Oil was volatile on Friday as prices rose on renewed concerns over supply risks after Israel and Hezbollah traded accusations of ceasefire violations.

At the time of writing, the price of West Texas Intermediate crude oil was $69.28 per barrel, up 0.8% from the previous close.

Brent crude on the Intercontinental Exchange was $72.99 per barrel, up 0.3%. 

Israel and Lebanon-based Hezbollah had agreed to a ceasefire deal on Wednesday, which was brokered by US President Joe Biden. 

The deal was intended to allow people in both Israel and Lebanon to return to their homes in the border regions, which have been plagued by 14 months of fighting. 

According to a Reuters report, Israel’s military said the ceasefire was violated when it suspected suspects, some in vehicles, arrived at several locations in the southern zone. 

The Middle East is home to more than half of the world’s oil reserves. Escalating tensions could impact supply in the region, boosting oil prices. 

However, since the conflict between Israel and Hamas broke out last year, supplies have not been affected from the region so far. 

Focus on geopolitics

Meanwhile, on Thursday, Russia targeted Ukrainian energy facilities for the second time in November. 

A retaliation by Ukraine could affect Russian oil supply. Russia remains one of the top oil exporters despite tough sanctions on its shipments by western powers. 

Iran told a United Nations nuclear watchdog that it would install more than 6,000 additional uranium-enriching centrifuges at its enrichment plants, Reuters reported. 

Analysts at Goldman Sachs have estimated that Iranian oil supply could drop by 1 million barrels per day next year if the US and other western powers tighten sanction enforcements.

US President-elect Donald Trump is expected to tighten enforcement of sanctions on Iran’s oil exports.

Under Biden, the US administration did not pursue tighter enforcements, which led to a spike in Iranian oil exports. 

Most of Iran’s oil exports are gobbled by China. According to Vortexa, oil exports to China have risen 30% on a year-on-year basis till the first 10 months this year.  

OPEC+ postpones meeting

The oil market was left in an uncertain state after the Organization of the Petroleum Exporting Countries and allies moved their Sunday meeting to December 5. 

OPEC said in an official release that the meeting has been rescheduled as several ministers will be attending the 45th Gulf Summit in Kuwait City in Kuwait.

The meeting will be held via video conference, OPEC said. 

Arslan Ali, derivatives analyst at FXempire.com, said in a report:

Market sentiment was further clouded by OPEC+ delaying its key policy meeting to December 5, leaving investors uncertain about future output strategies.

Thin trading volumes, attributed to the US.

Thanksgiving holiday, underscored a cautious market tone.

The cartel was expected to take a decision on its oil output policy from January as the steep voluntary cuts of 2.2 million barrels per day are set to expire at the end of December. 

OPEC was scheduled to increase output by 180,000 barrels per day from December and unwind some of its voluntary production cuts.

But, lower oil prices and concerns over oversupply prompted them to extend the cuts till December-end. 

Azerbaijan Energy Minister Parviz Shahbazov confirmed as much, stating that “OPEC+ could or couldn’t discuss oil output rollover at its next meeting. It is difficult to prejudge”

Brent crude forecast

The support for Brent crude oil prices is at $70 per barrel. On the upside, a long term resistance remained at $80 a barrel. 

“That’s assuming that we would even get anywhere near there,” Christopher Lewis, analyst at FXempire, said in a note. 

“I think the $75 level is probably going to be difficult to break above. And at this point in time, I think that’s your first real challenge,” he added.

If you’re a short-term trader, this might be the market for you if you like trading range-bound markets.

There’s really nothing to get the markets moving at the moment, but it is worth noting that the support in both grades (Brent and WTI) of crude oil go back a couple of years.

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In recent weeks, the Canadian dollar has been under considerable pressure, weakening past the 1.4 per USD mark and inching closer to its mid-2020 low of 1.41, which was last observed on November 15th.

This downturn comes as investors closely digest GDP data that has significant implications for monetary policy in Canada.

The economic landscape, marked by fluctuating growth rates and geopolitical tensions, is leading many to question the future trajectory of the Canadian economy and its currency.

GDP Growth and Implications

The Canadian economy increased at an annualized rate of 1% in the third quarter of 2024.

This statistic contrasts sharply with the upwardly revised growth rate of 2.2% for the second quarter, which first boosted market confidence.

While the current growth statistic is consistent with market expectations, it falls short of the Bank of Canada’s 1.5% projection.

This dismal performance raises concerns about the economic momentum’s long-term viability and the efficacy of present monetary policies.

The GDP data can be interpreted as a signal that the Canadian economy may not be as robust as hoped, leading to speculation about a potential cut in interest rates.

The Bank of Canada is expected to implement a nominal 25 basis points (bps) rate cut in December, a move designed to stimulate economic activity amid lacklustre growth.

However, with inflation rates showing unexpected strength, the central bank may face a difficult balancing act between stimulating the economy and keeping inflation in check.

