earnings reports that we have looked through this last month say that earnings expectations will be lower, but we’re seeing evidence now that consumers are spending more and companies are commanding higher prices. This means next quarter earnings reports may be much better than expected.
US retail sales rose 3.8% in January, according to the Census Bureau's report beating the market's expectations of 2.0%. Annually, the figure was up 13%. Retail sales rose by 4.4% from the month before and by 11.4% from the same period last year. Additionally, the gasoline stations' revenue increased by 33.4%, and the food services and drinking establishments' revenue increased by 27%. According to the Census Bureau, the overall figure for November 2021 was revised lower by -2.5% to $626.3 billion.
US Industrial production m/m and US Business Inventories rose significantly in the latest US data ahead of the FOMC meeting minutes. Together with the Retail Sales figure, US corporations should have a good quarter as they can build inventories and sell significantly more products at higher prices.
The US session was always going to see prices revert to an area where the buyers and sellers were able to get in and out of a position with the least amount of damage. The S&P500 is drifting lower towards the 4405 level and this is where I expect prices to be around the release of the minutes. From there the bulls and bears will be able to adjust accordingly.
Currently, commodities are moving higher, and oil is at the $94 level I mentioned this morning, and this suggests that sellers are in place to halt further price increases. The US EIA weekly crude stocks show a build of 1.121M barrels. Though distillate and gasoline were showing a draw. OPEC had raised concerns about oversupply. As supply chain shocks from Canada continue to increase, lumber is back to a 36-week high. Truckers' protests against the COVID-19 mandates will be having an effect and this will push up inflation and economic growth is likely to slow.
Lumber shortages in 2021 increased prices exponentially as economies opened, while supply chains were disrupted. Wildfires, pests, and extensive rainfall were cited as contributing factors, as Canada is the world's largest producer and exporter of lumber.
Last week’s COT report shows that Commercials including producers have lifted their short position, which to me is a tell that they are expecting these prices to continue rising for the foreseeable future and that they don’t need to be hedging as much for a downturn.
On Wednesday, the Office for National Statistics reported that the Consumer Price Index (CPI) in the United Kingdom rose by 5.5% for January compared with a year ago. The annual inflation rate in the UK has increased from 5.4% in December.
The pound kept rising against a weakening greenback and the GBPUSD has nearly reached the level I am expecting to see a rejection from. Ideally, a reach into the 1.359 to 1.360 zone would be where we’d see some aggressive selling so that we could join into the downside for a retest of the 1.3560 and possibly the 1.3500 levels.