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From the Floor: 'Atlantic basin choking on oil' — #SaxoStrats

   • USDJPY most responsive dollar pair post-FOMC: Hardy
   • EM weaker on central bank liquidity withdrawal
   • Nasdaq 100 finds support at 5,650 for the second session in four
   • Gold support lies as $1,245/oz as dollar buying grows
   • Crude oil prices on the ropes on no positive news

By Michael McKenna

The crude oil market is "completely short of positive news" says Saxo bank head of commodity strategy Ole Hansen, who adds that "the Atlantic basin is choking on oil" as production from Libya, Nigeria, the North Sea, and others continues to add to supplies. 

In WTI, Hansen says, prices need to find support at the $43.75/barrel level if we are to avoid a further plunge down to $42/b. The biggest contango at present, however, is in Brent crude which Hansen says is "bad news for Opec" as the cartel ordinarily sells spot while other producers trade on the forward market.

The plunge in oil prices comes as the US dollar gathers steam after the less dovish than expected Federal Open Market Committee meeting Wednesday. Looking at the major pairs, Saxo Bank head of forex strategy John Hardy reports that the biggest moves have been seen in USDJPY while emerging market currencies broadly head lower on the central bank liquidity withdrawal theme.

Looking at the spreads between investment-grade and junk bonds, Hardy points to a continued decline despite the Federal Reserve's decision to start the policy tightening process in late 2015.

"The efforts seen so far have not been sufficient to tighten financial conditions," Hardy concludes.


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Source: Saxo Bank, Bloomberg

In stocks, Saxo Bank head of equities strategy Peter Garnry notes that the Nasdaq 100 index has now found support at the 5650 level for the second time in four sessions, reporting that investors are flocking to this "pocket of value" as sectors like healthcare and consumer staples trend lower.

While the Bank of Japan's outing overnight was a "non-event" according to John Hardy, Garnry notes that the central bank's decision to maintain stimulus was positive for the Nikkei 225, adding that he remains overweight Japanese equities.

In single stocks, Garnry is maintaining a one-year target of £700p on Petrofac, whose shares soared by as much as 10% before closing 5% up as sell-side firms deliver upgrades post- the $35 million training contract with Kuwait Oil that eliminated a lot of the tail risk built into the share price. 

Today's data calendar sees European Union harmonised CPI out at 0900 GMT while US housing starts data come in at 1230 GMT.

Crude oil
The crude oil glut continues. Photo: Shutterstock

Michael McKenna is an editor at Saxo Bank 


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