Wednesday April 27th 2016

  • During the first two trading days of the week we saw relatively small volumes in metals and equities despite volatility did increase quite a lot in the oil market. Apparently market is now aiming at the 50$ per barrel as bets on a lower output and a weaker dollar increase. Some participants though warn about a too steep rise as at an average price of $53 per barrel the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to oilfield consultant Wood Mackenzie. Nabors, which owns the world’s largest fleet of onshore drilling rigs, said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise "comfortably" above $50. Very important for WTI and Brent will be today’s DoE Crude Oil inventories number. Metals and equities after a modest boost from the energy sector are watching closely to the FOMC tonight (h20.00 Italian time) to see where the FED stands with its monetary policy.
  • Moving to the EUR/USD after a dovish Draghi who drove the Euro down to 1.1220 now participants seem to have rebalanced their positions and are waiting for the FOMC before taking any new commitment. The U.S. Federal Reserve is expected to keep interest rates unchanged today as it continues to monitor the impact from weakening global growth but may seek to signal to markets it is determined to resume policy tightening this year. Markets have turned up since the last rate decision in March. The S&P 500 has risen more than 14% since mid-February. China's economy has also shown more positive signs, growing at a 6.7 percent pace in the first quarter. A Reuters poll of more than 80 economists showed expectations were for two rate increases this year, with the possibility the Fed will hike in June. Additionally, some of the pressures that have kept inflation lower than the Fed would like have abated. Oil prices have rallied, with the Brent benchmark crude up 20 percent to around $44 a barrel since the Fed's December rate hike, while the dollar has dropped around 4 percent against a basket of currencies during the same period. This scenario could push the FED toward a more hawkish solution.
  • Going to the base metals the complex seems to be consolidating and waiting to see if data out of China continues to show a pick-up in economic activity. The focus will now be on Sunday's PMI data, although tonight's FOMC statement is likely to create some noise too.
    On the steel side it is worth highlighting that U.S. Steel Corp has launched a campaign to prevent imports from China's largest steel producers, it said on Tuesday, the boldest step yet by a U.S. company as a trade “fight” with the world's largest steel producer escalates.
    Moreover, activity in China's manufacturing sector likely expanded modestly in April for the second month in a row, adding to hopes that a prolonged downturn in the world's second-largest economy is easing. The Markin/Caixin factory PMI, a private and separate gauge of manufacturing activity, will be released on May 3.