Financial market research and analysis

The slide in oil prices continues following OPEC’s decision to expand the production ceiling to 31.50mio barrel/day from 30mio barrel previously; WTI fell to its lowest since August while Brent hit its lowest since March 2009. Although the oil market is edging the oversold conditions, the combination of an oversupplied market and a soft global demand appears to be favourable of further downside to $32/$35, the 2008 crisis dip.

The Canadian dollar took a decent dive below 74 cent against the US dollar for the first time in eleven years. The prospects of cheaper oil should keep the pressure on the downside despite the deepening oversold conditions in the Loonie. Given the macro-economic challenges, the speculation of a rate cut has started gaining some traction. The market presently assesses 15% chance for a rate cut in the first quarter of next year.

The base metals are facing a mounting selling pressure again on the heel of weak Chinese exports: iron ore is down to $39, while copper is only a couple of cents above the $2/lb level. Chinese exports dropped 6.8% in November (vs -5.0% exp. & -6.9% last) for the 5th month, while the contraction in exports narrowed. Hang Seng and Shanghai’s Composite closed 1.34% and 1.89% down respectively.

The FTSE was dragged lower by miners. Anglo American lost another 7% as the company decided to suspend its dividend payment at the second half of this year and in 2016 to put some cash aside. The bottom in commodity rout has apparently not been hit. In contrary, a fresh wave of weakness could well hit the market as China appears to be lagging behind the recovery curve. Should the copper cheapens below $2/ln, the company will certainly be brought to announce new measures; the uncertainty keep the investors on hold. Presently, half of analysts prefer sitting on their hands, while one thirds play on the sell side.
Else, the industrial production recovered 0.1% during the month of October as manufacturers write 0.4% contraction over the same month. The pound cleared support at 1.50 against the US dollar as the BoE members have little reason to position themselves among the hawks, while the commodity market fails to give the slightest sign for recovery.

The US stock market is subject to high volatility before the critical FOMC meeting due next week. With cheapening in oil, commodity and metal prices, the chances for the Fed to reach its 2% inflation target slowly roll down. The expectation of the first rate hike is priced in at 78% in the US sovereign market, nevertheless what could happen after the first rate is anybody’s guess. The slope of normalisation could very well be revised lower should the rout in the commodity markets deepen.

We call

- the Dow 147 points
- the SPX 20 points lower at the open.