Financial market research and analysis

News that the world’s biggest oil producer Saudi Arabia could accept a higher output from some of its rivals, left investors in a cloud of uncertainty. Although Saudi’s efforts pave the way towards a deal, we doubt that the outcome of the OPEC meeting gives enough satisfaction to support a sustainable recovery in oil prices towards the $50 level. In fact, rumours that Saudi and Iran could fail to seal a deal regarding future output could compromise a satisfactory agreement.

Oil remains under pressure. Investors are hesitant and $44.80/$45.00 is where the bulls and the bears are conflicting. The weekly EIA data should trigger minor price volatility in the oil market later in the day. US oil inventories are expected to have rose by 2.4 million barrels versus a 6.2 million barrel drop a week ago.

The US dollar is broadly bid. San Francisco Fed’s Williams, who is a non-voting member, said that the US economy could handle an interest rate hike. The fact is, the markets are unsure about a potential move before the end of the year. The probability of a December Fed rate hike is again priced in below 50%.

Of course, shenanigans around the US presidential elections should influence the trajectory of US assets and the dollar. Hence, it is an additional issue that the Federal Reserve (Fed) should take into account. We could well encounter higher volatility due to the political risk and further pessimism regarding the possibility of any action before this year ends.

In Japan, investors are uncertain regarding the future trajectory of the yen. In an effort to ease the buying pressure in the yen, Japanese PM Abe said that the government would cooperate with the Bank of Japan (BoJ) to overcome deflation. As discussed previously, the lack of support from the financial markets increase the probability of any action on the fiscal leg. It is clear that further negative rates on top of the asset purchases programme with yield control are no longer appetising for the majority of investors, given the mediocre results they have produced over the past months, years.

The appetite in the pound remains subdued. The Bank of England (BoE) Governor Carney said that the UK’s economy is performing well, but the business investment and the real estate markets are clearly softening following the Brexit. As the GBPUSD struggles to hold ground at the 1.30 handle, the next critical support is seen at 1.2915 (Sep 23rd low). A successful attempt on 1.2915 should pave the way for a re-test of 1.2865 (mid-Aug lows)