05
Dec
05
Dec

Vestle Daily Analysis - Stock Markets Slide Lower, Pound Extends Losses, EIA Oil Inventories

The US dollar had a day of sizable volatility, while the US Dollar Index (USDX) closed at the end of the trading day almost unchanged. The unpredictable moves on trade policies, as well as the inversion of the yield curve on 3 and 5 year US Treasury Notes could have added uncertainty to the market landscape.

Oil prices moved lower with the overall negative market sentiment and the API indicating a crude oil inventory build by 5.4 million barrels.

Stock markets across the globe traded lower, with US equity indices erasing all gains from Monday and further declining as fears over a continued global trade conflict persist. While the Volatility Index – VIX, which is seen as a fear indicator opened significantly lower on Monday when the markets were rising, the VIX again jumped higher on the continued sell-off.

On Wednesday in the EU the composite PMI and retail sales statistic will be presented. In the US the Mortgage Bankers’ Association (MBA) will publish its mortgage market indicators. Then later on the Federal Reserve publishes its Beige Book report on economic conditions in the US. The Bank of Canada is set to announce its interest rate decision with most analysts not expecting a rate hike from the current level of 1.75% at this meeting.

EUR/USD

The EUR/USD currency pair ended Tuesday marginally lower after a volatile trading day with an initially strong move higher. The dollar is currently seeing uncertainty with the so-called inverted yield curve as the yield for 3-year US Treasury Notes is above the yield for such bonds with a 5-year term. This development comes after a speech by the chairman of the US Federal Reserve Jerome Powell was broadly understood in a way that the Fed might ease off from its projected series of interest rate hikes. Other analysts explain the inverted rate curve with fears of a slowing global growth and a possibly escalating trade war.

 The European producer price index (PPI) surprisingly surged to 4.9% y/y for October (expected 4.5%). In the US the Redbook store sales statistic showed a strong growth of 7% y/y, but still below the record levels seen last week of 7.9%.

On Wednesday in the EU the composite PMI and retail sales statistic will be presented. In the US the Mortgage Bankers’ Association (MBA) will publish its mortgage market indicators. Then later on the Federal Reserve publishes its Beige Book report on economic conditions in the US.

The EUR/USD chart

GBP/USD

The pound further declined against most other currencies, including the dollar, hitting below the lows seen at the end of October and mid-August, with the low from June 2017 staying as the next untouched possible resistance level.

The governor of the Bank of England (BoE) Mark Carney defended his institute against criticism that they were taking the side of PM May in the current debate on the Brexit agreement between the UK and the EU, saying that the UK economy could sustain more damages from a worst-case departure from the EU than from the financial crisis a decade ago. Prime Minister May needs to find support for the Brexit deal in parliament, where even her Conservative Party is not united supporting such an agreement. A vote for the bill is scheduled for December 11 and until then it will be heavily debated.

On Wednesday in the UK the services PMI figures will be released. Later this week statistics on house prices, such as the Halifax House Price Index are set to be published.

The GBP/USD chart

WTI Oil

Oil closed lower on Tuesday after a volatile trading session with an uptick towards a new one week high. The downturn in equity markets over concerns of what will happen after the 90 days truce period is over in regards of trade tariffs between the US and China pushed the negative sentiment in the market and with it fears of slower global growth.

The supply glut in the market, especially given the high level of crude oil production and higher stockpiles in the US could also have adversely affected prices. According to data from the American Petroleum Institute (API), crude oil stockpiles increased by 5.4 million barrels compared to the previous week.

In other news the Saudi Arabian Oil Minister was reportedly calling a deal between OPEC and Russia to curb the oil production levels premature. This comes after Putin gave his approval for a continued cooperation with OPEC+ last weekend at the sidelines of the G20 meeting in Argentina.

Energy Information Administration (EIA) will release its crude oil, gasoline and distillate stockpile data on Wednesday. According to EIA data, crude oil inventories were up every single week since the mid of September.

The WTI Oil chart

US 500

All major US stock indices closed with significant losses above 3 percent, with the small-caps index US 2000 losing even in excess of 4 percent just one day after the push higher following the G20 meeting. While markets were seen bullish after the US and China announced a 90 days truce, where no side would levy additional tariffs, the optimism from this agreement faded quickly after US President Trump warned China that he is a “Tariff Man” and would raise tariffs if the Chinese leadership is not ready for a fundamentally changed approach in trade. The confrontation is based on multiple factors regarding trade, with the significant US trade deficit with China one key concerns, while other issues like alleged theft of intellectual property or forced technological transfer are other issues bringing the US against the Chinese policies.

The impact of the downturn was felt now in a broad range of economic sectors, from financials (US Financials ETF -4.35%), industrial companies (US Industrial ETF -4.31%), to chip makers (US Semiconductors ETF -4.90%).

Stocks of investment bank Goldman Sachs fell to the lowest point since shortly after the victory of US President Trump in 2016, when many former Goldman Sachs employees joined the Trump administration. While on hand the worries about more protectionism are undoing the early work of the Trump administration when it reduced taxes and lessened regulations, the 1MDB corruption scandal in Malaysia, where Goldman is allegedly also involved, added to the negative sentiment.

Relatively few major companies have yet to report their quarterly financial results. Some of the few companies left with such announcements are Broadcom and DocuSign, both due to release their financial statements this week on Thursday.

The US 500 chart

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