The European bourses and US indices led the majority of the indices lower today during the London session. The S&P500 chart above shows how the price action has become a lot less volatile in the past 8 trading days and the hope is that the US CPI data on Friday will give the markets some direction as traders’ price in the next logical Fed decision at their FOMC meeting.
The single currency was handed some relief after Eurostat reported today that the Eurozone’s gross domestic product (GDP) increased by 0.6% in the first quarter of 2022 compared to the previous three-month period. Over the same period, the figure rose by 0.7% in the European Union. Compared to the previous three-month period, employment in the Eurozone and EU grew by 0.6% and 0.5%, respectively. Over the course of the year, the figures increased by 2.9% and 2.8%. Tomorrow, we learn whether the ECB will take some baby steps into tightening monetary policy with a 25bps rate hike. Some hawks are even calling for a 50bos rate hike to match the Fed.
In the US session and according to today’s Census Bureau report, inventories of US merchant wholesalers increased by 2.2% in April from the previous month to reach $861.8 billion, an increase of 2.2%. This represents an increase of 24% on an annual basis. In the same month as March, merchant wholesalers’ sales increased by 0.7% to $691.6 billion. What we don’t want to see is wholesale inventories rising and sales decreasing as that would point to a lack of demand and possibly the start of the recession that people keep wishing for. As it is, we have now had 3 months of falling inventories which is a positive sign.
The Energy Information Administration (EIA) reported today that commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 2 million barrels to 416.8 million barrels last week. Compared to the previous week, crude oil imports averaged 6.4 million barrels per day, which represented a decline of 64,000 barrels per day. During the same period, commercial petroleum inventories rose by 11.0 million. Exports remain around 4 million barrels per day. The high prices of energy may have prevented end users from coming out to buy more oil, or maybe it is a lack of demand pointing to a certain move towards economic slowdown. Regarding oil, today’s higher energy markets indicate just how tight the supply is. Suhail bin Mohammed al-Mazroui, the UAE’s energy minister, warned that the price peak is yet to be reached since China is set to gradually increase demand in the coming months.
There is not a lot of market structure to trade off when looking at the chart of Brent. Which means the path of least resistance is to the upside to test the 2022 highs. This will add to inflation, keep US rate hikes going for longer and also make it really hard for US president Biden to make it through these coming mid-term elections unscathed.