The US and European futures are trading higher today as most of the stock indices are sending an oversold signal, which has brought some bargain hunters into the market. The S&P 500, the Nasdaq, the Dow Jones, and the Dax are all down over 8% (approx.) from their all-time high, and traders think this is a good time for them to buy some good name stocks while they are cheap.
Although many traders are still not convinced that markets are cheap, they are waiting for the stock indices to fall another 5% or so, which can happen if the current earnings season continues to disappoint. So far, the banking sector in the US has been under intense sell-off as Wall Street giants have mostly failed to impress investors. Although, Bank of America did see its share price soaring yesterday because of a more favourable interest rate environment.
As for the economic docket, we have a number of important economic events taking place. Firstly, traders will be looking at the US Weekly Jobless Claims data, which is followed by the US Existing Home Sales data. The US Philly Fed Manufacturing Index number is also due the same as the US Weekly Jobless Claims, which is at 13:30 GMT. Traders will be looking for a strong number across the board. Any weakness in these economic readings is likely to create further pessimism among investors, which may take the stock indices in negative territory.
Over in Europe, we are going to get the ECB Monetary Policy Meeting Minutes, and traders will dissect them to look for monetary policy clues. There has been a more hawkish tone from the ECB more recently, but traders would like to know if and when there will be an interest rate hike by the ECB, which many believe is the only solution to bring soaring inflation under control.
In the oil market, the big question for traders and investors is if we are going to see the $100 mark for oil prices which many are talking about. Well, this question can easily be answered by looking at the following four factors, which are very much driving oil prices.
Firstly, it is a supply issue from the OPEC side. The cartel doesn’t see any need to increase supply aggressively, and it has also said that it alone can’t bring higher oil supply. If we look at the spare capacity of OPEC, it has fallen to 4 million barrels per day from its previous high of 11 million bpd. So clearly, there isn’t much spare capacity left, and supply issues in the short term are likely to resist.
Secondly, investment and lending in fossil fuel space have also dropped dramatically due to a shift towards renewable energy. This is creating further pressure on producers who are failing to find investors for their projects.
Thirdly, Omicron isn’t adversely influencing oil demand as previously anticipated. Yes, we did see some travel restrictions, but now they are being rolled back. The regional lockdowns that were introduced have only lasted for a very short period. In addition to this, it has also started to look like the end of a pandemic is also the insight, and this means more demand for oil.
Finally, the ongoing geopolitical situation. It is becoming worse day by day. Biden, the US President, is adopting a strong stance against Russia, and he has vowed to punish Russia if it attacks Ukraine. These geopolitical tensions are creating threats for supply disruptions which many traders think is a negative factor but positive for oil prices.
So, to answer the above question, it is highly likely that oil prices will continue their way towards the $100 dollar mark in the short term. Investors with a long-term view are more likely to take the opposite position on oil prices as they know that in the long-term, fossil fuel demand is going to fall, and prices at the current level aren’t sustainable.