For the first time this year the FTSE
100 managed to post two positive days in a row yesterday, buoyed by a rebound in oil prices, as well as an improvement in the latest Chinese trade data for December.
Unfortunately the wheels started to come off a little in the afternoon session
as the oil price started to slip back as rising builds on distillate and gasoline inventories, started to weigh on sentiment, dragging European markets off their highs of the day.
It would appear that all down the crude supply chain, builds are rising faster than the demand for them,
driving prices lower across the board with US gasoline prices hitting levels last seen in early 2009.
Having seen US crude prices dip below $30 a barrel on Tuesday, Brent prices followed suit yesterday
hitting their lowest levels since April 2004, before bobbing back above into the close. The main question remains as to how much further crude oil prices can fall with the prospect of a move towards the 2004 lows at $28 the potential next target.
Reports that Iranian sanctions could well be lifted by next Monday
also helped limit the upside in Brent prices yesterday, as did the quick release of the US sailors whose boat strayed into Iranian waters earlier this week.
The slide in crude prices pulled US stocks down with it
, with the S&P500 closing below the 1,900 level for the first time since the end of September, and wiping out the gains of the previous two days in the process, and this is likely to see markets in Europe open quite a bit lower this morning.
Concerns about the UK economy have been increasing in the past few days
with the pound in particular losing ground sharply over the last few weeks, pretty much across the board.
This week’s dire industrial and manufacturing production numbers for November appear to have reinforced a belief that the Bank of England is likely to have to push interest rate rise expectations even further out into 2016.
Despite the weakness in the manufacturing data other areas of the UK economy do appear to be compensating
, and a weak manufacturing sector isn’t something unique to the UK at this time with the US manufacturing sector probably in recession already, if recent PMI data is any guide.
Given the weakness in some of the more recent data today’s Bank of England rate decision isn’t expected to offer up too much in the way of surprises
, with Ian McCafferty still expected to be the only dissenter to keeping rates unchanged. The minutes of the meeting might offer up some clues as to whether the tone of the debate has shifted more to the hawkish or dovish side.
The expectation is that the debate is likely to veer towards the cautious side,
particularly since Martin Weale, who has in the past known to have a more hawkish bias, suggested just before Christmas that the need to raise interest rates had become “less immediate”. Since then oil prices have slid another 20%, while inflation and wages growth continues to remain subdued.
Last nights Fed Beige Book turned out to be an exercise in blandness
with all districts saying that price pressures were minimal, while economic activity was said to have expanded in 9 of the 12 districts. The main strains were unsurprisingly being felt in the manufacturing and energy sectors though employment continued to improve.
Today’s US data is confined to weekly jobless claims,
which are expected to come in at 275k, while the latest Fed speaker to break cover is St. Louis Fed President James Bullard, who is a voting member this year on the FOMC
and who has been one of the more hawkish members recently. Will he be as hawkish as in previous comments and fall into line with the convention that has seen argue for the prospect of four possible rate rises this year?
– the slide back from the 1.0970 highs this week has thus far held above 1.0800, and while we do so the risk remains for a move to 1.1100. Only a move back below 1.0800 argues for a retest towards the 1.0600 level where we have trend line support from the all-time lows posted in October 2000 at 0.8220. A break below 1.0600 could see a return to 1.0465 and last year’s low.
– a fairly neutral day yesterday as the pound hovers above the 2010 lows at 1.4230, finding some interim support at 1.4350. We need to recover back through 1.4650 to stop the rot and stabilise for a rebound towards 1.4820.
– the euro continues to find resistance near the 0.7550 area and while below the 0.7595 area the risk remains for a sharp pullback. At this point we could go either way but the risk remains for a move back towards the 0.7410 area, with a break below arguing for a return to the 0.7280 area.
– the recent rebound from the 116.65 area has so far struggled to overcome the 118.30 area needed to suggest a return towards the 120.00 area. While below 118.40 the risk remains for a return to the 116.00 area.
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