Financial market research and analysis

Wall Street gained and Asian markets slipped following cautious words from central banks. A dovish ECB, milder US core inflation and a growing number of Fed policymakers who now see policy moving in either direction have investors increasingly convinced that interest rate rises will be kept on hold.

On the one hand, global central banks sitting tight keeping a patient wait and see approach is a positive backdrop for stocks. However, on the other hand the global growth slowdown story is a complication and is weighing on sentiment. Both the ECB and the Fed identified slowing global growth as important risk factors. The central bank observations come following the third downgrade in global growth by the IMF in just six months.

The dollar held near two-week lows as Fed minutes reinforced a patient approach to raising interest rates. Meanwhile the pound held its recent range as Brussels extended the Brexit deadline.

Pound steady as no deal Brexit avoided

The pound is starting to look rather numb to all the Brexit drama. That is the conclusion to last night’s episode. Despite Theresa May’s request for an extension until 30th June, the EU agreed to extend Article 50 until 31st October. A break clause has been included to keep hard-line Macron appeased. The pound hardly flinched, against the euro or the dollar.

Many see the writing on the wall for Theresa May. With a 6-month extension the UK will be taking part in EU elections, 3 years after the British people voted to leave the EU. A fact that many will find difficult to swallow, making those elections toxic for Theresa May. 6 months is sufficient time to oust May and replace her with a new leader and fresh blood.

Whilst the pound has shrugged off last nights development's, the prospect of another 6 months of uncertainty is certainly going to take its toll on the UK economy, which is as good as at a standstill anyway. The resilience that we are seeing in the pound as a no deal Brexit is avoided (again) may not last for long. Whilst we expect the floor at $1.30 to hold for the time being, movements in Westminster to remove May could see that swiftly broken.

Crude eases on soaring US stockpiles

Oil eased back off 5-month highs in early trade on Thursday as US crude stockpiles hit a 17 month high. US crude inventories jumped 7 million barrels to 456.6 million in the last week. This is the highest level since September 2017 according to the EIA. With US crude production at 12.2 million barrels per day, the US is the world’s biggest oil producer, ahead of Russia and Saudi Arabia.

Despite strong growth in the US oil production, supply is tightening elsewhere. Continuing OPEC productions cuts, escalating conflict in oil producing Libya, plus sanctions on Iran and Venezuela is keeping the price of oil supported. Whilst US output rises to record levels; Venezuela’s political crisis has seen output there sink to a new long term low.

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