The Tribune

By CHRIS ILLING

Chief Commercial Officer

ActivTrades Corp

IT WAS another seesaw week in the global financial markets. The hope that Beijing will relax COVID measures that have been very strict so far is fuelling expectations of higher demand.

Oil prices rose sharply on Friday. There was again market speculation that China could relax its strict coronavirus policy. A barrel (159 litres) of North Sea Brent (Brent) with delivery in January cost $96.55 in the morning. That was $1.92 more than the day before. The price of a barrel of US West Texas Intermediate (WTI) grade for delivery in December rose by $1.94 to $90.11.

The consistent actions by China against the spread of COVID has repeatedly led to extensive lockdowns in recent months. As a result of these tough policies, oil demand in China has fallen by an average of 400,000 barrels per day this year.

On Friday morning, rumours circulated again on social media that China could be facing a change in COVID policy. There had already been speculation during the week about a possible departure from the strict ‘zero COVID’ strategy by the leadership in Beijing, but this was rejected by the Chinese authorities. Nevertheless, oil market investors have again bet on a possible easing, which drove prices up sharply.

Meanwhile, on Friday, US jobs data came in better than expected. Some 261,000 new jobs were created in October. Only an increase of 200,000 to 220,000 new jobs was expected. For several months, the general motto has been that positive job data is bad for the stock market and vice versa.

But share prices continued to rise, probably because the dynamics of wage increases are slowing down. This is the seventh month in a row that this important number has been declining or at least stagnating. Friday’s employment report legitimises the Federal Reserve’s efforts to tighten its monetary policy more slowly. But it is no legitimacy to end the streamlining cycle.

Federal Reserve chairman, Jerome Powell, made it clear on Wednesday this week that the US central bank must bring supply and demand back into balance in the labour market. Only then can inflation be brought down from 8.2 percent in September to the target level of 2 percent.

The US Federal Reserve raised interest rates by 0.75 percentage points on Wednesday, and Mr Powell said it was too early to pause these hikes. In Europe, European Central Bank (ECB) president, Christine Lagarde, commented on the fight to curb inflation during a visit to Tallinn, Estonia.

She stressed that the price stability mandate, and achievement of its inflation target, remains the ECB’s priorities. “We will do everything to achieve this goal,” she said. “The opposite would be much worse. We must not, and will not, allow high inflation to take hold. The monetary policy course could be tightened if necessary. This applies when there are signs that inflation is becoming more stubborn and there is a risk that inflation expectations will get out of hand.”

In the UK, the Bank of England has raised the key interest rate to 3 percent in the fight against inflation and, at the same time, predicted a recession that could last until mid-2024. The rate hike of 0.75 percentage points was the largest in more than 30 years. It seems that we have more of these volatile weeks in the markets ahead of us.