Daily market overview from IFC Markets

[IFCM]

Double jeopardy for GBP

The British pound continued slipping against other liquid currencies. The UK Independence party (UKIP), which goes for the country’s exit from the EU, won the European Parliament elections held in Britain on Thursday. This event casts doubt on the cooperation outlook with the largest trading partner. If the decision of the UK leaving the EU is taken, we would expect the pound to weaken no less than 10%. It dipped 0.3%, falling to $1.5645 on London Exchange. This is the most severe weakening of the national currency over the entire week.
Stocks of European companies rose after Mario Draghi had spoken on inflation rate. Today Stoxx Europe 600 has upped 0.9% at the trading session opening on London Stock Exchange, approaching the weekly high +1.7%. The growth was also demonstrated by oil and gas companies: oil price boosted during the week for the first time since September. S&P 500 and MSCI Pacific showed weak growth by 0.3%, which has no significant fundamental reasons.

Analysts are not consistent in their opinion after the OPEC meeting of 12 member-states: there is no single opinion on possible oil supply cuts. Therefore, slightly risen oil prices this week are likely to be explained as the price retreat in the face of uncertainty. Nevertheless, members of the organization recognize that the demand will be significantly lower next year. Brent crude oil fell 30% since June as US oil production was increasing for three consecutive quarters. However, weak global economic growth does not guarantee the expected demand. Opinions of OPEC members are also divided: if Saudi Arabia is resisting the demand cut, Venezuela and other countries are looking for ways to support the market before the meeting on November 27.
The world’s largest meat company JBS announced its plans to increase exports to Asia. It happened after the Primo Group purchase, the largest meat producer in Australia and New Zealand. That gives the opportunity to increase the share of more expensive products and expand the market. Currently, Australia can not export about 20% of pork due to the lack of certification in the Chinese market. However, this restriction would be overleaped as the free trade agreement between the two countries enters into force beginning in 2018. The prospects for meat supply hike on the biggest Asian market resulted in F-CATTLE price drop: today the price has dropped 0.7% on Chicago Mercantile Exchange and indicated further reduction outlook.

 

[IFCM]

Markets rise, S&P 500 and Dow hit new records

US markets closed higher on Monday. The S&P 500 closed 5.91 points, or 0.3%, higher at 2,069.41, the 46th time it closed at record level this year. The heaviest-weighted company on the index, Apple, Inc. rose 1.9%, helping lift the benchmark. The Dow Jones Industrial Average dipped in an out of negative territory but closed marginally higher at 17,817, a record high for the 29th time this year. Analysts expect that revised third-quarter gross domestic product figures expected to be released today at 14:30 CET, followed by the consumer confidence index for November will indicate an improved outlook for the US.

European stocks rose Monday building on last week’s momentum after the ECB revealed plans for further stimulus and announced Friday that it had begun purchases of asset-backed securities, marking a second stage of its quantitative easing measures. The Stoxx Europe 600 closed 0.1% higher, pulling back from bigger gains during the session after reports of unexpected improvement of German business sentiment provided some reason to expect the ECB will likely reconsider the urgency of immediate action in light of improving outlook in Europe’s biggest economy. On Monday the Ifo institute reported German business confidence survey results which indicated the monthly index rose unexpectedly to 104.7 points in November from 103.2 points in October, after declining for six months in a row. Euro rose against other major currencies, climbing to $1.2409, up from $1.2392 late Friday. The gains for euro could have been higher if it were not for the European Central Bank President Mario Draghi’s remark last week that it was necessary to bring euro zone inflation up to the ECB’s target “without delay.” The comment reinforced Investor expectations that the ECB will implement a full-scale quantitative easing program, which likely would weaken the euro. In other currency pairs, the yen fell against the dollar to ¥118.245 from ¥117.72 Friday. Investors are looking forward to the release of minutes from October’s Bank of Japan meeting Monday evening to see if it will reveal any details for central bank’s monetary easing program. Russia’s ruble , which has fallen almost 37% so far this year against the dollar rose around 2.1% against the greenback.

Oil futures declined in choppy trade Monday as investors awaited the results of talks over Iran’s nuclear program. A deal would end sanctions on Iranian oil exports, further increasing the supply and adding pressure on oil in a global market suffering from low demand and increased output by major producers. ICE January Brent futures dropped 68 cents, or 0.9%, to end at $79.68 a barrel, after two sessions of gains. As the Organization of the Petroleum Exporting Countries is planning a meeting on Thursday, investors expect no major cut to be announced. The cartel wants to preserve its market share therefore leave production as is, and a large cut would enable US shale producers to keep their own production levels high.

Gold futures declined as US inflation concerns eased and the dollar climbed to the highest level since March 2009 against a basket of 10 currencies as Japan and Europe added to monetary stimulus. In 2014, gold has declined 0.5 percent. The metal in 2013 tumbled 28 percent, ending a 12-year bull run. A second straight annual drop would mark the longest slump since 1998.

 

[IFCM]

Global markets mixed, S&P 500 and Dow close lower

The US stocks traded in a narrow range on Tuesday and closed marginally lower snapping a three day run on the S&P 500 and Dow Jones Industrial Average. The Commerce Department upgraded its reading on third quarter gross domestic product (GDP) growth to 3.9 percent on Tuesday from 3.5 percent reported last month. The raised estimates reflected upward revisions to business and consumer spending, At the same time The Conference Board report released on Tuesday indicated that US consumer confidence fell unexpectedly in November to its lowest level since June as optimism waned in the short-term outlook for business conditions and jobs. The S&P 500 set an intraday high, but closed 0.1% lower at 2,067.04. The Dow Jones Industrial Average slipped 3 points to 17,814.94.

In Europe, Germany’s Federal Statistics Office confirmed an earlier preliminary estimate showing a 0.1 percent rise in seasonally-adjusted GDP in the third quarter, indicating that Europe’s biggest economy narrowly avoided recession after contraction in the second quarter. Germany’s DAX 30 index climbed 0.8% to 6,731.14, pushing the index’s month-to-date gain to 5.7%. The Stoxx Europe 600 rose 0.2% to 346.28. The European Commission agreed on Tuesday to set up a new fund with $26 billion of capital to act as a catalyst for 300 billion euros of private investment into infrastructure projects to revive growth. The Commission hopes it will create a million jobs over three years. The Nikkei Average rose 0.3% to 17,407.62 on Tuesday. Bank of Japan Governor Haruhiko Kuroda said on Tuesday that the central bank would continue to take actions to achieve its 2% inflation target. On Tuesday, the People’s Bank of China lowered its 14-day repurchase-agreement rate by 20 basis points after a surprise interest rate cut on Friday.

Oil futures slumped to their lowest close in more than four years Tuesday after a meeting between OPEC members Saudi Arabia and Venezuela with major oil producers Russia and Mexico failed to reach an agreement on output cuts. ICE January Brent dropped $1.35, or 1.7%, to $78.33 a barrel. Analysts expect Saudi Arabia is likely to adhere to calls for the cartel to stick closer to its production ceiling of 30 million barrels which could provide some near-term support, but have argued it would likely take a bigger reduction to provide a more sustainable increase in the price. The cartel has been exceeding its existing production ceiling of 30 million barrels a day, producing around 30.7 million barrels a day in September.