Inflation’s Role in Monetary Policy

Inflation has emerged as a crucial factor influencing the Bank of Canada’s monetary policy decisions.

In a surprising turn of events, the trimmed mean core inflation rate—the central bank’s preferred measure—jumped to 2.6% in October, rising from 2.4% in September.

This uptick in inflation could complicate the central bank’s plans to ease monetary policy.

Rising inflation, particularly amid stagnant GDP growth, creates a unique scenario where the bank must tread carefully.

Cutting rates in the face of inflation could lead to further depreciation of the Canadian dollar, presenting potential difficulties for Canadian importers and consumers.

Geopolitical Tensions Impacting the Economy

Another important element contributing to the Canadian dollar’s drop is the geopolitical scene, notably the ongoing trade disputes and tariff threats issued by US President-elect Donald Trump.

Trump recently confirmed his desire to put a 25% tariff on Canadian and Mexican imports, as well as a 10% rise on Chinese goods.

These threats are especially concerning for Canada, considering its economic reliance on US demand for energy products and autos.

The predicted tariffs might limit exports, putting an additional burden on Canada’s already shaky economy.

Investor mood is dampened by these looming geopolitical dangers, increasing the challenges provided by domestic economic indicators.

The anticipation of higher tariffs may lead to lower consumption and investment, further impeding economic recovery efforts.

Outlook: Prospects for the Canadian dollar

As we reach the end of 2024, the mix of slowing GDP growth, inflationary pressures, and geopolitical uncertainty creates serious concerns about the Canadian dollar’s future performance.

The anticipated interest rate drop may bring some short-term respite to the economy, but if inflation continues to climb, the Bank of Canada will face a difficult situation.

The Canadian dollar’s trajectory will be primarily determined by how the central bank navigates these issues while also responding to external pressures from trade partnerships, particularly those with the United States.

Investors and economists will closely monitor impending economic data releases and changes in central bank policy since these will act as indicators of the currency’s future movements.

The ripple effects

The current state of the Canadian dollar demonstrates the intricate relationship between GDP growth and currency valuation.

As Canada grapples with economic challenges and external pressures, it becomes increasingly vital for policymakers to find solutions that balance growth, inflation, and stability.

The coming months will undoubtedly be pivotal in shaping the future of the Canadian dollar and the broader economy.

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On Thursday, Brazil’s government presented a package of measures to save more than 70 billion reais ($11.8 billion) over the next two years.

These policies are part of a new fiscal framework that aims to improve the country’s economic health.

However, investor reactions have been characterized by uncertainty and worry, causing financial market turbulence.

Austerity measures and market reaction

The government’s announcement surprised investors, especially when it showed increased tax exemptions.

This shift generated concerns that the administration was making unduly rosy fiscal estimates.

As a result, the Brazilian real fell to its lowest closing level ever, at 5.99 per dollar.

Additionally, interest rate futures climbed, while the Bovespa (.BVSP) index declined 2%.

Barclays stated that the highly anticipated spending cuts were overshadowed by plans to reform income taxes, aimed at easing the financial burden on the middle class.

This situation diminished the credibility of the announced measures and created a need for a firmer response from the Central Bank.

Central Bank strategy

The Central Bank had earlier called for structural spending controls due to the uncertain budgetary future.

The bank escalated its tightening pace in November, hiking interest rates by 50 basis points to 11.25%.

JP Morgan expects a 100 basis point hike at the next meeting, noting that the government’s fiscal predictions are excessively rosy.

The combination of these factors has created a sense of scepticism among investors, who are concerned that the stated steps would not be adequate to sustain the economy.

Tax exemption proposal

Finance Minister Fernando Haddad attempted to assuage market nerves after a catastrophe on Wednesday.

Investors had expected the package to focus only on spending cutbacks, consistent with Haddad’s previous pronouncements, which hinted that adjustments to tax exemptions would be reviewed next year.

In a news conference, Haddad clarified that the broader income tax exemptions would have a fiscal impact of 35 billion reais, which would be fully offset by compensatory measures that would take effect only in 2026, subject to Congressional approval.

Compensatory measures

According to the administration, hiking the effective tax rate for the wealthiest would fund around half of the compensatory measures.

The proposal would raise the effective income tax rate for persons earning more than 600,000 reais per year, to 10% for those earning more than one million reais per year.

According to government estimates, the current effective tax rate for the top 1% of incomes is 4.2%, while the top 0.01% pays 1.75%.

The implementation of the Brazilian government’s budget plan has caused a rollercoaster of emotions in financial markets.

While amassing considerable savings is critical for economic stability, the current uncertainty and perceptions of overconfidence have weighed on the Brazilian real and the Bovespa index.

Furthermore, the expectation of a more robust response from the Central Bank suggests that the path to fiscal stability is not simple.

With ongoing reevaluations expected in the coming months, the task will be to strike a balance between meaningful fiscal changes and maintaining investor confidence.

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India’s economic growth has decelerated to its slowest pace in almost two years, raising concerns about the nation’s overall economic outlook for the fiscal year ending March 2025.

