- After months of crude glut, the market is more than ready to welcome any decision that would limit the crude supply although we therefore will not be surprised if prices fall again amid a potential disappointing outcome of today's discussions between Saudi Arabia and Russia
- In the FX market, most commodity currencies advanced against the US dollar, boosted by the recovery in crude oil prices
- New Zealand, we do not expect the RBNZ to cut the OCR prematurely, preferring to wait till the fog clears
- NZD/USD bias is clearly on the downside and a first support can be found at 0.6568
- EUR/USD stabilised at around 1.1160 as traders found no reason to push the single currency lower amid an uneventful speech from Mario Draghi before the EU parliament committee
- GBP/USD may further strenghten to 1.4540, while a support can be found at 1.44
- Deutsche Bank CDS struggling to manage the biggest derivatives exposure in the world
- Current market situation certainly justifies the huge increase in demand for physical gold in London
Brent crude continued its winning streak for a third straight day as it moved above $34 a barrel. The US benchmark, the West Texas Intermediate, rose more than 4% and climbed above the $30 threshold amid rumours that Saudi Arabia will meet with Russia to discuss the oil market. Venezuela is expected to join the discussion as well. After months of crude glut, the market is more than ready to welcome any decision that would limit supply. We therefore will not be surprise if prices fall again amid a potential disappointing outcome of the discussions.
In the equity market, Asian regional markets are blinking green across the screen with mainland Chinese shares leading the charge. The Shanghai Composite was up 3.29%, while the tech-heavy Shenzhen Composite settled up 4.10% to 1,821.72. In Japan, the Nikkei edged up 0.20%, while the broader Topix climbed 0.37%. In Hong Kong the Hang Seng was up roughly 1%. Elsewhere, in Singapore and South Korea, equities rose 1.40%, while in Taiwan the Taiex jumped 1.80%. In Europe, futures are pointing to a higher open on positive Asian lead.
In the FX market, most commodity currencies advanced against the US dollar, boosted by the recovery in crude oil prices. However, the New Zealand dollar fell as much as 1.20% in Wellington amid falling inflation expectations. According to a survey from the Reserve Bank of New Zealand, 12-month inflation expectations fell to 1.09% in 1Q 2106 from 1.51% in the fourth quarter of 2015 as market participants took into account the fall in commodity prices and the weak global demand. According to its mandate, the RBNZ is willing to keep inflation within the 1%-3% target range with 2% as primary target; therefore if inflation expectations continue to slide further, the bank will have to step in. However, according to Governor Wheeler’s latest speech (early Feb), the current weak level of headline inflation is mostly due to negative inflation in the tradables sector as well as the sharp decline in oil prices. We therefore do not expect the RBNZ to cut the OCR prematurely, and believe they will prefer to wait until the fog clears. NZD/USD just crossed its 50dma to the downside, which indicates that the bias is clearly on the downside. A first support can be found at 0.6568 (low from February 2nd); nevertheless the main one stands at 0.6348 (low from January 20th).
EUR/USD stabilised at around 1.1160 as traders found no reason to push the single currency lower amid uneventful speech from Mario Draghi before the EU parliament committee. GBP/USD edged slightly lower to 1.4406 in Tokyo. A resistance lies at 1.4540, while a support can be found at 1.44.
***Yann Quelenn, market analyst: “Markets fear Deutsche Bank is the next Lehman: There is volatility in the market and risk sentiment is largely increasing. The JP Morgan Volatility index is now at its highest level in twelve months. In particular, there are huge concerns that Deutsche Bank may be in a very difficult situation. Its stock price has lost more than 50% in less than a year. The share is currently trading above €15, increasing only because of buyback news. This bank is well known to have the biggest derivatives exposure in the world - currently estimated at around €55 trillion, compared to German GDP which tops around €3 trillion. In addition, the amount of deposit is around €532 billion, around 100 times less that the overall derivatives exposure.
The market is now realising that the global situation is very concerning, as a result CDS on DB (A contract that gives protection against the risk of a default of the German bank) is currently exploding. In this environment of negative return, we believe that the DB issues are a reflection of the overall banking situation. Turmoil is set to continue. This certainly justifies the huge increase in demand for physical gold in London over the past few days.”***
Today traders will be watching 4Q GDP from Norway; trade balance from Italy; CPI, RPI and PPI from the UK; ZEW survey from Germany; retail sales from Brazil; manufacturing sales from Canada; empire manufacturing and NHAB housing market index from the US.