Morning Markets: Equities hit as oil's false bravado unmasked
- US December Retail Sales (1330 GMT)
- US December Industrial Production (1415 GMT)
- US January Michigan Consumer Expectations (1455 GMT)
Oil briefly threatened to catch a ride above $31/barrel overnight, but that never really looked like it had legs and the trapdoor at $30/b is once again beginning to beckon as both benchmarks are locked together in a seemingly choreographed descent.
Iranian oil may not necessarily flood the markets as quickly as markets might be anticipating, but Tehran neatly sidestepped a potential diplomatic crisis this week and the overwhelming sense is that fundamentals continue to vastly favour the supply side ensuring any rebound is nothing more false bravado.
Asian shares hit 3.5-year lows overnight as the rally failed, helped also by Chinese data showing a fall in new yuan loans in December. USDCNH is also once again pressing above 6.61, some distance above the People's Bank of China-set midpoint of 6.5637.
The Shanghai Composite Index took fright for a 3.5% plus fall. Nikkei was also down around 0.5% and the Hang Seng Index caught more of the Chinese sniffles for a 1.5% plus slide.
There's not much data to propel European equities today indicating a likely negative opening for markets although a raft of US data later in the day could determine the fate of major US pairs towards the latter stages of the European day.
Reputational risk in the automobiles sector remains an ever-present threat after Renault shares plunged 20% following a fraud raid Thursday, wiping some €5 billion from the French carmaker's value. A recovery left Renault limping towards a 10% on-day fall and, despite nothing amiss emerging from the probe, the car industry is clearly still hugely insensitive towards any suggestion of impropriety after last autumn's Volkswagen scandal.
Renault can nevertheless reasonably expect a gradual move back to where it was once a jittery market is convinced that this will go no further.
- BHP Billiton revealed a massive $4.9 billion after-tax write-down of its US shale division
- The number of Australian home loans rose 1.8% in November, beating predictions
- The ASX/S&P surged in morning trade but ended the day 0.3% lower at 4,893
- Chinese new bank lending disappointed, increasing by 597.8 billion yuan
- Asian markets were mixed as they gave up some of their early morning gains
- At 0530 GMT the Shanghai Composite was down 1.84% to 2952
- At the same time the Hang Seng was down 1% and the Nikkei down 0.56%
- Overnight spot gold fell 1.7% to $1071/oz
- WTI and Brent rose 1.9% and 3.2% to $31.14 and $31.00 respectively overnight
- AUD, NZD both slide against dollar overnight
- EURUSD 1-month vols lower — the straddle price has fallen from 9.8% to 9.4%.
- RIsk reversals favouring euro calls out to two months
- USDCAD volatility in the 3-month tenor at a mid. of 10.25%.
- USDCAD one-minute flash crash to 1.14530 possibly fat-finger syndrome
- USDCNH 1-month vols at 9%+ for highest level since 2008 pointing to yuan deprecation
From the Floor
Black for oil. “The risk is growing that we’ll have an extension to the downside in crude oil in the immediate term”, says Hansen
Red alert. “Vols are indicating some future depreciation in the Chinese yuan”, says Norup
Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.
US industrial production is now officially in recession but maybe the slowly improving retail sales and consumer sentiment index will help alleviate the 'recessionists', writes Juhani Huopainen.
It may have suffered a huge write-down on US shale but all eyes were on the Aussie market's bellwether stock, says the team from Saxo Capital Markets in Sydney.
Walk the walk
Oil is taking a battering ahead of an expected Iranian influx of barrels for export, but now that we are about to see the ban lifted, Ole Hansen says getting the barrels to market will take time.
Current attempts by the ECB to accelerate inflation will have to be tackled as the present half-measures are only suiting Germany, says Stephen Pope.
Drowning in oil
The collapse of oil prices has weighed heavily on Russia since late 2014, but the sub-$30/b area could force Moscow to take truly drastic measures, says Nadia Kazakova.
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