Company Interview / Is oil oversold?

Key points:

Dollar-yen trade shows a downtrend, impact of BOJ and Fed interest rate decisionsNasdaq 100 decline post-Nvidia (NASDAQ:NVDA) earnings, potential further market weaknessOil prices' impact on global economy and Australian energy sector, US election outlook

Tony Sycamore from IG analyses the recent movements in the dollar-yen trade, noting a downtrend since the August selloff. He suggests that the dollar-yen needs to rise above 152 and the 200-day moving average to reverse this trend.

Moreover, the role of interest rate decisions by the BOJ and the Fed is highlighted.

Discussing tech stocks, Tony observes a drop in Nasdaq 100 following Nvidia (NASDAQ:NVDA) earnings. He mentions a short trade idea, with support around 19,450 and potential profits around 17,000. He believes ongoing market weakness could push the Nasdaq lower before any upward correction.

Lastly, Tony tackles the impact of low oil prices on the global economy and inflation. Despite substantial declines, he mentions potential further drops into the low 60s before a recovery. Australian market impacts, including energy sector challenges and US election uncertainties, are considered.

Full unedited transcript below:

0:00

To get a broader view of what's driving sentiment across markets. With a look at the technicals, Tony Sycamore from IG joins me. We were just talking in the break before about the big market meltdown that we had seen in Japan at the beginning of August, but what's happening in the dollar yen trade now? Well, it did really signify a change of trend daily and had just been grinding higher up until that July, late August selloff. And it really looks to me now as if the downtrend is firmly in place. So the price action in dollar yen from that one 4168 low bearing in mind we fell 20 big figures broke a lot of levels, about 200 day moving average. It broke the uptrend support coming from that one 2764 low. It to me has lower to go. I would need to see dollar yen get above that yellow line which is that 152 triple high. We saw many many times on the run higher and I'd need to see it get back above the 200 day moving average. So the risks for me here are that we continue to see dollar yen trade lower

0:59

as the BOJ continued to look to raise interest rates. And of course, the big discussion around just how far the fed will cut rates for the duration of this year, starting with next week. Yeah, that is the key point. But when it comes through into the overall markets, I mean we've been watching very closely the move in tech stocks for example. But last week for the Nasdaq the worst week since 2022. What are we sort of seeing now in terms of moves in the Nasdaq, which was timely actually, because that was the video obviously was a big catalyst for the market. The Nvidia earnings report around the 29th of the month, and we took the opportunity to put a short trade out on the Nasdaq 100. Keep in mind it is the Nasdaq 100. So the levels I'm talking about there do reference the Nasdaq 100 rather than the Nasdaq Composite. So our view was that look we've got Nvidia out of the way. We're heading into the seasonally weak period of September which has played out rather well. And also that based on the technical picture there, that the Nasdaq was missing another leg lower. Now, at this point of time, we've seen, I think about one half of

1:59

what I was looking for there in terms of the down move, I still think pushes down probably are into support, which you can see from that uptrend. And of course, the 200 day moving average. So on the short trade idea, I'd be looking to take profits at least scale out into that support area there, but I do. I can't rule out some sort of overshoot as well down towards 17,000. So at this point of time, um, lowered the stop from where we originally got into that trade idea. Uh, that's now sitting around 19,450 ish from just above the swing high. You can see there at 19,938 and looking to take profit. Hopefully we can see that play out in coming sessions. Yeah. Okay. Well the oil price I mean this is the big one Tony. The big moves here that we haven't seen in fact since December 2021. The impact here in terms of what this means for the overall economy too, when you're looking at that $65 support level, potentially. Yeah. Look, the impact is obviously going to play through in inflation numbers coming into the end of this year. But

2:59

look the concerns here around demand. And we saw OPEC uh, lower their demand forecast for the rest of 2024 and 2025. Of course, we had some soggy Chinese import data yesterday which suggests that the Chinese economy is continuing to languish. There is pockets of strength. We saw that with the export numbers, which probably support the the manufacturing sector to a degree, but broadly speaking, we're just not sure what is going to turn around the demand profile for crude oil. We know that the global economy is slowing. And in that sense I think we are oversold. It has been a very, very sharp move, particularly after breaking below that uptrend support. There is a number of lows going back over the past 18 months to three years sitting in the low 60s. So my view is yes, we are oversold. But you can't rule out in this type of market further unwind into the low 60s. And to get a more positive bias to emerge, then it's got to get back above $72. Yeah, but what does that all there mean for our market given that we are so heavily energy leveraged I guess. Yeah. Well, it's not a great,

3:59

uh, you know, the Woodside's and the beach energies etc. certainly will weigh on, on their, um, their earnings outlook. Um, more broadly, however, I think what we're seeing in the Australian market today is we had two uncertainties at the start of this week. We had the uncertainty around whether the fed were going to cut by 25 or 50 next week. And the other uncertainty was the two presidential candidates were basically neck and neck locked neck and neck and, uh, as that election, sorry, as that presidential debate has progressed, I think what you started to see there, at least in the futures and the betting markets, is that it does signify that Kamala Harris is now the favourite. Now, that's not particularly the outcome which equity markets wanted to see. In fact, Donald Trump was seen as the preferred option for equity markets because of his tax cuts, etc., etc. so at this point in time, it does seem like Kamala has pulled in front. It does remove a layer of uncertainty to a degree now, because if we can see that consolidated, then it removes a little bit of that election uncertainty. We're only two months now from that, that big election. So

4:59

yeah, things looking to clear up. And of course the CPI data tonight, if that is a weaker number than expected, then that gives the fed more scope to go with a super size 5050 basis point cut next week. Do you think that's likely? That's an emergency cut. Look, based on the comments from fed speakers last week. Uh, wala. And uh, I think it was the other

5:19

textbook. Yeah, there's a couple of them. They're both saying, listen to me, 25 was their preferred. Yeah. Uh, messaging. And we now know that the fed is in that blackout periods, um, where we won't get any further communique from them ahead of the, uh, FOMC meeting. But to me, it seems like 25 is the base case. Uh, and look, things have really got to unwind over the next week or so to get that 50 basis points. But I agree, 50 basis points just seems a little bit premature for that.