Crude oil and OPEC stronger united

Consensus expectations heading into the labour market data were for employment to rise +25k and for the unemployment rate to fall to 5.0%. On both metrics the labour market exceeded expectations as the unemployment rate fell to a 10 year low of 4.9%, on a +29.1k rise in new jobs.

Offsetting some of the good news, hours worked fell by 8.4% in Victoria following its lockdown in June, an effect likely to be replicated next month in NSW, due to the current lockdown in Sydney. A rise in underemployment to from 7.4% in May to 7.9% in June, pushed the underutilisation rate higher from 12.5% to 12.8%.

All in all, a good set of numbers that at any other time would prompt the RBA to think about upgrading its unemployment forecasts. However, this is likely to depend on for how long Sydney remains in lockdown.

Turning now to China Q2 GDP which declined from a base effect distorted 18.3% rise in Q1, to a below consensus 7.9% in Q2. The softer Q2 number partially due to the resurgence in Covid in China that impacted catering, travel and entertainment.

The market is expected to look through the slowdown in Chinese growth, comforted by the PBOC’s recent dovish shift that included an increase in aggregate finance and a 50bp cut to the Reserve Requirement Ratio (RRR).

Since our last update in early July, the ASX200 has continued to consolidate the strong gains from the first half 2021, between 7400 on the topside and 7200 on the downside. This type of sideways price action is not uncommon at this time of the year as viewed in July 2017 and again in 2020.

As such, the view remains unchanged and we retain a preference to buy weakness in the ASX200 towards uptrend support coming 7100/7000 area.

Source Tradingview. The figures stated areas of the 15th of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From August, OPEC+ will commence adding 400 kb/d to the market on a monthly basis. From May 2022, UAE, Saudi Arabia, Russia, Iraq, and Kuwait will have a higher combined production baseline of 1.63 mb/d, which will raise the collective production increase to 432 kb/d.

The agreement should reassure markets that the group has settled its differences and increase supply to prevent prices from surging higher. It should also put on the backburner the idea that disgruntled members will take advantage of high prices by increasing production outside of an agreement.

The agreement is not legally binding should circumstances change. The group can pause, reverse or continue with the 400 kb/d monthly increase. The main risk in the near term is the spread of the Delta virus variant and resulting lockdowns that may dampen demand for oil over the next few months and see OPEC+ again cut supply.

However, the oil market remains structurally undersupplied in the medium term due to reduced capital expenditure from mining companies. A combination of low prices, reduced demand from the pandemic, and the ever-rising ESG movement that mandates investment in only clean energy sources.

With this in mind, we are looking for signs of basing in crude oil towards the uptrend support at $69.50/40, coming from the trendline drawn from the November $33.64 low as a possible buying opportunity.

The $69.50/50 level is reinforced by the wave equality target at $69.30 coming from the July $76.89 high, which would become the target if a long trade is entered.

Source Tradingview. The figures stated areas of the 15th of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation