Financial market research and analysis

The FTSE 100 erased early forex-induced gains by the afternoon when energy sector shares slumped alongside the price of oil. Investors were also weighing up the implications of fraud charges against former Barclays executives. Broader stock markets have been weathering the three-week slide in the oil price on the assumption prices will stay within the price range seen over the past 12 months. The further we move below $50 per barrel, the more worrisome the bruising taken by oil prices gets for stocks.

John Qatarly charged

Shares of Barclays edged lower after former CEO John Varley and three other Barclays executives were charged with fraud. The charges relate to fundraising from Qatar in 2008 which helped Barclays avoid a government bailout. Barclays would face a fine if there are criminal convictions and the individuals could serve up to 10 years in prison. These were some head honchos at Barclays so the SFO’s charges represent a significant reputational threat to Barclays. The negative reaction in Barclays shares would likely have been stronger if the charges involved current employees. Since the financial crisis only the public and shareholders have felt the consequences of fraud at the big banks. To see some individuals shoulder some of the blame could actually be a relief to investors.

US stocks

Stocks in the US turned lower in early trading. Another day of record closing highs could be scuppered by concern around the persistent downtrend in oil and other commodity prices. Apart from sending Amazon shares to new stratospheric levels, the deal to buy Whole Foods has been a negative force on the US stock market. The SPDR S&P Retail ETF showed retail shares falling another 15% in early trading on Tuesday.

British pound hits new post-election low

The British pound fell to a fresh post-election low after Bank of England boss Mark Carney said now is not the time to raise interest rates. The drop has seen Sterling unravel gains made last week after three members of the Bank of England voted to lift interest rates. One of the dissenters Kristin Forbes will be replaced by London School of Economics professor Silvana Tenreyro. The question for the direction of Uk interest rates is whether other MPC members are emboldened by the three dissenters or fall in line behind the dovish governor. We think GBPUSD at sub 1.30 levels assumes a rate cut or more QE, and slowing consumption notwithstanding, that doesn’t look very likely.

Russia rubbishes emergency OPEC meeting

The price of oil extended its worst run of declines this year on Tuesday after Russian oil minister Novak rubbished talk of an emergency OPEC / non-OPEC meeting. Brent crude is down $10 per barrel in less than a month so if they really aren’t planning an emergency meeting, perhaps they should. Data from the CFTC showed speculators cut their bullish bets substantially last week after having risen for the prior four weeks. The assumption that extended OPEC supply cuts would underpin the oil price is unravelling by the day. We would expect US crude to test $40 per barrel before any hopes of a sustainable recovery in oil prices.

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