European markets are under the influence of commodity sell off and is keeping a strong lid on the energy sector. There is no one else to blame for this except OPEC, which for another year decided not to cut the production. Both Crude and Brent have been under pressure since then and for crude the support of $35 is very much under focus. If we break this support , the sell off can become a lot more worse and the reality of 20 handle could become true.
The euro on the other hand is undoubtedly enjoying a relief rally since the ECB decided not to take more aggressive measure for the time being. Nonetheless, all eyes remain focused towards the upcoming Fed decision. Last week’s payroll number has just rubber stamp the expectations that a rate hike is definitely on the cards. Having said that, you have to ask this question if the Fed can really achieve their inflation target given that we have such a heavy sell off for the commodity market. For instance, base metals are under heavy pressure and iron ore is very much under focus today as it slipped below the 40 dollar level.
The Russian economy Minster is still very optimistic despite the recent sell off for crude. He thinks that the price of oil will stabilise at $40 and the government can still grip major issues despite lower oil prices. However, if the economy can survive at such lower oil price is a very different question, especially if you look at the political policies the country is adopting and still there is much tension between Turkey and Russia. The Russian economy is still facing recession and if the leaders are serious about the economic growth under the environment of lower oil prices, it needs to take more deeper reforms and change some of its political policies.
Overnight, we also received the Chinese trade balance data which wasn’t not something that you can shout about. Internal and external demand remained on the weaker side and this has stimulated further speculations that we may perhaps see more measures announced by the PBOC in the near future. The export figure showed that the number slipped further to 6.8%, but import data was much better if we compare the same reading for the last month.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam