Overnight Headlines

*China cuts mortgage reference rate for first time in nearly two years

*Oil hovers around 2014 highs, supported by supply concerns

*Australia’s unemployment rate tumbles to 13-year low at 4.2%

*Asian markets break a five-day slide, led by Chinese property developers

USD fell for the first time in four days as US bond yields pulled back from an intraday top at 1.90%. DXY dropped from a one-week high but is trading around the bottom of the previous range. EUR found support at the 50-day SMA at 1.1320. Long-term trendline support at 1.3585 helped GBP stabilise after stronger than expected inflation. AUD is the strongest major on the day, finding support above 0.72 after bumper jobs data.

US equities suffered another selloff with indices taking out key support levels. The S&P500 broke below the 100-day SMA and the tech-heavy Nasdaq entered correction territory after slumping 10% off its November peak. Again, there are major differences in performance between sectors with tech lower and defensive utilities and staples outperforming. Sentiment is more positive this morning with Asian markets and US futures higher on the back of the China rate cut.

Market Thoughts – Oil surge continues higher

While the USD rally faded yesterday, oil prices continued their advance north with Brent touching $89 yesterday. This is the highest level since 2014 and with strong bullish momentum, $100 oil is now being widely mentioned.

The fundamentals still point to more gains. Expectations of a return to oversupplied conditions this quarter have been negated by supply outages, rising geopolitical tensions and resilient global demand as Omicron fears subside. The surge in prices may now see some supply-side intervention by governments though such measures aren’t expected to significantly dampen prices. The US already called on OPEC to raise production faster late last year, to help control inflation which is at multi-decade highs.

Chart of the Day – Overbought Brent due a pullback  

Both Brent and US oil benchmark WTI have risen over 13% since the start of the year. Supply is struggling to keep up with demand as the global economy continues to rebound. Inventories are set to remain low with Goldman Sachs forecasting prices as high as $96 this year and $105 in 2023.

Technically, the bull channel is overbought on the daily RSI and trading outside the upper Keltner band. Initial support is the October high at $86.68 and the October 2018 top at $86.71. Resistance is a long-term level around $88.52 ahead of $90.