Preparing for the FOMC meeting results and selling oil

16 сент. 2020 г.

Yesterday for financial markets started with rather positive information: for the first time in 2020, China showed an increase in retail sales. However, this positive is easily broken by the news about the second lockdown in Israel, the expectation of a second wave of the pandemic in the UK and the general statistics on the number of cases in the world.

The fundamental background in the oil market is getting gloomier every day. As if there were not enough problems like price discounts from Saudi Arabia, increased fears about the recovery in demand for oil, a decrease in imports of oil products from China and an increase in oil reserves in the United States last week. The week started with a new negative.

Yesterday we already discussed the negative projections of OPEC and British BP, and today they were supplemented by forecasts from the International Energy Agency (reduced own forecasts for growth in demand for oil in the fourth quarter by 600K b / d) and Trafigura Group (the second largest oil trader in world, warning that the oil market is again close to a surplus).

To conclude, sell remains the only reasonable option for trading with oil, in our opinion. But with some reservations: another hurricane threatens floods on the US coast, which has already led to the shutdown of a number of oil refineries (production of offshore oil and gas in the US has been cut by a quarter). And the data from the API showed a sharp decline in US oil stocks (by 9.5 million).

Wednesday is interesting primarily by the results of the FOMC meeting. We expect for the details of inflation targeting based on average inflation. Recall that the chair of the Fed, Jerome Powell, at a symposium in Jackson Hole announced the transition to a new benchmark in inflation targeting, but at the same time there were no details provided about how the FED will calculate the average inflation rate, for what period, whether a simple average or weighted average will be used, etc. Answers to these questions will give an understanding of the potential speed of the Fed's reaction to changes in inflationary processes in the United States and, accordingly, it will be possible to more clearly understand the future actions of the Central Bank.

Also, do not forget about the data on retail sales in the United States, which will also be published today.