Commodities Week Ahead: After Fed, US Jobs Pose Next Challenge for Oil

Fresh from the Federal Reserve’s flagship event at Jackson Hole that boosted the dollar and Treasury yields, oil’s new challenge this week will be U.S. jobs numbers for August — and whether they will come in low enough to tone down some of the aggressive rate hike stance of the central bank.

Along with Friday’s non-farm payrolls report from the Labor Department, there will also be the U.S. consumer confidence report for August on Tuesday and the second reading on Gross Domestic Product, or GDP, for the second quarter on Wednesday.

Consumer confidence shot to the highest level in two years in July as inflationary pressures eased and the American economy continued to show resilience in the face of dramatically higher interest rates.

Market makers will be looking out to see if The Conference Board, a business research group that releases the consumer confidence number, will report an even higher reading than the 117 it gave for July. Forecasts obtained by Investing.com thus far show expectations at just 116.

No change is expected, however, on the GDP front, with the Q2 reading expected to stay at the 2.4% estimate issued in the first quarter.

But with non-farm payrolls, it’ll be a different story. July’s addition of 187,000 jobs was the smallest since March 2021. Wall Street’s economists are predicting a 170,000 expansion for August.

Oil longs will also be expecting some change in sentiment from China.

After an early rise on Monday, crude prices were marginally lower as investors stayed fretful over the pace of economic growth in China and the prospect of further U.S. interest rate hikes that could dampen fuel demand.

New York-traded West Texas Intermediate, or WTI, crude hovered under the key $80 per barrel mark at 01:30 ET, up 0.2% on the day.

The U.S. crude benchmark finished last week down 1.7% after shedding 2.3% last week. Prior to that, it rose for seven straight weeks in a rally that lifted WTI by nearly 20%.

London-traded Brent hovered at just under $84, almost flat on the day.

Brent slid 0.4% last week, adding to the previous week’s 2.3% drop. Before that, the global crude benchmark also rose for seven weeks in a row, rising by a total of 18%.

Strength in the dollar, which was trading close to three-month highs, limited any major gains in oil prices on Monday.

The dollar was boosted by a hawkish outlook from the Fed’s Powell, who warned that interest rates could still rise further to curb sticky inflation.

Still, Powell also noted that the U.S. economy was not cooling as expected, which could keep activity and crude demand in the world’s largest fuel consumer elevated in the near term.

But U.S. fuel demand is also expected to slow in the coming months as the travel-heavy summer season comes to an end.

Oil Markets Eye Chinese Manufacturing Data

Crude prices tried to find a footing in response to China's move to halve stamp duty on stock trading to boost struggling markets.

Beijing unveiled more measures aimed at supporting the property sector, as well as equity markets, over the weekend.

The move helped spur some optimism over an economic recovery in the world’s largest oil importer, which is struggling with an otherwise sharp slowdown in growth.

Focus this week is largely on purchasing managers’ index (PMI) data for August, due on Thursday.

The data is expected to show that China’s massive manufacturing sector remained in contraction for a fourth straight month, bringing down overall business activity.

While Beijing’s latest batch of supportive measures offered some relief, traders have grown largely impatient with the government’s otherwise hesitant approach towards rolling out more economic support.

This notion, particularly a smaller-than-expected interest rate cut by the People’s Bank last week, had also weighed on oil markets.

Tony Sycamore, a market analyst at IG, said:

"Unfortunately, after last week's modest (Chinese central bank interest) rate cut, the announcements above amount to another piecemeal measure that won't alter investor gloom towards China.”

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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.