WTI/USD – US Crude Drops to 3-Week Lows, US Payrolls Report Next

US crude has posted sharp losses for a second straight day. In Thursday’s North American session, WTI/USD futures are trading at $43.41 per barrel. Brent crude futures are trading at $45.67, as the Brent crude premium stands at $2.26. On the release front, unemployment claims came in at 263 thousand, within expectations. However, the US ISM Manufacturing PMI posted a weak reading of 49.4 points, short of the estimate. On Friday, the US releases three key employment indicators – the unemployment rate, Average Hourly Earnings and the Nonfarm Employment Change.

Oil prices continue to slide this week. US crude slipped 3.0 percent on Thursday, and has plunged 11.0 percent since August 22, when it was trading just shy of $49. The commodity also posted sharp losses on Wednesday, courtesy of Crude Oil Inventories. The indicator surged with a surplus of 2.3 million barrels, well above the forecast of 1.1 million. US crude is currently trading at its lowest level since August 12. Will the downswing continue?

US numbers were a mix on Thursday, but have otherwise had a strong week. Unemployment Claims came in at 263 thousand, better than the forecast of 265 thousand. It marked the third straight week that the indicator has beat estimates. Earlier in the week, the ADP Nonfarm Employment Change was little changed in August, posting a gain of 177 thousand. This beat the forecast of 174 thousand, the third straight month the indicator has exceeded the forecast. This release precedes the all-important official Nonfarm Employment Change report on Friday. On the housing front, Pending Home Sales gained 1.3%, well above the forecast of 0.7%, marking a 3-month high. On Tuesday, CB Consumer confidence jumped to 1o1.1 points in August, above the forecast of 99.7 points. It marked the indicator’s highest level since September 2015 and points to strong confidence on the part of the US consumer. The only soft spot so far this week was from the manufacturing front, as the ISM Manufacturing PMI pointed to contraction, with an estimate of 49.4 points. This marked the first contraction from the PMI in six months.

After an upbeat speech from Fed chair Janet Yellen last week at the Jackson Hole summit, a September rate hike is back on the table. Yellen’s message to the markets was refreshingly clear, as she said that the case for a rate increase had “strengthened in recent months”. Yellen noted that the key economic indicators were performing well – the labor market was approaching maximum employment, inflation was steady, and consumer spending remained solid. Still, Yellen did not provide any timeline on a rate hike nor did she spell out what the Fed wants to see before pressing the rate trigger. The Fed’s signal to the markets has raised the odds of a rate move, according to the CME Group FedWatch tool, with a September hike priced at 30% in September and 57% for a December hike. However, given that any move by the Fed will be data-dependent, US numbers ahead of the Fed policy meeting on September 21 could significantly change the rate outlook.

WTI/USD Fundamentals

Thursday (September 1)

• 7:30 US Challenger Job Cuts. Actual -21.8%
• 8:30 US Unemployment Claims. Estimate 265K. Actual 263K
• 8:30 US Revised Nonfarm Productivity. Estimate -0.6%. Actual -0.6%
• 8:30 US Revised Unit Labor Costs. Estimate 2.0%. Actual 4.3%
• 9:45 US Final Manufacturing PMI. Estimate 52.1. Actual 52.0
• 10:00 US ISM Manufacturing PMI. Estimate 52.0. Actual 49.4
• 10:00 US Construction Spending. Estimate 0.6%. Actual 0.0%
• 10:00 US ISM Manufacturing Prices. Estimate 54.5. Actual 53.0
• 10:30 US Natural Gas Storage. Estimate 38B. Actual 51B 
• All Day – US Total Vehicle Sales. Estimate 17.2M 

Friday (September 2)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 186K
• 8:30 US Unemployment Rate. Estimate 4.8%

*Key events are in bold

*All release times are EDT

WTI/USD for Thursday, September 1, 2016

WTI/USD September 1 at 12:50 EDT

Open: 44.84 High: 45.07 Low: 43.29 Close: 43.37

WTI USD Technical

• WTI/USD was flat in the Asian and European sessions. The pair has posted sharp losses in North American trade
• 39.32 is providing support
• 43.45 is under strong pressure as resistance. It could see further action in the North American session

Further levels in both directions:

• Below: 39.32, 37.75 and 34.81
• Above: 43.45, 46.69, 50.13 and 53.50

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