Financial market research and analysis

Despite the fact that this event was well flagged, the oil market took another dive on news that international sanctions on Iran have been lifted. Iran is officially ready to swamp an already oversupplied oil market by an average estimate of 100000 barrels per day within a month. CFTC data as of January 12 shows that non-commercial short positions on Brent futures surged by 34% since November, approaching the record high of 80792 contracts as of end of August 2015. The selling pressure on oil remains intact across the curve. A further slide to $25 is not a delusion but with many pundits in a race to predict more dramatic declines and the fact that this oil price demise is firmly in the mainstream media, we cannot rule out a volatile short squeeze higher.

The FTSE opened Zen despite the early slide in oil prices and the sell-off in Asian equity markets. The UK miners and oil companies are again victims of sharp price moves, both positive and negative. Anglo American opened the week 2% higher yet rapidly shred gains as Fresnillo (-1.52%), Rio Tinto (-1.13%), Randgold (-0.96%) and BHP (-0.94%) occupied the front seats among losers in London.

Investors are expected to sit still before China releases its growth figures in Q4. The consensus is 6.9% on year and appears to be somewhat optimistic if we look to the aggressive shrivelling in Chinese stocks over the past six months. Of course the Chinese economy has not plummeted at a similar speed than Shanghai’s stocks; nevertheless a potentially strong read could only raise the scepticism regarding the accuracy of the official data.

In the absence of major economic data due today, discussions on China, oil will certainly keep the headlines busy. The risk-off flows are expected to dominate the session.

The 6000 mark is expected to cap a potential recovery attempt. Pound depreciation against the euro and the US dollar is good but certainly not enough to drive the UK industrials into the bull market this Monday.

Surpassing the 0.75 mark, the euro-pound is considered in the mid-term bullish consolidation zone. Dovish BoE expectations and the Brexit risks appear to be supportive of the euro. From a technical perspective, the 0.7425 (major 38.2% on November-January rise) should be the base for a further recovery to 0.7875. At this level, the euro would have recovered half of losses accumulated over the past year.