The Statistics Ministry announced on Friday that the Gross Domestic Product (GDP) grew by 5.4% in the three months ending September 2024, marking the weakest performance since the fourth quarter of 2022.

This figure falls significantly short of the Reserve Bank of India’s (RBI) projection of 7% growth for the period.

The unexpected slowdown has prompted several investment banks, including Goldman Sachs, to revise their GDP growth forecasts downwards, with some predicting growth as low as 6.4% for the full fiscal year.

Pressure mounts on the Reserve Bank of India

The disappointing GDP figures place increased pressure on the RBI to consider a potential interest rate cut.

The central bank currently forecasts 7.2% growth for the entire year.

However, with the latest data indicating a weaker-than-expected performance, the possibility of a rate cut at the upcoming monetary policy decision on December 6th has become a topic of considerable discussion.

Sakshi Gupta, an economist at HDFC Bank Ltd., told Bloomberg, “While we expect the RBI to keep the policy rate unchanged at its meeting next week, the possibility of a move in the February policy for a rate cut has increased.”

The yield on India’s 10-year bond dropped 5 basis points to 6.76% following the GDP announcement, reflecting the market’s reaction to the slower-than-expected growth.

Underlying factors contributing to the economic slowdown

The decline in last quarter’s growth is largely attributed to weaker performance in key sectors.

Manufacturing, electricity and gas production experienced notable slowdowns, while the mining sector even contracted.

Several economic factors have contributed to this slowdown, including a slump in company profits, falling wages, and persistent inflationary pressures.

Despite these headwinds, the RBI has maintained its policy rate unchanged for nearly two years, with Governor Shaktikanta Das recently characterizing a rate cut at this juncture as “very risky” given the ongoing inflation concerns.

Political and social implications of slowing growth

The economic slowdown’s impact extends beyond purely financial concerns.

High borrowing costs, a point recently raised by prominent ministers in Prime Minister Narendra Modi’s government, including the finance minister, are hindering economic progress.

Furthermore, weak growth threatens India’s ability to fully leverage its demographic dividend.

The rising unemployment rate, particularly among young people, emerged as a major political concern during this year’s elections, contributing to the ruling party’s less-than-stellar performance at the polls.

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Wall Street’s major averages rose on Friday at the start of a shortened trading day. 

At the time of writing, the Dow Jones Industrial Average was up 0.3%, while the S&P 500 index added 0.2%.

The Nasdaq Composite index was up 0.1% from the previous close. 

David Morrison, senior market analyst at Trade Nation, said:

US exchanges were closed for the holiday and have a shortened session today, so markets should be quite thin and volumes low.

Despite this, investor sentiment remains positive as far as equities are concerned, and the ongoing pullback in bond yields is providing a welcome tailwind.

Some of the upside momentum on Friday came from the rise in chip stocks. 

Chip stocks rose on Friday after Bloomberg reported that the Biden administration was considering additional barriers on the sale of semiconductor equipment to China that weren’t as strong as previously anticipated. 

Friday’s rise in stocks comes as traders will look to close out the month on highs.

All three US benchmarks have risen sharply this month after President-elect Donald Trump won the 2024 US elections. 

The Dow Jones has added more than 7% in November, which is the best month since November 2023, according to CNBC. 

Both the S&P 500 and the Nasdaq Composite will end the month with 5% gains each. 

Tesla shares up 33% in November

Shares of Tesla have rallied 33% in November after Trump’s win.

The electric vehicle maker’s CEO has close ties with Trump, which is viewed by traders as a positive for the business. 

The company returned to a $1 trillion market cap in November, and was also headed for its best month since January 2023. 

Musk recently got assigned a starring role by Trump, leading a so-called Department of Government Efficiency along with Vivek Ramaswamy, a former Republican presidential candidate, CNBC reported. 

Chip equipment stocks rise

Shares of chip equipment stocks moved higher on the Bloomberg report. 

The report said that President Joe Biden was considering more restrictions on sales of semiconductor equipment and AI memory chips to China. 

According to the report, the restrictions could come as soon as next week and impact Micron Technology, along with some Taiwan-based companies and suppliers to Hauwei Technologies. 

Shares of US-based companies such as Applied Materials, Lam Research and KLA Corp rose sharply on Friday. 

Shares of Applied Materials rose nearly 4%, while those of Lam Research popped close to 6%. Shares of KLA Corp rose more than 4%. 

Meanwhile, prominent stock NVIDIA Corporation was also up nearly 3% on Friday. 

Bullion set for worst month so far in 2024

Gold and silver prices were on track to close out November with hefty declines. 

Most of the declines in the precious metal complex was due to a surging dollar after Trump’s election win. 

Gold slipped more than 2% so far in November, which marks its worst month since September 2023, when it fell 5%. 

Silver, meanwhile, has dropped 4% this month. This will mark the metal’s worst month since December of last year, when it fell more than 6%. 

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