Our thoughts and prays are will all the innocent in all conflicted regions.

The World Bank issued a statement that Oil prices could reach US150/b if the Israeli-Hamas conflict broadened. This is an acute risk that needs to be monitored closely. Brent Oil is trading down 12% yoy and at the close of business Friday it was down 2%. Is there a reason to believe that the current conflict will be contained just to Gaza and is there a chance that it could spread? As at the close of trading in the US the market seems convinced that the conflict is contained, with investors focusing more on US economic data, especially the employment data which saw a larger drop in Non-Farm Payrolls than was expected and an unemployment rate that ticked higher to 0.1% to 3.9%. All reigniting prospects that the data driven Federal Reserve’s hawkish stance to monetary policy could be faltering, if not concluding. The important US 10 Bond aggressively sold off during the last trading session closing at 4.5765% which is down from its Oct 19 peak of 4.988% which is a signal the market is thinking the Fed will hold off on another hike.

Back to the Middle East. Last week the World Bank issued a report on the conflict and mentioned that it could represent a double shock to the global economy. Further, that the state of the oil market and the wider commodity market today is completely different to when the 1973 Oil crises shocked the world. Albeit that the latest conflict comes on the back of the greatest shock in the commodities market when Russia invaded the Ukraine. The jury is still out on how this could escalate volatility going forward.  The report takes a softer approach to the conflict, noting the average price for Oil should be … for this quarter and as the economy adjusts to a higher interest rate regime the price should level back to an average of US… next year. Since the conflict the oil price has risen 6%. Its outlook could become darker if the conflict crossed borders and this was dependent on oil producing countries becoming more involved. A disruption of between 500,000 to 2million barrels like the disruption caused by the Libyan Civil war in 2011, could see an increase in cost of between 3-13%. A medium level disruption roughly equivalent to the Iraq war could realise a 20-35% increase and an Arab Oil embargo as in the 1970s could reduce the supply of oil by up to 6-8 million barrels per day and drive prices up by between 55 and 75% initially. However, given how close major economies interact to primary input markets we expect the conflict to remain localised as any major disruptions in supply, forcing prices considerably higher will affect the well-being of all global economies. Economies that are already dealing with their own issues. So, focus until another major event will turn to the economy and how the Fed will interpret the data. 

Last week’s set of economic numbers will provide the fuel for a lot of FED discussion this week. Of note is a lot of airplay by Fed officials to which we should be able to etch out the Boards sentiment. The Employment data across the board came in softer than expected. Non-Farm Payrolls were a lot less than expected, +150k against consensus of 180k and a lot softer than last month’s gains of 297k. The unemployment rate increased to 3.9%. Of note was the Manufacturing Payrolls, one of the major engine rooms to any economy which dropped 35k ,the consensus was -10k. This was the largest drop in 12 months and indicates that the manufacturing economy is suffering. A lead indicator for the FED to ease back on its hawkish outlook. 

Apart from a lot of the Fed Governors talking, in the calendar this weeks focus will be on Fed Powell’s speech on Wednesday. Throughout the week we have a lot of economic data from China which will provide a good footing of where this economy is going. Of note will be the inflation data due out on Wednesday where we are expecting no change, which will be a good sign and show that deflationary pressures are starting to abate. PPI data although tipped to be -1.5% yoy is going to be much better than the previous month read of -2.5%. The stimulus programs that is being rolled out is helping sentiment and kick starting the economy. 

On our positions, we ... Negative news surrounding the Israeli-Hamas conflict has given way to optimism for equity markets which is seeing shorts squeezed. We will run with the positive sentiment for the time being noting that we only have a week before the argument starts about the US passing of bills associated with keeping the US Government afloat. We have also taken out the long gold position noting as previously that macro events will only cause a blip and positions are not there for the long haul.

AUD/USD … and AUD/CHF …positions have had a good lift and we are close to becoming back in profit. We continue to...  

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Technical Analysis:

There is not much you can say about this it’s all upside. The formation ticks a lot of boxes. As an initial target to aim for…

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