Gold inched higher on Tuesday after reports US confidence index fell unexpectedly in November. December gold futures settled up 0.1% at $1,197.10 an ounce. December silver settled higher 1% at $16.55 an ounce. China will begin to buy corn from farmers this week under an annual intervention program as it seeks to support the domestic market and boost rural incomes, and plans to buy 40 million tons of corn in 2014/2015. And falling soymeal prices in China are threatening to cut China's booming demand for US beans as processing margins have started turning negative. A slowdown in imports by China, which buys more than 60 percent of globally traded beans, could add to pressure on global prices that rallied to a four-month high earlier this month on the back of strong demand.

 

[IFCM]

S&P 500 and Dow hit new record highs

US stocks ended Wednesday session marginally higher as investors discounted mostly disappointing economic news. The S&P 500 and Dow Jones Industrial Average scored their 47th and 30th record closes this year at 2072.77 and 17827.75 respectively. Trading was thin ahead of Thanksgiving holiday. The Commerce Department said Wednesday consumer spending climbed a seasonally adjusted 0.2% in October after being flat in September. Core capital goods orders excluding aircraft fell 1.3 percent for a second straight month, a closely watched proxy for business spending plans. The drop in core capital goods suggests the economy is not fully immune to Japan's recession and cooling growth in China and Europe. A separate report from the Labor Department showed initial claims for state unemployment benefits last week were above 300,000 for the first time since early September. The Chicago purchasing-managers index and the University of Michigan Consumer sentiment index for November fell slightly. Sales of new single-family homes rose 0.7% in October, while a gauge of pending home sales fell 1.1% in October, signaling that upcoming deals could slow down.

Vitor Constancio, the European Central Bank’s vice president, said on Wednesday the ECB might decide as early as the first quarter of next year whether to begin buying sovereign bonds, starting the so called quantitative easing program. Equities across Europe rose after this news but ended essentially flat as The Stoxx Europe 600 index closed unchanged at 346.28. The euro declined after Constancio’s comments , but recovered later against the dollar to buy $1.2502 compared with $1.2473 in late Tuesday as the dollar lost ground after a round of weak US economic data.

Oil futures declined further on Wednesday on expectations the Organization of the Petroleum Exporting Countries will not decide to cut significantly oil production at its meeting on Thursday. January Brent crude on London’s ICE Futures exchange slid 54 cents to $77.80 a barrel. Nymex crude has dropped nearly 3.7% since the beginning of the week. Oil futures are down more than 30% from their midyear high. Saudi Arabia’s oil minister, Ali Al-Naimi, said Wednesday that he believes the crude market “will stabilize itself,” while Iran’s oil minister said OPEC should comply with its output ceiling. As analysts point out, lowering the production limit is not in OPEC’s long term interest as by limiting its own output it would concede more market share to shale oil producers. At the same time, current low oil prices are to the benefit of some larger OPEC members like Saudi Arabia as this will undoubtedly put pressure on smaller and inefficient oil producers.

Gold declined on Wednesday with December gold finishing down less than 0.1% at $1,196.60 an ounce as the mixed US economic data indicating some slowing in the pace of economic growth were discounted by investors and didn’t cause an increase for the safe haven asset demand. Gold is up 2.1% in the month to date, having dipped just 0.1% so far in this holiday-shortened week. Meanwhile, December silver settled unchanged at $16.55 an ounce. Corn futures rose for a second day in Chicago on demand for the grain to make ethanol as US output of the fuel climbed to an all-time high. Yesterday, corn futures for March delivery gained 1.8 percent. With 94 percent of the crop harvested as of November 23, many farmers are storing corn until prices rise.

 

[IFCM]

OPEC leaves oil output

Yesterday the United States celebrated the public holiday, Thanksgiving Day. European markets rose. Market participants had a positive reaction to OPEC’s decision to leave oil output as it was. Oil prices have tumbled about $6 per barrel: it would reduce significantly the expenses of European companies.

An additional growth factor was the fallen German inflation rate in November. This improves the chances of an early start of the ECB money printing. Investors believe that part of that money would flood into the stock market one way or another. Therefore, euro has slipped. This morning European markets are slightly down expecting the data on inflation and unemployment for the EU. The data will be released at 10-00 СЕТ. It was also caused by the negative stock price change of European oil and energy companies, and Aurubis AG stocks slumped 7% due to the Goldman Sachs forecast revised downward. Note that significant macroeconomic data is not expected today in the US.

Nikkei dipped on Thursday as it was traded before the OPEC decision. Today it has climbed. It added 6.4% in November, the most significant rise over 12 months. Another positive factor for the Japanese stock market was the yen weakening and the economic data released this morning. Industrial production in October increased 0.2% compared to September. It was expected to fall 0.6%. Unemployment rate was 3.5%, slightly better than expected. Inflation rate in October fell to 2.9% yoy, compared to 3% in September. Growth in consumer prices in Tokyo in November was also less than expected. In theory, this allows the Bank of Japan to continue money issuing, which depreciates the yen. According to the BOJ, if not taking the sales tax hike in April into account, CPI was only 0.9% last month, instead of 2.9% stated in official statistics. The BOJ inflation target amounts to 2%. Note that yen weakening was moderate yesterday as the Bank of Japan announced plans to cut the purchases of short-term government bonds in December.

Previously, we have repeatedly pointed out that fallen world crude oil prices is coherent with anti-Russian Western sanctions. The US increased its own oil output up to 9.08 million barrels per day, the record high since 1983. Oil priced tumbled 37% since June. The CEO of Russia's largest oil company Rosneft Igor Sechin accept the possibility of Brent crude oil prices may be falling to $60 per barrel and lower by the middle of next year. In this case, Russia can reduce the production by 200-300 thousand barrels per day. Note that at the last OPEC meeting, Venezuela and Algeria called for the output cut of 2 million barrels per day. That means Russia is unlikely to affect oil prices without OPEC. The organization produces 30.97 million barrels per day and provides 40% of world exports. Russian ruble falls against the US dollar as global oil prices are going down: it can be used for trading.

According to Olam International forecast, the global shortage of cocoa in 2014/2015 would reach the level of 120 thousand tons due to the reduced crop in Ivory Coast to 1.15 million tons, compared to 1.23 million a season earlier, and in Ghana – 625 thousand tons vs. 735 thousand.

Gold prices drop for three days in a row. Meanwhile, a Swiss referendum on increasing gold in state reserves from 8% to 20% will be held in Switzerland on Sunday, November 30.

Note that Bloomberg Commodity Index slumped to the record low since July 2009. Some investors deem that cheap oil may cause deflation and have a negative impact on commodity prices.

 

[IFCM]

Biggest one-day drop in oil prices since May 2011

World stock markets were mixed on Friday. As OPEC left the output level unchanged, the daily drop in oil prices was the largest since May 2011 and reached 7%. Amid this data, S&P energy index tumbled 6.3%. Stocks of oil companies Exxon Mobil and Chevron fell 4.2% and 5.4%, respectively. Stocks of shale oil companies such as Denbury Resources, QEP Resources and Newfield Exploration dropped about 15%. Cheap oil reduces expenses of transportation and aviation companies, as well as retailers. Stocks of Delta Air Lines rose 5.5%. S&P 500 Retailing upped 1.4%.

