Brent Crude Gives Up Gains

Daily Analysis - 09/05/2017

US Output and Chinese Growth Concerns Weigh on Energy Prices

Brent crude gave up some of the gains made on Monday as concerns over a growth slowdown in Chinese demand coupled with the relentless rise in US crude production undermines the impact of the OPEC-led output cuts. The international oil benchmark is trading around $49.25 per barrel after opening the week moderately higher.

API Data in Focus

US crude oil production has rallied by more than 10.00% since the middle of last year to 9.293 million barrels per day. That’s just 500,000-600,000 below the current output of top producers Saudi Arabia and Russia. However, the big story weighing on energy prices is recent demand growth statistics from key consumer China, with both imports and exports from the country slowing in recent months. Investor focus will be on American Petroleum Institute’s weekly report on US crude stockpile estimates for last week. The market is forecasting crude supplies to have fallen by 1.800 million barrels, while gasoline stocks are projected to drop by 875,000 barrels. While the short-term trend remains bearish, a drop below $48.50 a barrel will likely accentuate the selling pressure especially if OPEC and non-OPEC producers fail to arrive a production cut extension deal.

Australia Retail Sales Underwhelm

Data delivered by the Australian Bureau of Statistics overnight highlighted retail sales contracting for the second straight month in March, missing the consensus estimate by a wide margin. Adjusted for seasonal variations, sales fell by -0.10% month-over-month, compared to the average analysts’ forecast of 0.30% growth. The decline was led by a -0.60% dip in spending at department stores, while momentum in general is cooling as evidenced by the revision lower to -0.20% decline for February retail sales. The weak March figures can be largely attributed to the impact of Cyclone Debbie that hit Queensland and most likely depressed retail spending. The Australian dollar slid to a 4-month low against the US dollar in early Tuesday trade following the results. AUDUSD was last seen around 0.7340, breaking below the key support at 0.7370.

Canada Housing Starts Fall

After a surprise jump in March, Canadian housing starts dropped in April as groundbreaking for single and multiple units declined according to data released by the Canada Mortgage and Housing Corporation. The seasonally adjusted annual pace of housing starts fell -15.10% to 214,098 units last month, printing well below analyst forecasts anticipating a climb to 220,000. In addition, the March figure was revised lower to 252,305 units, highlighting the slowing momentum in the sector. Canada's housing boom has been showing recent signs of slowing after a series of government actions intended to discourage lending and imposition of taxes on foreign buyers in Toronto and Vancouver. Prices in both cities have soared at double-digit percentage rates, fuelling fears of a bubble in the housing sector. Despite the growing housing concerns, USDCAD is largely unchanged Tuesday, trending just above 1.3700.

Mexico Consumer Confidence Reaches 4-Month Peak

With the Trump administration softening its tone on trade with Latin America's second biggest economy, consumer confidence in Mexico surged to 84.3 in April from a downwardly revised 81.2 in March. This results marks the strongest reading since December of last year. The better than expected confidence came on the back of increased household optimism about the country's economic situation, rising to 76.1 in April from 72.6 in March, and their own financial condition which improved to 95.7 in April from 94.9 in March. Expectations regarding employment and savings also continued to rise. This data is evidence of a sharp reversal in consumer confidence after the metric plunged to an all-time low in January following an inflation spike on a surge in government-regulated gasoline prices. USDMXN is extended gains following the rally on Monday, with the pair currently hovering around the 19.2300-mark.