From the Floor: Opec scrambles to produce a result
By Clare MacCarthy
- The gap between Iran and Saudi Arabia remains very wide – Hansen
- Opec is aware of the cost of failure – Hansen
- Failure in Algiers could see move towards $40/barrel – Hansen
- FX market attention span is very short – Hardy
- Slew of central bank speakers during Wednesday – Hardy
- Equity market may rally in the short-term – Garnry
- Government bond yields dropping on the soft risk sentiment – Boye
The cheer provided by the presidential debate in the US at the start of this week proved only temporary and markets have returned to a state of jittery uncertainty as they await some new source of direction. Equities are mildly higher but major forex pairs are mired in tight ranges, core bond yields are lower, gold is under pressure from the dollar's strength and oil markets are facing the likelihood that today's informal Opec meeting won't yield any results.
Speaking on Saxo Bank's daily global market call Ole Hansen reports that oil has settled a bit on the back of a US inventory draw last night but the main focus is on the Algiers meeting which kicks off at 1400 GMT. "Opec is scrambling to produce something today. The gap between Iran and Saudi Arabia remains very wide ahead of the meeting but they also know the cost of failure," he says.
The crude oil price has been pressed some 60% lower over the last year or so because of a massive oversupply that was partly a consequence of Saudi Arabia's strategy of capturing market share from US shale producers. Now, however, that strategy is becoming impossibly painful for the smaller, weaker Opec members such as Venezuela and Ecuador, triggering a new impetus on curbing overproduction to force the price higher again.
Hansen says that what'll likely happen at today's meeting is that instead of an immediate solution, the participants will try to talk up the possibility of a solution the next official Opec meeting on November 30. "If there's absolutely no result whatsoever at the meeting we could see oil heading below $45/barrel and towards $40," Hansen says.
Complete Opec failure today could see low $45’s give way for a move towards $40
Over in the forex markets, a sense of aimlessness prevails which finds major pairs like USDJPY continuing to tread water as participants forage around for some new source of direction. John J Hardy, Saxo's head of FX strategy, says that the market appears afflicted by a truncated attention span with moves in one direction pretty quickly reversed again shortly afterwards.
That said, a slew of central banker soundbites today might provide some spur. The European Central Bank's Mario Draghi is speaking in London at 0900 GMT and will later confer with German lawmakers. Though this latter session will be held in camera, snippets may, says Hardy, be gleaned from comments after the event. In addition, Fed chief Janet Yellen and her colleagues James Bullard, Charles Evans and Loretta Mester are all on the day's agenda.
Alibaba share price the past year:
Meanwhile, Peter Garnry, Saxo's head of equity strategy, notes that a firmer sentiment has crept into stock markets on the back of strong US data yesterday. One share that has already shot higher is Alibaba (chart above) which Garnry says has achieved an amazing rally from its February lows. "If you look at the company's growth figures and how the share is priced it's not unreasonable to think that this rally could continue", he says. On that basis, Garnry intends establishing a long position with a stop at $105 and a target of $150.
Finally today, government yields are dropping in tune with softer risk sentiment with Germany's bunds closing in on all-time record-low yields, says Michael Boye, from Saxo's fixed income trading desk.
Oil. There's still far too much of it and it's still far too cheap. Pic: iStock
Clare MacCarthy is deputy editor at TradingFloor.com
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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.