Followed up the week and November, the US stock indices rose. Today at 14-45 СЕТ Markit Manufacturing PMI is to be released in the US. At 15-00 СЕТ we expect the release of ISM Manufacturing index. The forecast for the first index is slightly positive, for the second one – moderately negative. Two Fed officials will be delivering their speeches at 17-15 and 18-00 СЕТ. For more information about macroeconomic data for this week, please watch our weekly video overview. According to the US National Retail Federation, the volume of retail sales in the United States over the weekend and Thanksgiving Day slipped 11.3%, compared to last year. It may hammer stock indices.

As released on Friday, inflation and unemployment in the euro zone remained unchanged in October compared to November. This morning European indices have dipped as the Chinese Manufacturing PMI in November hit the 8-month low (50.3 points). Market participants are concerned that it may reduce the demand for European goods. Another negative factor that affected European markets was the weak Markit Manufacturing PMI performance in Germany, France and Italy. At 9-00 СЕТ the same indicator for the euro zone will come out. There will be no macroeconomic data releases for today.

Nikkei has risen in the morning as yen hit the 7-year high, a bit above 119 yen per US dollar. Moody's Investors Service lowered the credit rating of Japan to A1 from AA3. Now Nikkei is going down under the pressure of weak data from China. Other Asian stock indices fell altogether. Note that a weak exchange rate of the national currency provides substantial support for Japanese exporters and bolsters the stock rise. The same as in Europe, due to falling oil prices stocks of airlines were traded higher.

A slowdown in Chinese industrial growth affected commodity futures. The most affected resulted to be copper prices. In China copper is used as a guaranty for commercial loans.

As expected, oil prices continued to fall. OPEC members have begun to revise their budgets for next year. Some investors deem that Brent crude oil would stay in the range of $64-68 per barrel, as the lowered price will make the oil production unprofitable at the most part of world’s oil fields. Note that the next OPEC meeting is scheduled for June.

Precious metals have fallen in price, as the Swiss referendum didn’t approve the decision to increase the share of gold reserves of the country. In our opinion, the prices may stop falling for some time, since the majority of players had already sold gold. Gold stockpiles of SPDR Gold Trust reached a 6-year low of 717.6 tons. Pure gold imports into China via Hong Kong in October rose to 77.6 tons from 68.6 tons in September. The Reserve Bank of India cancelled unexpectedly the existing requirements for gold importers. For this reason, according to Indian Bullion and Jewellers Association outlook, gold demand in India would rise up to 900 tons per year.

Wheat prices have climbed after the announcement of possible export cuts from Russia due to phytosanitary control tightening. We believe it is likely to happen as mutual economic sanctions were imposed.

 

[IFCM]

Markets retreat on weak economic data

US stocks fell on Monday after disappointing economic data from China and Thanksgiving holiday sales. The National Retail Federation estimates indicate retail spending over the Thanksgiving weekend fell 11%, the second straight annual decline, contributing to decline of retailer stocks such as Wal-Mart Inc., Target Corp. The negative retail sales hit also Tech stocks after disappointing sales on Cyber Monday. Internet-retailing giant Amazon.com Inc. shares declined by 1.2%, Apple Inc. fell 3% and other e-commerce companies including eBay Inc , Google Inc , Yahoo! Inc. , Facebook Inc Netflix Inc. and Chinese Internet giant Alibaba Group suffered losses too. The S&P 500 and the Dow saw their biggest one-day loss since Oct 22. The S&P 500 fell 0.7% to 2,053.44, while the Dow Jones Industrial lost 0.3% to 17.776.80. The Nasdaq Composite’s decline was the biggest in seven weeks, after falling 1.3%, to 4,727.35.

European stocks fell on Monday, as investors weighed economic data indicating slowing in economic activity in euro zone and China. Data firm Markit said its monthly survey of euro zone purchasing managers fell to 50.1 in November, down from a preliminary estimate of 50.4. HSBC early Monday said its China PMI fell to a six-month low of 50.0 and China’s National Bureau of Statistics said official PMI fell to 50.3, the lowest level since March. The Stoxx Europe 600 index fell 0.5% to 345.64, the oil and mining shares leading the losses after OPEC decision not to cut oil production and the reported weakness of the world’s second largest economy.

WTI futures gained more than 4% Monday after crude futures plunged 10% on Friday in reaction to the OPEC decision to maintain production levels. January Brent crude on London’s ICE Futures exchange rose $2.39, or 3.4%, to finish at $72.54 a barrel after a five-session decline. Investors expect the price slump to continue unless major energy producers take steps to limit the supply to match the falling global demand. Analysts estimate a massive oversupply in the first half of 2015 roughly equal to 1.5 million barrels per day. And as OPEC didn’t agree to curb its oil output the decision of other major producers will determine future price movement.

After meeting with his Turkish counterpart in Ankara yesterday President Putin said Russia will concentrate on supplying gas to Turkey through a different Black Sea pipeline, scrapping the $45 billion South Stream project that would bypass Ukraine to supply European markets. Russia will supply gas to Turkey through the Blue Stream pipeline, increasing deliveries by 3 billion cubic meters a year and offering a 6 percent discount from January 1. The ruble moved off record lows against the US dollar Monday as oil prices recovered slightly.

Gold and silver bounced on Monday as lowering of Japan’s sovereign credit rating by Moody’s Investors Service, import restrictions easing by India and softer dollar increased investor demand for safe haven assets. Gold for February delivery jumped $42.60 or 3.6%, to settle at $1,218.10 an ounce. Meanwhile, March silver surged $1.14 or 7.3%, to $16.69 an ounce. Asian stocks rose on Tuesday, with a rebound in crude oil and commodities including iron ore and copper prices lifting the stock markets of resource-exporting countries. MSCI's broadest index of Asia-Pacific shares outside Japan climbed 0.6 percent. The Nikkei posted gains of 0.4 percent to end at 17,663.22.

 

[IFCM]

Markets advance as energy shares rebound

US stocks rose on Tuesday as energy shares rebounded after yesterday’s slumping. The Dow Jones Industrial Average rose 102.75 points, or 0.6%, to 17,879.55, posting its 32nd record close this year. The S&P 500 gained 13.11 points, or 0.6%, to 2,066.55, with the health-care sector stocks joining energy to lead gains. Energy shares rallied 1.3 percent for the largest gains among all sectors. Nine of 10 main industries in the S&P 500 advanced. The investor mood was boosted also by positive economic data released Tuesday morning, showing construction spending rose 1.1% in October to a seasonally adjusted annual rate of $971 million, much higher than expected. A separate report from Autodata indicated that November car and light truck sales were second-highest in eight years at seasonally adjusted annual rate of 17.2 million, up from 16.5 million in October and the best level since August. Shares in General Motors Co. and Ford Motor Co. rose 1% and 0.8% respectively. Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley highlighted yesterday the positive economic impact from the decline in oil prices. Stanley Fischer said continued labor market improvement and “some signs” that inflation is beginning to stir would be enough for the US central bank to start to raise interest rates.

