Crude Oil Holds Gains as Chinese Data Prompts the PBOC to Act. Where to for WTI?

CRUDE OIL, CHINA GDP, PBOC, JAPAN, USD/JPY – TALKING POINTS

• Crude oil prices are marching higher as the northern winter arrives
• APAC equities were mixed, currency and rates markets were quiet
• Energy commodities are up on the day.Will WTI make a new high?

Crude Oil to Where: Crude oil managed to hold onto Friday’s gains as economic data in Asia had some good news in it and stimulus measures from the PBOC helped the outlook.

Chinese GDP printed at 4.0% year-on-year for the fourth quarter against expectations of 3.3% and 4.9% previously. This gave a full year read of 8.1%.

Other Chinese data was released at the same time, with industrial production for the year to the end of December coming in at 4.3% instead of 3.7% anticipated and 3.8% prior. Retail sales numbers for the same period were 1.7%, below the 3.8% forecast and 3.9% previously.

The trade data from last week showed a large drop in imports. However, a strong export number created a better than expected trade surplus of USD 94.46 billion instead of USD 73.95 anticipated.

The retail sales and import data highlights a weak domestic economic environment and it prompted the People’s Bank of China (PBOC) into action today.

The 1-year medium-term loan (MTL) rate was cut by 10 basis points to 2.85% when the market was looking for 5 basis points. The reverse repurchase rate was also cut from 2.2% to 2.1%.

Additionally, the PBOC added 200 billion yuan of liquidity to the loan facility.

This comes at a time when there are growing cases of Covid-19 being reported throughout China. Today, cases have been recorded in Beijing, Guangdong and Shanghai.

This loosening of policy by the PBOC is the opposite of what most other central banks are currently doing or contemplating. This is because inflation is fairly benign in China with the latest read coming in at 1.5% year-on-year to the end of December.

Earlier in the day, Japanese core machine orders came in at a blistering 11.6% year-on-year in November, way above 6.7% expected. USD/JPY went higher on the news while the Nikkei 225 had a solid day, up around 0.7%.

Other APAC equity markets were mixed with Hong Kong softer and mainland China higher. Australia’s ASX 200 was up slightly.

Other than the Yen weakening, currency markets have had a quiet start to the week. Energy commodities were all up in Asian trading while iron ore and industrial metals generally are a bit weaker.

With the US on holiday today, markets could remain subdued. There is some second-tier data out of Canada, most notable is manufacturing sales for November.

CRUDE OIL (WTI) TECHNICAL ANALYSIS

Crude oil appears to have some momentum as it approaches the highs from October and November last year at 85.41 and 84.97 respectively. These are potential resistance levels.

A bullish triple moving average (TMA) formation requires the price to be above the short term simple moving average (SMA), the latter to be above the medium term SMA and the medium term SMA to be above the long term SMA. All SMAs also need to have a positive gradient.

Looking at the 10, 55 and 200-day SMAs for crude oil, these conditions have been met today. The 55-day SMA slope has just turned positive for the first time this year.

On the downside, nearby support could be at the recent lows of 77.83 and 74.27.