Week Ahead: Will Brent surpass its 2018 high?
Here are the scheduled economic events and corporate earnings for the coming week:
Monday, October 18
- CNH: China Q3 GDP, September retail sales and industrial production
- USD: Fed speak – Kansas City Fed President Esther George and Minneapolis Fed President Neel Kashkari
- Apple to unveil redesigned MacBook Pro laptop
Tuesday, October 19
- AUD: RBA October minutes
- GBP: BOE Governor Andrew Bailey speech
- Google to launch Pixel 6 phones
- Netflix Q3 earnings
Wednesday, October 20
- CNY: China loan prime rate, September new home prices
- JPY: Japan September trade
- EUR: Eurozone September CPI (final print)
- GBP: UK September CPI
- US crude: EIA crude oil inventory report
- Tesla Q3 earnings
Thursday, October 21
- EUR: Eurozone October consumer confidence
- USD: US weekly initial jobless claims
- Intel Q3 earnings
Friday, October 22
- EUR: Eurozone October PMIs
- GBP: UK September retail sales, October Markit PMIs
- CAD: Canada August retail sales
- USD: US October PMIs
Market participants are set to be handed the latest readings on varying sectors of major economies, including China’s Q3 GDP, Eurozone consumer confidence in October, UK retail sales, and US PMIs. With nerves still raw after stagflation fears spiked earlier this week, risk appetite could do with more signs that the global economic recovery has got more legs to it.
At least investors could take heart from the just-released US retail sales data, which grew 0.7% in September compared to the month prior. That print defied market expectations for a 0.2% month-on-month contraction.
Investors wary over global economic outlook
However, should the coming week’s data out of these major economies point to a waning recovery, at a time when supply constraints and an energy crunch have resulted in skyrocketing commodity prices, that could further embolden the stagflation narrative.
A world that’s in stagflation could ultimately mean declines for oil prices, as surging consumer prices hobble demand for the commodity.
Yet, between now and whether the world indeed lurches into a stagflationary environment, it appears likely that more gains are there to be had for oil benchmarks.
Oil has more legs to its surge
Already, Brent futures have soared by some 67% so far this year, with market conditions still pointing to a supply deficit between now and end-2021. Note that global inventories are well below their 5-year average, and we learnt this week of a significant drawdown in stockpiles in Cushing, Oklahoma.
But looking further out, the global oil market is expected to tip back into oversupply in 2022, so say the International Energy Agency, the US Energy Information Administration, and also OPEC themselves.
The question is, at what point will oil prices peak?
Looking at the weekly chart, Brent is now within touching distance of its 2018 high of $86.60, which is the next critical area of interest for bulls.
Should Brent be able to punch well above that 2018 summit, perhaps helped on by better-than-expected economic readings in the week ahead, that could well pave the way for $90 Brent.
However, the weekly charts also point to overbought conditions at present, with the relative strength index having breached 70 while the weekly candlesticks have also gone past the upper Bollinger band. Such technical indicators suggest a near-term pullback is in order, before the key economic figures then dictate whether we could move one step closer to $90 Brent in the coming week.