Looking ahead to the opening of New York, oil prices rise as traders reconsider booming demand from China and the flat supply outlook outside of OPEC, which should put markets in deficit in the second quarter.
The resumption of Chinese data releases after the Chinese New Year break, coupled with the likely growth-friendly tone of the Two Sessions political event, should offer a better macro picture for oil.
Still, world markets are caught between now-misaligned macroeconomic drivers – a stronger China and a persistent Fed – and exacerbated by impatient investors of all stripes.
In light of the more robust growth and firmer inflation news, the market has continued to bet on a tougher central bank rhetoric.
Strong US growth outlook raises questions about validity of further dollar weakness. And given how fragile risk sentiment is, it could be too big an obstacle to a broader dollar correction in the near term.
Gold is trapped in a regime in which the US dollar rulesbut continues to find buyers on the downside as a hedge against a re-inflation of the geopolitical risk premium.
Also, even though the US 10-year Treasury yield is testing 4%, the inversion of the 2-year vs. 10-year curve (-0.88%) will not go away, anchoring gold above bearish technical levels.
