Not only USD but also Crude to be affected by today's US manufacturing numbers

Fundamental View

Friday’s close saw Crude claw back its losses from the majority of the week with WTI reaching the $48bbl handle. This was seemingly supply-driven news as we saw Baker Hughes change the status of 90 of its 1533 oil rigs from active to idle. This reduction in capital expenditure by oil and gas firms can be seen as far flung as Petrofac who are rumoured to have delayed the delivery of a Deep-sea drill ship from 2016 to late 2017 in an effort to cut costs. This has also come in a week where we have seen slightly disappointing earnings with many tier 1 US companies missing on analysts’ expectations, with the S&P 500 having its biggest down week of the year last week. The key problem which many US corporations are facing at the moment is the strong dollar; it is hurting corporate profits and ultimately the trade balance, which is becoming increasingly more inverted. The costs for these firms are increasing and thus their profits wane when revenue generated by sales does not outstrip costs by the same degree we saw whilst the Fed was stimulating. Overnight we had China post its first sub-50 manufacturing PMI since 2012; this led to crude drifting lower amid negative sentiment for the commodity in the wake of assumed lower demand. This morning we saw European nations’ manufacturing PMIs post; Italy posting slightly above expected on the headline figure, Germany missing slightly, France similarly below expectations. We also saw the UK post a higher reading with 53.0 against the expected 52.7 leading to a brief respite in the down move in Cable but swiftly followed by a technical break of the previous low.

Today’s View

Today we are waiting for manufacturing numbers from the US in the form of the Manufacturing PMI and the ISM Manufacturing numbers. Construction spending also features for the month of December. The clearest trade is likely to be the dollar but crude is also likely to be affected by manufacturing numbers. Any reading outside of the consensus range has increased headline risk so please ensure that trades are well thought out. This week ahead we have the Non-Farm Payrolls announcement and the Bank of England’s rate announcement, expected unchanged but both present a certain degree of headline risk. The days leading up to the release are usually quite quiet but once again traders are encouraged to be reactionary and adaptive to changing market sentiment.