Financial market research and analysis

Today is the first day of dominant gains since the year began. WTI rebounded 2.50% after shortly stepping below $30 yesterday, demand in commodities remained weak however. Copper continues trading below 2$/lb.

The risk sentiment was better in Asia; Nikkei and Topix rallied along with the US and European equity futures. Shanghai’s Composite has been the only loser (-2.42%).

The FTSE opened in the green, somewhat timid of its European equivalents as commodity prices failed to take off.
Anglo American (+6.06%) is the top gainer in London; Glencore (+4.29%) and Rio Tinto (+4.18%) rally although the downside risks prevail. BP gained 3.50% after receiving the initial approval to market jet fuel in India. The company is however preparing to cut 4000 jobs as oil prices flow to the bottom. Royal Dutch Shell (+3.00%) is in demand this morning as Aberdeen, one of Shell’s major shareholders, said to support the Shell-BG Group deal although the oil market has moved well away from where it was at the time of negotiations. The takeover vote is due on January 27th.

The US dollar is weaker against the high-beta currencies on speculation that the Fed may not be able to raise rates as fast as 1% through 2016. The EM currencies are better bid.

Cable bounced from a fresh 5-year low of 1.4352 yesterday. Deeply oversold, the pound is better bid against the US dollar and the euro this morning.
The BoE meets tomorrow and is expected to maintain status quo. As the dovish BoE expectations are mostly factored in, a recovery in the pound complex could be well around the corner. The 1.45 is the first hurdle against the US dollar, while macro traders rank among sellers at 0.7500/0.7550.


Red flags in oil price forecasts

WTI traded below $30 for the first time in twelve years. Analysts are racing to lower their price forecasts. Goldman Sachs, with its $20 target, is no longer the most bearish forecaster. RBS pointed at $16 while Standard Chartered dared lower, $10.

The market is evidently getting beyond itself and too much consensus could well reverse the current downtrend. Now it is worth taking a step back: Saudi Arabia hunts for new financing to keep up with the speed of decline in oil prices, smaller OPEC members started urging for an emergency meeting. A decline below $30 will raise suspicion that the oil producers are running out of fuel.