USOil Subdued as China Data Disappoint Again

  • USOil
    (${instrument.percentChange}%)

USOIL Analysis

Factory activity in China stayed in contraction territory for third straight month in May, despite a slight uptick, since official Manufacturing PMI came in at 49. The world's second largest economy has rebounded after the rollback of the strict pandemic containment policies, but data over the last couple of months have created fears over the strength of the recovery and today's release does not help to assuage these concerns.

Authorities have not stayed idle, as the central bank (PBoC) slashed a series of rates in quick succession earlier this month, in order to provide monetary support. On the fiscal side, the state council pledged to enact measures to promote the economic growth [1]. However, these actions have been largely viewed as underwhelming by markets, with CHN50 having slumped last week.

The United States economy on the other hand, continues to defy expectations with its strength. In another upside revision, yesterday's release showed annualized growth of 2% in the first quarter, compared to 1.3% preliminary reading. This is not necessarily good for oil prices though, since it allows the Fed to pursue a more aggressive stance.

Policy makers had hit the pause button earlier in the month, but their upgraded projection suggest another 50 basis points worth of hikes by the end of the year [2]. Chair Powell has sounded increasingly hawkish and on Wednesday, he expressed his belief that there is "more restriction coming" and kept back-to-back increases on the table. [3]

USOil trades with caution today and below the EMA200, it is in a precarious position, since the 2023 lows (63.63) remain in play, but strong catalyst would be needed for a test. On the other hand, China is still expected to grow this year and along with OPEC+ production cuts are likely to lead to tighter oil markets in H2, which makes sustained weakness difficult. USOil heads towards a profitable week and month and has the ability to return above the EMA200 and challenge 74.34-74, but does not inspire confidence for much more at this stage.

Trade the News: View our Economic Calendar

Markets now look forward to today's US PCE inflation report, ahead of the Independence Day holiday in the US.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 30 Jun 2023 https://www.gov.cn/yaowen/liebiao/202306/content_6886887.htm

2

Retrieved 30 Jun 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230614.htm

3

Retrieved 23 Jun 2024 https://www.youtube.com/watch

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