Increasing share prices for energy companies drove European markets higher. On Tuesday, shares of oil and gas firm Afren PLC jumped 13% . Also, shares of BG Group PLC climbed 3% and Royal Dutch Shell PLC gained 2%. The Stoxx Europe 600 gained 0.9% to 348.62. Euro zone factory prices declined by 0.4 percent from September against a 0.3 percent forecast, their sharpest monthly drop in a year. This adds pressure on the European Central Bank to do more to lift the bloc's depressed economy. Stock markets in Asia rose also. The HSBC/Markit Services Purchasing Managers' Index (PMI) for China rose to 53.0 last month from October's 52.9, indicating China's services sector grew marginally faster in November in contrast to manufacturing PMIs released a day ago recording declining growth in factories in November. Hong Kong and Shanghai stocks made strong advances early Wednesday amid expectations of further monetary easing policy measures by Chinese authorities. Japanese stocks advanced early Wednesday morning, heading into a possible fourth straight day of gains, helped by US stock market advance, solid auto-sales data and a weaker yen.

Brent for January settlement gained as much as 92 cents to $71.46 a barrel on the London-based ICE Futures Europe exchange and was at $71.06 at 12:36 p.m. Singapore time. Iraq, OPEC’s second-largest producer, reached a deal with Kurdish authorities to export oil through Turkey. It will ship as much as 550,000 barrels a day from northern Iraq to the Mediterranean port of Ceyhan adding to global supply surplus. At an event in London yesterday Saudi Arabia’s former intelligence chief Al-Faisal said the kingdom will consider reducing output if there’s “reasonably guaranteed oversight” of quotas and market share isn’t lost to other suppliers.

Gold and precious metals fell as the ICE US Dollar Index rose 0.8% to 88.64. A strong dollar makes dollar-denominated commodities like gold more expensive for holders of other currencies. Gold for February delivery fell 1.5%, to settle at $1,199.40 an ounce. Global disinflation and rising equity markets set the stage for bearish trend for safe haven assets.

 

[IFCM]

Markets rise as positive data on labor market released

On Friday world stock indices rose after the release of positive data on the US labor market. The number of new jobs in November appeared to be at the highest level since January 2012 (321 thousand). Unemployment rate hit a six-year low of 5.8%. For 11 months in a row more than 200 thousand new jobs a month have been created in the US. Such a long period of growth is observed for the first time since 1994. Over the past year 2.33 million jobs were created and over 11 month in 2014 – 2.65 million. Such dynamics considering the low inflation rate boosts the economic growth and bolsters the US dollar index. Today it has hit a six-year high. Dow and S&P 500 closed higher for the seventh consecutive week. However, weak data on factory orders in October was released on Friday. They fell for the third consecutive month. Currently, US stock indices futures are traded down. There is no more significant macroeconomic data released for today in the US.
European stocks are slipping down after Friday’s advance. It was caused by a slowdown in German industrial production in October, 0.2% vs. the projected figure of 0.4%, and a significant reduction in imports to China in November (6.7%). This indicator was expected to add 3.8%. One more negative factor for fallen European markets was the downgrading of Italy’s credit rating from BBB to BBB- by Standard & Poor's agency.

Nikkei has also dipped down after a strong gain. Its dynamics coincides with the global trend. It should be noted that significant yen depreciation was an extra factor in favor of the exporters’ stock rise. Toyota Motor stocks upped 1.5%. Negative economic data which affected the exchange rate was published yesterday in Japan. The reduction in Q3 GDP outperformed forecasts. The trade deficit in October was higher than expected. The next release of Japanese economic statistics will be published on Wednesday morning. In our opinion, the main event of the week may become the elections in the Japanese parliament held on Sunday. New MPs are supposed to support the monetary policy conducted by the Prime Minister Shinzo Abe, aimed at further yen weakening.
World oil prices halted its decline. Despite the overall reduction of Chinese imports, crude oil purchases increased 7.9% in November, compared to the same period last year, and upped 9% compared to October. Currently, China purchases 6.18 million barrels a day. International Energy Agency raised its growth forecast of Chinese oil demand in 2014 up to 2.5% vs. 2.3% as was expected in September outlook. Note that the OPEC production in November reached 30.56 million barrels a day, compared to agreed 30 million. The oil output has been outperformed for six months in a row. According to the US Commodity Futures Trading Commission, WTI crude oil net long positions increased 12% over the past week. Net short positions slumped 15%, while net long positions upped 4%. Probably, hedge funds take profits and do not expect a strong decline in oil prices from current levels.

According to the Commodity Futures Trading Commission, hedge funds increased gold and silver net long positions over the past week. Copper net short positions have also risen. Note that copper is not getting cheaper as China raised its imports 5% in November.

Sugar prices rose slightly due to the Brazilian company Unica’s outlook, which expects to reduce the crop of 2015/2016 to 29-30.3 million tons vs. 31.4 million tons a season earlier. The ethanol production from sugarcane would increase 2%.

 

[IFCM]

Markets retreat as oil declines

US stock markets slumped on Monday recording their biggest one-day slide in nearly seven weeks as continuing oil decline prompted investors to sell-off energy stocks. Disappointing economic reports released on Monday, including lower Chinese trade numbers, contracting Japanese economy in the third quarter and lower expansion of Germany industrial production in October also contributed to worsening investor sentiment. Oil giants ExxonMobil Corp. and Chevron Corp dropped 2.3% and 3.7% respectively, Apple Inc. fell 2.3%. S&P 500 and The Dow Jones Industrial Average slipped 0.75% and 0.6% respectively. The ICE U.S. Dollar Index, a measure of the dollar’s strength against a basket of six rival currencies, was down 0.26%, its first loss in two sessions.

European stocks fell Monday after reports indicating that imports into China unexpectedly fell in November by 6.7% against expectations for 3% growth, and industrial production in Germany rose less than expected. European Central Bank Governor Ewald Nowotny expressed concerns about weakening growth in the eurozone economy at a conference in Frankfurt Monday. He warned that eurozone inflation could continue to fall during the first quarter of 2015, which would take the currency union dangerously close to deflation, and said he would like to see the ECB expand its balance sheet by €1 trillion. On the prospects of further easing of monetary policy by ECB euro fell to $1.2265, a 28-month low, from $1.2289 late Friday. In a separate report the Paris-based research body - the Organization for Economic Cooperation and Development said a composite leading indicator continues to indicate a loss of growth momentum in eurozone, particularly in Germany and Italy.

The Nikkei share average fell 0.5 percent on Tuesday after 7 straight days of gains as a rebound in yen prompted investors to take profits. The yen rose to around 120.90 to the dollar from a low of 121.86 on Monday. Investors are still optimistic as they expect Prime Minister Shinzo Abe to win a weekend re-election bid that will allow him to continue with the government's pro-growth policies.

Crude-oil prices again tumbled to five-year lows Monday with WTI futures for January delivery dropping 4.2%, to settle at $63.05 a barrel. Analysts expect the oversupply to continue into next year without intervention by the Organization of the Petroleum Exporting Countries to cut output to balance the market. A Baker Hughes report on Friday showed an increase in the US drilling rig count, despite the falling price. A separate report from KBC Energy Economics showed less than a third of January’s cargos of Nigerian oil have been sold with just two weeks left before February deliveries. The surplus of West African crude is one indicator of Atlantic basin oil demand, and unsold inventories pressure Brent crude prices.

Nickel fell for a third day as disappointing data from Germany to China indicated weakening global demand. And on the LME, lead, aluminum and zinc were little changed, while tin fell.

