From the Floor: Oil verbals send short-sellers into hiding
- Oil frothing as verbal interventions take toll on short-seller appetite — Hansen
- WTI looking to take out resistance at $46.50/barrel for move up — Hansen
- Energy bonds helping to lead corporate bonds higher — Boye
- Abe adviser fears BoJ move could be overshadowed by FOMC — Moltke-Leth
- Indicates BoJ will wait until after FOMC decision before any initiative
- Gold/silver ratio at a three-week high
- Silver buying should give gold some support — Hansen
- AUDUSD looking for break after RBA meeting — Hardy
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The Saudi Arabia/Russia joint press conference Monday on the sidelines of the G20 meeting in Hangzhou, China may have amounted to very little of substance, but, says Saxo Bank's head of commodities strategy Ole Hansen, they are edging markets towards a price level that suits their purpose.
"Short-sellers got caught out pretty badly Monday after the PR agencies of the Saudi Arabian and Russian delegations began to pave the way for a 'big announcement'", says Hansen. "When it came, we actually got nothing new out of the press conference".
That was not enough to stop a near 5% rally in oil before both benchmarks retreated again as the lack of substance became evident.
"Short-term fundamentals do remain negative but this intense barrage of verbal intervention may be persuading short sellers from getting too aggressive so they are moving in on dips", says Hansen. "WTI is meeting resistance at $46.50/barrel which is emerging as the key area, but if it can break through that, $48/b is the next target and after that, even $50/b".
WTI was at $45.53/b at 0655 GMT.
The fear-led spurt in oil prices has also had a knock-on effect into the energy bonds segment which is helping high-yield credit spreads to slowly move away from the 300 basis point level where they have been "almost completely frozen" for the best part of the summer, reports Michael Boye from the fixed income desk.
"Oil and energy were the outperformers yesterday", says Boye. "We can see how the sector has recovered from the stress levels from earlier in the year from the European Energy Investment Grade spread chart (see below) but there is still some potential compared to previous levels if the oil price climbs much higher".
"If you want to play this, you'll have a magnified effect in the high-yield space and also in emerging markets in very oil dependent countries", says Boye.
It may not fit the bold, dynamic image Japan has often portrayed and would like to present to the outside world again if prime minister Shinzo Abe's long-term vision for the country comes to fruition, but it looks like discretion will overcome valour this month at the Bank of Japan meeting on September 21.
After Bank of Japan governor Hiruhiko Kuroda issued a somewhat wishy-washy statement, an Abe adviser also poured water on the notion the bank might make a big move this month.
Koichi Hamada warned that any BoJ initiative could be "overshadowed" by what happens at the Federal Open Market Committee meeting later that day, according to Christoffer Moltke-Leth, speaking from Saxo Bank's Singapore hub.
"Any BoJ move would be only a few hours ahead of the Fed and his view was that it risked being overshadowed and that the bank needed to wait until after the FOMC meeting", says Moltke-Leth. "He said that what the FOMC decides to do might ultimately have more impact on weakening the yen than anything the BoJ could do".
"He added that Japan might risk a repeat of the scenario in January when the move into negative rates sparked a rally in yen".
One pair that was moving Tuesday morning was AUDUSD after an expected neutral statement from the Reserve Bank of Australia overnight kept interest rates at 1.5%.
"It looks like the RBA is fairly dovish going forward", says Saxo Bank's head of forex strategy John J Hardy. "AUDUSD is in the 0.7600-50 area and there is some limited pressure for a move to the upside".
"The rally looks a bit choppy and ugly and that makes me question how sustainable it is".
Hardy is more interested in EURNOK developments with resistance looking vulnerable at the 9.15-20 area.
"There's a pretty obvious head-and-shoulders pattern developing here and with oil stronger and a potential dovish European Central Bank on Thursday, the 9.15 area looks like the last support", says the forex chief. "We could be in for some volatility finality after a long period of range trading".
EURNOK looking to the 9.15 area and below
The recent post-NFP led bout of dollar weakness may have given gold a minor lift this week, but it is silver that is leading the way as it stretches towards the $20/ox mark, taking the gold/silver ratio to a three-week high at 67.80 in the process.
"Silver is running ahead of gold as it targets $19.76/oz", says Hansen. "While gold is holding within a relatively tight range to $1,330/oz and the time does not yet look right for a strong recovery in gold, this buying in silver should give some underlying support to gold".
Saxo Bank's head of equities strategy Peter Garnry is holding on to his long position for a Nikkei rise to 18,000 (it was at 17,081.98 at 0655 GMT) and also has his sights on mobile giant Telefonica.
"Telefonica looks like it will be listing O2 which is one of the better performing UK mobile providers and there is definite momentum to the upside", says Garnry.