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Crude Oil Continuous Contract (CL.F) & Russell 2000 Index (RLS.I)

Another week, another wild ride for world markets. It seems that the swings keep getting shorter and shorter these days. Since last Wednesday, we have had a 1-day bump on the Bank of England’s dovish pivot, a 2-day slide into quarter end, a 2-day trading bounce to start the new quarter helped by the Reserve Bank of Australia’s dovish pivot, and yesterday another downturn.

A big battle over the last week between bulls and bears over whether the BOE and RBA moves are the start of a broader dovish turn by central banks appears to be ending in favor of the bears, ie isolated pivots with the main group of central banks remaining hawkish. First, the Reserve Bank of New Zealand hiked its benchmark rate by 0.50% as expected, and indicated it remains focused on fighting inflation. Second, a stronger than expected US ADP Payrolls report suggested the US employment market remains robust weakening the case for a Fed pivot. Third, OPEC+ announced a 2 million barrel per day production cut over US objections, indicating their interest in supporting the oil price which could make it more difficult to tame inflation.

The OPEC+ cut also raises another question. If the cut has been prompted by expectations of lower energy demand, how badly is the world economy doing, particularly outside of North America, and what does this mean for the upcoming earnings season which gets underway next Thursday and Friday? So far confession season has been quiet, but that could change and one has to wonder what happens if earnings are positive but guidance is negative or companies start to complain about the negative impact of the high US Dollar? The business news calendar for this week and next is heavily weighted toward Thursdays and Fridays with a lull in between, including a full Canadian and partial US holiday on Monday. This week wraps up with the big US nonfarm payrolls and Canadian employment reports on this Friday with investors focusing both on job creation and wage inflation. Next Thursday and Friday bring the US consumer price index and retail sales reports, and the start to earnings season with Big Banks kicking things off as usual.

In this edition of the Equity Leaders Weekly, we look at the price of crude oil and at the Russell 2000 as an indicator of the state of the US market heading toward earnings season.

Crude Oil Continuous Contract (CL.F)

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