The first thing I look at before writing this report is an intraday chart between Brent crude futures and S&P500 futures. The correlation between the two is extraordinary at the moment and the last 24 hours is no exception.
Oil prices have rebounded strongly, with prices up over 5% on reports that Iraq’s oil minister said at a conference in Kuwait that Saudi Arabia and Russia are now more flexible about cooperating to cut output. Brent crude has bounced from circa $29.25 to $32.30 and this has led to the usual rally in equity markets and rise in USD/JPY. The S&P500 is up around 1.5% while Europe’s Stoxx 600 index rose 0.9% after being down 2% at its low.
Stronger US consumer confidence figures supported the notion that consumers are ignoring all the noise in the markets and concerns about China, and are actually feeling more positive about the future. The expectations indices drove the increase, while the present conditions index was flat. Strong earnings reports from economic bellwethers 3M and Proctor and Gamble added to improved market sentiment
With the rebound in oil prices it comes as no surprise that the CAD is the best performing currency, rising by 1.7% against the USD, taking USD/CAD down to 1.4060. AUD is up 0.9% to 0.7020 while the NZD is up 0.7% to 0.6500, close to its high for the day, after reaching a low of 0.6425 early yesterday afternoon. There was a minor and temporary hiccup when Fitch last night downgraded NZ’s sovereign rating outlook from positive to stable. The rating agency affirmed the AA rating, but the revised rating outlook reflected lower export prices and weaker growth prospects.
GBP had an interesting night, with weakness evident as BoE head Carney talked down the prospect of a rate hike in his testimony to a Treasury committee, but thereafter GBPUSD surged ahead on little news to be up 0.7% at 1.4350.
Safe-havens EUR and JPY were out of favour but they only showed small declines against the USD. This morning EUR/USD trades at 1.0840 while USD/JPY trades at 118.57.
Bet you thought I’d missed the 6% fall in China’s CSI300 index. No, I hadn’t, it’s just that the market is not particularly relevant as an indicator of China’s economy and indeed it is not a particularly relevant indicator of anything.
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2 Comments
'Strong rebound in oil prices' ?????
Brent $31.66 and falling.
Meanwhile, the overall tend is still down.
Prices need to at least double to have much effect on Canadian tar sands profitability. And there is little prospect of that when China is in upheaval (meltdown?) ...Shanghai down 6.42% yesterday. That's down about 2,500 points from the 2015 peak and down about 3,500 from the previous peak.
and then it drops, so all you are really commenting on is probable noise and/or speculation and not a real demand /supply price driven change. So speculators seem to be guessing/gambling on some aspects today while longer term Iran for one will dump more and more. Then there is the state of the world's economy, lack luster to say the least, so not much chance price will be demand driven for a year or 2 maybe 3 (then again its insane so who really knows).
If you want to look a little further out than 1 hour then looking in detail at the wave of bankruptcies of oil related companies from the US to the UK may well give a better insight. Oh and the extra money the US banks are putting aside for bad loans....add in the fact these same banks seem to have been hedging and it could get tricky. Oh and Iraq is asking the IMF for money as its selling oil at as low as $22. The problem is OPEC etc needs to take 1mbpd maybe 2mbpd off the market to send the price backup and the history is that few will really reduce their rate.
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