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Oil Pullback Gives Relief

US equities kicked off the week with gains; the Big Tech led gains, as oil stocks slumped following an almost 10% slump in crude oil prices.

Shanghai lockdown combined with the rising Covid cases in China boosted worries that the fresh health crisis could extend and further weigh on Chinese oil demand – but the temporary fall in Chinese demand should do little to the demand-supply dynamics in the medium-term, which remains in favour of bullish market conditions.

Many oil traders predict that the price of a barrel could reach $200 by the end of the year. Goldman Sachs warns that the barrel of crude at $200 would send the economy into recession as it would ‘produce an income shock similar in magnitude to those that precipitated the 1974 and 1979 recessions.’

But we are not there yet. The barrel of US crude is still capped below the $130 level, and the global demand is expected to reach a record in the second half of the year. The actual fall will likely remain short-lived, and limited above the critical 50-DMA support, which stands just a touch below the psychological $100 mark. Many oil traders see the price pullbacks as interesting opportunities to strengthen their long positions.
Big tech leads rally

Nasdaq led gains on Monday. The tech-heavy index gained 1.30%, while the S&P500 progressed 0.70% and the Dow followed with a 0.27% advance. As such Nasdaq recovered more than half of losses it made since the November selloff, when the Federal Reserve (Fed) hinted at steeper rate hikes and quantitative tightening. The index is preparing to step above the 15000 mark for the first time since before the Ukrainian war, and to test the 200-DMA, near 15120 level.

The Big Tech is, of course, pulling the index higher, as big tech companies, along with other big cap stocks, are now perceived as safe haven investments when bonds tumble on expectation of a steeper monetary policy normalization.

The Bank of America even warns that the global debt weighted by world GDP is on course for its worst year since 1949. So, it’s not a surprise that Joe Biden wants deficit reduction that would be financed by the biggest tax increase in history in dollar terms.

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