The Australian Bureau of Agricultural and Resource Economics and Sciences said in a report that exports to the US from the third-largest shipper will jump 35 percent to 360,000 metric tons in 2014-2015. Years of drought forced the US producers to cull herds, and cattle futures reached a record last month. Prices may rise the most among agricultural commodities next year amid tight supply and strong demand, according to Rabobank International.

 

[IFCM]

Markets decline on China and Greece outlook

US stocks started Tuesday trading with a sharp drop after unexpected move by Chinese authorities to tighten lending rules and news of surprise Greece elections. Markets rebounded by the end of trading session, with S&P 500 finishing practically unchanged and the Dow Jones Industrial Average closing 0.3% lower. The global equity sell-off began after economic data released in China showed producer-price index dropped 2.7 percent in November from a year earlier, a record 33rd-straight decline and the biggest fall since mid last year. Consumer prices rose 1.4 percent, against the 1.6 percent increase in October, indicating that China’s economy has entered a disinflation stage, and faces the risk of deflation. Following a surprise move by regulators that banned investors from using low-grade corporate debt as collateral to borrow cash, The Shanghai Composite Index plunged 5.4% Tuesday. The Nikkei Average dropped 1.5% on Wednesday morning as global equity sell-off and flight to safety drove the yen higher and took a toll on exporters. The yen advanced versus the dollar to ¥119.50, compared with ¥119.60 in New York Tuesday afternoon.

European stocks fell on investor concerns over the uncertainty of the results of Greece’s presidential election in which the Syriza party, opposing the austerity measures of proposed IMF/EU bailout , is well placed to do well. Greek stocks sank 12.8 percent, to post their biggest single-session fall since November 1987. The Stoxx Europe 600 index fell more than 2%, hit by weak German trade data and energy-stock losses. The euro traded at $1.2371 Tuesday against $1.23 Monday afternoon. Elsewhere. The report of UK Office for National Statistics Tuesday morning indicated industrial activity declined unexpectedly in October. The news didn’t bring down the British pound which actually traded higher against the dollar for a second-consecutive session as investors booked profits by selling dollars. The pound traded at $1.5663 Tuesday, compared to $1.56 Monday afternoon.

Brent for January settlement slid as much as 1.6 percent in London as an official at Iran’s oil ministry predicted a further slump in prices if solidarity among OPEC members falters. Iran, suffering from economic sanctions over its nuclear program, wants to raise production to 4.8 million barrels a day once the curbs are removed, he said at a conference in Dubai yesterday. In the US, the Energy Information Administration reduced its price forecasts for next year. According to its report WTI will average $62.75 a barrel, compared with a November projection of $77.75. Brent may trade at $68.08, down from an earlier estimate of $83.42. While the price drop will start to slow production next year, output is still forecast at the highest level since 1972, driven by increase in shale oil production. Output advanced to 9.08 million barrels a day through November 28, the fastest weekly rate since January 1983.

Gold rallied above the $1,200 level, extending its Monday gains. Gold rebounded on Monday as slower export data from China and the contraction of Japan’s economy for a second straight quarter revived safe-haven demand for the precious metal.

Copper dropped as much as 0.7 percent after closing yesterday at highest in more than a week as lower PPI and CPI data from China indicated slowdown in the economy of the world’s largest metals user. On the London Metals Exchange, lead fell while aluminum, zinc and nickel were little changed.

 

[IFCM]

Markets tumble as oil keeps falling

US stocks suffered their worst declines in about two months on Wednesday as continued slide in oil led to sell-off of energy, materials and industrials shares. The S&P 500 index fell 1.6%, to 2,026.14, its biggest one-day percentage drop since October 13. The slowing spending by energy companies has started impacting the prospects for companies providing services and equipment for companies in energy sector. The S&P 500 energy sector dropped 6% over the past three trading sessions. The losses on Wall Street come after seven consecutive weeks of gains for the S&P 500 and Dow Jones Industrial. Today at 14:30 CET US Initial Claims for the week ended December 6 and Retail Sales numbers for November will be published. The tentative outlook is positive, reinforcing the recent positive economic reports ahead of the Federal Open Market Committee’s December 17 Meeting that will be considering when to start increasing the interest rates. We expect the reports today will further contribute to the US dollar strengthening.

European stocks fell on Wednesday, led by losses in oil and gas stocks. Data released by French government confirmed earlier indications that Eurozone economy is slowing down as the report showed French industrial production fell 0.8% in October compared with September. Today at 10:00 CET European Central Bank publishes its Monthly Report, at 11:15 CET the Long Term Refinancing Option (LTRO) will be announced, with the targeted level of 148.2B euros against 82.6B euros of the previous LTRO. On the backdrop of falling inflation, the ECB’s liquidity injections have not provided sufficient stimulus for slowing eurozone economy, contributing to euro decline against major currencies. The current stage of LTRO will be more of the same medicine with no fundamental changes in Eurozone economic outlook in view and will most certainly contribute to further weakening of euro.

Japan's Nikkei share average is set for a third day of losses on Thursday. The yen fell for the first time in four days on speculation Prime Minister Shinzo Abe’s Liberal Democratic Party will win an election this weekend and extend measures that have weakened the currency. Japan’s export oriented economy has clearly benefited from Shinzo Abe’s weak yen policy, and we expect the Bank of Japan will need to maintain the stimulus further, which will contribute to further weakening of yen against other major currencies.

Crude-oil futures ended at a fresh five-year low on Wednesday, as the US Energy Information Administration data indicated oil inventories rose by 1.5 million barrels in the week ending December 5 against an expected drop of around 3 million barrels. A further push came from the news the Organization of the Petroleum Exporting Countries cut its 2015 demand expectations for crude. OPEC said earlier Wednesday it predicts that demand for OPEC oil would drop to 28.9 million barrels a day next year, compared with 29.4 million barrels a day in 2014.

Gold retreated on Wednesday as investors took profits following previous session’s gains even as US stocks slumped amid worries about an oversupply in global oil. Typically, investors seek the safety of gold during financial crises and steep declines in equities. In other metals trading, January platinum dropped, while March palladium gained 1.2%, to $821.40 an ounce. High-grade copper for March delivery dropped 1.2%, to $2.89 a pound.

 

[IFCM]

S&P 500’s largest weekly slump since May 2012

On Friday the US markets dipped despite the release of positive macroeconomic reports. Consumer confidence index hit the January high and reached 93.8 points. However, S&P 500 has tumbled 3.5% this week, for the first time after seven weeks of continuous growth. It is the largest weekly slump since May 2012. We deem that market participants are taking profits. As oil prices keep falling, shares of oil companies such as Exxon Mobil and Chevron Corp hit yearly lows.

Adobe Systems stocks rose 9% due to positive reports and plans of Fotolia purchasing. The trading volume on the US exchanges on Friday was 11% higher than the monthly average and amounted to 7.6 billion stocks. Today we expect the release of the US industrial production in November at 14:15 СЕТ. The outlook is positive. Futures on the US stock indices are now traded considerably upwards. The dollar index is traded sideways ahead of the Fed’s Chair Janet Yellen statement. She is supposed to deliver her speech on Wednesday.

European stocks are currently rebounding after a significant fall on Friday and over the whole last week. For example, the British stock index, FTSE 100, hit the record weekly low over more than three years. Important macroeconomic data is not released today in the EU. The market growth is caused mainly by the oil stocks rising of such companies as Total and Royal Dutch Shell amid a slight increase in hydrocarbon prices.

