The FTSE 100 is lower by around 20 points today as the market has seen some selling pressure after rising back close to its all time high during Tuesday’s session. The pound also remains lower and briefly dipped below the 1.26 handle against the US dollar this morning as the weakness since Carney’s Mansion House speech persists.
Bright start fades as FTSE closes red
Tuesday’s session saw the leading UK stock benchmark come within striking distance of its highest ever level before sellers stepped in and saw the market close the day lower. A drop in the price of oil saw Shell (LON:RDSa) and BP (LON:BP) both decline and half the end of day losses for blue-chips were from these stocks. However the market was looking a little vulnerable prior to the oil move and given the recent rise it is quite plausible that the declines were simply a case of profit taking and a decent run up of late. The drop for blue-chips was all the more surprising considering the recent declines in the pound, with a depreciation in the domestic currency traditionally proving supportive of stocks.
Reversal in stocks or just a pullback?
The declines in London yesterday were similar to those seen in mainland Europe and across the Atlantic as the global rally in stocks seen so far this year pauses for breath.The big question now is whether this is simply a case of a slight pullback in prevailing uptrend or the start of a more sustained reversal. The FTSE has been treading water for several weeks and was threatening to make a break lower after falling to its lowest level since mid-May last Thursday after the unexpected dissent in the BoE rate-setting committee saw a spike higher in Sterling. This drop proved a nice buying opportunity and traders will be wondering whether the latest decline is another chance to buy-the-dip. At present the bulls remain in control of the tape but if there is further weakness in the coming sessions traders will point to Tuesday’s intraday reversal as the first sign of weakness.
Oil on the verge of a new bear market
Brent Oil, an international benchmark for crude, ended yesterday’s session on the verge of re-entering a bear market, as defined by a 20% drop from a recent peak. The price fell to levels not seen since mid-November as the post-OPEC decline continues and now trades with a $45 handle. The OPEC meeting itself was intended to support the oil price, with members extending the supply cuts that have been in place since the start of the year for a further nine months until March 2018. However the announcement last month saw the market react adversely, with seemingly deeper cuts than those at present required to prop up price and see a sustained recovery.
DOE data to show another inventory draw?
This afternoon sees the latest weekly inventory numbers from the US, which are important as it was a largely due to a rise in US shale production which led to price plummeting from above $100 a barrel in the summer of 2014 to sub $30 at the start of last year. With Libya, an OPEC member that is exempt from cuts, recently announcing that its production has tripled in the past 12 months and US oil rigs nearly doubling in number from their lows, traders have ample reasons to point to further weakness. Despite nine out of the last 10 inventory numbers showing a decline there remains many with lingering doubts that the supply glut persists. However, another inventory drawdown may stop them in their tracks as a continuation of the recent decline can only persist for so long until market participants take notice.