Crude oil tanks

Swissquote Bank Research Team Swissquote Bank Ltd

Oil prices are back below their level at the OPEC + meeting. Brent Crude and WTI are currently trading at 58.66 and 49.09 respectively, approaching 58.10 and 48.50 short-term. Dropping by more than 30% since their early October 2018 high, they are still headed down, despite the effort from OPEC + to reduce supply by 1.2 million barrels per day. Worries of a deceleration in global economic growth should weigh on the demand, as the US, recently named the largest oil producer worldwide, is ramping up its production by 8 million bpd by year-end. This means OPEC + production will have to be reduced further to convince investors of a supply shortage. However, recovery potential is not to be neglected. US-China resolution of trade policies is advancing. Crude prices are expected to drop further short-term, as a recent speech from China’s President Xi Jinping made no specific mention of reforms. This week’s Central Economic Work Conference in China should provide more details, which should comfort investors that Chinese authorities are willing to implement tax reforms.

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Macro outlook worries markets

Investors are pricing in coming economic events. The Japanese yen is gaining ground against major currency pairs while the recent Xi Jinping speech on the occasion of China’s 40th anniversary of Reform and Opening did not reassure investors that further reforms would be implemented. US futures are stabilizing after a sharp drop Monday, while Asian and European shares remain red across the board. Japanese Topix and Nikkei 225 indices are trading at May 2017 and March 2018 lows, closing today’s session at -1.99% and -1.82%, while Euro Stoxx 50 is down 0.50% at opening. As the US Federal Reserve meeting approaches, followed by the Bank of England, the Bank of Japan and others (6 central bank rate decisions in total), equities will be volatile this week. EUR/USD is currently trading at 1.1375, approaching 1.1390 short-term amid expectations of a more dovish Fed following Wednesday’s FOMC meeting.

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Swissquote Bank Research Team

Swissquote Bank Ltd

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