Lagos — The reversal in Trump’s tone towards Powell’s tenure as Fed chair and a more constructive feel towards US-China relations has seen crude push into $65, where once again traders seem happy to sell into the rally, and the level seems to be a barrier that the crude bulls want to see break.
Clearly, the greater sensitivities to the Powell/US-China headlines have been observed in the well owned “sell America” trades – long gold, short USD and S&P500 futures – but crude has taken in the tailwinds from the reduction in cross asset volatility and the general feeling that we’re averting a policy mistake in Trump’s push for Powell’s early removal.
Goodwill aside, and the positive semantics that has seen crude adopt a mantra of a quasi-risk asset, there is still the need to consider the perception of demand, and this is perhaps a key reason why crude is finding sellers into $65 – granted, on the supply side we’ve seen the API inventories lower by 4.57m barrels and this offers some downside risk to todays expected DoE inventory build, but the US leading index and Richmond Fed manufacturing numbers were woeful and feed into the economic scenario that the market is concerned about – lower new orders, and shipments and a decent build in inventories which will need to be worked through – today’s US S&P Global PMIs should cement the worrying trends seen the regional PMIs, although crude may be more sensitive to the services PMI print, as we know the manufacturing print will be poor.
With the many crosscurrents needing to be worked through, its hard to obtain a near-term directional bias, as such, the preference is to let the market push the trade, where an upside break of $65/65.50 set to compel to reinvigorate momentum traders towards long positions for $70.