Today Nikkei has slid on the worsened Tankan survey. The yen weakened slightly against the US dollar (modest increase on the chart) as supporters of the current Prime Minister Shinzo Abe won in parliamentary elections on Sunday. Note that in two years while he is heading the government of Japan and conducts his economic policy called “abenomics”, Nikkei has boosted 70%, and the yen hit a seven-year high (a weakening against the US dollar). Market participants are currently expecting further confirmation of these trends. New Japanese macroeconomic reports will be released on Tuesday night. HSBC Manufacturing PMI in December will be announced in China tomorrow morning at 1:45 СЕТ. In our opinion, the forecast is still quite negative and can affect the commodity futures prices.

Oil prices have slightly risen after the release of its price forecasts for the next year. According to Barclays bank, the average Brent crude oil price in the first half of 2015 would be $67 a barrel, and $78 in the second half of the year. National Australia Bank projects the Brent price to settle at $75 a barrel in the Q1 of 2015, and $80 by the end of next year. According to Commodity Futures Trading Commission (CFTC), despite the fallen oil prices WTI net long positions rose to the two-month high and net short positions reduced to its lowest level since August 2014.

Natural gas prices in the US climbed amid falling oil prices. It was facilitated by the demand increase due to cold winter weather. We also accept the possibility that a part of the shale gas equipment could be used for the shale oil extraction.

Gold prices have fallen ahead of the Fed meeting and the final press-conference which will take place on Wednesday evening. Gold is still 1.5% up compared to the level at the beginning of this year, after falling 28% in 2013. Market participants are concerned that a possible US rate hike would reduce the demand for precious metals. According to CFTC, gold and silver net long positions reached the highest level over the last four months.

 

[IFCM]

Markets mixed ahead of Fed statement

The US stocks fell sharply on Tuesday after one of the most volatile trading sessions since mid-October. Analysts pointed to combination of volatility in the dollar, gold and oil that caused the price swings in choppy trading. Investor sentiment was not helped also by disappointing housing starts and PMI data released on Tuesday. Today at 14:30 CET the CPI yoy data for November will be published in US. The tentative forecasts are positive with the core CPI, excluding food and energy prices, expected to remain unchanged at 1.8%. Consumer Price Index is expected to fall 0.1 percent in November after the index remained unchanged in October. We expect the positive forecast for CPI will contribute to further strengthening of US dollar ahead of the Federal Open Market Committee statement that will be released at 20:30 CET. With economic growth expected to accelerate next year and declining unemployment rate we deem it is likely that the Fed will issue a more hawkish statement without the phrase ‘considerable time’ and replace it with another form of forward guidance that is less prescriptive as to when the first rate hike may occur, which is believed to happen in mid-2015.

European stocks surged Tuesday as energy stocks rebounded after West Texas Intermediate oil prices swung higher late in the session and Russia indicated it doesn’t plan to impose currency controls. Russia’s central bank raised its key interest rate to 17% overnight from 10.5% late Monday, hoping to halt the ruble’s recent decline. Today at 10:30 CET UK Average Earnings Index is expected to be released with a forecast of 1.3 % increase against 1% in the previous period. Rising earnings index indicates labor costs are increasing which will contribute to increasing consumer inflation. Another statistic, Jobless Claims will be released with a forecast of slight decrease. We expect the improved earnings and employment figures will contribute to strengthening of the Pound. Japanese stocks rose on Wednesday on hopes of a continuation of the US Federal Reserve's dovish stance. Dollar fell against the yen, as investors sought the safety of yen over Russia and falling oil prices.

Oil continues falling. West Texas Intermediate for January delivery dropped as much as $1.32 to $54.61 a barrel in electronic trading on the New York Mercantile Exchange and was at $55.44 at 2:58 pm Singapore time. It gained 2 cents to $55.93 yesterday. Total volume traded was about 52 percent above the 100-day average. According to Russia’s Energy Minister Alexander Novak, next year output from Russia, the world’s largest crude producer, will be similar to this year’s 10.6 million barrels a day. OPEC has stated that it will not cut its output unless the US cuts its production first. The American Petroleum Institute in Washington reported yesterday crude inventories in the US, expanded by 1.9 million barrels last week. Iran is said to be offering shipments to Asia at $1.80 a barrel discount from a regional benchmark in January, the deepest discount in at least 14 years. With major producers like Russia, OPEC and US keeping production pace unchanged the price of oil will keep falling unless global demand for oil picks up.

Gold rose 0.3 percent yesterday ahead of the Federal Reserve policy meeting announcement. It rallied as much as 2.5 percent before pairing its gains as oil and US stocks whipsawed and investors started worrying that Russia may sell its gold reserves as ruble continues falling.

 

[IFCM]

Markets soar on dovish Fed statement

The US stock markets recorded their biggest gains in 2014 on Wednesday after dovish Federal Reserve statement. The dollar rose against the yen and the euro after Fed’s statement. Market indexes soared after the Federal Open Market Committee statement that central bank is prepared to hike interest rates as early as the middle of next year, but will be “patient” about the timing of the first rate hike, replacing the “considerable time” language from the previous statement. Fed chairwoman Janet Yellen sounded upbeat on the economy but noted that there was room for improvement. We deem investors optimism was boosted by the Fed’s upbeat assessment of US economy recovery, which makes US assets and dollar more attractive compared with other markets struggling to reverse deflationary developments and negative consequences of geopolitical crises. At 14:30 CET Initial Jobless Claims for the week ended December 13 will be released in US with a tentative forecast of a slight increase compared with the previous month. At 16:00 CET Philadelphia Fed Business Outlook Survey will be released, tentative forecast indicating a lower level of activity compared with the previous month. Disappointing reports may result in a weakening of dollar.

European stock markets closed higher after a rebound in oil prices. Today at 10:30 CET Retail Sales m/m will be published in the UK, with the forecast of decreasing sales compared with the change in previous month. We expect this will cause a short term fluctuation in Pound rate contributing to its relative weakening against major currencies. At 10:00 CET German Ifo Business Climate index will be published, the tentative outlook is positive and the positive report may strengthen the single European currency. Elsewhere, the ruble ended a two-week slide after the Central Bank of Russia loosened restrictions on how much money Russian banks need to hold in reserve, and started selling dollars to stop ruble’s decline. Japan's Nikkei share average jumped 2.5 percent today in morning trade after the US Federal Reserve gave an upbeat assessment of the US economy.

Oil continues rising after Brent for February settlement increased 2 percent yesterday. Investors are weighing the reports of falling crude supplies in US and Iran offering discounts for January shipments for Asia. The US Energy Information Administration reported crude stockpiles in the US, the world’s largest oil consumer, fell by 847,000 barrels last week. Iran’s Oil Minister Bijan Namdar Zanganeh said Iran “will under no conditions let go of its share” of the market given restrictions on its exports in recent years. US Energy Information Administration data indicated US oil production expanded for a fourth week through December 12 to 9.14 million barrels a day, the highest level in weekly data that started in January 1983. There is no sign that any major producer is planning to curb its output as oil has slumped more than 20 percent since OPEC decided at a meeting last month to maintain its output quota.

