Article / 15 December 2015 at 9:30 GMT

From the Floor: It's really not all that bad, is it?

  • The oil price fall keeps pressure firmly on the energy sector
  • Strong European car sales underline  economic situation is not that bad
  • Tomorrow's FOMC announcement keeps markets in wait-and-see mode
  • Sweden's Riksbanken keeps rates stable
  • Dipping equity prices in Asia might offer a good entry opportunity
  • WTI-Brent spread decreasing further


By Clemens Bomsdorf

Set against the backdrop of a seemingly ever falling oil price and increasing credit default risk in the energy sector one might get the winter blues these days, but there are signs that it is not all that bad. 

Peter Garnry, head of equities at Saxo Bank, points to the fact that 12 months rolling (pink line) car sales in the EU27 show the highest growth since 2003.

“It does not look like an economy that is terrible,” says Garnry, adding that “it confirms what we see in retail, things are improving and maybe this is an argument for why the USD should not strengthen massively against the euro.” 

In his view the European economy is able to show good signs even in the very strange area between 1.05 and 1.10/1.15.

Scandal-ridden Volkswagen saw its market share fall from 26,8% to 24.5%, which according to Garnry is only a bit.

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The German DAX was also up ahead of today’s ZEW data. In Asia, while the last session was weak,  Garnry is still positive for the region. “It’s just noise. If anything, this gives an opportunity to add,” he says. Also, he saw further bright spots in the Asian session with EM credit and equities  bought across the board.

GE should see its share price up today as it announced it will spin off a Japanese unit, in line with an execution plan focusing on the core business.

Nevertheless, energy companies are of course suffering because of oil's woes. “We had another very weak session yesterday,” says Ole Hansen, head of commodity strategy at Saxo Bank. WTI crude is approaching the 2008 low of $32.40/barrel and the WTI-Brent spread has narrowed. 

The reason for the latter is that the US is considering lifting an export ban. “The spread is below $2/b now and it should collapse if the US start exporting again,” says Hansen, who sees $1/b as the natural spread. $34.65/b is the main support level for WTI right now.

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Current price levels mean credit default risk for energy companies is increasing. Chesapeake Energy, a major bond issuer, yesterday announced to restructure its debt which had a negative impact on market confidence. In the market are now concerns over a vicious circle and a possible credit crunch. 

Also yesterday a third HY fund announced to enter liquidation and in Norway small oil suppliers are entering default. “The longer the oil price is that low, the bigger the problem will be,” says Michael Boye from the fixed income desk in Copenhagen.
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Negative tone is spreading in European HY bonds, which had another weak day (up to 360 basis points almost from 290 one week ago). “This is telling about the stress and very weak sentiment,” Boye says, adding that a move higher in the oil price is needed for a relief in the oil sector and credit markets.

The low oil price is also in focus in forex. Risk appetite levels are the main driver now and Asia had a bloody session yesterday, says John Hardy, head of FX strategy. 

Regarding the FOMC meeting tomorrow, the market has become extremely sceptical on how hawkish the US Federal Reserve will be.Sweden’s Riksbanken this morning announced stable rates – as expected. The ensuing press conference is ongoing and may contain some nuggets that could flavour EURSEK.

When it comes to precious metals, gold has been unable to hitch a rally ride on the back of the weakening dollar. The pace of rate hikes and the dollar's reaction holds the key into 2016 . Major forecasters are looking for $950/oz in early 2016.  

 Car sales growth in Europe is strong, but Volkswagen is not yet out of the woods. Photo: iStock

Clemens Bomsdorf is consulting editor at

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