Article / 14 March 2016 at 9:30 GMT

From the Floor: Crude bubbling over?

Head of Editorial Content / Saxo Bank
  • Australian dollar bucking risk-off trend: Van-Petersen
  • BoJ policy action unlikely given yen surge: Hardy
  • Saxo quant model mixed on US stocks, more bullish on EU
  • Oil traders focus on March 20 Opec, non-Opec meeting
  • Not a lot of liquidity in bond markets: Boye

From the Floor
By Michael McKenna

The crude oil trade appears to be placing a great deal of focus on the March 20 meeting between Opec and non-Opec producers, but in this case focus represents a retreat from actual optimism. 

Last Thursday, a report from Reuters quoted unnamed sources as saying that a freeze deal was unlikely, and it certainly remains counterintuitive in an era of depressed prices that has seen many producer-nations pumping as if their lives depended on it (in more than a few cases, they do).

Even including this pause in both confidence and price action, however, crude can be said to have traded sideways last week after a prolonged rally from its late-January lows. "The Brent crude net-long position has grown by 30% and now sits at a record high", says Saxo Bank head of commodities strategy Ole Hansen.

"We might see another upside pop from here," he continues, "but we will see some resistance enter the picture above $41 or $42/barrel – we favour the downside".

In Hansen's view, a break below the $39/b level in Brent could see traders capitulate, putting $36/b and even $34/b in view.

Is the Brent chart signalling some exhaustion?
Brent crude

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Source: Saxo Bank 

Crude has been one of the main drivers of risk sentiment this year, with risk sentiment driving forex and equities. At the moment, says Saxo Bank head of macro strategy Mads Koefoed, the Saxo quant model is turning a kinder eye towards European equities, especially as compared to their US counterparts.

"We are looking at a negative S&P 500, positive EuroStoxx50 trade", he adds.

In the US, of course, this week's CPI data are the key data release ahead – immediately ahead, in fact – of the Federal Open Market Committee's meeting and rate decision tomorrow. While some investors, as Saxo head of forex strategy John J Hardy points out, question the validity of the US' CPI weighting and methodology, there remains little doubt that inflation is the dominant variable in the Federal Reserve's thinking at the moment.

"Markets are pricing in as 77% chance of a US rate hike this year," says Saxo fixed income trader Michael Boye, but as for this week, the CME group estimate sits at 3.9% (for a 0.25% hike).

Following this morning's Asian day, which Singapore-based sales trader Kay Van-Petersen calls "a little bit of déjà vu" after last Monday's similar session, markets remain in backwards thrall to last week's European Central Bank bonanza even as they look ahead to today's Bank of Japan meeting, tomorrow's FOMC, as well as central bank meetings in Britain, Norway, and Switzerland.

Today's trade, says Van-Petersen, has shrugged off poor industrial production and retail sales data from China, but a risk-off trend is visible across the major FX crosses with the notable exception of the AUD.

"We are looking at the USDCHF and USDNOK on a hawkish fed, a dovish Swiss National Bank and weaker oil", says Van-Petersen (for more on these SaxoStrats trades, click here).

Looking at the Japanese and American central banks, Hardy reports that he sees the likekihood of BoJ policy action tonight to have decreased with the yen surge seen last week, while the FOMC session will likely centre around inflation data.

Given the unlikelihood of an actual rate move by the Fed at this point, expect traders to eviscerate, dissect and parse the wording of Fed chair Janet Yellen's address with the sort of precision that was once the province of Biblical exegetes.

After all, these are the sorts of statements that, much like the mustard seed from the Book of Matthew, can move mountains.

Or at least mountain-shaped charts.

Moving mountains
That first step is the hardest. Photo: iStock

Michael McKenna is an editor at

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Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.
ozy ozy
Hi Michael, is that date of OPEC-NON OPEC meeting 20 march certain? is there any official announcement about 20th march? Because some say there is not meeting on 20 march.... second question, what time today OPEC Feb. reports? thanks
Michael S. McKenna Michael S. McKenna
Hi ozy,

The meeting appears scheduled (, although there remains some degree of ambient scepticism in some quarters. As for the Opec report, keep an eye on this link:
ozy ozy
Thanks Michael, yes I'm following that site from OPEC, but time is not written, and it's still not released..usually what time it comes out?
ozy ozy
Yes, I saw that..but still waiting for March report. Feb. report what time released? do you know?
Michael S. McKenna Michael S. McKenna
Sorry, I don't know the exact hour.
ozy ozy
it's not released yet, that's strange
ozy ozy In see it their page


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