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The recent plunge in oil prices due to concerns over waning demand and the Israel-Hamas conflict. Weak trade data from China, a strengthening dollar, and higher interest rates are also contributing to the drop in oil prices. Additionally, it mentions the Wall Street stock market’s gains and the US adding Vietnam back to its foreign exchange monitoring list.
Tony Nash comments on the weakening US dollar and the trajectory of both the dollar and the Chinese Yuan. He also addresses the sentiment across major banks regarding the possibility of rate cuts and predicts that the US may not see any cuts until late Q2 of 2024.
Nash suggests that US equities could continue their rally, particularly if corporate earnings accelerate, and tech stocks remain strong. However, he notes that the market’s sustainability hinges on the breadth of the rally and the underlying strength in the markets.
In conclusion, the transcript provides insights into the factors influencing oil prices, currency trajectories, potential US rate cuts, and the sustainability of the US equities rally, as discussed by Tony Nash.
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Ultra prices have plunged more than 4% to their lowest in three months. Worries over waning demand have overshadowed concerns as the Israel Hamas war will stoke further instability in the oil rich Middle East. A WTI has fallen below a $78 a barrel, while Brent also down more than 4% there at 81 41 a barrel. Oil prices have now shed all the gains made since Hamas attacked Israel on October the 7th. Brent crude futures then had risen as much as $92 a barrel in the succeeding days as Israel’s subsequent declaration of war sparked fears of a broader regional conflict. Our traders, they will remain on alert for that risk. But for now, those fears seem to have subsided. Although a price drop overnight was triggered by weak trade data out of China, Chinese exports have fallen at a faster than expected rate of 6.4%, indicating slowing global demand for the commodity. And on top of that, the strengthening dollar and higher interest rates are also squeezing demand for oil. Meantime, stocks continue to gain ground on Wall street overnight as both the S&P 500 and the Nasdaq claimed their longest winning streaks in nearly two years.
Meantime, all three majors climbed higher, with tech stocks among the notable gainers as treasury yields fell. We are also tracking currency moves this morning after the US added Vietnam back to its foreign exchange monitoring list. Vietnam joins China, Germany, Malaysia, Singapore and Taiwan on that list, with both South Korea and Switzerland being removed from the group. We go now to Tony Nash, founder and CEO, complete intelligence for more. Tony, let’s talk. Following the US foreign exchange monitoring list, US also called for greater transparency in how China conducts its exchange rate policy. As of the yuan, that’s hit a 16 year low against the dollar. What is the trajectory you think for both currencies from this point? If you could also talk about the impact on exchange rates.
Sure, yeah. Thanks, Elizabeth. So the dollar has seen some weakness over the past week or so, partly because of the dovish comments that Fed Chair Powell made last week in the monthly Fed meeting. We do expect him to come with some more hawkish comments in his speeches on Wednesday and Thursday. That’s why we’ve seen the dollar strengthen today, and we expect it to strengthen going into the end of the, you know, the dollar is in a zone where it’s likely to weaken as expectations for future Fed easing become more kind of status quo. So what the Fed is fighting against is a feeling that they’re going to start easing, meaning lowering interest rates sooner rather than later. Now, with the Chinese Yuan, I think the concern is how are those decisions made at the PBOC in terms of the value of CNY. And how does that translate to kind of the more open market currency, the CNH, which is traded out of Hong Kong? So I guess what the US is really looking for is what’s called a non tariff barrier. So it’s how is China weakening their currency too much to really help their international trade?
And as we saw with the Chinese trade data, their exports are declining, their imports are rising. So even if China is manipulating down, it’s not really working for their export demand.
Tony, back on the USD, you’re talking about some weakening there. If we see moves by the Fed to hold, that is also a sentiment that we see across other major banks. We’ve seen them pose on their rate hike cycle. And big question now from investors is when the cuts could happen. In your assessment, when could that be?
Look, I don’t really see any cuts until at least maybe late Q two of 2024. The US is not really in a fabulous position, and it’s not in a terrible position. We’re in one of those places where the next Fed meeting could go. Any way they could hold. We could potentially even see a rise. It’s doubtful, but we could see the Fed raise another 25 basis points. We’ve seen some Fed voters out this week with comments saying, look, we really want to get inflation back to 2%, so until we’re there, we need to keep things pretty tight. And so tight money means higher interest rates, potentially. It definitely means holding interest rates for a period of time. So I would say at least for the next three or four meetings, we shouldn’t really expect much in terms of rates. We’ve also seen the Fed continue to sell things off of its balance sheet, which means when the Fed sells things off of the balance sheet, they’re taking currency out of circulation. And that also puts upward pressure on the value of the US dollar. So if there are less dollars in circulation, the ones that remain in circulation are more valuable.
So as the Fed undertakes QT to reduce its balance sheet, it pushes up the value of that dollar.
But markets, well, they still seem to be fueled by optimism that even if there are no cuts, at least a hold looks likely for some time. US equities, they continue their run. Can they build on November’s rally? Is this rally sustainable? You think.
It’s possible? I think it’s really possible. If we see corporate earnings accelerate, we’ve seen tech over the last few days really continue to be strong. Is it possible that tech, say, earnings continue to rise? Yeah, absolutely possible. And so we could continue to see those tech stocks rise? I don’t know how much they can rise, at least in the immediate term. From here, it’s possible that we continue to see upward pressure, but I’m not quite sure how much further they can rise. And a lot of what we’re seeing is really seven stocks pushing Us indices higher. And so as those seven stocks continue to be almost a reinforcement mechanism for markets to rise higher, they become more and more fragile as they’re pushed up. So we really have to look for breadth in markets. If we see the rally can kind of widen, then that would mean that there’s underlying strength in these markets, and we could continue to see them rise on a broad basis.
Well, Tony, appreciate your time this morning. Tony Nash there, founder and CEO of Complete Intelligence.