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Equity markets higher despite pressure on crude prices

The recent rise in oil prices continues to unwind with further losses today as markets pare back expectations of an agreement at this month’s oil producers meeting in Doha later this month.

Saudi Arabia’s announcement that it wouldn’t freeze production unless Iran followed suit, along with record high Russian output, and stubbornly high US production levels has pushed out expectations as to when the imbalance between supply and demand is likely to readjust in favour of the  demand side of the equation.

This decline in oil prices to three week lows while acting as a bit of an anchor on broader equity markets, isn’t weighing anywhere near as much as it did earlier this year, largely due to the fact that the US dollar isn’t anywhere near as strong as it was at the beginning of the year as US rate rise expectations have started to get pared back.

Another factor weighing on oil prices is the actions of Saudi Arabia in preparing the ground for a prolonged period of lower oil revenues. The sale of a 5% stake in Aramco along with a massive tax and subsidy overhaul points to an acceptance that oil incomes and revenues are unlikely to return to the levels seen over two years ago when oil prices were above $100 a barrel.

The telecoms sector is among the biggest fallers today after the collapse of the merger between the two of the biggest French players in the European telecoms market, Orange and Bouygues, after the French government refused to dilute its stake.

US markets look set to pick up close to where they left off on Friday as investors look ahead to the release later this week of the most recent FOMC minutes. Friday’s payrolls numbers were slap back in the middle of the sweet spot in the wake of last week’s intervention by Fed chief Janet Yellen, when she slapped down the hawkish rhetoric of some of her fellow policymakers in suggesting rates would rise sooner rather than later.  This softening in the hawkish tone contrasts with recent improvements in some of the recent manufacturing numbers and suggests that senior Fed policymakers have concerns about the effect a stronger US dollar could have on certain parts of the global economy.

Today’s US data is expected to show that factory orders for February declined 1.8%, while the latest revisions to durable goods is expected to come in unchanged at -1%, reinforcing the weak spending patterns of US consumers as highlighted by last week’s weak personal spending data.

On the currency front the Australian dollar is amongst the worst performer so far today after retail sales for February came in unchanged at 0%, down from 0.3%, the previous month while a subdued inflation outlook suggested that the RBA might well look at easing policy, given that the Australian dollar has risen over 8% against the greenback since the beginning of February.

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