Article / 19 August 2016 at 7:00 GMT

Morning Markets: Brent holds the line above $51/b

Former managing editor, / Saxo Bank



  • Germany July Producer Price Index                                       (0600 GMT)
  • UK July Public Sector Net Borrowing                                      (0830 GMT)
  • US Weekly Baker Hughes US oil and gas rig count                (1700 GMT)

Brent crude stretched its $50/barrel platform overnight to $51/b plus coming into the European open as bulls grabbed the market by the horns. The spadework for the move has come from the double whammy of verbal intervention from Opec kingpin Saudi Arabia and a slide in inventory stocks.

WTI still remains somewhat short of the $50/b mark, but is likely to follow suit as the market enjoys a near 25% rise since early August. How sustainable is the move? The intervention from the Saudis has certainly worked but actual action still looks unlikely at the International Energy Forum in Algeria next month given the Saudis were pumping at a record 10.67 million barrels in July. Once that becomes clear, some of the ballast from the current move is likely to dissipate.

Dollar weakness continues to pervade sending USDJPY below the 100.0 handle again in the Asia session and enabling GBPUSD to hold on to gains at around the 1.3150 area after the positive 1.4% growth in UK retail sales for July reported Thursday. Only the anaemic euro has been unable to break clear towards 1.14 after the European Central Bank minutes dampened stimulation speculation, but further dollar malaise looks likely to provide impetus at some stage.

What's behind dollar woes? The incoherent messages emerging from the Federal Reserve are largely to blame and the market has priced down the chances of a rate hike before the end of the year to 47%. Recent data too has sent dollar into retreat mode after the early-month nonfarm payrolls rallying cry.

And there's the small matter of that presidential election race. The fact that neither candidate seems to be particularly palatable must be having an insidious impact on dollar as the uncertainty mounts.

Market signals

Asian session

  • US stocks slightly up as Brent rose above $50/barrel, boosting energy shares
  • Asian stocks were near one-year high as WTI held above $48/b, but gave up early gains
  • Japanese market slipped after the yen briefly strengthened
  • Minutes of the Federal Reserve’s last meeting more dovish than Dudley's words
  • The MSCI Asia Pacific Index fell 0.3% in early Asian trade
  • Indonesia’s central bank will lower benchmark rate from 6.5% to 6.25% 
  • BHP Billiton shot up as much as 2.25% to hit a fresh nine-month high 
  • BHP led the ASX200 higher; at 0600 it was up 0.23%

Forex ahead

  • In early Asian trade, the JPY weakened 0.3% to 100.14 per dollar
  • JPY briefly strengthened to as high as 99.84 before retreating
  • AUD remains well-supported and it was 0.7641 at 0530 GMT, but sellers lurk above 0.77
  • EURUSD 1-month at-the-money volatilities continue to slide in post-Brexit market
  • Spot increase should send vols higher as bias towards upside strikes

From the Floor

Oil upside limited. "Forget about freeze talks and US stockpile declines," says Hansen

Sterling riding the line. "1.2878 is the key support for bears to breach," says Liu

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

The rising Baker Hughes oil and gas rigs count usually means higher production, Juhani Huopainen writes, but the count is coming off a low base so moderate increases are expected.

ECB signals
Fears expressed in the ECB's July minutes the impacts of Brexit are opaque has raised concerns that UK quantitative easing may overextend, says Singapore's APAC team

Olympian feats
The fitness-tracker industry has come from nowhere in the last few years to grab its share of the lucrative global segment. What kind of boost can it expect from the Rio Olympics, asks Martin O'Rourke.

Charting the indices
Patterns in major indices like the S&P 500 and the Dow Jones and while there is every indication of volatility ahead, there is still succour for bulls, says Kim Cramer Larsson.


Brent establishes fresh base above $51/barrel. Photo: iStock

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fxtime fxtime
A cynic might suggest the Fed are trying to appear to be managing fiscal balance and that their confusing signals are merely their ongoing considerations where as in truth they are doing nothing as they aren't allowed to show party allegiance before an election nor interfere in anyway the election outcomes. So is the Fed just dithering and stalling whilst keeping face with other economies whilst it sits on its hands awaiting the election outcome? Any base rate rise now will influence electioneering if nothing else.


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