Global growth fears weigh on oil prices

Market Review

The last few weeks we have noted a trend where the market has been relatively quiet during the early afternoon, and as the evening hours are closing in the market starts moving. For fundamental or technical reasons, the same was true on both Thursday and Wednesday. The move on Wednesday was straight forward market being surprised about the relative dovishness from the FOMC minutes, followed then by the move yesterday which was a complete reversal. The equity sell off yesterday can partly be attributed to trade data from Germany indicating the sharpest drop in exports since the financial crisis further strengthening the fears that Europe’s largest economy is slowing. Considering the latest sanctions on Russia it may be seen in the light of this, although no matter the reason the signs are not healthy. Combined with an ECB that at this point do not wish to embark on further expansionary policy measures until it has seen the result of current policies, markets are currently in disarray. Commodities have also been hit as a continuation of the trend that has been in place since mid summer; and is currently aiming for the $80 handle. With large scale sanctions in place – Russia is currently investigating the effects of a price below $80 will have on their economy. It is safe to say the cost will be dire, especially considering escalating costs related to military spending. 

Today's Fundamental View

Considering the downside movement yesterday and a day without data releases it is difficult to be positive on equities going in to Friday’s afternoon session. The data this morning saw a lower than priced in Italian Industrial Production number, with the French number being marginally better than expected. Construction output in the UK saw its second worst recording in its 15 month history, perhaps indicating everything is not well in the for now steady economic island in the outskirts of western Europe. With this, one should not be surprised by the continuation in the sell off this morning. The afternoon is low on data, but central bank speaker heavy. As our head of trading noted in his morning briefing; it is difficult to remember any session which saw more central bank speakers scheduled to appear on the same day. It all kicks off at 1400BST with Bank of England's deputy governor, and does not end until ECB’s Coere speaks on Washington at 2100BST. It is also worth noting that Angela Merkel and the Chinese Premier Li Keqiang are meeting to discuss Russia as Merkel’s relationship with the Vladimir Putin has cooled down in the light of the country’s invasion of Ukraine. As we are finishing up the strategy – OPEC is reporting that Saudi Arabia has increased production in the last month rather than a decrease as is what the market would be expecting. We believe the lack of action from the cartel may be seen in the light of politics, where the price of a much lower price is tougher for Russia than it would be for the United States or its Allies. This of course remains pure speculation. It is hard to think with as many MP speakers today that there will not be some dovish comments, though we will not fight the trend lower.

Alternative View

No news may lead to low volume and adverse market conditions. Monetary policy will be dictated by arbitrary speakers which can alter direction of the market.