Oil falls to lowest since July on rate worries and weak data

Headlines

* USD gains as yields fall after more balanced, less hawkish Fed speakers

* Yen sinks to near historic levels against the euro and Asian currencies

* Oil price falls 4% and gives up gains since the start of Israel-Hamas war

* S&P 500 rises for a seventh straight day on pace for the best win streak of 2023

FX: USD traded off its highs but settled higher on the day. Prices tapped the 50-day SMA at 105.71 before closing at 105.50. Investors digested a host of Fed speakers who talked about a too-strong economy that may need another rate hike to quell inflation.

EUR closed modestly down, but off its lows at 1.0664. Soft German industrial production helped the single currency drift lower. Yields differentials also widened so offered no support. The 38.2% retrace level of the summer decline sits at 1.0764.

GBP closed on the 50-day SMA at 1.2293 after sliding below earlier in the day. Markets are pricing in more BOE policy easing in mid-2024 after Chief Economist Pill appeared to endorse that idea.

USD/JPY popped up for a second straight day to finish above 150. Labour cash earnings printed one-tenth above expectations at 1.2%.  Support remains at 148.80 and the long-term high from last October is 151.94.

AUD underperformed after the RBA raised rates by 25bps to 4.35% as consensus expected. But the policy statement hints that there is now a high bar to more tightening going forward. The major dropped to a low of 0.6403 before settling higher.

Stocks: US equities closed up for a seventh day in a row. The benchmark S&P 500 added 0.28% to settle at 4378. The 50-day SMA is at 4345. The tech-laden Nasdaq finished 0.93% higher at 15,296. Prices moved through the falling trendline from the July high. The Dow settled 0.17% up at 34,152. This is the longest win streak in two years for the broad-based S&P 500 and Nasdaq. The fall in yields helped tech stocks outperform. Fedspeak was less hawkish than previously heard across a range of officials. Markets are pricing in less than a 10% chance of a December rate hike. This is down from over 30% just a week ago.

Asian futures are mostly in the green. APAC stocks were softer on Tuesday following the choppy lead Stateside. The Kospi was the notable underperformer after previously surging on the stock short-selling ban.

Gold hit a two-week low as the safe haven premium eased back. Escalation fears in the Middle East have cooled dampening demand for the precious metal.

Chart of the Day – Oil drops below 200-day SMA

Crude has fallen to its lowest levels since July. Fears around the Middle East war have eased. Instead, oil markets are focused on the demand picture which is seen as deteriorating. Weak China data and falling US yields have raised new concerns. But those falling yields may have eased financial conditions too much which raises the risk of an active Fed.

Prices dropped to $83.09 in early October before the Israeli conflict ignited and saw a high of $92.73 two weeks later. The sell-off yesterday took crude sharply lower and through the October bottom and 200-day SMA at $82.26. The halfway point of the summer rally is at $82.65. The next Fib level is $79.71.

(Sources: vantagemarkets.com)