Bullish rally in the oil market | 11 August 2023

#SP500:

Treasuries stole the spotlight after Fitch downgraded the U.S. credit rating from AAA to AA+, putting added upward pressure on yields. Longer duration Treasuries lagged and a bear steepener curve developed, creating a potential double bottom formation in the closely watched 10-year minus 2-year Treasury curve spread. Historically, curve spreads have bottomed before five of the last six recessions since 1980, although it took an average of 187 trading days after the bottom for the official recession to start. Volatility on the front end of the curve has been less pronounced, as shorter duration Treasuries are more directly tethered to monetary policy—which remains a higher-for-longer theme. With benchmark 2-year Treasury yields trading nearly unchanged since last Friday, a bear steepener curve has formed as longer-term rates are rising faster than shorter-term rates. This is a negative signal for the stock market.

Trading recommendation: sell 4520 and take profit 4385.

XAUUSD:

U.S. money market funds saw robust demand in the seven days to Aug. 4 as investors favoured safer assets on concerns over a U.S. credit rating downgrade and economic reports signalling a still-tight labour market. Investors secured U.S. money market funds worth about $58.56 billion in their biggest weekly net buying since March 29, fresh data showed. Traders withdrew a net $1.45 billion and $838 million out of U.S. general domestic taxable fixed income, and government bond funds, respectively, but poured about $2 billion into short/intermediate investment-grade funds. This is a negative signal for the precious metals market.

Trading recommendation: sell 1950 and take profit 1914.

#WTI:

Oil prices gained, as Saudi Arabia and Russia took steps to keep supplies tight in September and possibly beyond. Saudi production is expected to be around 9 million bpd in September. Meanwhile Deputy Prime Minister Alexander Novak said Russia would cut oil exports by 300,000 bpd in September. Those announced cuts follow moves in June by the Organization of the Petroleum Exporting Countries and its allies like Russia, collectively known as OPEC+, to limit oil supply into 2024. In China, the world's second biggest oil consumer, the central bank pledged to guide more financial resources towards the private economy, suggesting new urgency from Beijing to bolster confidence as economic momentum weakens.

Trading recommendation: buy 80.25 and take profit 82.80.