Futures Flat As Dollar Weakness Persists, Crude Rally Fizzles

After yesterday’s torrid, chaotic moves in the market, where an initial drop in stocks was quickly pared and led to a surge into the close after a weaker dollar on the heels of even more disappointing US data and Bill Dudley’s “serious consequences” speech sent oil soaring and put the “Fed Relent” scenario squarely back on the table, overnight we have seen more global equity strength on the back of a weaker dollar, even if said weakness hurt Kuroda’s post-NIRP world and the Nikkei erased virtually all losses since last Friday’s surprising negative rate announcement. Oil and metals also rose piggybacking on the continued dollar weakness as the word’s most crowded trade was suddenly shaken out.

“We’ve seen commodities across the board in a swift move higher, with the common denominator the weaker dollar,” said Robin Bhar, a London-based analyst at Societe Generale SA. “Everything from gold to oil has benefited. Dwindling expectations of higher rates are affecting markets across the board. Clearly the Fed may struggle to raise rates more than once or twice this year.”

Oil was largely unchanged after rebounding from its biggest drop in almost seven years. Futures were fractionally in the green at $32.36 a barrel after earlier climbing as much as 2.1%. Continuing the on again/off again “OPEC emergency meeting” theme, Venezuelan oil minister Eulogio Del Pino says 6 OPEC members are open to holding an emergency meeting if one is called. To be sure, Saudi Arabia will just say no, while those who are trying to discover which OPEC oil exporters will go bankrupt first, look no further than these 6 countries.

In other oily news, Shell (RDS-A) reported its 4Q profit dropped 44% on tumbling crude prices. Elsewhere, Aramco cut its March Arab Light crude price to Asia by 20c, while leaving March Light crude pricing to U.S. unchanged.

“Seems to be the market is trying to settle into a $30-$35 range — it seems when we get to around $30 we see some verbal intervention come in with the reaction to buy more driving prices toward $35 before we run out of steam,” says Saxo Bank head of commodity strategy Ole Hansen. “Traders are coming back in today and seeing price levels they probably didn’t expect at this time yesterday.”

Looking forward, while the US docket has a lot of macro data and at least two central bank speakers on deck, the key tell will be how stocks respond to data: if bad news is once again good for stocks, one can bury the rate hike narrative and just sit back and await admission from Yellen that it has relented and that, as Goldman hinted last night, the number of rate cuts will be dropped from 4 to 3, 2, 1 or even 0 as the US economy stalls.

For now, here is where we stand:

Looking at regional markets around the globe, we start in Asia where equities traded mostly in the green, bolstered by the turn around in energy stocks following WTI crude futures rising by over 8% in the US, while also drawing comfort from a late rally on Wall Street. As such, the ASX 200 (+2.1 %) had been underpinned by energy and material names, while the Shanghai Comp (+1.5%) was also led higher by the energy, in addition the PBoC strengthened the CNY by the most since December 4th. However, Nikkei 225 (-0.9%) bucked the trend as exporters felt the brunt from the recent strength in the JPY, subsequently erased the majority of its BoJ stimulus inspired gains. JGBs finished trade flat in what was quiet session for Japanese paper.

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Another choppy session for European equities, which have largely remained in positive territory since the open, but endured some volatility. The USD has been the main driver of price action over the past 24 hours which has continued it’s trend lower following dovish comments from the Fed and disappointing US data. Consequently an uptick has been seen in oil; WTI Mar’16 and Brent April’16 have taken USD 32.00 and USD 35.00 handles respectively, leading to an uptick in the energy sector which outperforms in Europe and bolsters indices.

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