ECB kept interest rates unchanged and delayed the first cut until the summer. Increased tension in the Middle East supports oil growth

Speaking in front of the US Senate on Thursday, Fed Chairman Jerome Powell indicated the central bank could move closer to revising its restrictive policy if signs of moderate inflation prove sustainable. Recent data also showed that weekly US jobless claims were slightly higher than expected, and Q4 labor costs were revised downward. The US trade deficit for January widened to $67.4 billion, exceeding expectations of $63.3 billion and becoming the most significant deficit in 9 months, a negative for Q1 GDP. Investors are now awaiting Friday’s release of the much-anticipated February employment report for more information on the state of the US labor market.

The monthly Nonfarm payrolls labor market report will be released in the US today. The economy is expected to add 190,000 jobs in February after adding 353,000 in January. The unemployment rate will likely remain at 3.7%, and wage growth will slow from 4.5% to 4.3% year-over-year. If the data comes out in line with economists’ forecasts, it would indicate a slight cooling of the labor market, increasing the likelihood of an FOMC rate cut in April. The USD index will be under pressure in such a scenario, and risk assets (EUR, GBP, indices) will be supported. On the contrary, if the labor market data comes out better than expected, it will indicate the stability of the labor market and will postpone the first rate cut to a later date. In such a scenario, the dollar index could gain significant support, negatively impacting risk assets, indices, and gold.

The ECB, as expected, left the deposit rate unchanged at 4.5% and said that keeping borrowing costs at this level for “quite some time” would make a “significant contribution” to bringing consumer price growth back to the 2% target. The ECB lowered its 2024 eurozone GDP forecast to 0.6% from its December forecast of 0.8% and cut its 2024 eurozone inflation forecast to 2.3% from its December forecast of 2.7%. ECB President Lagarde said the eurozone economy remains weak, and wage growth is slowing. She added that consumer price growth is slowing, but she and her colleagues are not convinced that monetary easing can begin now. Swaps put the odds of a 25 bps ECB rate cut at 14% at the next meeting on April 11 and 93% at the meeting on June 6.

WTI crude prices rose above $79 a barrel on Friday, rebounding from the previous session’s losses, as heightened tensions in the Middle East continue to raise supply concerns and a Houthi attack on a commercial ship in the Red Sea this week left people dead.

Natural gas prices (XNG) fell sharply on Thursday amid ample US gas inventories. The EIA’s weekly natural gas inventory data showed a 40 billion cubic foot fall on Thursday, which was in line with expectations. However, it was far less than the five-year average for this time of year of 93 billion cubic feet. This kept US natural gas inventories at 30.9% above the five-year average.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was down 1.23%, China’s FTSE China A50 (CHA50) lost 0.23%, Hong Kong’s Hang Seng (HK50) decreased by 1.27% on the day, and Australia’s ASX 200 (AU200) was positive 0.39% on Thursday.

Australia’s economy grew less than expected in the fourth quarter, supporting bets that the Reserve Bank of Australia (RBA) may start cutting rates this year. After weak GDP data, the Commonwealth Bank of Australia reiterated its forecast for an overall rate cut of 75 basis points this year.