In recent days, we have observed a distinct trading pattern: a ramp early in the US morning, usually triggered by some aggressive momentum ignition, such as today’s unexplained pump then dump in the EUR/USD…
… with stocks rising after the European open, rising throughout the US open, then peaking around the time the US closed at which point it is all downhill for the illiquid market.
So far today, the pattern has held, and after trading flat for most of the overnight session, with Europe initially in the red perhaps on disappointment about the Italy bank bailout fund, a bout of early Europe-open associated buying pushed US futures up, following the first rebound in the USD/JPY after 7 days of declines which also helped the Nikkei close 1.1% higher (even though as BBG notes, investors in the options markets don’t seem to share enthusiasm that the USD/JPY will rebound as the premium for USD/JPY puts over calls is 164 bps versus 161 bps yesterday; has climbed about 94 bps in favor of puts in just this month).
Oil, likewise, has continued to climb and earlier hit new 2016 highs when WTI rose just 9 cents shy of $41 on the same recurring catalyst: the Doha OPEC meeting (where even Russia admitted yesterday nothing will happen), and hopes shale production will contract even as many companies reactivate DUCs and quite the opposite may in fact happen.
Brent crude was up 50 cents at $43.33 a barrel at 0842 GMT and earlier in the session reached a 2016 high of $43.53. U.S. crude gained 39 cents to $40.75 a barrel. “The weak dollar is one important reason,” said Eugen Weinberg of Commerzbank. “Also, the fact that we are above $40 and at multi-month highs is also contributing to the price increase as it is prompting some speculative buying.”
As Reuters adds, also supporting prices was rising vehicle sales in China – a further sign of strong gasoline demand in the No. 2 consumer – and a plan by thousands of oil and gas workers in Kuwait to go on strike from Sunday. “If it is not clear if the strike will last long and will have any meaningful impact on exports or domestic production (including refineries), it does illustrate further the amount of pain that (Gulf) oil producers are also facing at current price levels,” said Olivier Jakob, analyst at Petromatrix.
For now, however, as Bloomberg puts it, “crude oil’s advance above $40 a barrel boosted economic optimism” and the MSCI All-Country World Index advanced for a third-straight day and Russia’s ruble joined the Australian dollar and Norway’s krone among the best-performing currencies. Metals prices jumped, helping push the Bloomberg Commodity Index to the highest this month.
The key catalyst preserving stability for the time being are emerging markets which are “strong, mainly on the back of the weak U.S. dollar and strong oil,” Maarten-Jan Bakkum, a senior strategist at NN Investment Partners, told Bloomberg. “Flows have clearly improved, Chinese risks are lower for the short term, but we do not see a convincing improvement in growth momentum yet.”
Here is a snapshot of where markets stand right now:
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