US market rebounds as crude jumps 4% overnight

US commercial crude inventories rose 1.41 million barrels over the past week, versus a forecasted 1.25 million barrel drop. The unexpected rise in the US DoE crude inventory last week did not hurt oil prices further. Crude oil Sep future price rebounded 4% overnight after testing a key support level of $39. 

US S&P 500 Index rebounded 0.3% last night, ending a two-day period of selling. Energy shares (+1.76%) and financials (+0.96%) were among the best performers due to higher oil prices and better-than-expected corporate earnings. 

BOE rate decision to be watched today
More volatility in the FX market is probably ahead, as the Bank of England will announce its interest rate decision today at 7pm Singapore time. The market has placed high expectations on the BoE to ease monetary policy after the UK’s vote to leave the EU. According to the Bloomberg world interest rate forecast, the implied probability of a 25bps rate cut by the BoE stands at 99% this morning. 

UK’s June PMI dropped to a 7-year low to 49.1 early last week, deepening economist’s concerns of a possible recession amid post-Brexit uncertainty and heightened calls for easing. It remains to be seen on how much a 25bps rate cut could do to help the UK’s overall economy in a more challenging environment. Sterling stays composed this morning, hovering around the 1.3320 area. 

Asian equities extended the losses
Asian markets closed lower on Wednesday as crude oil prices continued to drop during Asian trading hours, raising concerns of global economic slowdown and a slump in energy demand.  Japan’s Nikkei 225 index fell 1.88% as the yen strengthened after Japan’s government failed to convince the market with its fresh stimulus package. 

The Hang Seng Index joined the global sell down after the resumption of trading on Wednesday, finishing 1.7% lower. HSBC’s 2Q profit dropped 45% to $3.6bn from $6.6bn one year ago. However, a $2.5 billion share buyback plan outweighed disappointment in earnings, which resulted in a rebound of its share price. The bank warned that it would freeze dividend payouts at the current level for the foreseeable future in the face of rising economic and political uncertainty.

Singapore’s Straits Times index lost 1.3% as concern regarding banks’ rising non-performing loans and especially their exposure to the oil & gas sector continues to weigh on investor’s confidence amid falling oil prices. The rebound in oil prices last night would have helped to alleviate the concern to some degree and support the oil & gas sector.  

Crude Oil West Texas Sep 2016

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