US crude has posted considerable losses on Tuesday, erasing the gains from Monday. In the North American session, WTI/USD futures are trading at $44.33 per barrel. Brent futures have dropped to $46.93, as the Brent premium stands at $2.60. On the release front, US ISM Non-Manufacturing PMI dropped to 51.4 points, well off the forecast of 55.4 points.
The first key event of the week was dismal, as the ISM Non-Manufacturing PMI slid to 51.4 points in August, sharply lower than the 55.5 reading in July. This marked the weakest expansion pace in the services sector since 2008. This weak reading comes on the heels of the ISM Manufacturing PMI in August, which came in at 49.4 points, its first contraction in six months. Minor indicators released on Tuesday also disappointed. IBD/TIPP Economic Optimism slipped to 46.7 points, below expectations, while the Labor Market Conditions Index dropped 0.7 points.
Oil prices soared on Monday, as US crude gained as much as 5.3% before giving up much of those gains later in the Monday session. The impressive spike followed the surprise announcement that Russia and Saudi Arabia planned to cooperate to stabilize oil markets, as oil prices continue to show strong fluctuations. The two countries signed a “cooperation accord” on Monday at the G-20 summit in China. The move comes prior to a meeting of OPEC and non-OPEC members in Algiers on September 26, and the Russian and Saudi Arabian oil ministers will meet in Algeria in October and discuss further steps. Ahead of the Algiers summit, there has been talk of a production freeze, but producers have been unable to reach any cap agreements at previous meetings. However, continuing talk of a possible cap in production could lead to oil prices climbing higher as we get closer to the Algiers meeting.
The US labor market has been strong for most of 2016, but that trend hit a nasty road bump on Friday, as US job data for August was dismal. Nonfarm Payrolls plunged to 151 thousand in August, down from 255 thousand a month earlier. This was well short of the forecast of 180 thousand. Wage growth also disappointed, as Average Hourly Earnings edged lower to o.1%, shy of the forecast of 0.2%. Clearly this was not positive news, but August job data is often unreliable and tends to miss market forecasts. Will the Fed look the other way and ignore the weak job data? The markets apparently think so, as the odds of a rate hike this year are about the same after the payrolls report – the the likelihood of a September hike is 20 percent, while a December increase is pegged at 60 percent. Still, even if the August payrolls release is overlooked, many FOMC members remain uneasy about a rate hike, especially given the persistent lack of inflation in the economy. Key inflation indicators will be released in mid-September, just before the Fed policy meeting on September 21. These releases could play a critical role in determining if the Fed presses the rate trigger this month, or decides to revisit the rate question in December, exactly a year from the last rate hike.
Tuesday (September 6)
- 10:00 US ISM Non-Manufacturing PMI. Estimate 55.4. Actual 51.2
- 10:00 US IBD/TIPP Economic Optimism. Estimate 48.6. Actual 46.7
- 10:00 US Labor Market Conditions Index. Actual -0.7
*Key events are in bold
*All release times are EDT
WTI/USD for Tuesday, September 6, 2016
WTI/USD September 6 at 9:45 EDT
Open: 45.06 High: 45.61 Low: 43.85 Close: 44.06
WTI USD Technical
- WTI/USD showed little movement in the Asian session. In European trade, the pair posted considerable losses. WTI/USD is showing limited movement in the North American session.
- 43.45 is a weak support line
- There is resistance at 46.69
Further levels in both directions:
- Below: 43.45, 39.32, 37.75 and 34.81
- Above: 46.69, 50.13 and 53.50
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