crude oil

UK & Europe

A surge in the price of oil after talk of a possible joint production cut of 5% between Russian and OPEC sent the oil and gas sector to the top of global stock indices. The rest of the stock market failed to participate with most other sectors drifting into the red.

The oil price slump has already derailed global manufacturing; if prices head significantly higher again it would just knock out the wealth-effect for consumers too. This potentially negative impact on spending for the likes of Germany, combined with a higher euro goes some way to explain the fall in European equities on Thursday.

Stock markets and the price of oil have been moving in lockstep all this year but the relationship has begun to break down since the FOMC meeting. Since the Fed handed out their moderately dovish statement, oil has popped and stocks have dropped.

A three-week high for the price of oil sent shares price of oil majors BP and Royal Dutch Shell flying higher on the FTSE 100 ahead of earnings next week. Shares of BG group were also higher as shareholders agreed on its merger with Shell. The decision by shareholder to let the deal through has been made a lot easier by developments in the oil market over the past week.

 

US

US stocks opened higher after a series of positive corporate earnings reports with some support from the jump in the price of crude. The gains were led by Facebook, Caterpillar as well as Exxon and Chevron.

Facebook pulled off a real stonker of a quarter. Shares of Facebook are expected to open as much as 12% higher on Thursday after the social network put aside concerns of rising investment expenditure with profits, revenues and user growth that well exceeded expectations. Founder Mark Zuckerburg was heavily criticised at the time of the company’s expensive acquisition of mobile app WhatsApp, including by yours truly. With 80% of MAUs using mobile and an expected $35bn about to be added to the company’s stock market valuation, the $17bn price tag for WhatsApp is looking increasingly justified.

 

FX

The US dollar fell on Thursday as small early losses following yesterday’s Fed meeting accelerated after durable goods orders for December dramatically missed expectations with a -5.1% decline.

Commodity currencies saw some of the strongest gains as oil prices rose with both the Australian and New Zealand dollar gaining over 1% after the RBNZ held off on cutting interest rates.

Sterling rallied over 150 pips versus the dollar after a 0.5% q/q rise in UK GDP that met expectations. Beneath the service, flat manufacturing growth is better than has been implied by recent industry surveys.

 

Commodities

The price of oil took off on Thursday when Russia’s energy minister said a February meeting between OPEC and non-OPEC producing nations may include discussion of a 5% production cut. The price of Brent crude rose as much as 8% to a three-week high after Alexander Novak said a previous suggestion from Saudi Arabia of a 5% output cut by every country could be discussed. He did however stress that it’s too early for any actual agreement on an output cut. The suggestion that Saudi Arabia had proposed a 5% output was later denied by Saudi officials.

An actual joint output cut with both Russian and OPEC could be some way off, if it ever happens but the fact that Russia is publically tabling the idea is a big change from the country’s previous position.

Gold prices fell back below $1120 per oz after retracing half of the losses since the peak in October. The weakness came in spite of a weak dollar and can probably be more attributed to profit-taking following Wednesday’s Fed meeting.