- OPEC meeting likely to maintain Dec output targets, weighing on crude prices
- Projected Fed rate hike of 25 bps to lead action across markets, including in gold
- US December jobs report, along with some big company earnings, also under watch
From Fed to ECB rate decisions, US jobs numbers, and earnings of three of America’s largest companies, it’s going to be a data-overload week for investors across markets. For those in oil, there’ll be the added stress of how crude prices could react to an anti-climatic OPEC+ meeting.
The Feb. 1 meeting of OPEC+ comes first. With no production change expected from the 13-member Saudi-led Organization of the Petroleum Exporting Countries and their ten oil allies steered by Russia, the meeting will effectively rubber-stamp the output OPEC+ agreed to in December. Oil bulls typically look to OPEC+ to announce cuts when the group meets. Sans that, crude prices are likely to dip.
New York-traded West Texas Intermediate, or WTI crude, and London-traded Brent oil rose at the start of Asian trading on Monday.
But they quickly gave back gains on the notion that the OPEC+ meeting will disappoint, and the Federal Reserve and European Central Bank, along with US employment numbers and earnings, will drive what could be a volatile week for both oil and gold.
WTI crude was down 68 cents, or 0.9%, to $79 per barrel by 02:24 ET (07:24 GMT). The US crude benchmark fell 2.5% last week after a cumulative 11% rally in two prior weeks. Month-to-date, WTI is down 1.8%.
Brent oil for March delivery was also down 68 cents, or 0.8%, to $85.72 per barrel. The global crude benchmark fell 1.1% last week after rallying almost 12% over two previous weeks. For January thus far, Brent was down 0.2%.
Said National Australia Bank in a research note:
“No change to the OPEC+ output is expected to be announced at this week’s meeting, and we expect outlook commentary from the US Fed to be the key driver of the outlook in the near term.”
The Federal Reserve will lead the action with Wednesday’s rate decision that’s expected to feature the smallest US rate hike in almost a year — 25 basis points. The European Central Bank comes on a day later, with an increase that could be as large as 50 basis points.
Of the two, the more closely watched will be the Fed. The US central bank has added 425 basis points to rates since March via seven increases to curb runaway inflation. Prior to that, Fed rates peaked at just 25 basis points, as the central bank slashed them to nearly zero after the global COVID-19 outbreak in 2020.
While the Fed executed four back-to-back jumbo hikes of 75 basis points from June through November, since December, it has imposed a more modest 50-basis point increase. If it goes for a 25-basis point hike next, that will be the smallest since the central bank embarked on its monetary tightening cycle in March 2022.
Investors will also be keeping a razor focus on Fed Chair Jerome Powell’s post-meeting news conference on Wednesday for any indications of how much higher rates will rise and when officials might consider a pause.
Gold prices could drop after a six-week-long rally as investors turn some of their attention to the dollar, which has fallen three weeks in a row, hitting the US currency’s lowest value since April.
Gold for February delivery on New York’s Comex settled at $1929.40 on Friday, down just 60 cents. It advanced to $1,946.60 in Monday’s Asian trading, once again nearing the key psychological resistance of $1,950.
The spot price of gold, more closely followed than futures by some traders, settled at $1,928.15 — down 96 cents, or 1%, on the day. Spot gold peaked at $1,934.56 so far on Monday.
The $1,950 resistance is a key test for gold’s ability to scale towards record highs of above $2,000 an ounce, which it got to in April last year, almost reprising its all-time peak from August 2020. Since this year began, both futures and spot gold have gained more than 5% each.
Spot gold’s failure to settle the week above $1,932, with its drop to below $1,928, raises the possibility of further descent, said Dixit, chief technical strategist at SKCharting.com.
“We could revisit gold’s recent low of $1,916 and extend the decline towards $1,912, followed by $1,900. ”
Dixit added that if selling intensifies below $1,900, a further drop to $1,880 and $1,870 can be witnessed.
But if spot gold’s bullish trend stays intact, buyers were likely to resurface on the support zone in anticipation of an upshot targeting $1,965 and $1,972, he said.
Adding to the volatility in oil and gold will be Friday’s US employment report. The Labor Department is expected to cite a jobs growth of 185,000 for January, down from 223,000 in December. The unemployment rate, meanwhile, is projected to tick up to 3.6%. Average hourly earnings are expected to slow slightly from the previous month.
The economic calendar for the week also features a report on job openings for December on Wednesday, along with ISM PMIs.
Before Thursday’s ECB meeting, the euro zone is to release the fourth quarter GDP on Tuesday, which is expected to show a small contraction. The bloc is to release inflation data for January on Wednesday, which is expected to have slowed for a third straight month.
Adding a cherry top to this week’s towering data cake will be quarterly earnings from Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOGL) - three of the four largest US companies by market value. Meta Platforms (NASDAQ:META), which owns Facebook, will also be releasing results this week.
Typically, company earnings outside of the oil industry do not directly affect crude prices, with the same applying to gold. However, a huge impact on Wall Street from the earnings of these companies could influence oil and gold to move accordingly.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.