Olam International Ltd., which agreed this week to buy Archer-Daniels-Midland Co.’s cocoa business to become top-three processor of beans, predicts cocoa prices will probably advance for a fourth consecutive year in 2015, driven by a global shortage. The company estimates demand will exceed supply by 120,000 metric tons in the season started October 1 because of lower output in West Africa, the world’s biggest growing region.

 

[IFCM]

US markets continue rising

US stocks rose on Monday with S&P 500 and Dow Jones Industrial Average hitting new record highs. The S&P 500 closed at a record for the 50th time this year, the highest number of record closes in a year since 1995. The dollar strengthened against the basket of major currencies. While the economic data released on Monday were mixed, investors' optimism was driven by Fed’s statement that it will be patient before raising interest rates. Sales of existing homes in November slowed down to the weakest pace in six months, while Chicago Fed national activity index came in stronger than expected. Today at 14:30 CET the Durable Goods Orders for November and the final figures for third quarter Gross Domestic Product will be published in US. The value of new purchase orders are expected to rise considerably, and the GDP is expected to be revised upwards. At 16:00 CET New Home Sales figures for November will be released, the tentative outlook is positive. The positive reports should contribute to further strengthening of the dollar against major currencies. European stocks rose Monday with technical, consumer services and financial stocks leading the advance. Asian equity markets closed mostly higher.

Today Asian commodity stocks are falling, dragging the regional index lower for the first time in four days. The yen fell for a fourth day against the dollar, as rising global stock markets reduce the demand for the safe haven asset. The ruble gained 3.1 percent against the dollar by 12:37 pm in Moscow yesterday after China signaled it is prepared to offer Russia support by expanding a currency swap between the two nations and making increased use of yuan for bilateral trade. China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October. Ruble was also supported by the announcement of Saudi Oil Minister that fossil fuel will remain the main source of energy for decades to come.

Oil advanced for the second time in three days as investors expect the Energy Information Administration’s report tomorrow will indicate a fall in stockpiles in the US for the second week. There is still an oversupply on global market as major producers don’t plan to cut output while global demand is falling. Iraq’s Oil Minister announced plans for the country to boost production to 4 million barrels a day next year, while the Saudi Oil Minister commented that prices as low as $20 a barrel are irrelevant to OPEC policy.

Gold futures fell below $1,200 an ounce Monday, with gold for February delivery falling 1.4%. Silver for March fell 2.1% . Both metals ended last week sharply lower, with gold declining 2.2% and silver losing 6%. With dollar getting stronger and rising global equity markets the demand for safe haven assets is expected to decrease. Copper prices declined for the second time in three sessions after purchases of previously owned US homes dropped more than forecast in November.

Russia plans to introduce export duties on cereals as it tries to stop the increase in the price of bread as the ruble slumped 40% against the dollar this year. A report from Rabobank International indicated that Russia has already shipped 15 million to 16 million metric tons of wheat out of the 22 million tons expected by the US Department of Agriculture for the season.

 

[IFCM]

Dow and S&P 500 hit record highs

World stock markets were traded sideways at the end of last week as investors activity was low due to Catholic Christmas celebration. The US stock indices, Dow and S&P 500, managed to hit record highs in intraday trading. However, the indices showed a relatively slight rise over the week. The Dow upped 1.4%, S&P 500 – 0.9%, NASDAQ – 0.9%. There was no significant US economic data released on Friday. Today we also don’t expect any information. The trading volume was 60% below the monthly average and reached 3.1 billion stocks. Currently, futures on US stock indices are traded “noticeably down”. Note that the US dollar index hasn’t still managed to consolidate above the psychological resistance level at 90 points. Subsequently, the euro has suspended to fall against the dollar.

European markets are traded down today amid the political risks associated with the third round of voting in Greece, electing its president. If today the Greek Parliament fails to elect the president, it may trigger a snap election which will be finished only on February, 8. Investors believe that it could have a negative impact on the economy of the entire European Union. The election results in Greece will be announced approximately at 11:00 СЕТ. Important economic reports in the EU are not expected to be released until Friday.

Nikkei has slipped today along with other global stock indices. An additional negative factor was the news of the first Ebola case in Japan. The investor activity was low. The trading volume on the Tokyo Stock Exchange was 18% lower than the monthly average. Let’s remind that macroeconomic data will not be released this week. Japanese stock exchanges will be closed from December 31 up to and including January 4.

World oil prices climbed slightly amid the renewed fighting in Libya: 800 thousand barrels or nearly two-day production volume of the country was destroyed over that period. An extra factor providing support for oil prices was the policy conducted by the Central Banks of China and Japan, aimed at economic growth boost. China is planning to cut rates once again early next year. On Saturday the Japanese government approved a plan of economic incentives in the amount of $29 billion.

Natural gas price in the US tumbled 26% in December, and reached the psychological support level of $3 per million BTU for the first time since 2012. It was caused by the warm weather forecasted in the United States this winter, according to the Commodity Weather Group. Note that 49% of American housing uses natural gas for heating. Amid the warm weather conditions, the US gas reserves may hit historical highs, more than 4 trillion cubic feet by the beginning of the next heating season. Now the gas reserves make up 3.25 trillion. Note that the US gas production has risen 5.5% this year and reached a record high of 74.3 billion cubic feet a day. It happened mainly due to an increase in shale gas production by 19%, up to 16.3 billion cubic feet. However, we accept the possibility of a technical price upward retracement, starting at the level of $3, or at least highly volatile trading.

Copper prices have reached a four-year low today, after the negative data on Chinese industrial revenues in November was released on Saturday. Its total reduction appeared to be the largest in two years. Note that the Chinese PMI in December will be released on December 31. The outlook is negative: it may affect the commodity futures prices.

Soybean prices are at the two-week high due to the flooding in Malaysia, the world leader in palm oil production. Investors deem that it would increase the demand for alternative soybean oil.

 

[IFCM]

S&P 500 hits new record while Dow retreats

US markets closed mixed on Monday with S&P 500 edging up to another record close, while The Dow Jones Industrial Average retreated from the record close achieved on Friday. Trading volumes were at roughly two-thirds of their 30-day average. Trading is expected to be light throughout this holiday-shortened week. Today at 16:00 CET Consumer Confidence will be released in US by the Conference Board Inc. The tentative forecast indicates increasing consumer confidence which we expect will have a positive effect on US dollar. On Wednesday at 14:30 CET labor market statistics will be released in US. The tentative forecasts for Continuing Claims and Initial Jobless Claims for weeks ending December 20 and December 27 respectively indicate marginal decrease in Continuing Claims while the Initial Claims are expected to increase marginally, which we believe may have a limited negative effect on USD. At 15:45 CET Chicago Purchasing Managers’ Index will be published, the tentative forecast indicating a slight decline in the index. And at 16:00 CET Pending Home Sales for November will be released, the tentative outlook is positive.

The stocks in Europe edged higher as Stoxx Europe 600 posted marginal gains on Monday notwithstanding the Greek parliament’s rejection of the prime minister’s nominee for president. This means the Greek parliament will have to be dissolved and a snap election will be held on January 25. Investors are concerned whether the Greece’s bailout program and austerity measures will continue if the far-left Syriza party wins in the general election. The uncertainty about the bailout program pushed euro to a two-year low versus the dollar. On the backdrop of struggling Eurozone economy the European Central Bank will meet on January 22 amid speculation officials are preparing to consider sovereign-bond purchases as a next stage of expanding the monetary stimulus measures into a full blown quantitative easing program. This sets the stage for continued euro weakness.

