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Awaiting Opec as bitcoin roils the market

Today’s main event is expected to be the Opec meeting in Vienna where it is expected that oil ministers will extend the output freeze by another 9 months, until the end of 2018. That is certainly what a ministerial committee of oil producers recommended yesterday, however that didn’t stop oil prices continuing their recent slide lower ahead of today’s announcement.

There appear to be some concerns that Russia might well throw a ratchet into the gears, particularly in the context of the length of the output extension. There has been some concern that an extended freeze could well leave the field open to US shale producers who are already pumping at record levels. Therefore the biggest question isn’t around an extension, it’s about how long the extension lasts for. We should know later today.

In what has been another month of records for US markets, we’ve seen the Dow almost hit 24,000, the S&P 500 trade through 2,600, and the Nasdaq hit record highs, though it did suffer a bit of a meltdown yesterday, dropping sharply on reports that tech companies may not see major benefits from tax reform. We’ve also seen interest in cryptocurrencies go off the charts.

In contrast European markets have underperformed even though the DAX made a new record high earlier this month it looks as if we could well finish the month lower across the board, with the FTSE 100 also below its October close.

This underperformance of European markets may well be down to the slide in the US dollar this month which has seen both the euro and the pound regain ground.

The pound has had a choppy week buoyed on the one hand by news that a formula for working out the Brexit bill has been agreed but capped on the other by concerns that EU citizen’s rights and the Irish border question have yet to be agreed. While these are significant problems to be overcome they still have to be weighed up by the risk that if there is no agreement the EU may well have to kiss goodbye to up to €50bn.

It’s also been a decent month for the euro against the US dollar, buoyed by improving economic data across the bloc, albeit against a backdrop of benign inflation, though this could change with today’s latest estimates for November CPI if yesterday’s better than expected German numbers are any guide, which all came in above expectations.

EU CPI is expected to push up to 1.6% from 1.4% for November with core prices set to rise to 1% from 0.9%.

Yesterday’s US economic data showed that the US economy grew at an annualised 3.3% in Q3 raising the question as to how well it would have done but for the transatlantic hurricane season. Q3 PCE also edged higher to 1.4% suggesting that price pressures might be starting to build.

Fed chief Janet Yellen who recently expressed puzzlement as to why inflation appeared to be so weak may well not have long to wait to see if the increase in economic activity results in the inevitable pass through effects of higher inflation.

On the Fed's preferred monthly measure of inflation today’s core PCE data for October is expected to show inflation at 1.4%, up from 1.3% in September, a small tick higher but still a strange anomaly when viewed through the prism of recent prices paid data on monthly ISM surveys, which have been showing rapidly rising prices.

Bitcoin, which had until the summer been little more than a passing distraction for most investors, appears to be starting to gain acceptance as some form of safe haven, store of value, or even risky punt. But however you describe it, the interest in it has seen the price go parabolic in the last few days. Exchanges appear to be queuing up to offer bitcoin futures, with Nasdaq yesterday saying it plans to follow the CME and offer bitcoin futures in the first half of 2018.

This month alone the price of bitcoin has gone from $6,377 at the end of October to be trading just shy of $12,000, before a late slide yesterday saw it back below $10,000. At the end of last week it closed at $8,249 and had at one point moved more than $3,000 beyond that this week alone.

EUR/USD – made a low of 1.1815 yesterday before rebounding but does seem to be building up for a return to the 1.1720 area. A move back above 1.1900 retargets the 1.1970 area.

GBP/USD – has pushed up through the 1.3450 area and the strength of the rebound from 1.3220 would suggest that we could well head higher, towards 1.3580, and the September highs. Below 1.3220 retargets the 1.3120 area.

EUR/GBP – has pushed below the support at the 0.8815/20 area and could head lower to retest the 200 day MA at 0.8790 as well as the November lows at 0.8735. Needs to get back above the 0.8900 area to retarget the 0.8960 area.

USD/JPY – the rebound from the 111.20 area has seen us get back above the 200 day MA, and the move through 112.00 could see us head back to the 112.80 level, and 50 day MA.

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