Article / 26 May 2016 at 7:00 GMT

Morning Markets: Oil breaches $50/b for seven-month high

Former managing editor, / Saxo Bank



  • US Durable Goods Orders (1230 GMT)
  • US Initial Jobless Claims (1230 GMT) 
  • US Pending Home Sales Index (1400 GMT)

Brent crude oil broke through the $50/barrel barrier this morning for a seven-month high of $50.21/b to lead energy stocks higher, although an air of caution still pervaded the Asian session. Nikkei's move into positive territory came despite a slight strengthening of the yen against the dollar, but neither the Shanghai Composite Index nor the Hang Seng Index could follow the Japanese exchange's lead.

Next target for Brent crude is the November-2015 high of $50.90/b.

The dollar was also somewhat stymied against the euro and sterling, with the latter stretching beyond 1.47 as it continues to ride the wave of a poll this week that put clear ground between the remain campaign and those who hope for a Brexit at next month's referendum. The euro meanwhile was able to find some solidity above 1.1150 after a deal on Greece was agreed and also got a fresh wind from that same Brexit poll.

AUDUSD plunged to an eye-catching biggest fall in 4.5 years to come within a whisker of sliding south of 0.7150 before managing to find a base camp at around the 0.7200 area after speculation grew over further rate cuts. NZDUSD also plunged beneath 0.6700 before rallying just above the same mark in the Asian session.

USDCNY meanwhile rose to the highest level since February at 6.5693 as worries about credit in China continued to help build the long position.

The G7 summit leaders have gathered in Japan, meanwhile, hoping to see through commitments to speed up the ratification of key multilateral trade agreements. Deals on the table include the Transpacific Partnership, and the Japan-EU economic partnership. The hope is that such deals will give global trade a much needed boost, to make up for slowing growth in emerging markets.

Market signals

Asian session

  • Brent crude rose above $50/barrel for the first time since November
  • A positive lead from Wall St and firmer oil prices gave sentiment an opening boost in Asia
  • Japan's Nikkei 225 headed higher at the open, on US share gains and firmer oil prices
  • The Nikkei 225 was up by a hefty 0.52% to 16,845.27 at 0447 GMT
  • At the G7 summit, Obama and Abe agreed to try and swiftly conclude the TPP trade pact
  • G7 leaders will agree to fast track ratification of the Japan-EU economic partnership deal
  • The Shanghai Composite retreated, down by a worrying 1.04% to 2,785.90 at 0507 GMT
  • Hong Kong's Hang Seng was down 0.25% to 20,316.34 at 0509 GMT
  • Korea's Kospi Composite was down by a slim 0.16% to 1,957.47 at 0450 GMT
  • India's S&P BSE Sensex up 0.6% to 26,036.85 at 0511 GMT
  • Australian miners gave the S&P/ASX200 a shortlived early boost to just above 5,400
  • The S&P/ASX200 then retreated before rebounding; it closed up 0.28% at 5,387.30
  • Australian capital expenditure fell by 5.2% in the March quarter, worse than expected

Forex ahead

  • The US dollar lost ground against the yen; it was worth just ¥109.7090 at 0521 GMT
  • USDCNY hits highest since February close to 6.567
  • The Australian dollar managed to creep back above 0.72to be worth 0.7212 at 0520 GMT

From the Floor

Changing course. "The market is trying to get long USDCNH and USDCNY", says Horchani

Surprise dip. "It gives me considerable concern that we're not higher in USDJPY", says Hardy

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

In opinion

A second weekly decline in US jobless claims would send a reassuring message that last week's update was not a one-off, but an upside surprise would be hard to swallow, says James Picerno

No fix, just fiddling
The Eurozone, the ECB and the IMF are going to use financial fudging to prop up Greece, which will be burdened with an apparently perpetual debt, says Stephen Pope

Kiwi slips on milk
Fonterra's forecast for milk solids prices falls short of expectations, prompting selling of the dairy commodity-sensitive New Zealand dollar, says the team from Saxo APAC sales trading.

Greenback hunt
The dollar is looking for fresh victims as it rides the Fed's hawkish wave and emerging-market and commodities-led currencies look vulnerable, says John J Hardy in his bi-weekly webinar.

Ride it out
Gold may be wavering under a twin dollar/hawkish Fed assault, but, writes Ole Hansen, the fundamentals are in place to ensure the upside momentum can eventually resume.

My name's бonд
Russia defied two-year sanctions to return to the international bond markets, garnering some $7bn in interest, despite the ban on US and European banks participating, says Michael Boye.

 Saxo Bank's chief economist Steen Jakobsen live this
morning in CNBC's London offices. Photo: Martin O'Rourke

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