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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