From the Floor: Oil – talk is cheap and action costs nothing
By Clare MacCarthy
- Oil rockets on Iran rumour and dives on API stockpiles
- Close-to-capacity producers happy to cap output – Hansen
- USD firms up ahead of Yellen's Friday speech – Hardy
- Very strong US new home sales underpinning housing stocks – Garnry
- CLICK HERE FOR A REPLAY OF OUR MORNING CALL
European equities have opened their Wednesday session lower with weaker crude oil dragging on energy companies. Over in the FX space the USD has firmed up while in fixed income bonds are holding their own ahead of Friday's keynote address by Fed chair Janet Yellen at the Jackson Hole economic policy symposium.
But before that event hits our screens, let's take a look at oil which once more has been playing yo-yo in response to another outburst of rumour, speculation and wishful thinking. According to unconfirmed reports, Iran is considering supporting a coordinated effort to boost the oil price by agreeing a production cap. This chatter sent oil soaring from $46.59/barrel to $48.32 but the mood was dashed late yesterday afternoon by data showing unexpectedly high API crude stocks which sent tumbling back to $47.25/b, where it's still hovering.
"Talk is cheap and action costs nothing," is Saxo Bank's head of commodity strategy, Ole Hansen's succinct analysis of the latest twist in the long-running oil saga. "most of these producers are now producing close to capacity so obviously several countries would be happy to say 'let's freeze at this level' if they can send a signal to the market," he added.
Hansen will host a free commodities webinar at 1130 GMT today – click here to sign up.
A break below $47.25 likely to trigger test of $46.50 followed by $45.6
Meanwhile, John J Hardy, head of FX strategy reports that here's been plenty of pressure on emerging markets currencies including South Africa where a police probe of the country's finance minister has reminded investors of the fragility of the political scene and put pressure on the rand. Across on the other side of the Atlantic, the Mexican peso has fallen foul of a threatened sovereign debt downgrade by S&P.
But as always, the primary focus is on the US dollar and Hardy tells us that it's firmed up following a recent bout of weakness. "From here on it's all about Fed chair Janet Yellen's Friday speech and there's much debate about whether she'll say anything remotely hawkish and/or whether she'll send some longer-term signals on the Fed's stance on lower natural interest rates," he says. (For more on this, read Hardy's article from yesterday here.)
Home depot weekly price since Q3 2011
Source: Saxo Bank
Finally today, Peter Garnry, head of equity strategy, reports that housing related stocks are being lifted by a very sharp rise in US new home sales. The August figure, which was the highest in nine years, came in at 654,000 versus an expected 580,000. "The US housing boom is set to continue – the natural level lies around 950,000 so there's still a 45% upside," he says, concluding that two of the stocks that could benefit from the trend are Home Depot (chart above) and Toll Brothers.
Americans are back to buying houses again. Pic: iStock
Clare MacCarthy is deputy editor at TradingFloor.com
Follow Saxo Squawk live throughout the day. Sign up here to keep abreast of all developments affecting your portfolios.
Editor’s note: From the Floor takes advantage of TradingFloor.com'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.