Oil up, equities down – What could improve investor mood?

Last week closed on a negative note, as US NFP data came in stronger-than-expected, revived Federal Reserve (Fed) hawks, and sent the major US indices lower. And the new week starts on a negative note, as well, after the Chinese Li Keqiang warned that the jobs situation in China is getting ‘complicated and grave’ as the government’s zero Covid policy is taking a heavy toll on the country’s economy, and impacts the rest of the world negatively, as well.  

So negatively, that Saudi Arabia decided to cut oil prices for buyers in Asia from record highs pointing at the slowing demand in China. Saudi lowered all grades for the northwest Europe region and almost all for the Mediterranean, as well. However, crude oil kicked off the week under positive pressure, as leaders of the G7 nations pledged to ban the Russian oil on Sunday. 

As the Russian oil ban has already been widely priced in, the positive impact will certainly remain limited, yet the worsening situation in China and Xi government’s stubbornness in keeping a Mission Impossible in place will likely cost more to China and to the world economy in terms of growth, and oil demand in the coming months. That could slow down the broader oil rally. Yet, news that Biden’s administration’s plan to buy crude to refill these strategic reserves is a sign that the drop in demand will certainly match the tighter global supply. 

Jobs done; inflation next 

The US NFP printed 430K new nonfarm job additions in the US last month, the unemployment rate came in a relatively low, but higher-than-expected 3.6%, and the average earnings increased a slightly less than the expectations, but not enough to cool down the Fed hawks.  

The US 10-year yield closed the week above the 3.10% and the dollar index advanced to a fresh almost two-decade high.  

On Wednesday, the US will reveal its latest inflation figure, and the CPI is expected to have eased to 8.1% in April, from 8.5% printed a month earlier.  

If the jobs data couldn’t improve sentiment, as a strong data would fuel the hawkish Fed expectations, and a soft data would fan the recession fears, sign of softer inflation could improved appetite in risk assets, and trigger a positive correction in US indices. 

In the FX and crypto 

The EURUSD is preparing to clear support near 1.05. The only thing that could help the bears change their mind is a soft US inflation data, which would cool down the Fed hawks, confirming that the Fed’s efforts to slow inflation are paying off, meaning that it would not need to get too aggressive to bring inflation down toward its 2% policy target.  

If we see the Fed hawks relax, we could also see recovery in cryptocurrencies, which trade closely, and positively, to the risk assets, and especially to tech stocks.  

Bitcoin dived to the lowest levels since January over the weekend. The next natural target for Bitcoin bears is the $30K psychological support.