Originally published by Rivkin Securities
Wednesday was a quiet night for data leaving markets to ponder upcoming political events in Europe.The pound rose +0.16% against the US. dollar as the House of Commons passed PM Theresa May’s Brexit legislation which is now expected to be approved by the House of Lords by March 7th. The euro was flat, up just +0.05% as European bond yields fell ahead of the upcoming French presidential election.
The spread between the French and German two-year yields rose to +0.229% the highest since Q1 2013 while the spread on ten-year securities pulled back to +0.719% after touching +0.78% early this week, the highest since Q4 2012. The market is clearly pricing in a degree of uncertainty around the French elections although that’s not to say that the market is pricing in some type of shock political outcome such as a win by protectionist candidate Marine LePen, whom polling shows would lose by a fairly comfortable margin to the more traditional candidates. However the market does not like uncertainty so the pricing of some political risk is completely expected.
The chart below shows both WTI and Brent crude oil which traded +0.50% and +0.16% higher this morning after reversing initial declines.The moves came on the back of an unexpected decline in US gasoline inventories which declined -869,000 thousand barrels from a prior 3.866 million. This was enough to offset a larger than forecast increase in crude oil inventories which rose to 13.830 million vs 6.466 expected.
The price has remained within a fairly tight consolidation range between US$52 and US$56 following a rally after both OPEC and Non-OPEC producers agreed to cut production to stabilise prices.The market is now patiently waiting as it assesses the level of compliance by these producers given cuts are not enforceable amid a significant rise in the number of active US oil rig counts. Still given production cuts remain supportive for the price so it’s difficult to envisage levels back below US$48 however with increasing US supply, gains should be capped towards the low US$60 range for the coming months.
Locally the S&P/ASX 200 finished higher on Wednesday, up +29.45 points (+0.52%) at 5,651.37.This morning we can expect a modest extension of these gains with ASX SPI200 futures up +5 points in overnight trading.
Data releases:
· Australian New Home Sales (MoM Dec) 11:00am AEDT
· Australian NAB Business Confidence (QoQ Q4) 11:30am AEDT
· German Trade Balance (MoM Dec) 6:00pm AEDT
· RBA Governor Philip Lowe Speaks in Sydney 8:00pm AEDT
· U.S. Wholesale Inventories (MoM Dec) 2:00am AEDT
Chart 1 – Brent (Blue) & WTI (Purple) Crude Oil
