Turbulence eased on Wall Street overnight as 1000-point trading ranges disappeared, to be replaced with more palatable figures. US stocks spent much of the session in positive territory before reversing lower into the close, with chipmakers and oil stocks proving to be the biggest drag. The Dow ended the day fractionally lower, whilst the S&P closed down 0.5% and the Nasdaq shed 0.9%, as chipmakers dominated the loser board.
Asia was more of a mixed affair, with the Japanese markets still showing signs of recovery following the global sell off in equities, whilst Australia was hit by a weaker commodities sector. Meanwhile, there is no mistaking the sea of red on the futures board, pointing to a weaker open in Europe.
Oil hits 6 week low
A weaker oil price is weighing on the commodity complex as a whole. Oil slid to a 6-week low in the US session, after data showed that US crude stockpiles rose faster than forecast last week, whilst monthly data for domestic production surpassed all-time highs.
Brent sunk to a nadir of $65.35, down 2.3% on the day. Meanwhile, US West Texas Intermediate dropped to $61.69, its lowest level since the first week of the year.
The oil sector had been basking in the success of the OPEC oil production cuts, which started 18 months ago. The OPEC led production limits successfully picked the price of oil up from lows of $27 per barrel, to a recent 3-year high of over $70. However, the danger was always going to the US producers, which had been patiently waiting in the background for the price of oil to move to more attractive levels. Concerns are growing that US output, which is predicted to pass that of Russia and Saudi Arabia, could offset the benefits of the OPEC led cuts, which would put more downward pressure on the price of oil.
Dollar boosted by US Senate 2 year budget deal
In the forex markets, the dollar traded higher, finding support from news that the US Senate has agreed a 2 year budget deal. The $300 billion bipartisan agreement, whilst not yet guaranteed, will put an end (for 2 years) to government shutdown threats, which have plagued Congress and distracted the markets. Votes are expected on Thursday. The greenback was also supported by comments from US Fed official Evans, who pointed to recent inflationary pressures increasing. The mention of potential four rate rises kept the bulls in control
GDP/USD slightly higher ahead of BoE decision
After selling off on Wednesday and almost hitting a three-week low of $1.3835, GBP/USD was seen picking up through the Asian session, as investors look towards BoE’s 'Super Thursday'. The BoE will release its interest rate decision, the minutes from the policy meeting and the quarterly inflation report.
Whilst the central bank is expected to keep rates steady, hopes had been running high of a more hawkish tone from BoE Governor Mark Carney. The pound had started to price in a potential hike in the Spring. Should Carney explicitly throw cold water on a potential earlier hike, the pound could give back it gains. In this scenario GBP/USD could head towards $1.3835, before moving to $1.38 and then $1.3785. Alternatively, a more hawkish sounding BoE could see GBP/USD aim for $1.3920 as a near term target, before $1.40 is eyed.
Opening calls
FTSE to open 64 points lower at 7215
DAX to open 125 points lower at 12,465
CAC to open 53 points lower at 5203