The Nikkei is falling today after closing 0.5% down on Monday. As the Bank of Japan is considering additional measures of monetary easing in April after it tripled its buying of exchange-traded funds to 3 trillion yen in October and the government announced a 3.5 trillion yen ($29 billion) fiscal stimulus package to boost the economy on December 27, all indications are that yen will continue falling in 2015.

The ruble fell the most in almost two weeks after the Economy Ministry report indicated that gross domestic product shrank 0.5 percent in November from a year earlier. The performance of Russia’s currency is determined by the price of crude oil, Russia’s main source of export revenue. If the price of oil does not stabilize the pressure on Russian economy and the ruble will continue.

Oil tumbled to the lowest level in more than five years on concerns of global supply glut, reversing early gains after news that oil storage tanks in Libya were set ablaze and the subsequent report by a National Oil Corporation spokesman that fires were extinguished. As dollar strengthens the appeal of raw materials as a store of value decreases, further reducing the speculative demand for oil. According to ICE Futures Europe exchange, hedge funds curtailed net-long positions by 15 percent in the week ended December 23, while they had added to net-longs in the prior four weeks, boosting them to the highest level since July on December 16.

 

[IFCM]

Crude oil prices hit 5.5 year low

Global stock indices were down on Friday due to weak macroeconomic data released in the US. Markit’s Manufacturing PMI and ISM Manufacturing in December appeared to be lower-than-expected. Construction Spending declined for the first time since June, while it was expected to grow. The volume traded on the US exchanges was 23% below the monthly average and reached 5.3 billion shares. Starting today, the majority of world markets are opened on a regular schedule. Futures on US stock indices are currently traded prominently down. Today we don’t expect any important macroeconomic data to be released in the US.

The US currency has advanced greatly. It was caused by the European data release, the same as it happened on Friday. The Greek parliament failed to elect the president, so it will have to be dissolved and a snap election will be held on January 25. Amid this information there were even rumors in Germany of Greece leaving the European Union. These rumors were disproven later. However, the whole situation has affected the euro. It fell below $1.2 for the first time in four years. Another negative factor was the investor expectation of the ECB to announce the beginning of euro printing at the meeting which will take place on January 22. Due to this news, the US dollar has strongly settled above 90 points.

European markets have indicated minor gains in the morning, as the expected euro printing should result in a splurge of liquidity, according to market participants. We don’t exclude that the American and European stock markets and currencies of both regions may be observed in a mixed trading for some time (according to the example of Nikkei and yen). This information may be used for creating a personal composite instrument. The German CPI will be released today at 13:00 СЕТ. In our opinion, the tentative outlook is negative for the euro.

Nikkei has dipped today. We deem there was no specific reason for the index drop. However, note that Markit and JMMA Manufacturing PMI index in December has been announced today early in the morning. It proved to be a bit worse than expected. Composite PMI and Services PMI will be released tomorrow at 1:35 СЕТ. The forecast is neutral. Note that the exchange rate of the Japanese yen against the US dollar looks very stable. It is still difficult to predict whether it remains for a long time or not. Economic data will be reported in Japan on Friday morning.

Crude oil prices reached the lowest level over five and a half years. Some oil-producing countries are forced to increase the production level in order to offset the fallen revenues due to lower prices. Russia’s production rose 0.7% in 2014, up to 10.58 million barrels a day. According to the Russian Ministry of Energy, oil production is expected to fall to 525 million tons in 2015, from 526.6 million tons in 2014 due to the depletion of a number of deposits in Western Siberia. But meanwhile, it is a matter for the future. Russia produced 10.67 million barrels a day in December, more than the country’s annual average. In December Iranian oil exports climbed to the highest level since 1980 (2.94 million). In January it may reach 3.3 million barrels a day.

As expected earlier, $3 per million BTU has become a kind of “support level” for the US natural gas. However, it was not the result of investor sentiment, but due to the Arctic front and cold weather forecasts, according to National Weather Service. The US natural gas reserves shrank 133 million cubic feet a week, while the demand upped 21%, to 100 million. It has also affected the prices.

Today the majority of commodity futures are going up again after severe losses as negative Chinese data on manufacturing production was released last week. The Chinese statistics will be released tomorrow morning, on Wednesday and Friday. In our opinion, all the forecasts are neutral.

 

[IFCM]

Markets retreat as oil plunges

World stock markets tumbled on Monday on continued fall in oil prices and surging dollar. Sell-off of US equities dragged US stock indices down, with Dow Jones Industrial and the S&P 500 recording their worst losses since October. Investors sold off energy stocks as WTI slid below $50 a barrel. The Dow Jones Industrial Average also suffered its largest one-day decline in three months, with 28 of its 30 components closing with losses. The US Dollar Index, which has increased nearly 2% already in 2015, upped 0.3% on Monday. Today at 16:00 CET the December Non-Manufacturing Purchasing Managers' Index (PMI) by the Institute for Supply Management will be released in US. The Non-manufacturing PMI is expected to reach 58.2 in December having increased to 59.3 in November, which may contribute to temporary weakening of US dollar as the Manufacturing PMI also came out lower than expected earlier on Friday.

European stocks fell sharply on Monday on concerns over political uncertainty in Greece and falling oil prices. Investors are concerned that the opposition Syriza party may win the snap election scheduled for January 25 after the third and final parliamentary vote failed to elect a new Greek president. Syriza has threatened to stop implementing the austerity program that the country agreed to as a condition for the international bailout. Today from 9:15 to 10:00 CET December Services PMI by Markit will be released for Spain, Italy, France, Germany and Eurozone. They are expected to remain unchanged from previous month levels and should not affect financial markets. A slightly improved December Services PMI for UK is expected to be released at 10:30 CET, which may positively affect the British Pound. The euro recovered after falling to its lowest level in nine years as investors covered their shorts to take profits. Investors started selling the single European currency ahead of the expected large-scale purchases of government bonds by the European Central Bank. The ECB’s next monetary policy meeting is scheduled for January 22 and analysts expect the ECB may decide to start the quantitative easing program to add around €1 trillion to the central bank’s approximately €2 trillion-balance sheet. On Monday the final German consumer price index reading for 2014 was released, indicating prices remained unchanged month over month against an expected 0.1% increase. The likelihood that the ECB will decide to start the quantitative easing will greatly increase if the Eurozone CPI for December, expected to be released on Wednesday, shows falling prices as the tentative outlook indicates.

Japan's Nikkei average is falling today on concerns over Greece's future in the euro-zone and falling oil prices. The yen is gaining against the dollar as investors seek the traditional safety of the Japanese currency amid worries about global growth.

On the backdrop of swelling oil supplies the Saudi Arabia state-owned producer, known as Saudi Aramco, raised prices for all its sales to Asia in February and cut all of them for Europe and most in the US. It will sell its Arab Light grade for $1.40 a barrel less than a regional average next month, the company said yesterday in a statement.

Gold climbed for a third day as slumping equity markets and concern that Greece may quit the euro area spurred demand for the safe haven asset. Silver and palladium rose.